KWOK KWOK YU v. WU NGA MUI

HCA867/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.867 of 2003

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REASONS FOR DECISION

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Introduction

1. The plaintiff is a businessman carrying on business in Hong Kong and the Mainland. The defendant is a vice president of corporate sales with various securities companies in the Sun Kung Kei Group of companies. They met sometime in about 1999 or 2000 and had since May 2001 commenced an intimate relationship until February 2003. (The degree of intimacy is in issue: the defendant alleged a very serious relationship bordering on one between man and wife while the plaintiff put it on a casual basis.) It is common ground that during the currency of their relationship, monetary transactions took place between them. Between 15 June 2001 and 9 December 2002, the plaintiff paid the defendant by cheques a total sum of HK$20,860,000. The defendant had on the other hand also paid the plaintiff on four occasions between 11 October 2001 and 14 February 2003 a total sum of HK$3,300,000.

2. The plaintiff alleged that in June 2001, the parties entered into an agreement whereby he would make payment to the defendant from time to time for the purpose of investment in stocks and shares ("the Agreement"). Pursuant to the Agreement, he paid the said sum of HK$20,860,000 to the defendant and she paid the said sum of HK$3,300,000 to him as profits derived from the investment. The defendant alleged that the payments by the plaintiff were all gifts.

3. On 7 March 2003, the plaintiff commenced the present proceedings against the defendant claiming, inter alia, for the said sum of HK$20,860,000. On 11 March, the plaintiff obtained an ex parte Mareva Injunction against the defendant from Burrell J. On 17 April, Deputy Judge Cheung ordered that both the inter partes summons dated 12 March 2003 and the defendant's summons dated 15 April 2003 for the discharge of the ex parte injunction to be heard together. In the event, the summonses came before me on 26 June 2003. After hearing the parties, I discharged the injunction on the ground of material non-disclosure and ordered costs against the plaintiff on an indemnity basis. These are my reasons.

Principles

4. The applicable legal principles are well known. In Rever (AMA) Salon Ltd v. Kung Wai For Danny and others [2001] 1 HKC 241, I have endeavoured to summarise them at p.246A-F thus :

"It is trite law that an applicant for an ex parte injunction has to make a full and frank disclosure of all material facts. The applicant must proceed with the highest good faith. The fact that the court is asked to grant relief without the person against whom the relief is sought having the opportunity to be heard makes it imperative that the applicant should make full and rank disclosure of all material facts: R v Kensington Income Tax Commissioner; ex p Princess Edmond de Polignac [1917] 1 KB 486 at 514, per Scrutton LJ.

The court was not concerned with whether the matters not disclosed would, if they had been disclosed, have caused it to refuse to grant the ex parte order; and the test was whether the court should have these matters in the weighing scales: Citibank NA v Express Ship Management Services Ltd [1987] HKLR 1184 (CA) at 1190D.

Materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see R v Kensington Income Tax Commissioners, per Lord Cozens-Hardy MR at p 504, citing Dalgish v Jarvie (1850) 2 Mac & G 231, 238, and Browne-Wilkinson J in Thermax Ltd v Schott Industrial Glass Ltd [1981] FSR 289, 295.

The applicant must make a full and frank disclosure of all relevant matters, including those against his application. For it is difficult for a judge upon an ex parte injunction at short notice to grasp all relevant points: O'Regan v Iambic Productions Ltd [1989] NLJ 1378.

The duty to disclose could not simply be fulfilled by exhibiting voluminous documents covering the points to the supporting affidavit but without making any distinct reference to the points in the body of the affidavit itself or when addressing the judge at the often short hearing: Standard Chartered Securities Ltd v Lai Arthur [1993] 1 HKC 375 at 381C-G."

5. When there is material non-disclosure, the court should be astute to ensure that the applicant be deprived of any advantage he might have derived by that breach of duty.

Material non-disclosure

6. Applying these principles to the present case, I am satisfied that the plaintiff had been guilty of material non-disclosure.

7. It is common ground that the parties had an intimate relationship at the material times. In his first affirmation dated 11 March 2003 filed in support of the ex parte application, the plaintiff had this to say :

"9. Given little profits made by the investments and lack of investments records provided by the Defendant, I did in January 2003 instruct the Defendant to stop the investments, to render to me a full and final account of the investments made with the funds I have given to her and to repay to me the principal sum of HK$20,860,000.00 together with my share of the profits generated in the investments. Upon such request, the Defendant made 2 payments respectively on 14th January 2003 and 14th February 2003 in the total sum of HK$1,300,000.00 claiming to be the profits made in the investments. There is now produced and shown to me exhibit marked KKY-3 copy bank statements with regard to the said sum.

10. On about 18th February 2003, the Defendant further agreed to me that she would repay me the principal sum of HK$20,860,000.00 on 21st February 2003. However, the Defendant did not pay the said principal sum or any part thereof on the said date.

11. I have on or after 21st February 2003 made repeated requests and demands to the Defendant asking for the said principal sum and the Statements and Accounts. Furthermore, my former solicitors Messrs. Fan Wong & Tso wrote a letter on 25th February 2003 for the said request and demand. However, the Defendant has still failed to make the said repayment and to render to me the Statements and Accounts. There is now produced and shown to me exhibit marked KKY-4 copy letter from Messrs. Fan Wong Tso to the Defendant.

12. I am advised by my solicitors that in support of my application herein, I must provide full and frank disclosure of all material facts pertaining to the application, including any facts or matters which may potentially be used against me. In this connection, I had developed intimate relationship with the Defendant and this is one of the reasons why I trusted her so much by handing to her a substantial amount of money for investment. However, in any event, the money that I have given to the Defendant for investment purpose being HK$20,860,000.00 has never been treated as a gift to her."

8. What he had not disclosed is that he drew a cheque of HK$60,000,000 payable to the defendant (which was undated) on 18 February 2003 ("the Cheque"). In the letter before action dated 25 February 2003 exhibited as "KKY-4" to his first affirmation, the Cheque was referred to. The relevant part of the letter read :

"We are also instructed that you have near the end of last year, requested our client to invest in a stock broking firm to be established and also to invest in the purchase of office premises. For these purposes and on the same occasion on about 18 February 2003, upon your assurance that you would repay the aforesaid principal sum of HK$20,860,000 on 21 February, our client drawn an undated Cheque No. 487663 payable to you for the sum of HK$60,000,000. A copy of the receipt you signed for the said cheque is enclosed.

In view of your failure to repay the said principal sum to our client, we are now instructed to inform you that payment of the said cheque has been stopped, and that our client will not proceed with the investments suggested by you. We are also instructed in the circumstances to demand that you forthwith return the said cheque to us.

Please therefore arrange for repayment of the said sum of HK$20,860,000 to our client, and return of the said Cheque No. 487663 as requested. Failing prompt payment within time, our client will have no alternative but to take action to recover the funds. Any action taken will be without further notice to you."

9. For some unknown reasons, neither the plaintiff's first affirmation nor counsel appearing before the ex parte judge made any reference to the Cheque at all.

10. The defendant's evidence on the Cheque can be found at her first affirmation dated 22 May 2003 at paragraph 77. In gist, she alleged that the plaintiff first gave her the Cheque on 16 February 2003 but she refused to accept it. In the evening on 17 February 2003, the plaintiff returned to her home and gave her the Cheque. He said that he wanted to give her his money to satisfy the things that he promised her about helping her to have her own securities and stock broking firm and property. He even produced a sheet of paper bearing a photocopy of the cheque with the Chinese words to this effect: 'Received from Mr Kwok Kwok Yu the above cheque, such sum is for investing in the establishment of the securities and stock broking firm and for buying property'. He asked her to sign on the note by way of acknowledgement and she dated the document 18 February 2003.

11. In his second affirmation filed on 13 June 2003, the plaintiff explained why he drew the Cheque in this way :

"54. In or around the end of 2002 and the beginning of 2003, I started to have doubts about the Defendant's integrity and I started to query her about the progress of my investment as so far, as she had only given me profits in the total amount of HK$3,900,000.00 while I had given her a total of HK$20,860,000.00. I had asked the Defendant to give me a statement of account of my investment but to no avails. The Defendant ignored me and told me that money had been invested in other shares already.

55. In early January 2003, the Defendant repeated her wish to set up her own brokerage firm and she asked me to put in HK$60,000,000.00 for that purpose. In fact, when she first suggested setting up the brokerage firm at the beginning of our relationship (business or otherwise) she suggested we should buy an existing company and capital of a few million dollars would be sufficient. I did not pay heed to the plan, especially after the 9/11 event in 2001 when there were doubts about business all round. But the Defendant revived the subject in the latter half of the 2002 and became more persistent towards the end of the year.

56. In January 2003, when she made her demands for setting up the firm again, she said capital in the region of HK$60,000,000.00 would be required to enable the firm to buy its own property, to pay the Defendant's salary; to purchase a licence and to have reserve as a loan to customers. This was a ridiculous notion to me and anyway, having given her more than HK$20 million for investment with little return, I would naturally dismiss her demand for HK$60,000,000.00 to be injected into the company.

57. However, by that time, I was getting into a panic about my investments. In order to induce her into returning me the principal sum of HK$20,860,000.00 and its profits, I agreed to the Defendant's plan for injection of capital in the brokerage firm. On or about 18th February 2003, I agreed to draw a cheque in the sum of HK$60,000,000.00 as requested by the Defendant for the purposes of setting up the firm. But I did not put in a date on the cheque. Rather, I photocopied the cheque and on the copy, put in words to the effect that the amount stated in the cheque was for the purpose of setting up the brokerage firm (the 'Signed Copy'). Both the Defendant and I signed on this copy. I told the Defendant that I would retain the cheque pending her drawing up a business agreement between the two of us in respect of the operation of the firm and pending her return to my principal sum of investments in the amount of HK$20,860,000.00 within the next three days, that is, by 21st February 2003. The Defendant agreed.

58. On 20th February 2003, the Defendant asked me to meet her at 6:30 p.m. in California Red karaoke in Wanchai. She also asked me to bring along the cheque and the Signed Copy as she wanted to have a look and make sure it still existed. When I arrived, she was already there and asked me to give her let her have a look at the cheque and the Signed Copy. When I handed her the cheque and the Signed Copy she simply put it in her handbag and went out. I waited for around 15 minutes and called her but the phone was disconnected when I said hello to her. I then called her several times but to no avail.

59. That evening, I called my bank manager and asked him to make sure that payment would not be made of the cheque when presented. The following morning, I gave formal instruction to the bank to stop payment of the cheque.

60. On 21st February 2003, I called the Defendant asking her to give me back the cheque and the Signed Copy and the amount claimed in this action that is HK$20,860,000.00 and its profits. However, she told me that all monies I had given to her, including the HK$60,000,000.00, was gift to her. She further said if I tried to get it back from her, she was well prepared to defend herself.

61. As the Defendant did not manage to cash the cheque, I did not lose anything. So the alleged payment of HK$60,000,000.00 by cheque was never part of my claim against the Defendant and I did not turn my mind to it when I made the first affirmation.

62. My lawyers explained to me that the Defendant alleges that this is an instance of material non-disclosure. As I said, it did not occur to me that the unpaid cheque, which had become a piece of waste paper, would be of any significance. In any event, I am advised by my lawyers and verily believe that this incident is not of material significance and my lawyers will deal with the relevant legal argument at the hearing before the Court."

12. It is hardly disputable that the Cheque is material and ought to have been disclosed to the ex parte judge. The Cheque is prima facie inconsistent with the plaintiff's allegation raised in paragraph 9 of his first affirmation that he instructed the defendant to stop the investment in January 2003. Central to the plaintiff's case on the Agreement is the allegation that he placed trust and confidence on the defendant. In December 2002, he started to have doubt on the defendant's integrity. This is obviously one of the main reasons why he stopped the investment. The Cheque prima facie contradicts his case. According to the letter before action dated 25 January 2003, the Cheque was given for the express purpose of investing in stocks and acquiring office premises. In a way, it is different from what the plaintiff sought to raise in his second affirmation. The Cheque and all the matters pertaining to it including the plaintiff's explanation are material and ought to be placed before the ex parte judge for his consideration.

13. Despite what the plaintiff had asserted in paragraph 62 of his second affirmation, Mr Sarony, SC, appearing for him at the hearing before me, conceded that the Cheque is material and ought to have been disclosed. However, he submitted that it was merely a technical breach. Either the ex parte injunction should be continued or a fresh injunction should be granted in the exercise of my discretion.

14. In my view, the material non-disclosure was a serious one indeed. I am unable to accept that it was a technical breach or a slip. The Cheque could not have skipped the minds of the legal advisers then representing the plaintiff. The materiality of the Cheque and the pertaining matters are simply too obvious. It must have been a deliberate decision not to make the disclosure to the ex parte judge. On the evidence before me, I fail to see any justification for the non-disclosure at all. The plaintiff having failed to proceed with the ex parte application with the high standard expected of him, the court should be astute to deprive him of the advantage that he had obtained by that serious breach of duty. I therefore discharge the injunction and in the exercise of my discretion refuse to grant a fresh one. Mr Mok, counsel for the defendant, complained that there were other instances of material non-disclosure. They are mostly related to the degree of intimacy of the parties, which are in dispute. In light of my conclusion above, it is not necessary to deal with them further.

Costs

15. It is a case verging on misrepresentation. On the undisputed evidence before me, the injunction thus obtained had caused considerable hardship to the defendant. In the circumstances, the plaintiff should be visited with an order that marks the court's strong disapproval. I therefore order costs against him, to be taxed on indemnity basis if not agreed.