MEI YU LAU v. SHIU KI LAU AND OTHERS

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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REASONS

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1. This is an application by the 3^rd and 4^th Defendants to discharge injunctions granted against them under an Order dated 6 March 1995 made by Ryan, J. The injunctions were continued by Barnett, J. on 21 March 1995 until the trial of the action or further order. The summons to discharge was taken out on 20 September 1996. I dismissed the application of the 3^rd and 4^th Defendants at the adjourned hearing on 17 October 1997. The reasons appear below.

Background facts

2. The Plaintiff is the former wife of the 1^st Defendant. She obtained a judgment in the United States against the 1^st Defendant arising out of divorce proceedings under which the 1^st Defendant was ordered to pay to the Plaintiff the sum of US$4,168,771.50. The Plaintiff sought to enforce that judgment in Hong Kong The 1^st Defendant was unsuccessful in his efforts to challenge its validity in the Hong Kong courts. There is therefore a valid judgment in the Plaintiff's favour against the 1^st Defendant but that judgment remains wholly unsatisfied. The 1^st Defendant is now a bankrupt. It is the Plaintiff's case that the 2^nd Defendant, which is a family company, the 3^rd and 4^th Defendants, respectively the mother and a sister of the 1^st Defendant, are sheltering assets that are beneficially owned by the 1^st Defendant. It is common ground that the Plaintiff ahs no cause of action against the 3^rd and 4^th Defendants who have been joined to prevent any disposition of properties held by them on trust for the 1^st Defendant.

3. The injunctions granted against the 3^rd and 4^th Defendants affect the following properties :

The 3^rd and 4^th Defendants do not seek to discharge the injunction under (c) above.

The Prince Edward Road Property

4. This was purchased in October 1991 for HK$2 million. The explanation initially given by the 3^rd Defendant was that the deposit was a gift from her husband (who is not a Defendant to these proceedings) and her daughter, the 4^th Defendant. According to the evidence filed recently for and on behalf of the 3^rd and 4^th Defendants, the deposit of $200,000 was drawn on a cheque issued by the 2^nd Defendant. Whilst the 3^rd and 4^th Defendants claim that the sum represented a distribution of dividends by the 2^nd Defendant to the 4^th Defendant and the husband of 3^rd Defendant, the 4^th Defendant is not a shareholder of the 2^nd Defendant and the 3^rd Defendant's husband holds only one out of one thousand issued shares in he company. Counsel for the 3^rd and 4^th Defendants acknowledged that there may be a triable issue as to the deposit since that involves a determination of the beneficial ownership of the 2^nd Defendant which is a highly contentious issue between the parties. Although he suggested that ten percent (10%) of the current value of the Prince Edward Road Property could be paid into a joint account of the two firms of solicitors in order to secure the Plaintiff's position, the suggestion was neither taken up nor pursued. So at the very least, there is a triable issue as regards the deposit.

5. As t the balance of the purchase price of $1.8 million, the 3^rd Defendant's explanation is that it came from the net proceeds of sale of a property in Robinson Road registered in her name, where she lived with her husband and their youngest daughter. The sale of the Robinson Road property dovetailed with the acquisition of the Prince Edward Road Property, completion of the former taking place 5 days prior to the completion of the latter. The net proceeds exceeded $1.8 million. It was also submitted that the 3^rd Defendant had realized sufficient profits from a series of property investments made by her from 1996 onwards to have enabled her to acquire Robinson Road in January 1986 in the first place.

6. The evidence adduced by the Plaintiff may be summarised as follows At or about the time of the acquisition of the Prince Edward Road Property, the 1_st Defendant who was the owner of a property in Hollywood Road sold it. The 3^rd Defendant acted as his attorney in the transaction. The net proceeds came to approximately $1.1 million. No evidence has been adduced by the 3^rd Defendant to show how the net proceeds have been dealt with. There is simply the assertion that these sums have been paid to the 1^st Defendant. Counsel for the Plaintiff drew attention to the fact that the exhibits to the affidavits filed last week include certain ledgers of the 2^nd Defendant which show that a payment of $400,000 was made to the 1^st Defendant on the day of completion of the Prince Edward Road Property. So at or about the time the Prince Edward Road Property was acquired, the 1^st Defendant had cash of approximately $1.5 million at his disposal of which about $1.1 million was in the hands of the 3^rd Defendant.

7. Further, there are taped conversations between the 1^st Defendant and his mistress, Miss Chang and of another conversation between Miss Chang and her Taiwanese realtor. The first set of discussions concerned the closing on their house in Hong Kong in October 1991 and the hiring of decorators to prepare it as their home. In the second of the conversations, there was reference to Miss Chang going to be present in Hong Kong for completion of the purchase. There is also the fact that the 1^st Defendant who had been living in the Hollywood Road property moved into the Prince Edward Road Property after the sale of the Hollywood Road property. All those factors raise, at a minimum, a serious issue concerning the beneficial ownership of the Prince Edward Road Property.

8. Counsel for the 3^rd and 4^th Defendants submitted that the injunction must be discharged because the Plaintiff had not produced evidence that the Prince Edward Road Property belongs to the 1^st Defendant. He relied on the following statement in the annotation at 29/1/26 of the Supreme Court Practice 1997 :

"The Plaintiff must produce evidence that the assets in question are in fact those of the Defendant; it is not enough for the Plaintiff to show merely that there is a serious issue to be tried as to the woner5ship of the assets."

But, as counsel for the 3^rd and 4^th Defendants had to concede, it would not appear that the statement is founded on authority. Aiyela Arab Bank Ltd. v. Hajjar [1987] All ER 736 cited in the annotation is not in fact authority for the proposition stated.

9. The relevant principles are set out in S.C.S Finance Co. Ltd. v. Masri [1985] 1 WLR 876 when Lloyd L.J. stated (at p.884):

" (i) Where a plaintiff invites the court to include within the scope of a Mareva injunction assets which appear on their face to belong to a third party, e.g. a bank account in the name of a third party, the court should not accede to the invitation without good reason for supposing that the assets are in truth the assets of the defendant (ii) Where the defendant asserts that the assets belong to a third party, the court is not obliged to accept that assertion without inquiry, but may do so depending not he circumstances. The same applies where it is the third party who makes the assertion, on \an application to intervene. (iii) In deciding whether to accept the assertion of a defendant or a third party, without further inquiry, the court will be guided by what is just and convenient, not only between the plaintiff and the defendant, but also between the plaintiff the defendant and the third party. (iv) Where the court decides not to accept the assertion without further inquiry, it may order an issue to be tried between the plaintiff and the third party in advance of the main action, or it may order that the issue await the outcome of the main action, again depending in each case on what is just and convenient."

As the injunction has been granted, it must follow that the court has already found "good reason" for supposing that the Prince Edward Road Property is in truth an asset of the 1^st Defendant's. Counsel for the Plaintiff correctly submitted that the second of the principles set out above applies to the present application. The court is not obliged to accept the assertion that the asset in question belongs to the 3^rd Defendant without inquiry. The circumstances of this case do not warrant blind acceptance of the 3^rd Defendant's assertion.

10. In my judgment, the fact that there were sufficient moneys in the 3^rd Defendant's bank account to pay the balance of the purchase price of $1.8 million is not conclusive that she alone was entitled to the beneficial interest in the Prince Edward Road Property nor is it remotely sufficient to show, on a balance of probabilities, that the 3^rd and 4^th Defendants could not have been sheltering assets of the 1^st Defendant. Further, the evidence of the 3^rd and 4^th Defendants has become more elaborate and involved in the course of the year during which their application has been pending. No less than 3 new affirmations with exhibits running to some 200 pages were filed a week prior to the hearing. Even then there are gaps in the evidence: notably, the relevant bank statements of the 3^rd Defendant are not in evidence.

11. The voluminous evidence filed by the parties contains allegations and counter allegations. The questions raised by these allegations and counter allegations cannot satisfactorily be resolved on affidavit evidence alone without cross-examination of the relevant parties. The only just and convenient course in the circumstances is for a speedy trial of inter alia, the issue as to whether the 1^st Defendant is beneficially entitled to the Prince Edward Road Property.

Account F

12. Counsel for the 3^rd and 4^th Defendants acknowledged that the discharge of the injunction relating to Account F was not his main concern. Nevertheless he stood by his application for a discharge on the ground that as the Account has now been closed, the injunction serves no purpose : there are no assets left in the Account that could be preserved by the injunction.

13. The point is largely academic : if there are no assets upon which the injunction could operate, it must also follow that no prejudice is being sustained by the 3^rd Defendant. Although the 3^rd Defendant wishes to discharge the injunction, other than a bald assertion in her affidavit that the Account has been closed, she has not adduced any documentary evidence in support, a simple enough exercise. In my judgment, in the absence of such documentary evidence, the injunction should stand.

Costs

14. As a general rule, costs follow the event. However counsel for the 3^rd and 4^th Defendants made an application for the costs of the first hearing which came before Rogers, J. on 24 January 1997. On that occasion the Plaintiff appeared in person. Her former solicitors, Haldanes, ceased to act on 6 December 1996 but the Defendants were not informed until two days before the January hearing. On 28 January, the second day of the hearing, further directions were given and the matter stood adjourned. Before the next adjourned hearing, the Plaintiff was granted legal aid since which date there have been a number of further hearings and adjournments before the adjourned hearing of 17 October. It was submitted that the Plaintiff should bear the costs thrown away by the abortive hearing lasting a day and a half in January 1997.

15. In view of the voluminous evidence that the 3^rd and 4^th Defendants have adduced in the past week in su0pport of their application, it is quite clear that they were not themselves ready to proceed with the application in January and the adjournment was in a sense as necessary for them as it was for the Plaintiff. Moreover, on the occasion in respect of which costs are sought, the 3^rd and 4^th Defendants had instructed leading counsel who had not appeared at any of the subsequent hearings. Since the Plaintiff. has succeeded in opposing the discharge of the injunctions, in all the circumstances, the appropriate costs order for the costs of the hearing before Rogers, J. on 24 and 28 January 1997 is that there be no order as to costs.

16. The 3^rd and 4^th Defendants' application is dismissed with costs save and except that there be no order as to costs in respect of the hearing on 24 and 28 January 1997. The Plaintiff's costs are to be taxed in accordance with the Legal Aid Regulations.