KIU HUNG INTERNATIONAL HOLDINGS LTD v. CHEUNG KAI FUNG

HCMP 1282/2020

[2020] HKCFI 2288

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1282 OF 2020

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D E C I S I O N

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1.  There is before the Court a summons issued by the plaintiff (“P”) on 24 August 2020 (“Summons”) to continue an ex parte Injunction granted by Lok J on 22 August 2020 (Saturday) (“Injunction”), to restrain the Defendant (“D”) from presenting a winding-up petition against P based on a statutory demand dated 31 July 2020 (“SD”). In the SD, D relied on 2 Judgments obtained in LBTC 944/2019 (“LT 944”) dated 17 April 2019 and LBTC 1914/2019 (“LT 1914”) dated 17 January 2020 (together “Judgments”) and required P to pay HK$3,471,324.72, being the Judgment debts together with interest accrued thereon up to 31 July 2020.

2.  Under the Judgments, P was ordered to pay the sums of HK$2,384,920 (in LT 944) and HK$702,937 (in LT 1914), being the unpaid salary, end of year payment, reimbursement of expenses, payment in lieu of notice and unpaid leave for the period from April 2017 to 20 May 2019 during which D was employed as the Chief Financial Officer of P. 

3.  Without any meaningful notice to D (see §7 below), on 22 August 2020 P through counsel, Ms Sakinah Sat, applied for and obtained the Injunction on ex parte basis.  At the ex parte application, P alleged that there is a bona fide dispute on substantial grounds on the Judgment debts and that P has reasonable prospects of success in its intended applications to set aside the Judgments in that:

  (1)  P had never received notice of the hearing in LT 944 and “did not attend the hearing nor otherwise participate in the proceedings” (ex parte Skeleton §22(c));

  (2)  the Judgment in LT 944 was “irregular” as P had not received notice of hearing and D had not disclosed the alleged Dismissal Letter or the alleged Salary Adjustment Letter to the Labour Tribunal (“LT”) (ex parte Skeleton §22(c));

  (3)  P “clearly has an arguable case / meritorious defence based on the facts set out in Liu 1^st and in particular based on the Dismissal Letter and the Salary Adjustment Letter” (ex parte Skeleton §22(f));

  (4)  alternatively, the Judgments “can be set aside by way of a separate action or appeal (insofar as is necessary) for being ‘miscarriage of justice’ and/or obtained by D fraudulently, by way of, inter alia, the Misrepresentations made in the documents filed” at the LT (ex parte Skeleton §23);

  (5)  the alleged “Misrepresentations” consisted of the following statements:

(a)  D was entitled to monthly salary of HK$105,000 when his salary had since 15 June 2017 been reduced to HK$50,000;

(b)  D remained employed by P until 31 May 2019 without disclosing the alleged Dismissal Letter;

(c)  there was alleged oral agreement between D and P to the effect that D could remain employed by P as long as P owed outstanding salary to D or fail to pay the same in accordance with the repayment schedule.

  (6)  Further, P has a genuine and serious cross-claim against D for damages for breach of duty and care as Chief Financial Officer of P, which claim exceeds the amount of the Judgment debts. 

No valid ground to justify the ex parte application

4.  It is well-established that ex parte application should only be made where either the delay would cause injustice to the applicant, orthe defendant would take action which may nullify the effect of the injunction (Ho Tak Eng v Fame Brilliant Ltd [2006] 1 HKLRD 34). 

5.  In the present case, there was no need for secrecy, as the SD was served on P on 31 July 2020, and P did reply to the SD in its letter dated 10 August 2020. 

6.  It is clear that the alleged urgency in making the ex parte application was the result of P’s own delay and inaction:

(1)  In Lui 2^nd filed only on 27 August 2020, P belatedly disclosed, for the first time, that in fact D’s solicitors had issued a demand letter dated 17 April 2020 in which they brought to the attention of P the contents of the 2 Judgments obtained by D.  Yet, no meaningful explanation was proffered to explain why it did not take any step to challenge the Judgments.

(2)  Even after P had received the SD and, therefore, was aware that the 21-day time limit for complying with SD would expire on 21 August 2020, it still did not take any step to comply with the SD or to set aside the Judgments. 

(3)  There was no explanation whatsoever proffered by P as to why it did not make any application to restrain the presentation of winding-up petition by D until the very last day for compliance with SD. 

7.  Nor has it been explained when did P start to prepare the ex parte application and why no advance notice was given to D that such application would be made.  It seems to me that P (and its legal advisers) deliberately withheld the fact that it would be making the ex parte application until the very last minute to ensure that D would not be able to seek legal advice or to instruct his solicitors to attend the application.  Indeed, it was only when the matter was raised by this Court at the hearing that Ms Sat discloses to the Court that P’s solicitors only sent a notice to D’s solicitors after office hours, at 5:31 pm on Friday, 21 August 2020, about the application. This did not constitute a proper notice to D (Luck Continent Ltd v Leonora Yung, CACV 42/2010, 22 October 2010, §19, per Rogers VP; §23 per Le Pichon JA).

Material non disclosures

8.  It is well established that in making an ex parte application, the applicant must proceed with the highest good faith.  An ex parte order will be discharged without consideration of the merits if it was obtained in breach of its duty to make full and frank disclosure of all material facts.  It is incumbent upon the applicant to bring to the Court’s attention all matters which are material to the application including (1) the points that the respondent would reasonably be expected to raise in due course; and (2) the points are not ones that can be dismissed as without substance or importance (Hong Kong Civil Procedure 2020 §29/1/51).

9.  In the present case, P has failed to discharge the duty in making full and frank disclosure to the Court when making the ex parte application in that it failed to draw to the attention of the Judge the following facts and matters, which would militate against P’s bold allegations that the Judgments had been obtained by D dishonestly or fraudulently.   

10.  First, P filed a Defence in LT 1914 on 9 August 2019:

(1)  In the schedules attached to that Defence, P itself stated monthly salary of D at HK$105,000, which was the same amount stated in P’s claim in LT 1914 up to October 2018.  This undermines P’s allegation that the salary of D has since 2017 been reduced to $50,000. 

(2)  Even in the Defence filed by P in LT 1914, P admitted that it owed D salary in amount of HK$1,795,700, not the alleged “Undisputed Sum” mentioned in §6(a) of ex parte Skeleton.

11.  Second, as regards the alleged “Misrepresentation” (§12 of Liu 1^st, §22 of ex parte Skeleton):

(1)  P failed to draw to Court’s attention that the claims, statements and supporting documents filed by D at LT were all available to P, given that P was able to exhibit such documents to Liu 1^st. The significant of this is that P was clearly aware of the bases of D’s claims, yet it took no step to attend the hearings or contest the claims.

(2)  P also failed to disclose to the Court that in fact D had produced and relied on P’s tax returns filed for the years 2017, 2018 and 2019 in support of his claims at LT. These contemporaneous documents show that D’s salary throughout his employment was $105,000 per month. See: D’s claim in LT 1914, tax returns showing salary of $105,000.

(3)  P’s MPF contributions show that it had paid MPF in respect of D’s employment until 28 February 2019, contrary to its present allegation that D had been dismissed on 6 November 2018. Although P did refer to MPF contributions in Liu 1^st §25, it was not drawn to the Court’s attention that these contemporaneous documents again undermine P’s present allegation that D’s claims at LT were made in a fraudulent and dishonest manner.

(4)  In a document entitled “Outstanding Salary of Cheung Kai Fung”, it can be seen that P had agreed to pay outstanding salary owed to D by instalments if P was able to raise fund successfully.  This document was signed by Mr Shu Zhong Wen on behalf of P. Mr Shu was the same person who signed Dismissal Letter relied on by P and the 2019 tax return filed by P.  While this document was referred to in Liu 1^st §29(a), P sought to brush aside its significance by alleging that the document did not contain P’s chop, but failed to draw to Court’s attention that this crucial document had been signed by Mr Shu, who must have the requisite authority to act on behalf of P on matters relating to D’s employment.

(5)  Contrary to P’s present allegation (ex parte Skeleton §22(f)), D did in fact address the alleged “Dismissal Letter” in his statements filed in LT 1914 (which was available to P) by saying that D had never received such Letter.  Such statement of D remains unchallenged.

12.  Indeed, although the contemporaneous documents referred to in §11 above were exhibited to Liu 1^st and, therefore, must have been known to P’s counsel, Ms Sat did not refer to any of these documents in her ex parte Skeleton and at the hearing before the Judge.  When this matter is raised by this Court, Ms Sat confirms that she has read these documents before making the ex parte application. Regrettably, other than her assertion that such documents were contained in the exhibits to Liu 1^st, she has not  been able to articulate any reason as to why she did not draw such salient documents to the attention of the Judge and, instead, saw fit to contend that the Judgments had been obtained by D dishonestly and fraudulently.

13.  Third, contrary to misleading statements made by P and its counsel at ex parte application, the fact that the hearings at LT proceeded in absence of P was not a matter which it could put the blame on D, given that:

(1)  The “Capital Centre Address” to which the notice in LT 944 was sent was P’s “then principal place of business” (as described in Liu 2^nd), such that it was proper for the notice to have been sent.

(2)  The notice in LT 1914 was also delivered to that same Address which P had admittedly received.  This crucial fact was only belatedly disclosed in Liu 2^nd §6(a) and §7(a) .

(3)  The hearing notice dated 25 March 2019 in LT 944 was issued by LT.  It was not issued by D, as suggested in §22 of ex parte Skeleton.

(4)  The above matters show that it was P’s own decisions in not  attending the hearing to contest D’s claims at LT.

14.  Fourth, even after receiving the SD, in its letter dated 10 August 2020, P still did not make any allegation of misconduct or breach of duty against D, let alone the alleged counterclaim which P still has not made.  This was despite the fact that on P’s own case, the alleged misconduct took place in as early as 2017.  The only matters relied on by P in reply to the SD were (a) the assertion that the amount was “in dispute” and (b) that P was busy with the re-domicile or restructuring exercise.

15.  Fifth, there was substantial delay and inaction on the part of P in challenging or setting aside the Judgments dated 17 April 2019 (LT 944) and 17 January 2020  (LT 1914).  The delay was inordinate having  regard to the 7 days’ time limit for making such application.  It has never been explained by P why it did not take any step to set aside the Judgments, after D’s solicitors had specifically referred to such Judgments in its demand letter dated 17 April 2020 sent to P.

16.  Sixth, the statement that P has substantial assets and cash/bank balance was not in fact supported by the documents produced, which were extracts of consolidated statements of financial position of the Group, not financial statements of P.  The so-called substantial assets and cash balance was not P’s assets, but were assets of the Group.  Indeed, the fact that P does not appear to have any meaningful cash in Hong Kong is confirmed by the fact that it was unable to comply with undertaking given to the Court on 22 August 2020, which required P to pay “Admitted Sum” to D forthwith. 

17.  In view of the material non-disclosures discussed above, which I consider to be egregious and deliberate, I do not think that P should be allowed to enjoy the benefit of the Injunction obtained, and I refuse to continue the Injunction.

18.  Having found that P has been guilty of failing to make full and frank disclosure, it is strictly speaking unnecessary to consider the question of balance of convenience.  Nevertheless, if contrary to my view, balance of convenience is relevant, I consider that the balance should come against the continuation of the Injunction for the following reasons:

(1)  P acted in breach of Undertaking given to Court to pay the “Admitted Sum” forthwith, in that the Sum was only paid to D on 27 August 2020.

(2)  Although P has now applied to LT to set aside the Judgments, it has not been demonstrated to Court that the applications have any reasonable prospects of success. This is unsurprising, given the considerable time lapse between the dates of the Judgments and the date of the applications.

(3)  P has not offered any undertaking to prosecute the setting aside applications with due expedition, let alone an undertaking to pay or secure the amounts of Judgment sums to D in the meantime. 

(4)  On the other hand, there is nothing to suggest that if P were successful in setting aside the Judgments, D would not be able to repay the amount overpaid to P. 

(5)  On P’s own case, it has substantial assets available to its use, it is obviously open to P to pay the Judgment debts so as to avoid a winding-up petition being presented by D against it. 

19.  As for costs, the usual costs order when an ex parte injunction is discharged on the ground of deliberate or seriously culpable non-disclosures or misstatements is that costs should be ordered on an indemnity basis (Velatel Global Communications Inc v Chinacomm Ltd, HCA 1978/2011, 8.3.2013, §§5-6).  In my view, the same principle applies when the Court decides not to continue the ex parte Injunction on the ground that the Injunction was obtained by the plaintiff through deliberate and material non-disclosures, as in the present case. 

20.  The costs of and occasioned by the proceedings including the ex parte application and the Summons are to be paid by P to D forthwith and on an indemnity basis, to assessed by way of gross sum assessment.  D is to file a statement of costs for gross sum assessment by 1 September 2020.  P is to provide comment on such statement, if any, by 3 September 2020.