PBM (HONG KONG) LTD v. TANG KAM LUN ALLAN AND OTHERS

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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JUDGMENT

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The Present Proceedings

1. On 12 November 1997, the plaintiff obtained a Mareva injunction against all the defendants. This order was continued on 21 November 1997. On 25 November 1997, the third and fourth defendants (Mr Chan and Mr Ho) issued summons seeking an order discharging the injunction against them. This is the application now before me.

Background

2. The facts that I outline below, as far as they concern the activities of the first defendant, are taken from the evidence presented by the plaintiff. The first and second defendants have not filed any evidence.

3. The first defendant (Mr Tang) was employed by the plaintiff from 1 September 1990 until he resigned on 18 July 1997. In 1994. Mr Tang was promoted to the post of financial director of the plaintiff, and he was occupying this post when he resigned.

4. In early May 1997, the plaintiff send an internal auditor to Hong Kong. There is no need, for the purposes of the matters before me, to detail what the plaintiff says was discovered as a result of this visit. It is sufficient to say that, on the plaintiff's evidence, there is a prima facie case that the first defendant has been misappropriating money due to the plaintiff and paid by a customer - Swiss Time Trading Company in Taiwan.

5. The plaintiff's case is that Mr Chan and Mr Ho were parties to that misappropriation. The general endorsement of claim alleges that Mr Chan and Mr Ho were liable for "fraud and/or conspiracy to defraud or injure". No further particulars are given.

The Case Against Mr Chan

6. The plaintiff's evidence against Mr Chan, at the time the injunctions were obtained, was that, after Mr Tang left the employment of the plaintiff, a document was discovered on Mr Tang's personal computer. This was a draft fax message addressed to Ms Gale Ho of the Hongkong and Shanghai Bank, dated 10 July 1997, and referring to the subject of ":Fund Withdrawal - A/C #511-188369-221 in the name of Chan Chun Chung, Wyman". It read as follows -

"Would you please arrange to withdraw the amount of US$120,000 from the said amount and convert it to Hong Kong at the rate of as quoted by you and further deposit it into the account with your bank as stated below:-

Regards,

Wyman C.C. Chan"..

7. Chau Sau Lai (Ms Chau) is described in the evidence as the girlfriend of Mr Tang.

8. The plaintiff's evidence went on to say that "Wyman Chan was one of two shareholders in a company called Charming Nice Development Company Limited, the other being Tang". Extracts of company records produced by the plaintiff showed that Mr Chan had resigned as a director of this company on 18 April 1995 and transferred his shares on 20 April 1995.

9. Further evidence revealed that Ms Chau had drawn two cheques, both dated 28 July 1997, one in the sum of about $3.348 million and the other in the sum of about $380,000, on this account 108-106733-001 in favour of the plaintiff. The cheques were dishonoured.

10. The plaintiff suggests that this shows that Mr Tang attempted to settle part of his debt to the plaintiff from this account, and that "In all probability the account in the name of Chau is in the beneficial ownership of or otherwise in the control of Tang".

11. Mr Chan's response to this is to say that he does not hold any money or assets on behalf of Mr Tang. Mr Tang has been a friend of his since about 1993. He entered into a successful property speculation with him involving the Charming Nice Company in 1994. On 30 May 1997, Mr Tang asked him for a loan of $2 million, but he lent only US$120,000, although Mr Tang signed two acknowledgements each in the sum of $1 million. On 3 June 1997, Mr Tang asked him for another $1million. At the request of Mr Tang, he transferred this money to the account of Ms Chau. On 15 June 1997, he lent Mr Tang another $2.3 million. This sum. Mr Chan says was paid from his overdraft account, but he cannot find the statement relating to this transaction. Before these loans were due for repayment. Mr Tang sold to Mr Chan the entire shareholding in a company called Regent Trinity Investments Limited, the only asset of which was a piece of landed property. The consideration for this was stated to be $3,146,447 already paid. This left Mr Tang still owing about $1 million. On 2 July 1997, Mr Tang repaid US$120,000. On 10 July 1997, Mr Tang asked for another loan of $1 m. Mr Chan says he agreed to lend him US$120,000, but "I was too busy even to write any instruction to my banker because I was attending a meeting. I told [Mr Tang] to type out an authorization and fax the same to my office and then send it to my banker." This is what happened. Mr Tang still owes him this sum. In October 1997, the residential property was sold for about $14.23 million. The evidence is that the property was worth at least this sum in June 1997. There is no other evidence to show that Mr Chan was receiving money from Mr Tang.

12. Mr Fung argues that the evidence shows that -

13. Much of the evidence on which the plaintiff now relies was adduced by Mr Chan. Indeed, the most telling evidence against Mr Chan - the purchase by him the shares in Regent Trinity Investments Limited apparently at a gross undervalue - could not easily have been discovered by the plaintiff without Mr Chan's co-operation. This tells in favour of Mr Chan. Against him is the fact that, overall, Mr Chan's story raises suspicions. But these suspicions seem to point to Mr Chan seeking, knowingly or unknowingly, to assist Mr Tang in his attempts to repay money to the plaintiff. These suspicions do not, in my view, as a matter of probability point only to establishing the matters mentioned by Mr Fung. It may be, at the end of the day, the plaintiff will be able to establish a stronger case against Mr Chan, and obtain a judgment against him. On the evidence, Mr Chan is a man of some substance, and there is no justifiable case for suggesting that he is seeking to dissipate his assets. If the plaintiff obtains a judgment, it should, as a matter of probability, have little difficulty in recovering under it. All in all, I do not think that the plaintiff has established a strong enough case against Mr Chan to justify the extreme remedy of a Mareva injunction.

14. In the result, the injunctions against Mr Chan are discharged from this date.

Material Non-disclosure

15. Mr Chan also complains that there was material nondisclosure in the case presented to the ex parte judge.

16. The plaintiff's evidence was that "Wyman Chan was one of two shareholders in a company called Charming Nice Development Company Limited, the other being Tang". Extracts of company records produced by the plaintiff showed that Mr Chan had resigned as a director of this company on 18 April 1995 and transferred his shares on 20 April 1995.

17. Mr Mayne suggests that the impression given was that Mr Chan was a director and shareholder with Mr Tang at some time relevant to these proceedings. Only if one looks at the exhibits would one see that they ceased to be co-directors and co-shareholders some two and a half years earlier. In fact, Mr Chan's case is stronger than this. In Mr Graham's written skeleton argument presented to the ex parte judge, it was said "Wyman Chan is a co-shareholder, with Tang, of a company called Charming Nice Development Ltd." (My emphasis.)

18. This evidence is more important that it might otherwise be because the plaintiff had, at this stage, very little other evidence to tie Mr Chan to Mr Tang. If it had been necessary to decide this point, it would have been a nice question whether or not this incorrect information presented to the ex parte judge was sufficiently important to justify a discharge of the injunction. My inclination is to say that I would not have regarded it as such. The purpose of the evidence was to show that Mr Chan knew Mr Tang; the time at which they had contact was of lesser importance. Probably, I would have exercised my discretion not to discharge the injunction on this ground alone.

The Case Against Mr Ho

19. At the time the injunctions were granted, the case against Mr Ho was that, apparently, he drew three cheques on 28 July 1997 payable to the plaintiff. These cheques were in the sums of about $2.9 million, $540,000 and $3.36 million. They were dishonoured.

20. The plaintiff suggested that this showed that there was an attempt to settle the debt due by Mr Tang from the account of Mr Ho. The plaintiff said "In all probability the account in the name of Ho is in the beneficial ownership of or otherwise in the control of Tang".

21. Mr Ho has filed an affirmation. He is a computer type-setter, earning $45,000 per month. He has produced statements from his relevant bank account, but these do not cover the relevant period between July and August 1997.

22. Mr Ho says that he has been friendly with Mr Tang since about 1992. He says that, on about 28 July 1997, Mr Tang telephoned him and said that he had used up all his cheques. He asked Mr Ho to lend him some blank cheques so he could make some payments. Mr Ho agreed, and met him downstairs. Mr Tang assured him that he would put money into Mr Ho's account to cover the cheques. Mr Ho trusted Mr Tang so he gave him six blank signed cheques. These were all the cheques remaining in his book. He learned a few days later that the cheques had been dishonoured. Mr Tang told him not to worry about it. Later, Mr Tang returned three cheques to him.

23. This is a pretty extraordinary story, but, if it is not the truth, I do not know where that truth lies. If I reject it, what is the alternative? I am not sure what inferences the plaintiff expects me to draw from this evidence. On the evidence as a whole. I do not think that it would be justifiable to drawn the inference that "In all probability the account in the name of Ho is in the beneficial ownership of or otherwise in the control of Tang". I do not think I can draw any inference other than that it may be that Mr Ho. knowingly or otherwise, was seeking to assist Mr Tang to repay money to the plaintiff. It is. it seems to me. unlikely that Mr Ho was up to anything nefarious. He must have known that the cheques would be easily traced back to him. The case against him. I do not think justifies a Mareva injunction against him.

24. Indeed, Mr Graham recognises the problem. As I understood him, he said that, once Mr Ho has given full discovery, particularly of the transactions in his account for the period July and August 1997, it may be that the injunctions can be discharged. It may be that this discovery is desirable, and Mr Ho is still bound to give it under earlier orders of this court. But it is quite clear that Mr Ho does not possess any appreciable assets that would make a Mareva injunction of any value to the plaintiff. In any event. I do not think that the case against Mr Ho now justifies a Mareva injunction.

25. The injunction against Mr Ho is discharged from this date.

The Costs

26. I have heard no argument on costs. On the face of it, it would seem that costs should follow the event. I make an order nisi that the plaintiff pay the costs of the injunctions.