LAU WAI BING ALICE v. LAU LEE KIN SUSANNA AND OTHERS

HCA 529/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 529 OF 2007

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J U D G M E N T

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1.  This is a fallout between family members.  For a number of years Alice Lau entrusted into the care of her older sister Susanna Lau and Susanna’s husband Vincent Lo money and property.  She also called upon their help in arranging a pretend sale of her apartment.  The pretend buyer was Lo Wing Kai, Vincent’s older brother.

2.  But things unravelled when Alice called for an accounting and repayment of her invested capital.  Some money was repaid but not nearly as much as she believes she should have received.  Further, subsequent accounting shows that some of her funds were moved without her knowledge or authority, and explanations have been inadequate and unsatisfactory.

3.  Worse, from Alice’s point of view, is that she having stayed on in the apartment she thought all along has been hers, W K Lo, whom she trusted and who had told her he would transfer her home back to her whenever she wanted, by separate action is now suing her for possession and the title deeds, and mesne profits, claiming thus that the sale to him of her apartment was not a pretence at all.

4.  By this action Alice sues Susanna and Vincent for an accounting and payment and or in the alternative damages for breach of trust.  As against W K Lo she seeks an order directing him to transfer back her apartment or damages.

5.  There are denials and defences pleaded by all three; but these are matters for trial and another day.

The Mareva Injunction

6.  The matter before me arises because shortly after she began her suit Alice applied ex parte for a Mareva injunction against assets and bank accounts of Susanna and Vincent, in Hong Kong, owned jointly or separately; in particular, an apartment in Tung Chung, Lantau, and funds held in an account at DBS Bank.  The amount sought to be frozen was up to the precise figure of HK$1,160,295, being A$188,359.68 at the then conversion rate.

7.  Alice also sought disclosure of all their assets worth more than $100,000, the source of funds used to buy the Tung Chung apartment, records of rental receipts in respect of Alice’s house in Queensland, and records and bank statements in respect of accounts held for Alice in Queensland.

8.  Alice’s representatives appeared before the Duty Judge on 20 March 2007 who granted the orders asked for, save that the disclosure required to be made was limited to the value of their own assets worth more than $100,000.  The order was made to last until 30 March, the nominated return date.

9.  By this date all three defendants were represented.  Susanna and Vincent through counsel gave notice of an intention to oppose the application for a continuation of the Mareva and disclosure orders.  After hearing argument the Summons Judge gave directions for a defended hearing, watering down the Mareva to restrain disposal of the Tung Chung property only, and with a stay of the order for disclosure meantime.

10.  Following the filing of evidence the parties appeared before me to argue the merits of a continuation of the Mareva and consequential orders; this is my determination of that matter.

What Is Now Asked For

11.  I do not propose to go into any detail concerning the financial dealings between the parties and the extent if any to which there is money due and outstanding; except, that is, as it goes to the merits of the Mareva injunction.  Alice claims that it is necessary and should be continued pending trial to protect the amount she will be adjudged to be entitled to should she succeed wholly or partially in her claim.

12.  The counter to that is that in the ex parte application there was not full and frank disclosure to the end result that the judge was not properly informed; had she been so informed she may not have made the orders that she did. 

13.  Further, Alice has failed to show that there is any real risk of dissipation of assets as to justify the granting and then continuation of the Mareva.

A Broad Overview

14.  Shortly after Vincent’s retirement from Hong Kong’s civil service, in the early 1990’s, he and Susanna decided to emigrate to Australia.  They bought a house in Brisbane and became permanent residents.

15.  Alice meanwhile was in marital difficulties.  She and her husband of some years separated in 1991.  She was by then about 42 and having worked all her life had accumulated savings and owned her own apartment, a flat in Wonderland Villas, Kwai Chung.  This has to this date been her and her son’s home, and is the property I have referred to as being under threat in the action brought by W K Lo.

16.  With the marriage at an end and her husband threatening to relieve her of half her capital in ancillary relief proceedings, Alice came to the decision that she was subsequently to regret; namely, to spirit as much as she could out of Hong Kong and her name, to be put in the care of Susanna and Vincent.

17.  Broadly speaking, this was done in three ways.

1. House 79

18.  In 1992 Alice during a visit to see her sister and brother-in-law decided to buy a house for investment near where they lived in Brisbane.  For convenience it is known as House 79.  It cost A$104,000.  On her account she paid this from her savings in Hong Kong.  Susanna and/or Vincent handled the purchase.

19.  In dispute is the source of A$65,000 of the purchase price.  Susanna and Vincent say that they lent this to Alice, and together with interest it remains an advance largely unpaid.

20.  In 2001 Alice asked Susanna and Vincent to sell House 79, and it was sold.  There has been an accounting, but of a much lesser amount than Alice had been expecting concerning the rental income that should have accumulated over the years.

2. Cash Deposits

21.  Between June 1995 and July 1998 Alice sent funds down from Hong Kong to Australia for investment on time deposit.  In 1995 she gave Susanna power of attorney and this put her in full control.

22.  The time deposits were ultimately closed in November 2002.  But when an account was taken it emerged that there had been withdrawals made from time to time which Alice claims were made without her authority or knowledge, thus, in breach of trust; further, some of the capital that Susanna invested was said to belong to her and Vincent.  Alice does not admit to this without discovery.

3. Wonderland Villas

23.  This was a third step taken by Alice to save her assets from her estranged husband.  In 2001 he had petitioned for divorce.  This remained still to be finalised when 2003 arrived; with it SARS, and a downturn in the economy.  The husband was in financial straits and making demands.

24.  On Alice’s account, Susanna and Vincent proposed that she pretend to sell her Wonderland Villas home, using Vincent’s brother in the sham.  She says she hardly knew him but decided that that was a good idea.

25.  The sale was completed in October 2003 at the price of $1.2 million.  The conveyance went through and Alice was paid the price in full, receiving net the sum of $1,194,520 from her pretend purchaser.  She immediately put this into Susanna’s account in Hong Kong, for return to W K Lo.  She retained the title deeds, and possession.

Alice Calls for an Accounting and Settling Up

26.  On her account when she called for an accounting there emerged from Susanna and Vincent calculations that were inaccurate and incomplete and not supported by contemporaneous documents.

27.  She was paid on account A$220,000 in April 2005, and was told there was a small balance outstanding, namely about A$15,000, but that was far, far smaller than she had been expecting.  There seemed to be no accounting for the rent that over the years she should have been accumulating on House 79; further, there were the unexplained withdrawals from some of the time deposits that she knew nothing about.

Susanna’s Version

28.  This has been revealed in a series of affidavits filed since the ex parte order was granted and served.

29.  As I have stated, it begins with the source of part of the purchase price, being A$65,000, for House 79.  This she deposes was advanced by her and Vincent on Alice’s request.  She needed funds to complete but did not qualify for a mortgage.  So they lent her HK$400,000 for the purpose, from which emerged the A$65,000.  Subsequently Alice paid off $32,000, but the balance of $368,000 remained outstanding over the years, with interest accruing.

30.  There was no mismanagement of funds concerning House 79.  She took this over only after three years, in 1995, following Alice giving her power of attorney.  The accounting was and is accurate.  Alice made her own notional calculation, based on a weekly rental multiplied by the number of weeks she owned House 79.  But she paid no or scant regard for the usual costs of owning a house, including repairs and maintenance, letting fees and so on, nor for the inevitable fact that from time to time between tenancies there were periods when it was unoccupied.

31.  As for the term deposits, Susanna lays claim to some of the money invested with documents in support.  And the occasional interruptions and withdrawals were not unauthorized; on the contrary, they were specifically undertaken because Alice asked that it be done.

Sale of Wonderland Villas

32.  Susanna says this was not a sham transaction.  She says Alice was desperate to sell, but did not want to do so publicly to alert her husband.  W K Lo was prepared to buy privately; the price was agreed and the transaction proceeded.  There was no conspiracy to defeat the interest of Alice’s husband.  W K Lo allowed her to stay on in the flat because Alice did not want her husband to know of the sale.  He agreed to this on the basis that she would move out as and when he asked her to leave.

33.  Susanna did not know that Alice was going to pay the sale proceeds into her account, and only learned of it when Alice told her she had done so to hide the money from her husband.  And she further deposed to this instruction:  Alice told her to extract from it the money she had borrowed and still owed for the purchase of House 79.

Tung Chung is Bought

34.  Susanna and Vincent bought this flat in 2003. 

35.  With advancing years and the prospect that they would be spending more on medical care, they had formed the view that it would be better, and less expensive, to return to live in Hong Kong.  They bought the Tung Chung flat to live in and it is now their permanent home.  Alice knew about this; she went with them to inspect it, discussed with them the pros and cons of buying it, and knew what they paid for it when they decided to buy, namely, $2,090,000. 

36.  And this is significant; when it emerged that to meet that price they would have to break an investment, Alice told them not to do that and suffer a penalty; rather, they should utilize the $500,000 that she said Susanna was holding for her, being the balance of the sale proceeds of Wonderland Villas.

37.  So that is what they did.

Wonderland Villas Again

38.  Then it was that come 2005 Alice told her she regretted the sale of her home and wanted to buy it back.  This was the reason she gave for the cashing up of the term deposits and payment to her of A$220,000.  This in fact comprised almost all of Alice’s investments in Australia, including the rent and proceeds of sale of House 79, leaving precisely by her calculation the sum of A$15,668.71.

39.  Taking into account the sum of $1,194,520 that, uninvited, Alice had paid to her when Wonderland Villas was sold, and allowing for the debt still due ($368,000) and interest thereon spanning eleven years ($295,169.78) and other advances made over the years ($130,306.72) there was a further $401,043.50 due to Alice.

The Parties are Poles Apart

40.  This much is apparent from what has gone before, but that is for trial.

41.  Alice describes that by early 2007 she was devastated by this turn of events; in particular, what she regarded as a conspiracy that she should lose her home in Wonderland Villas and have lost out in the investments as well.  Further is the fabrication that she ‘borrowed’ so much all those years ago, to buy House 79, now doubly owed because of accrued interest.

42.  This caused her to believe that her sister and her sister’s husband had played an active and significant role in the misappropriation of her assets, and this drove her not only to initiating this action but applying for the Mareva injunction as well.

43.  The amount she sought to protect is precisely calculated because it is what those representing her have told her is the balance owing from the term deposits (A$200,442.65) the sale of House 79 in February 2001 (A$91,481.31 + notional interest at say 4% to April 2005 = A$106,423.26) and rental income from September 1992 to January 2001, 160 x 52 x 8 + interest = A$88,081.07).  This all comes to A$394,946.98, less the payment of A$220,000, making a shortfall A$174,946.98.  With accumulated interest this has now become A$188,359.58.  Excluded are amounts the existence of which are in dispute; part of this includes the sum of A$65,000.

The Legal Principles

44.  The singular purpose of a Mareva injunction is that it restrains a judgment debtor or potential judgment debtor from committing the abuse of hiding or dissipating assets that the judgment creditor or one who expects to become one might lawfully attach to satisfy the debt.

45.  It is a particularly useful tool in Hong Kong, where the banking system is slick and allows for the speedy transfer of funds out of the jurisdiction.  And of course it is a powerful weapon and a draconian one, for when in place it prevents a citizen from dealing in any way with what is his to dispose of or otherwise deal with, before resolution of the action or court order. 

46.  It follows that there are strict rules for an actual or prospective judgment creditor to comply with before making application.  These are set out in the White Book at 29/1/56, and follow:

The plaintiff must show that:
(a)	He has a good arguable case on a substantive claim over which the court has jurisdiction;
(b)	there are assets within the jurisdiction;
(c)	the balance of convenience is in favour of the grant;
(d)	there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect;
(e)	the plaintiff must comply with a strict duty of full and frank disclosure.

47.  In their opposition to the continuation of the existing order, and in support of their contention that the judge was misled by erroneous information at the time it was asked for, Susanna and Vincent say that Alice has failed to reach the threshold at 4 or comply with her obligations at 5.

48.  The wording at 4 indicates there has to be demonstrated a real risk of dissipation.  As was said by Sir Peter Pain, sitting as a High Court judge in the case of O'Regan and Ors v. Lambic Productions Ltd (1989) 139, New LJ 1378 at p.1379:

“

There are numerous paragraphs in the authorities relating to Mareva injunctions which make it plain that unsupported statements and expressions of fear carry very little, if any, weight.  The court needs to act on objective facts from which the court can infer that the defendant is likely to move assets abroad or dissipate them within the jurisdiction.”

49.  In a local case on appeal, Jiangmen Chao Cheng Thread Co. Ltd v Ng Siu Lun and Lau Fook Hing, unreported, CACV No. 47 of 2000, wherein the Court of Appeal reversed the grant of a Mareva made at first instance, Godfrey VP said at paragraph 7:

“

7.

As is well-known, the purpose of the Mareva injunction is to prevent an unscrupulous and dishonest defendant from dealing with his assets so as to deny the plaintiff the fruits of any judgment he may obtain against the defendant.”

And Rogers JA said at paragraph 12:

“	12.	I agree.
	13.	I have very little to add save that it can only be emphasised, yet again, that a Mareva injunction is a very serious matter and the implications of a Mareva injunction are far wider than ordinary injunctions.  In this case, I entirely agree that there was no evidence upon which the court could act in relation to the dissipation of assets.
	14.	In my view, the matter was most succinctly summed up by Miss Fung’s final statement in her submissions : ‘There was no clear case of dishonesty but suspicion.’”

50.  So a suspicion, a fear, an anxiety of dissipation are not enough; there must be a real, a substantiated threat.

51.  The need for full and frank disclosure derives from the fact that by the nature of things the first application for a Mareva is made ex parte.  This requires that in all but exceptional circumstances the plaintiff is obliged to have made as full an enquiry as possible before putting before the judge facts which are material to the case and upon which the judge will be asked to rely.  Material non-disclosure will likely lead to a discharge.  Whether there will be a revival after that will depend on the circumstances.

52.  In Tyece Limited v Max Concept Technology Limited [2003] 3 HKC 116, Sakhrani J was asked to discharge a Mareva injunction he had granted ex parte, upon the grounds of material non-disclosure, and he did so.

53.  At p.121 he said:

“	17.	Even if I had a discretion to re-grant the injunction I would not be prepared to exercise it in favour of the plaintiff.  The duty of full and frank disclosure on an ex parte application is a very important principle.  Although the non-disclosure was not deliberate the omission to disclose the letter of 17 September 2002 should not have been made.  It has to be remembered that the court’s power to discharge an order where there has been a breach of the duty of full and frank disclosure is salutary and it is for the court’s protection.  It must also be remembered that although there is a discretion to continue the injunction or to grant a fresh injunction the discretion is one to be exercised sparingly.
	18.	It may be worth repeating what Warrington LJ said in R v Kensington Income Tax Commissioners, ex p Princess Edmond de Polignac [1917] 1 KB 486 at 509 as follows:
		‘	It is perfectly well settled that a person who makes an ex parte application to the Court — that is to say, in the absence of the person who will be affected by that which the Court is asked to do — is under an obligation to the Court to make the fullest possible disclosure of all material facts within his knowledge, and if he does not make that fullest possible disclosure, then he cannot obtain any advantage from the proceedings, and he will be deprived of any advantage he may have already obtained by means of the order which has thus wrongly been obtained by him.’”

Is there a Real Risk of Dissipation?

54.  Mr Yau for Alice says ‘Yes’.

55.  He relies on her case that Susanna during the history of her having custody and control of Alice’s money and assets materially breached the trust that she owed Alice to her detriment, and that Vincent worked hand in glove with her for the same purpose.

56.  There was the failure properly or adequately to account for the income earned from House 79, and for the unauthorized use of funds entrusted for deposit.  Most particularly was the conspiracy dishonestly to deprive Alice of her apartment. 

57.  Although this prospective loss was not sought to be protected by the granting of the injunction it demonstrates the mindset of Susanna and Vincent to assist in the misappropriation of her home.

58.  This was not, he submitted, a case of mismanagement, mistake or misunderstanding.  There has been wrongful deprivation deliberately undertaken.

59.  The risk of dissipation is real, demonstrated by Susanna and Vincent making use of the sale proceeds of Wonderland Villas for their own purposes, namely, to purchase the Tung Chung apartment.

60.  However, I conclude that the answer is in fact ‘No’; Alice has failed to satisfy the burden of proving that there is a real risk.

61.  This is a falling out and a bad falling out at that.  Alice is threatened with the loss of serious amounts of money and kind.  But Susanna and Vincent have their defence pleaded and their own version of events.  If they are to be believed they will be in the clear; but that is a matter for trial.

62.  Their previous conduct giving rise to this action is not in itself sufficient to satisfy Alice’s burden.

63.  What else is there?  Nothing that supports her cause.  Susanna and Vincent have not shown any intention of hiding or spiriting away any assets or money; ironically that is what Alice has been up to.  There are no indications they are about to disappear to Australia; Hong Kong is their home once more.  They have not been evasive or slow to address the allegations of mismanagement, breach of fiduciary duty, bad faith, conversion and so on.  And even as things were unravelling, they were preparing and delivering flow charts and documents to back up their accounts that they had behaved properly.

64.  Alice’s concerns amount to a fear only; that carries no or not sufficient weight.

Has There Been Material Non-Disclosure?

65.  Mr Lam for Susanna and Vincent raised seven instances of material non-disclosure.

66.  I propose to deal with three only, for they carry sufficient weight to amount to material non-disclosure by Alice.  The first is that in seeking to justify the precise shortfall of A$188,359.58 she was wholly unrealistic in her estimate of rental income she was due to be paid.  The figure she claims is the absolute top that could have been achieved, with no allowance for regular outgoings, cost of management, repairs, maintenance and periods when the house was empty.  On this calculation alone the amount she sought to have protected was and remains too high by at least A$40,000.

67.  The second is that she failed to alert the judge to the fact that the Tung Chung flat was worth well above the amount injuncted for and was more than enough to provide security.  Had she done so it is doubtful that the bank accounts would have been subjected to the order.  After all, they were released at the first inter partes hearing.

68.  Thirdly, the judge was not told what subsequently came to light, namely, that on the same date a lis pendens had been delivered for registration against the title of the Tung Chung flat.  That of course is an effective bar to any adverse dealing in property.

69.  In the circumstances, the judge if this had been told her may well have regarded that as a sufficient safeguard for the meantime.

70.  In the circumstances, had these or any of these features been disclosed, the whole outcome could have been a different, less invasive order; indeed, the most likely would have been a deferral to a date fixed for the inter partes summons.

The Result

71.  There having been material non-disclosure and it not having been demonstrated that there is a real risk of dissipation of assets, I discharge the present order freezing assets and decline to grant the same on the inter partes application, which stands dismissed.

72.  Costs are nisi.  Those, including those reserved, are to the 1^st and 2^nd defendants in any event.