LIU HONG FAI v. WONG WAN FAI AND ANOTHER

IN THE COURT OF APPEAL

_______

___________

JUDGMENT

___________

Fuad, J.A.:

1. This interlocutory appeal arose in this way. On 26 March this year, Nazareth J. granted a Mareva injunction, ex parte, in favour of the Plaintiff, restraining each of the two Defendants, until further order, from "dealing in any manner" with any of their assets so as to reduce their value below $315,000. A specially endorsed writ had been issued on the previous day. On 21 April, on the inter partes hearing, Sears J. continued the injunction. The 2nd Defendant, Mr. Lai Kam Tong, now appeals to this Court.

2. The Statement of Claim which accompanied the writ averred that on 14 October 1985 the Plaintiff, at Mr. Lai's request, advanced the sum of $315,000 as a loan to the 1st Defendant. The loan was made subject to certain terms agreed on 8 October which included the stipulation that Mr. Lai would execute a guarantee for the repayment of the loan, and that it would be repaid within 28 days.

3. The Statement of Claim continues by saying that a cheque for $315,000, post-dated to 4 November and drawn on behalf of the 1st Defendant in the Plaintiff's favour, was returned marked "Payment countermanded by drawer", upon its due presentation. It is then said that on 7 November, Mr. Lai gave the Plaintiff a cheque for $315,000, post-dated to 20 November, and this cheque, in turn, was dishonoured, with a notice saying "Payment stopped already".

4. It is then pleaded that there was a later oral agreement between the parties, whereby the Plaintiff agreed not to sue either of the Defendants on their obligations if the 1st Defendant paid the Plaintiff $176,500 forthwith, and the 2nd Defendant paid $138,750 by 10 January 1986. Neither of these sums had been paid.  Instead, it is pleaded, the following occurred. On 17 January Mr. Lai gave a cheque for the sum he had promised to pay under the new arrangements, post-dated to 20 January. When the cheque was presented on 28 January (presentation had been postponed to this date at Mr. Lai's request) the cheque had been returned marked "insufficient funds".

5. The Plaintiff goes on to aver that four cheques each for $44,062 were drawn in his favour by the 1st Defendant, postdated to the first days of the months of March, April, May and June. When the first of these cheques had been presented, it had been dishonoured. The Plaintiff thus claims $315,000 from the Defendants.

6. In his Defence, which was filed after the hearing before Sears J., but which repeats the material facts in Mr. Lai 's affirmation as to the merits, Mr. Lai does not deny the loan but pleads that the loan was advanced at the beginning of October 1985, and that he was not a party to the loan agreement itself. He had signed the guarantee on 12 October. Apart from the obligation incurred by the 1st Defendant to repay the $315,000, it is averred that he had also undertaken to pay an additional $30,000 on the date the loan fell due, by way of interest. About the postdated cheque for $315,000 which he admits he drew, Mr. Lai says it was given to the 1st Defendant at the Plaintiff's request, "so that the 1st Defendant would have more sense of security." There was no consideration for this cheque, he says.

7. Mr. Lai then pleads that he had later agreed with the Plaintiff that he would be discharged from all liability as guarantor if he would assume primary responsibility to pay the Plaintiff $138,750 by 28 February 1986. However, Mr. Lai continues, on 10 January, the Plaintiff had told him that the 1st Defendant had indicated that if there was evidence that he, Mr. Lai, was willing to pay the sum of $138,750, then the 1st Defendant would, in turn, be willing to pay the balance of the $315,000. This was why he had given the cheque to the Plaintiff. There was thus no consideration for the second cheque either.

8. Mr. Lai also pleads that the loan agreement cannot be enforced because the $30,000 interest charged to the 1st Defendant exceeded the limit specified in s.24 of the Money Lenders Ordinance, Cap. 163, and therefore, he, too, was absolved from liability under the guarantee, his liability being only secondary.

9. This is the gist of the pleadings. Mr. Lai, as I have said, told the same story in his affirmation of 12 April 1986. He exhibited a certificate from a firm of accountants showing that the effective rate of the $30,000 interest allegedly charged by the Plaintiff, was 124.15% per annum. He makes reference to an allegation by the Plaintiff in one of his affirmations, that a certain flat formerly the property of the Yat Kwong Cassette Manufacturing Company ("Yat Kwong") had been sold on 20 December 1985, and that as a result it was no longer available for execution, thus giving rise to the fear that his (Mr. Lai's) assets were being dissipated. About this, he says that while he is the majority shareholder (holding all but one of the 30,000 issued shares) and a director of Yat Kwong, the flat was sold for good and innocent reasons. He accepts, too, that the flat was his residence. The reasons were that he had been advised by a "Fung Shui" expert that he should get rid of the property and that he had managed to get a good price for it - $1.23m., which was $430,000 more than the flat had cost. All the proceeds had been used by Yat Kwong in its business.

10. He added that there was no risk at all that he was dissipating his assets. Yat Kwong's turnover in March 1986 was $2.08m, and in February $1.5m.. The company was due to receive a sum in excess of $3m. from its customers in April. He exhibited copies of letters of credit, the total value of which exceeded $3m..

11. In response to this affirmation, the Plaintiff's affirmation of 16 April states that the $30,000 alleged by Mr. Lai to be interest on the loan (founding his defence based on the Money Lenders Ordinance) had nothing whatever to do with the loan transaction. He had withdrawn the $30,000 from his savings account on 3 October 1985 (as his passbook showed) and had given it to the 1st Defendant in return for which he had received the 1st Defendant's cheque for that sum as part of a wholly separate transaction.

12. Mr. Lai's final affirmation on 21 April exhibits a professional valuation report of Yat Kwong's assets, dated 7 February 1986, stating that their current market value was $1,181,000. He also states that once the orders granted on the ex parte application had been served on his bankers, they had become reluctant to extend credit either to him personally or to his company. His business had thus been disrupted.

13. Sears J. gave very short reasons for continuing the injunction. It is clear that he thought the matter was so plain that he did not have to say much about it.

14. It has been submitted to us that the appeal should be allowed on two grounds: firstly, that it had not been shown that the Plaintiff had a good arguable case and, secondly, that it has not been established that the 2nd Defendant was dissipating his assets.

15. The principles to be applied in this type of case are now well settled and, if I may say so, very clearly stated by Kerr L.J. in Ninemia Maritime Corporation.⁽¹⁾ This case has been followed in Hong Kong recently by this Court in an unreported case, Advance Finance v. Pang Siu Mui.⁽²⁾ Kerr L.J. at page 1417 says:

"A 'good arguable case' is no doubt the minimum which the plaintiff must show in order to cross what the judge rightly described as the 'threshold' for the exercise of the jurisdiction. But at the end of the day the court must consider the evidence as a whole in deciding whether or not to exercise this statutory jurisdiction."

Then at page 1422, the Lord Justice has this to say:

"In our view the test is whether, on the assumption that the plaintiffs have shown at least 'a good arguable case', the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied."

Finally, at page 1426, he makes the point:

"The ultimate test for the exercise of the jurisdiction is whether, in all the circumstances, the case is one in which it appears to the court 'to be just and convenient' to grant the injunction."

He referred to section 37 of the Supreme Court Act 1981 of the United Kingdom; the equivalent section in our law is section 19 of the Supreme Court Ordinance.

16. The first ground of appeal did not appear in the Notice of Appeal but we granted leave for it to be argued.

17. Mr. Cheung pointed to the unusual situation revealed by the Statement of Claim and the affirmations in support of the Mareva injunction, for there seemed to be no interest charged on the loan. He submitted, therefore, that there was a real issue in dispute which might be resolved in the Defendant's favour so that the whole loan agreement would be vitiated by the infringement of section 24 of the Money Lenders Ordinance. Apart from that, I really cannot see how it can be maintained that the Plaintiff has not shown a very strong case indeed.

18. Of course, the interest point is a matter which will have to be determined at the trial, but the onus is on Mr. Lai to establish a breach of the Ordinance, and in my view the fact that there is this live issue cannot affect the reality that the Plaintiff has made out a good arguable case in the light of all the other facts and documents. The first ground of appeal must, in my view, fail.

19. As regards the second ground of appeal, Mr. Cheung argues that the flat was sold for good reasons, and the reasons advanced by Mr. Lai had not been challenged. Moreover, he points out that the Sale and Purchase Agreement for the flat was signed on 31 October 1985 which was long before the date when the loan fell due to be paid. This is true, but the flat was sold after the loan was advanced. "

20. Mr. Cheung contended that Mr. Lai's company had many bank accounts. We can see the bank balances disclosed by Mr. Lai in the papers before us. These related to five bank accounts which appeared to be his own personal accounts rather than accounts of his company.   If the company does have many bank accounts, we know nothing about them.

21. Mr. Cheung also pointed to the fact that in respect of Mr. Lai's savings account with the Sin Hua Trust Savings Commercial Bank, there was a credit balance of $1,000,000. But the very document which evidenced this fact indicates that this amount was already charged for securing overdraft facilities to Yat Kwong with the Bank. We do not know to what extent these facilities have been drawn upon.

22. Mr. Cheung also urged upon us that Mr. Lai's company had substantial assets and was working well. He relied upon the trading turnovers mentioned in his affirmation and upon the fact that the company was due to receive over $3m. under letters of credit drawn in its favour. He also emphasized the valuation that had been given by a professional valuer of the company's assets.

23. About all this, I would only say that we have no idea of the value of Mr. Lai's shareholding in Yat Kwong, nor do we have any statements of account exhibited which would indicate what might be the company's liabilities.

24. Mr. Cheung is right, of course, to stress that the decision on the issues before this Court is not to be governed by resolving whether or not Mr. Lai is insolvent, but the fact is that he has affirmed that a considerable amount of money has come into his hands, including the proceeds of the sale of the flat in which he lived, and yet there is nothing to show where all this money has gone to. What we do know is that a cheque for only $138,750, given in the circumstances I have outlined, was dishonoured and marked "insufficient funds". This surely is some indication that there is a danger that Mr. Lai is indeed disposing of his assets.

25. In my judgment, the Plaintiff surmounted the hurdle of establishing what he had to establish: that to refuse the injunction would involve a real risk that a judgment in his favour would remain unsatisfied.

26. For these reasons, I would dismiss the appeal.

(1) [1983] 1 W.L.R. p. 1412

(2) Civil Appeal No. 112 of 1985 (13th December 1985)

Power, J.:

27. I agree with the decision which has been delivered by my Brother Fuad and have nothing to add thereto.

Clough, J.:

28. I also agree and I only wish to add this observation. If the 2nd Defendant had no intention to conceal the assets of his company he could have had the Mareva injunction lifted without difficulty by providing a suitable banker's guarantee which, I believe, is commonly done in these cases, or by disclosing the location of the net assets of the company sufficient to satisfy any judgment the Plaintiff might obtain for $315,000. What he has, in fact, done in making the application before the judge below was to give evidence that the company has received a substantial sum, some millions of dollars, but he has not identified the location of those assets and, in my judgment, he displayed lack of candour. I only add that as an observation and I agree with all the reasons that have been given by my Lord, the President.