CHAW CHEUNG HING v. CHAN TANG LAN AND OTHERS

HEADNOTE

    Consideration of the circumstances when a Mareva injunction should be granted.

    Extent to which it may be possible to extend the relief to assignees of a Defendant of an interest in land. Also effect of delay on applications for Hareva injunctions.

Held.

    There was insufficient evidence to warrant the granting of such an injunction against any of the Defendants.

Action No. 4568/87

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J U D G M E N T

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1. This is an unhappy case. There has been protracted litigation. The Plaintiff used to be the husband of the 1st Defendant. There have been continuing disputes concerning family property. After a 6 day hearing Mr. Justice Power ordered on the 16th December 1983 that property known as Wah Wing Industrial Building be divided between the parties. However Mr. Justice Power declined to order that the three other properties which are the subject matter of this application before me should be divided between the parties.

2. The rationale of this was that the Plaintiff who I will refer to as the husband had accordingly to his evidence arranged for the properties to be in his wife's name so as to assist him in evading his tax responsibilities. Adopting the principles laid down in Tinker v. Tinker(1), Mr. Justice Power declined to allow the husband to profit in this way. However, that was not the end of the matter. The husband made an application for ancillary relief when the marriage was discolved. After a 3 day hearing Mr. Justice Power ordered on the 12th of March 1984 that the properties known as Un Chau Street property, Fat Cheung Street property and Cheung Sha Wan Road properties which are referred to collectively as the three properties were to be held by the parties agually. The order provided that the wife must assign to the husband a half interest in each of the properties.

3. The wife granted tenancies of the properties to third parties. In particular she first leased and then sold the Un Chow Street property to the 3rd Defendant who is her son by her first marriage. Subsequently at about the time when it became evident that the wife's belated attempts to appeal Mr. Justice Power's orders were of no avail the wife transferred her half share in the three properties to the 2nd, 3rd and 4th Defendants.

4. The Plaintiff alleges that the tenancies and the sales of the wife's interests in the properties were deliberately contrived to defeat the claims and interests he had in the properties. He further alleged that the transactions had not been at arms length and were at an under value. So far as the Wah Wing Industrial Building property was concerned various attempts have been made to sell the whole interest by public auction pursuant to a further Order of Power J. and there is correspondence exchanged between the solicitors acting for the parties. At the present time the 1st Defendant through her solicitor has undertaken not to dispose of this property otherwise than as contemplated by the parties.

5. The present application which is made before me by the Plaintiff is for a Mareva injunction to restrain all the Defendants from parting with any interest in the properties. Indeed the net is cast much wider. In the terms which are sought all of the property of the Defendants are intended to be subject to the order.

6. Clearly different considerations will be applicable to the Wah Wing Industrial Building property and the other three properties.

7. It is an important part of the Plaintiff's case, according to Mr. Spicer who represents him, that the 1st Defendant had been in breach of either an implied or a constructive thust.

8. He cited Abdulla v. Shah(2) and Lake v. Bayliss(3) as authorities for the types of situation where the court will deem that a constructive trust exists. I am satisfied that at the very least it is arguable that a constructive trust arose when Mr. Justice Power made both his orders.

9. The next question which has to be considered is whether on the evidence before me, the Plaintiff has established an arguable case that the 1st Defendant has been guilty of a breach or breaches of trust.

10. The main evidence deduced in this connection relates to the subletting of the various premises at less than the market value. As an example of this the Wah Wing Industrial Building property was let at $2,000 per month whereas the valuations which have been filed would indicate that the rental value was of the order of $6,000 per month. Again I think that an arguable case has been made out that the 1st Defendant has been guilty of breaches of trust.

11. I will next turn to the question of the involvement of the 2nd, 3rd and 4th Defendants. Miss Chu who was representing then all referred me to passages from the 3rd Edition of Pettit on the Law of Equity and the Law of Trusts. In particular she dealt with the situation which exists where strangers to a trust have dealings with the trust. It would seem to me that even on the most favourable interpretation of the evidence for the Plaintiff it falls far short of meeting the criteria required for fixing any of the other Defendants with a liability in respect of the transactions. I have particularly borne in mind that the 2nd, 3rd and 4th Defendants have all gone on affirmation to deny any wrongdoing or knowledge of irregularities.

12. As against this the Plaintiffs almost exclusively places reliance on my willingness to draw inferences which are adverse to the Defendants flowing from the 1st Defendant's alleged misconduct. This I am not prepared to do on the basis of the evidence before me. Suffice it to say that I do not consider that the Plaintiff has even made out an arguable case against the 2nd, 3rd and 4th Defendants.

13. The question of constructive notice does not assist the Plaintiff. All that was registered was Mr. Justice Power's orders. These orders placed no restrictions on the letting of the property or of preventing the 1st Defendant from selling her half shares therein.

14. What I next have to decide is whether it is appropriate for me to grant the relief which is sought against the 1st Defendant.

15. I accept that the principles which should be applied are conveniently set forth in Ninemia Maritime Corporation v. Trave(4). What clearly emerges from this case is that it must be established that there is a real risk that if the relief is not granted any judgment which is subsequently obtained will remain unsatisfied. The Plaintiff is unable to satisfy this basic requirement. So far as the Wah Wing Industrial Building property is concerned although it has possibly been let at an undervaluation, no serious attempt has been made by the Plaintiff to sell it. Indeed as I have said correspondence has been exchanged with a view to selling the property for the mutual advantage of the 1st Defendant and the Plaintiff. In addition to this, the 1st Defendant has undertaken not to dispose of the property without first giving notice to the Plaintiff and Mr. Kwan, her solicitor, has also assisted in organising this.

16. So far as the other properties are concerned, all the Plaintiff has to be protected is his half interest in the various properties.

17. Again subject to the observations I have made about letting the premises at an undervaluation, there is no evidence that the 1st Defendant has attempted to sell the Plaintiff's interest in the properties. What she has done is to sell her half interest in the properties. Whether or not this action constitutes a breach of trust remains to be seen. Mr. Spicer argues that it does as such a sale must have an adverse effect upon the value of the Plaintiff's remaining share.

18. I do not think that it is necessary for me to go into this. I say this because the evidence in my view falls short of establishing that there is a risk of dissipation of these assets.

19. What I must not do is simply provide a security for the Plaintiff pending the determination of these issues which are to be ventilated in this litigation.

20. The Plaintiff has endeavoured to obtain a mareva injunction. That is the issue I have to determine. I am satisfied that drastic relief of the nature contemplated cannot be justified on the evidence which lies before me.

21. There is another important matter I must deal with. The relief sought is equitable relief and accordingly of a discretionary nature. The Plaintiff became aware of the leases in September 1986 and the sales of the half interests in October 1986. It has taken over a year for this application to be brought before the court.

22. The delay has undoubtedly been prejudicial to the Defendants in as much as further sublettings have been entered into subsequent to the knowledge of the letting becoming available to the Plaintiff.

23. All of this goes to support my overall impression that the wrong relief has been applied for in this case. By its very nature time is an important element in a genuine mareva situation. I think that the delay of itself would have been sufficient to justify my withholding granting the injunctions sought.

24. There is another matter which I must deal with. When this matter first came before Mr. Justice Hopkinson, he made a default order against the 2nd Defendant who according to the evidence before him had been served with process but had not responded in any way. Madam Yuen has now stated in her affirmation that she had no knowledge of the postal service upon her at that time.

25. Having regard to the observations I have already made in this matter, I think it is right that I should set aside the order which has been made against her. I make such an order.

26. The Plaintiff's application is dismissed. I do not feel disposed to consider granting alternative relief as was submitted to me by Mr. Spicer on the authority of Columbia Pictures v. Robinson.(5) Mr. Tsang and Miss Chu have both addressed me on the basis that this is a mareva application and accordingly have had insufficient opportunity of making submissions to me on any other relief which may be granted.

27. Over and above this I am mindful that I am due to hear an application for the appointment of a receiver of some or all of the property in other proceedings relating to the Plaintiff and the 1st Defendant.

28. Although I dismiss this application, I order that there will be a stay of my Decision until the outcome of the application for the appointment of the Receiver which is due to be heard by me tomorrow. I will hear the parties on costs.

⁽¹⁾ [1970] 1 All E.R. 540

⁽²⁾ 1959 AC 124

⁽³⁾ [1974] 1 WLR 1073

⁽⁴⁾ [1984] 1 All ER 398

⁽⁵⁾ [1986] Fleet Street Report p.367