LLOYDS BANK INTERNATIONAL LTD AND ANOTHER v. VICTOR FOLCH VERNET AND OTHERS

BETWEEN

Coram: Hon. Liu J.

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JUDGMENT

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1. The 1st plaintiff is a bank. The 2nd plaintiff is a finance company and a wholly owned subsidiary of the 1st plaintiff. The 1st defendant, Victor Folch Vexnet (hereinafter referred to as "Folch") was at all material tires the Principal Manager of the bank, the 1st plaintiff, and the managing director of the finance company, the 2nd plaintiff.

2. Folch was the sole owner of a company by the are of High Plateau Enterprises Limited which in turn beneficially owned Landmark Europe Company Limited Inc. Landmark is a Panamaian company with High Plateau as its only shareholder and two nominee service companies as well as the 6th defendant as directors. Using this Panamaian company, Landmark, as a vehicle, Folch participated together with the 7th defendant and his cousins, in the activities of a great many number of companies to which banking facilities had been granted by the bank on the authorisation of Folch.

3. The 7th defendant himself had also resorted to the use of a Liberian company, Worldwin International for his shareholdings in Fairbreeze Limited and in early 1983 a Panamaian company, Bevins Investment Corporation for his shareholdings in three other companies, Sturrock Limited, Pernam Limited and Punchestown Limited.

4. Folch is said to have defrauded the bank and the finance company, his former employers. He has since absconded and proceedings instituted in London against Folch and his wife in September 1982 are still pending.

5. The writ in this action was issued in Hong Kong on the 5th October 1982 against the 1st to the 5th defendants namely Folch, his wife, his company High Plateau and a Panamaian company of his and his wife's, "Inmobiliaria", as well as the Hong Kong Bank. A Makeva injunction and an order for discovery in aid thereof were, inter alia, granted by Sir Alan Huggins, vice president sitting as an additional judge of the High Court on the 5th October 1982 against Folch, his wife and these two companies.

6. With a view to joining the 6th to the 13th defendants inclusive, on the 30th of March 1983 the plaintiffs applied for and obtained, inter alia, a Mareva injunction and an order for discovery in aid thereof against the 7th defendant and his cousins and also a solicitor.

7. The Mareva injunction and the order for discovery against that solicitor were discharged on his ex parte application. An inter partes summons was issued and served pursuant to the order made on the 30th March 1983. By consent, the plaintiffs' prayer for continuing with the Mareva injunction and its order for discovery were to be first disposed of. During the hearing, the plaintiffs came to terms with the cousins of the 7th defendant, and the court was left with the 7th defendant alone. Therefore, whatever I say in this judgment do not affect the 6th and the other defendants.

8. Before I deal with the facts in each main allegation against the 7th defendant, it would not be out of place here to make an observation or two on the legal principles. In the main, the plaintiffs' allegation is: With intent to induce the bank to grant facilities and/or allow the same to be used, thus to run economic risks which it would not have taken, the 7th defendant together with his cousins and Folch conspired to defraud the bank by false information, concealment of Folch's unauthorised involvement and interests and other improper or reckless manipulations. To sum up, the plaintiffs' claim against the 7th defendant and some other defendants is for "damages for fraudulent conspiracy". See item 19 of the prayer in the Statement of Claim.

9. Conspiracy may loosely be defined as an agreement of two or more persons to do an unlawful act or to do a lawful act by unlawful means. Obtaining or using banking facilities by deception is clearly fraud. If these defendants, with a common object of causing the bank to suffer an economic loss or to take an unknown economic risk, agreed to prepare a statement or adopt a manoeuvre, knowing it to be false or deceiving, they are fraudulent and can be said to have conspired to defraud the bank. The alleged common purpose of these defendants was to cause the bank economic loss or to take a different economic risk. Direct evidence of an agreement to found the charge of conspiracy to defraud will rarely be available. Such an agreement is often to be inferred from the concerted effort made by the alleged conspirators in the pursuit of their common object. An inference may be drawn that their actions must have been co-ordinated by a prior agreement. Obviously, no inference of such an agreement can be so drawn unless that is the only reasonable inference from all the facts known in the light of the surrounding circumstances.

10. I turn next to the standard of proof for an allegation of a conspiracy to defraud in a civil action. On that issue, it would seem that the standard of proof in Hong Kong is the same as that. required in criminal proceedings. It is a heavy onus. At the trial, it will be necessary for the plaintiffs to prove the allegation of a conspiracy to defraud "as clearly as they would have to prove it in a criminal proceeding".

11. In England, the position is otherwise. Two authorities were cited to me without much elaboration, but I really need venture no further than the passage given in pages 115 and 116 of Cross on Evidence, 5th edition, where save for some erroneous recital of facts the position is succinctly summarized:

"It is easy to think of any number of civil cases in which the question whether one of the parties has committed a crime may be raised. A. claims damages for a libel in which B. referred to him as a bigamist, the insurer's defence to an action, on a policy of fire insurance is that the assured was guilty of arson or the plaintiff simply claims damages for a conspiracy to defraud. This is precisely what happened in The People of the State of New York v. The Heirs of Phillips where the advice of the Judicial Committee of the privy Council delivered by Lord Atkin stated that the standard appropriate to criminal proceedings was the right one as 'the proposition has been laid down time and again by the courts of this country and appears to be just'. If this remark was intended to apply to all civil cases in which criminal conduct is alleged, it must be admitted that observations which were capable of bearing a contrary meaning had previously been made, in the House of Lords, and, in Doe d. Devine v, Wilson, the Judicial Committee had favoured the contrary view when holding that a party relying on a deed could discharge the legal burden, of negativing its forgery on a preponderance of Probability. Doe v. Wilson was preferred by the High Court of Australia in Helton v. Allen, and again in Rejfek v. McElroy. Similar views in favour of the civil standard have prevailed in blew Zealand and Canada.

In Hornal v. Neuberger Products, Ltd. the Court of Appeal recognised that the earlier English cases  conflicted, and concluded, in apparently general terms, that proof on a preponderance of probability will suffice when the commission of a crime is alleged in a civil action. The plaintiff claimed damages for breach of warranty and fraud on the ground that the defendant had falsely stated that a machine sold by him to the plaintiff had been reconditioned. So far as the alleged breach of warranty was concerned, the trial judge held that the words were spoken by the defendant, but the claim failed because he considered that the parties did not intend them to have contractual effect. The judge proceeded to award damages for fraud (sic), although he said that he was merely satisfied an the balance of probability, and not beyond reasonable doubt, that the statement was made. If the statement was made. If the statement had in fact been made, the defendant would have been guilty of obtaining money by false pretences, for it was beyond dispute that he knew that the machine had not been reconditioned. The Court of Appeal dismissed (sic) the appeal mainly because:

 

"it would bring the law into contempt if a judge were to say that on the issue of warranty he finds that the statement was made, and on the issue of fraud he finds it was hot made".

12. Thus, it can be seen that as opposed to the decision of the English Court of Appeal, we have the advice of the Judicial Committee given by Lord Atkin in The People of the State of New York v. Heirs of Phillips, deceased.⁽²⁾

13. In Hong Kong, we are bound by the decisions of the Judicial Committee of the Privy Council sitting in appeal from Hong Kong, and we are to treat with respect decisions of the Judicial Committee given in an appeal from other territories as we should with decisions of the Appellate Committee of their Lordships House. See De Lasala v. De Lasala, ⁽³⁾ where the guidelines given were: In matters of "divergent development of the law" such as "a matter which in Hong Kong is governed by the common law by virtue of the application of English Law Ordinance", a decision of the House of Lords "is not ipso facto binding upon a Hong Kong court although its persuasive authority must be very great, since the Judicial Committee of the Privy Council, whose decisions on appeals from Hong Kong are binding on Hong Kong courts, shares with the Appellate Committee of the House of Lords a common membership". However, in their Lordships' view "different considerations apply to decisions of the House of Lords on (a matter) that is common to Hong Kong and England ........ the authority of its decisions ..... can be persuasive only: but looked at realistically its decisions on such a question will have the same practical effect as if they were strictly binding, and the courts in Hong Kong would be well advised to treat them as being so." The observation of their Lordships on decisions on common interest in De Lasala would apply a fortiori to decisions of the Judicial Committee of the Privy Council sitting in appeal from other territories. Despite the decision of the English Court of Appeal, I would consider myself guided by the Privy Council decision in The People of the State of new York v. Heirs of Phillips, deceased, ⁽²⁾ a case also on conspiracy to cheat and defraud.

14. In reality, there is no appreciable difference in the selection of any particular standard of proof. Of the requisite degree of proof of grave charges, in Hornal case ⁽¹⁾ Hodson L.J. had this to say:

"There is in truth no great gulf fixed between balance of probability and proof beyond reasonable doubt".

15. In Bater v. Bater, ⁽⁴⁾ Denning L.J., as he then was, drew little distinction between the standard of 'proof in criminal or civil cases and rejected any "absolute standard in either case

" when he spoke of "a degree of probability which is commensurate with the occasion" and" a degree of probability which is  proportionate to the subject matter".

16. Morris L. J. 's quotation in Hornal case, ibid. at p.978G is an apt warning for the more serious charges in civil litigation such as what we are faced here in the instant case:

"Good name in man or woman ............ is the immediate jewel of their souls."

17. Allegations of fraud are denied by the 7th defendant. More precisely, the court is concerned with allegations of conspiracy to defraud, which is admittedly not crucial but important for the "good arguable case" in an application for a Mareva injunction. The ultimate consideration must be: "Is there a real danger that the 7th defendant will remove his assets from the jurisdiction so that any judgment the plaintiffs, may obtain against him may be defeated?". Allegations of fraud are therefore relevant in the evaluation of the "good arguable case" for the basic ingredients or guidelines proposed by Lord Denning,M.R. in Third Chandris Shipping Corporation v. Unimarine S.A.⁽⁵⁾. I need refer only to the second guideline and that is: "The plaintiff should give particulars of his claim against the defendant, stating the ground of his claim and the amount thereof, and fairly stating the points made against it by the defendant." The improtance of the need for specifying the amount of the claim against the 7th defendant requires no emphasis. But, of course, the basic approach must be for the plaintiffs to show that they have a "good arguable case", which expression indicates "that, though the court will not,at this (interlocutory) stage, require a proof of the plaintiff's case to its satisfaction, it will expect something better than a mere prima facie case". "The practice, where questions of fact are concerned, is to look primarily at the plaintiff's case and not to attempt to try disputes of fact on affidavit;  it is, of course, open to the defendant to shod that the evidence of the plaintiff is incomplete or painly wrong. On questions of law, however, the court may go fully into the issues and will refuse (the application) if it concludes that the plaintiff's case is bound to fail". ⁽⁶⁾

18. Insofar as the allegations of conspiracy to defraud are relevant, to the basic approach of the plaintiffs in showing that they have a "good arguable case", the question to be asked is as posed by counsel: "Have the plaintiff shown a good arguable case of being able to prove at the trial such alleged conspiracy beyond reasonable doubt?" Obviously, in the final analysis, the issue must be: "Is there a real risk of the 7th defendant  removing his assets from the jurisdiction and so stultifying any judgment obtained by the plaintiffs. against him?" Ultimately with a "good arguable case" and a known quantum of the plaintiffs' claim against the 7th defendant, one will then have to turn to consider the balance of convenience as to whether it is just and equitable to continue this Mareva injunction against the 7th defendant. "Care should ordinarily be taken that it will not bring  the defendant's trade or business to a standstill. or will inflict on him  great loss, for that may not be fully compensated for by the undertaking in damages".⁽⁷⁾ Naturally, a defendant may also be prevented to deal with his assets within jurisdiction in such a manner that they may be transferred to some collaborators who will then remove them out of the jurisdiction. See Barclav-Johnson v. Yuill .⁽⁸⁾

19. A good arguable case has been shown that the 6th as well as the 7th defendants knew the identity of Folch in Landmark though High Plateau.  There was no dispute that the 7th defendant and for that matter the 6th defendant were perfectly aware of Folch being the Principal Manager of the bank and a managing director of the finance company at the material time and that in his capacity, Folch approved and authorized loans and facilities to these defendants and the companies with which they were involved. But even the plaintiffs themselves admitted, as can be seen in paragraph 95 of their Statement of Claim, that "neither the 6th defendant nor the 7th defendant has made any enquiry as to whether Folch has obtained the permission, consent or authority of the 1st plaintiff to approve loans to companies of which he was, in effect, a member." In addition to that concession we have the 7th defendant's denial that he had knowledge of Folch acting beyond his authority or his participation in these business activities as being contrary to his contractual obligations with the plaintiffs or in breach of his fiduciary or other duties towards each of them. In the same paragraph 95, a conclusion is sought to be drawn that "the 6th defendant and 7th defendant therefore knew that Folch, in breach of his duty to the 1st plaintiff, became a co-member of the companies with them and allowed him to conceal his membership by holding his shares in the name of Panamaian company whose shares were in turn held by another company, High Plateau, in which the shareholdings were held by nominees." A little earlier in paragraph 93 of the Statement of Claim, the plaintiffs rely on the position of the 7th defendant in Kar Chuen Limited for imputing knowledge to him of the alleged conflict of interest between Folch and the plaintiffs in Kar Chuen.

20. It has not been suggested that a bank manager's personal participation in or involvement with outside business activities is per se improper; nor has it been alleged that the mere use of a Panamaian company or nominee service companies in these activities is necessarily sinister. It may well be not very desirable for a bank manager to approve or authorize loans to companies with which he is associated, but each case must be judged on its own special facts. Without more, the 7th defendant cannot be said to be reckless in not having made enquiries. The 7th defendant's poisiton as a company executive of some of the companies with which Folch was involved would not necessarily familiarise him with any conflict of interest that Foich possibly had with the plaintiffs. There would seem to be no cogent evidence for deducing that the 7th defendant knew or must have known Floch's activities as being in breach of trust or duties. The repetition and frequency of these similar transactions could arouse suspicion, but on the existing affidavit evidence it cannot be said that no reasonable possibility remains of explaining his complacency innocently. I am not called upon at this stage to examine these matters more closely than what is required in support of the Mareva injunction. Suffice it for me to say, and I do say, that there is no good arguable case against the 7th defendant in the allegation of conspiracy to defraud merely by the procuration of banking facilities to companies such as Cheng Po Limited, Earnall Investments Limited, Lei Kin Limited, Lubbock Investments Limited, Pahsang Investments Limited, Penguin Enterprises Limited, Dericourt Investments Limited or Kar Chuen Limited.

21. The bank loans to Cheng Po have wholly been repaid. Those to Earnall remain today outstanding at over $4.4 million, and unpaid loans to the 8th defendant which are said to have been channelled at least in part to Earnall amount to over $5.4 million. There is nothing owing from Lei Kin. The indebtedness due from Lubbock is over $4.1 million. When Pahsang, Penguin and Dericourt together acquired the Pahsang Building through Yau Lay Wah Enterprises Limited and Wah Kwok Company Limited, whilst Pahsang is no longer indebted to the bank, Yau Lay Wah still owes the bank over $4.3 million. It is also alleged that Yau Lay Wah was granted facilities merely on the pledge of Wah Kwok's shares and facilities granted to Wah Kwok was on no security at all Penguin's liabilities to the bank stands ever $5.1 million and Dericourt's over $2.1 million. Folch through Landmark held some interest in all these companies except for Dericourt in which Folch's 50% and another ex-employee of the bank Mr. Au-yeung's 20% were held through service nominee companies, Gregson and Dredson.

22. It is common ground that for conspiracy as a civil tort, "the gist of the cause of action is damage to the plaintiff". Therefore, as explained by Lord Diplock in Lonrhe Limited v. Shell Petroleum Company Limited, ⁽⁹⁾ "so long as it remains unexecuted the agreement, which alone constitutes the crime of conspiracy, causes no damage; it is only acts done in execution of the agreement that are capable of doing that." "So the tort, unlike the crime, consists not of agreement but of concerted action taken pursuant to agreement." If there is sufficient evidence of conspiracy to defraud for raising these allegations, the heart and core of the alleged conspiracy was to be found in the operation of these overdrafts. If no economic loss flowed from these banking arrangements, the plaintiffs' allegation of conspiracy to defraud as a civil tort is not well founded.

23. As for the companies which are no longer indebted to the bank which has therefore suffered no loss, there can be no good arguable case in support of the Mareva injunction. As for those companies which remain indebted to the bank but against which an action instituted by the plaintiffs is still pending, the plaintiffs have yet to show any economic loss. Similarly, in the case of a debtor company against which no legal action has been brought or in respect of which only the guarantors have been sued in proceedings yet to be concluded, no damage is shown. The plaintiffs have to show actual operational loss and not just an up-to-date outstanding debit balance. The bank holds securities and has a right of recourse to the debtor company and its guarantors, if any. There is no evidence that the bank has sustained such loss. The schedule marked "C" supplied by the plaintiffs confirm that to be the position for every  company involved. Moreover, for a Mareva injuction, it would be impracticable to leave economic loss or damages, if any, to be inferred from the possible weaknesses in the debtor company's or its guarantors' financial capability. The amount claimed against the 7th defendant must be specified; without such quantification it would be difficult if not impossible to properly gauge the scope and extent of the Mareva injunction now sought to be continued. I would not repeat these aspects in full whenever the principle in Lonrho need be applied.

24. In conclusion, in this line of allegations re bank loans to these companies, the plaintiffs have not shown any good arguable case in support of the proposed continuation of their Mareva injunction against the 7th defendant.

25. It was further alleged by the plaintiffs that at all material times, none of the above mentioned companies had a credit balance in their accounts with the bank and yet by utilizing the same facilities on the authorization of Folch, the 6th and the 7th defendants caused or permitted payments to be made to Folch from these accounts: (1) Out of Cheng Po's account, $1 million; (2) Earnall's account, $1.5 million; (3) Lubbock's, $? million and (4) Kar Chuen's, $1.8 million, $1 million and a further $1.9 million.

                (1)    Cheng Po's $1 million: The acquisition of No.5 Hatton Road for $70 million was initially financed by the bank which granted facilities of $4.5 million on the 6th March 1981 for the payment of the initial deposit. $4.5 million was the ceiling of the facilities so granted. By the 16th October 1981, the account of Cheng Po had been overdrawn over that fixed ceiling to the extent of $5.105 million. On the same day, a $1 million cheque was drawn by the 6th and the 7th defendants on the account of Cheng Po in favour of Landmark, thus bringing the overdraft to $6.105 million. No allegation of impropriety was made in respect to the excess in the former debit balance of $5.105 million over the ceiling. The situation calls for an explanation, but on the affidavit evidence it cannot readily be said that the 7th defendant as a drawer of the cheque for $1 million on the 16th of October 1981 was either reckless or fraudulent or that he could never have honestly expected the cheque to be met in a bona fide transaction. If the further withdrawal from the overdraft account of another $1 million by cheque in the circumstances can be argued to point inevitably to recklessness, dishonesty or fraud, why has not the same been said against the earlier breaching of the overdraft ceiling?

26. The 7th defendant explained that the cheque for $1 million to Landmark was an advance made to Landmark as a partner in the joint venture which had a potential market value of some $160 million. One would normally expect a bank overdraft to be first reduced or repaid before distribution of profits. If only there is evidence of the use of these facilities being restricted to redevelopment expenditure, it may well be enough for drawing the reasonable inference that these defendants must have known the purpose of the $1 million cheque as being unauthorized in their arrangement with the bank. But I have been referred to no prohibition against payment out from this account of Cheng Po Limited for advance profits to partners. The affidavit evidence has not ruled out all reasonable possibility of explaining his conduct innocently. Besides, Cheng Po is no longer indebted to the bank.

27. From a syndicated loan of $160 million obtained on the 29th October 1981 from Bank America Asia and Citicorp, Cheng Po's overdraft was wholly redeemed, but what added more suspicion to this $1 million pay-out was that when the 7th defendant took his profit on or about the 3rd of November 1981 instead of taking his alleged rightful share of $6 million commensurate with his shareholdings of 60% in the company through Hang Sing Land with Landmark's at only 10%, the 7th defendant took a profit of only $4.2 million. The vast difference of $1.8 million was sought to be explained by the 7th defendant that he no longer remembered if he had gone "through the mental process" of calculating his own $6 million entitlement. He elaborated that if he had paused to ponder over it, the mere fact that he took only $4.2 million with a short-fall of $1.8 million was due to "unavilability of cash". He further claimed that he would not have been unduly concerned as his full share would be accounted for in a very successful venture. $1.8 million is a substantial sum by any means. A fuller explanation is called for, but it does not now take the matter further.

                (2)    Earnall's $1.5 million: $7 million banking facilities were granted to the company half directly and half through the 8th defendant. The allegation is that on the 22nd December 1981, the 6th defendant and the 7th defendant drew a cheque in favour of Landmark and that on behalf of Landmark the 6th defendant endorsed it over to the 8th defendant. The cheque was for a sum of $1.5 million and was cleared on the 24th December 1981. This transfer calls for some explanation, but little more is known and again it is a far cry from being able to say that this is sufficient evidence of impropriety letting alone conspiracy to defraud. I need not consider the facts on the merits, but such affidavit evidence cannot support any good arguable case of conspiracy to defraud against the 7th defendant. In any case, the actions against the guarantors of Earnall and the 8th defendant are both pending.

                (3)    Lubbock's $?million: Certain property in Taiwan Was purchased on the 23rd March 1981 for $3.5 million. Some 5 months later, on the 24th of August 1981, banking facilities of $4.5 million (nearly 130% of the original purchase price in March 1981) were obtained by Lubbock. On the 4th December 1980, a cheque of $? million was drawn by the 6th and the 7th defendants in' favour of one P.C. Huang who was possibly a lawyer in Formosa, but this sum of money eventually found itself into the account of High Plateau. Nothing more is known, but I was invited to note that the $4.5 million facilities were soon thereafter approved by Folch. My general observations made and views taken for Earnall Investments Limited would be equally applicable, and I need net repeat myself. Come what may, the action against Lubbock's guarantors has not been concluded.

                (4)    Kar Cheun Limited: It is alleged that a sum of $1.8 million was charged as "handling charges and commission" for $85 million banking facilities granted by the bank to Kar Chuen. This sum was traced through a Folch's company Ha Peng Estates Limited to the purchase of land in Argentina by the Panamaian company of Folch and his wife "Inmobiliaria", the 4th defendant. It now appears to the 7th defendant, so he claims, that Folch had defrauded Kar Chuen, but according to the 7th defendant a the time when he was shown a debit advice for this sum, he was "extremely upset" and considered the same as "totally unjustified". He allegedly protested to the 6th defendant who described Folch as evasive in response to his, the 6th defendant's query. The 7th defendant himself only complained to the bank over a year later in mid October 1982.

28. Next, there was the $1 million loan by two cheques of Kar Chuen to High Plateau. Finally, there was a payment of over $1.9 million alleged joint venture profit to Landmark through the accounts of High Plateau and another entity. Kar Chuen's entitlement was stated in exhibit "AL-6" as $1.57 million. That document is dated 22nd September 1981. The date may or may not explain the larger figure of $1.9 million. These payments again would call for an explanation but per se in the light of the circumstances now known can hardly be relied upon as sufficient evidence of impropriety or fraud. Devious manipulations that percolated through the dealings between Folch and the 7th defendant and his cousins together with their companies, taken together, can be no more than just piling suspicion on suspicion. I need not express any concluded view on these matters. Suffice it for me to say that none of these matters on the affidavit evidence drawn to my attention has, by itself or together, established a good arguable case for a Mareva injunction. I should mention that the current indebtedness of Kar Chuen is $65,655.98 and that there are no proceedings against it.

29. I turn then to the Join-In Hang Sing Centre. The bank's decision to acquire some premises in the Join-In Hang Sing Centre was based on information fed by Folch, which can only be described as misleading, but there is no direct evidence to show that the 7th defendant had knowledge of it. I shall endeavour to give a summary of the events chronologically. The area, the unit price and description of the premises under consideration and the imprecise language used in documents evidencing these events are not always consistent. Many attempts have bean made, but the apparent discrepancies and mis-information cannot be eliminated. If one were to ignore the variants and give a benevolent interpretation to the documents, the transactions might be sensibly understood on the basis that the price for unit 1 was $3.15 million, that for the flat roof was $1 million, that for the two car parks was $400,000 at $200,000 each and that for the walls was $100,000 thus yielding an alleged profit of $700,000.

30. I think it would be convenient to start with:

31. It is alleged that Long Harbour never received this $7000,000 profit. The sum of $800,000 which had been paid over before the 25th June 1981 (see the above paragraph 8) went to Ha Peng and eventually found its way to the purchase of a flat in Barcelona, Spain. It is suspected that this payment o $800,000 was sought to be covered up by the introduction of Long Harbour's alleged profit in the sale of premises unit 1, car parks and the corner walls in the Join-In Hang Sing Centre. This is no more than suspicion Suffice it for me to say that there is no good arguable case of conspiracy to defraud from these circumstances and documentation. In passing, it is worthy of note that even if the purchase price to the finance company had been deliberately inflated for some extra profit or gain to be made, that per se would not have been evidence of fraud and that hop such gain or profit was disposed of also could not have necessarily meant fraud. These matters do call for an investigation, but they are not enough to establish a good arguable case of conspiracy to defraud in support of the Mareva injunction.

32. In paragraph 93 of the Statement of Claim, it is pleaded that by virtue of their position in Kar Chuen, the 6th defendant, 7th defendant and the 10th defendant knew of the conflict of interest between Folch and the plaintiffs. I have said that there is no cogent evidence for imputing to the 7th defendant knowledge of any conflict. The allegation is that despite such knowledge, the 6th and the 7th defendants actively participated in the preparation of a series of documentation for the sole purpose of concealing the transfer of $800,000 to Folch. The circumstances so far disclosed have not taken such assertion beyond the realm of speculation. The plaintiffs have failed to establish a good arguable case on these allegations against the 7th defendant. In passing, I should mention that the 7th defendant's alleged capacity of a constructive trustee for the $800,000 has not been elaborated.

33. It is also charged that Kar Chuen in conjunction with the 7th defendant and others, conspired to defraud the bank by turning a short tern loan to Kar Chuen into long term loans to various purchasing companies of units in the Join-In Hang Sing Centre. Kar Chuen was granted a short term bridging loan of about $85 million for the purchase of the Join-In Hang Sing Centre. The head-office of the bank was only informed of a short term bridging loan for $75 million. At or about the time of the withdrawal on the 21st September 1981 allegedly for the payment of "handling charges and commission" in the sum of $1.8 million which was traced to a land purchase in Argentina, the overdraft in the short term bridging loan to Kar Chuen reached well over $102 million. Subsequently, portions of the building were transferred to no less than 7 companies in which the 7th defendant is said to have an interest. They are: Sturrock Limited for unit 1 on the 1st floor, Peruam Limited for unit 3 on the 1st floor, Punchestown Limited for unit 6 on the 6th floor, Houstead Limited for unit 2 on the 2nd floor, Sherrill Investment Limited for unit 4 on the 1st floor, Lo Shi Enterprises Limited for unit 5 on the 8th floor and Hang Sing Construction Company Limited for unit 3 on the 6th floor. Except for Lo shi Enterprises Limited which was granted a bank long term loan to the extent of 70.34% of the purchase price, the rent was each granted a bank loan. to cover 100% of the purchase price and repayment was spread over the years by monthly instalments. Some explanation is again called for.

34. It is common knowledge that the volatile property market was then at or near its peak. It may not reasonably be said that these manoeuvres were not capable of any innocent explanation except for fraud. However, I need only say that the plaintiffs have not set up any good arguable case of conspiracy to defraud on this allegation in support of the Mareva injunction. Moreover, save for Sturrock against which no writ has been issued, proceedings instituted against the other companies and/or their guarantors have not come to an end.

35. Finally, I come to the allegation concerning Fairbreeze Limited of the 7th defendant owned 80% through a Liberian company by the name of Worldwin International. The bank granted facilities to Fairbreeze to the extent of $3.5 million. There was a pre-condition that security required by the bank must exceed a value of over $5.4 million (page 4 of exhibit "RJM-28"). On the 29th October 1981, the 7th defendant as a director of Fairbreeze sent to the bank a valuation of various lots In Taipo for slightly over $4 million (exhibit "RJM-29"). The 7th defendant made a bald assertion that an honest mistake was made on the area square footage. The 7th defendant stated that one Larry Tam was instructed "to carry out the valuation", but the 7th defendant did not even specify by whom the alleged mistake was made. The 7th defendant claims that the then correct valuation should have been given as $900,000. Even accepting that to be true, the overestimation was some $3.1 million. The discrepancy is a valuation seeking to meet the requisite $5.4 million in the pre-condition was of such a magnitude that the 7th defendant would unlikely be excused by any explanation letting alone his bald assertion of a mistake. The 7th defendant through counsel drew my attention to the maximum overdraft used in this account of Fairbreeze, which was well under $¾million. It was submitted that the 7th defendant could not have harboured any fraudulent intention when his need was nowhere near the $3.5 million, particularly when the correct value is now said to be $900,000, enough to cover what was actually made use of in this bank overdraft. It was also sought to be explained that as a man much involved in property investments in Hong Kong, the 7th defendant ought not be assumed to have at all times been familiar with the areas of all his properties. In this instance, the bank sought a security of at least $5.4 million and the 7th defendant as endeavouring to meet it. The grossly exaggerated valuation and acceptance of it by Foluh on behalf of the bank can reasonably point to fraud. The submission of a valuation, knowing it to be false, is very strong evidence, and the 7th defendant's explanation has not succeeded in rendering such evidence less cogent. In my view, the plaintiffs have established a good arguable case of conspiracy to defraud against inter alia the 7th defendant in the procuration of banking facilities on the force of this grossly overestimated valuation.

36. Fairbreeze's outstanding indebtedness to the bank is in the region of $½million. There is a pending action against its guarantors, and the plaintiffs are presently unable to say whether they have suffered any damages out of the core of the alleged conspiracy to defraud i.e. the grant of bank overdraft to Fairbreeze Limited. Without evidence of ally actual damages or loss flowing from this alleged conspiracy to defraud or the extent thereof, the plaintiffs' civil claim in this action against the 7th defendant in connection with the overdraft to Fairbreeze Limited is not well founded or wholly substantiated. For this reason, the plaintiffs have hot shown a good arguable case against the 7th defendant in support of the Mareva injunction.

37. If I came to a conclusion that a good arguable case in support of a Mareva injunction has been shown against the 7th defendant, by reason of the suspicion cast by his and others' manipulations in many transactions disclosed in these proceedings and his use of a Panamaian company and a Liberian company and the generally unhelpful manner in which he attempts to answer the allegations made against him, I would have no hesitation to say, despite his local connections, that there is a real risk of the 7th defendant removing his assets from the jurisdiction so as to stultify any judgment that the plaintiffs may obtain against him. I would also be satisfied that with appropriate amendments made to the Mareva injunction, the 7th defendant's business activities would not be unduly prejudiced and that on the balance of convenience, it would be just and equitable so to continue with the modified Mareva injunction against the 7th defendant.

38. But in the circumstances, I take the view that the plaintiffs have not established a good arguable case against the 7th defendant for the various reasons I have given, and the Mareva injunction and order for discovery in aid thereof most therefore be discharged. Costs must follow the event and the 7th defendant's costs in this inter partes application up to today be borne by the plaintiffs. I certify the case fit for two counsel.

(2) [1939] 3 All E.R. 952

(3)  [1979]H.K.L.R.214 at 220 per Lord Diplock.

(4)   [1951] P.35 at p.37

(5)   [1979] 3 W.L.R. 123 at 137 C & G

(6) Marginal reference 11/1/4, p.94 1982 White Book

(7) Marginal reference 22/1/11E at p.520 1982 White Book

(8) [1980] 1 W.L.R. 1259 at p.1264D

(9)   [1981] 3 W.L.R. 33 at p.41 G to H

Representation:

Mr. Charles Ching, Q.C. with Mr. Ronny Wong and Mr. Allman-Brown instructed by Messrs. Deacons for Plaintiffs

Mr. Bokhary, Q. C. with Mr. Adrian Huggins instructed by Slaughter & May for 7th Defendant. 

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