KING FUNG CONSTRUCTION WORK CO LTD v. YIP KWAI CHOR AND ANOTHER

HCMP 375/2005
(Formerly HCCW 829/2004)

in the high court of the

hong kong special administrative region

court of FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 375 OF 2005

(FORMERLY COMPANIES WINDING-UP NO. hccw 829 of 2004)

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HCA 2183/2004

in the high court of the

hong kong special administrative region

court of FIRST INSTANCE

ACTION NO. 2183 of 2004

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D E C I S I O N

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1.  On 12 December 2006, I gave judgment in these proceedings.  I have made findings in respect of the matters in dispute between the parties.  I invited the parties to make further submissions on the form of orders to be made and consequential directions to be given. 

2.  Mr. Yip on the one hand, and Mr. Lau and the Company on the other have respectively submitted their proposed orders and directions.  I have heard oral submissions from Mr. Yip and also from Mr. Yau (the latter acting for Mr. Lau and the Company).  I now give my ruling on the relief to be granted in these proceedings.  I propose to adopt the nomenclature used in the Judgment.

Date of Valuation of Shares

3.  The Petition was presented on 29 July 2004.  Mr. Yau accepted that the date for the purpose of valuing the shares should normally be the date of the petition.  Indeed, as Le Pichon J. (as she then was) said in Re Tai Lap Investment Co. Ltd. [1999] 1 HKLRD 384 at 399:

“	Prima facie, the petition date is a convenient date, that being the point in time when the petitioner crystallized his position in claiming to be entitled to cease association with or participation in the company.”

4.  As Mr. Yau submitted, that the adoption of the petition date as the relevant date is not immutable.  As Kwan J. said in She Wai Hung v. Juliano Lim and others, unrep. HCMP 6472/2001 (27 February 2004), at paragraph 66:

“	The overriding requirement is that the valuation of shares should be fair on the facts of the particular case.”

5.  Mr. Yau argued that fairness in the present case required that the value of Mr. Yip’s shares should be determined as at an earlier date, that is, 31 October 2003.  The main reason advanced was that owing to a number of matters which Mr. Yau characterized as breach of fiduciary duties owing by Mr. Yip to the Company, Mr. Lau would have been justified in terminating the quasi-partnership with Mr. Yip at the end of October 2003.  In Mr. Lau’s word, he would have no hesitation to “say good-bye” to Mr. Yip as a partner in business.

6.  Mr. Yau first relied on my finding in the Judgment that as a result of the arrangement between the Company and Sing Yip in respect of the 2 projects at Kam Chin Village and Hang Hau, Sing Yip undertook the works at the sites on its own account (see paragraph 54).  A successful claim was made, however, by a supplier (namely, Hop Chung Scaffolding Company Limited) against the Company for outstanding hiring charges in respect of materials and equipment used by Sing Yip on those sites.  The claim resulted in a judgment against the Company.  It was argued that as it was Sing Yip and not the Company which should be responsible for the outstanding charges, by failing to procure Sing Yip to discharge the liability towards Hop Chung, Mr. Yip had exposed the Company to the claim in disregard of his duties as a director of the Company.

7.  Another complaint was in relation to the outstanding sum of $3,247,828 owed by Sing Yip to the Company (see paragraph 189 of the Judgment).  It was similarly argued that Mr. Yip had a duty, which he disregarded, of procuring Sing Yip to repay that sum.  It was further said that if, despite Mr. Yip’s promise of repayment, it had been known to Mr. Lau that Sing Yip would deny liability of the sum and had no intention of making repayment, he would have terminated his business relationship with Mr. Yip.

8.  I see several difficulties with this argument.  First, the monetary liability was that of Sing Yip, not a personal liability of Mr. Yip.  Secondly, Mr. Lau’s complaint is not that Mr. Yip should not have allowed himself to be put in a position of conflict by being involved in both Sing Yip and the Company.  His complaint is that, while accepting Mr. Yip’s involvement in both companies, Mr. Yip was nevertheless under a duty to the Company to see to it that Sing Yip discharged its contractual obligations towards the Company.  I have considerable reservation as to the soundness of the argument, both as to the scope of the duty, and as to its alleged breach.  But it is perhaps inadvisable for me to express a concluded view on the issue because, as Mr. Lau has mentioned in his affirmation, this is the subject of an intended action which he and the Company will commence against Mr. Yip.

9.  On the assumption that Mr. Yip were indeed in breach of his duties as aforesaid, I am not sure what steps Mr. Lau said he could have taken which would have enabled him to say “good-bye” to Mr. Yip and terminated the relationship.  Although described as a quasi-partnership, legally the parties were (and still are) shareholders in the Company.  It would not be legally possible to dissolve the relationship by applying such notions as “acceptance of repudiation” in the same way as a termination of relationship between parties to a contract: see paragraph 20 of Mr. Lau’s 17^th Affirmation.  If Mr. Lau had meant to say that he would have either offered to purchase Mr. Yip’s shares or petitioned to wind up the Company so as to put an end to the relationship with Mr. Yip, then as a matter of fact and history he had done neither of such things.  I do not think Mr. Lau is entitled to say that, in retrospect, it was unfair to him for the relationship to have continued beyond October 2003 on the basis that he could have put an end to it, when he in fact did not.

10.  Mr. Yau also relied on the fact that Mr. Yip had absented himself from Hong Kong for a substantial period of time from 22 October 2003.  On behalf of Mr. Lau, he applied to reopen the issue as to the reason of Mr. Yip’s detention on the Mainland by seeking to introduce into evidence a copy of the judgment of the Guangdong Province Dongguan City People’s Court which, he said, was only obtained recently by Mr. Lau.  With reference to the judgment, Mr. Yau sought to argue that not only was the explanation given at the trial by Mr. Yip as to his detention untrue, it showed that his detention was actually due to his own fault by misconducting himself in front of the public security officers.  The ensuing inability to attend to the projects is another instance of the breach of his director’s duties.

11.  I have already rejected the application for introducing fresh evidence and reopening the issue, and I do not propose to repeat the reasons here.  In any event, for the reasons given in paragraph 9 above, I do not see how the breach, even if established (which in my view, is not), could have assisted Mr. Yau’s argument.

12.  I would mention in this connection that no argument has been advanced to the effect that Mr. Yip could or should have presented his petition at an earlier time.  It has not been established from the available materials that Mr. Yip has intentionally delayed the seeking of relief because of a desire to take advantage of the wrongdoer’s effort in rendering the Company’s business profitable.

13.  For the foregoing reasons, I am not satisfied that there are good grounds for displacing the petition date as the date for the valuation of Mr. Yip’s shares.  I would accordingly hold that the shares should be valued as of 29 July 2004.

The Valuer

14.  Mr. Yau argued that a registered quantity surveyor experienced in estimating the profits and costs of construction work, including formwork, should be appointed as valuer.  Mr. Yau emphasized that the valuer in the present case would be hampered in his task by the absence of proper documentation to support the accounts.  He said the expertise of a quantity surveyor would enable him to better understand the value of the work done and the materials used, and the margin of the profits typically generated in projects of the kind undertaken by the Company.  It was argued that he would be able to give a more realistic view of the Company’s profits and hence, the value of the shares.

15.  Mr. Yip said a certified public accountant is to be preferred.

16.  The task of the valuer is to determine the valuation of the shares, which involves not only considering the projection of profits or loss of the Company’s projects, but also analysis and interpretation of the Company’s accounts; valuation of potential or pending claims by or against the Company, and so on.  I think a professional accountant experienced in assets valuation will be better suited to these tasks than a registered quantity surveyor.  Whilst Mr. Yau’s concern over the lack of proper documentation is justified, the perceived difficulty may to some extent be addressed by allowing the accountant to consult a registered quantity surveyor as and when necessary to do so.

Prospect of Profits

17.  Mr. Yip asked that the prospect of the Company in making profits after the date of valuation should also be taken into account.  Mr. Yau disagreed, arguing that Mr. Yip had demonstrated by his conduct that he did not deserve to share in the future profits of the Company.  In addition to the above-mentioned matters allegedly constituting breach of fiduciary duties, Mr. Yau also relied on Mr. Yip’s statement made in the course of the proceedings that he would like to see the Company being wound up.

18.  At the date of the valuation, the Company was a going concern.  The ability of the Company in generating future profits must be a relevant element in determining the true worth of the Company, and it must be right that such prospect (or the lack of it) should be reflected in the value of the shares.  In terms of valuation generally, it may well be that the prospect of profits will be diminished as a result of a change of personnel in the management or when the co-operation of some key figures in the Company could no longer be assured.  But these are matters for the valuer and different questions altogether.  I am not attracted to the argument that the proper basis for valuation should somehow be distorted by broad notions of fairness.  Nor do I see any legal basis for leaving out of account factors which are otherwise relevant for valuation of the shares.

Discount for Future Profits

19.  In the Judgment, I have found that Mr. Yip was entitled to 50% of the profits of the Company notwithstanding his shareholding was only 30%.  Mr. Yau argued that the profit-sharing ratio should not apply to profits arising after the valuation date.  I do not agree.  There is nothing in the evidence to suggest that the agreement on equal profit sharing was confined to the projects at hand at the time.  If the valuer comes to a favourable view as to the prospect of future profits, the value of the shares should properly reflect the fact that Mr. Yip would be entitled to share half of them.

Expenses

20.  In the proposed orders and directions submitted by Mr. Lau, he sought a specific order that the valuer should bring into the Company’s account any sums which Mr. Lau is able to establish as loans to the Company or disbursements made on its behalf.  This direction should be given, Mr. Yau said, notwithstanding my findings that Mr. Lau had failed to account for the funds he had received from the 24 cheques.

21.  I do not think a specific order needs to be made in the terms sought, not because I disagree with it but I find it unnecessary to do so.  In the process of valuation, not only will the valuer have to assess the value of the assets, he will also need to ascertain the true extent of the liability of the Company.  Any liability, whether owed to Mr. Lau or any other creditor, will need to be taken into account on satisfactory proof.  I therefore do not believe it is necessary to make the order sought in this regard.

Interest

22.  I would follow the case of She Wai Hugn v. Juliano Lim and others, unrep. HCMP 6472/2001 (21 September 2006) and the authorities referred to in paragraph 36 of that Decision, in holding that interest should be awarded on the purchase price of the shares.

Orders

23.  I will make the following orders in HCMP No. 375 of 2005 :

(1)	The 2nd Respondent do purchase the 3,000 ordinary shares of $1.00 each in the capital of the 1st Respondent presently registered in the name of the Petitioner (“the Petitioner’s Shares”) at a price to be fixed by such valuer (“the Valuer”) being a certified public accountant, as may within 14 days hereof be agreed upon by the Petitioner and the 2nd Respondent, or failing such agreement as may be appointed by the president for the time being of the Hong Kong Institute of Certified Public Accountants (“HKICPA”) upon the application of either party with or without the consent of the other;
(2)	The Valuer is hereby directed to value the Petitioner’s Shares by reference to the assets, profitability and future prospects of the 1st Respondent as at 29 July 2004 (being the date of the Petition) and without discount for the fact that the Petitioner’s shareholding is a minority holding;
(3)	In valuing the Petitioner’s Shares, the Valuer is directed to take the following matters into account:
	i.	the Petitioner was entitled to share 50% of the profits of the 1st Respondent;
	ii.	the 2nd Respondent shall repay the 1st Respondent a sum of $13,759,670 belonging to the 1st Respondent;
	iii.	the 2nd Respondent shall repay the 1st Respondent all sums which the 1st Respondent would have received under the West Kowloon Contract but for the 2nd Respondent’s wrongful diversion less any amount which the 2nd Respondent is able to establish with proper documentation as expenses properly incurred in relation to that project;
(4)	The 2nd Respondent do provide to the Valuer all books, accounts and documents of the 1st Respondent relevant to the valuation of the Petitioner’s Shares within 14 days from the date of the appointment of the Valuer;
(5)	The Petitioner shall have the same right of access to any documents provided by the 2nd Respondent under paragraph 4 hereof;
(6)	For the purpose of carrying out the valuation, the Valuer shall be entitled to receive representations in writing from both Mr. Yip and Mr. Lau provided that each side should have full notice of the other’s representations;
(7)	Interest to be awarded on the value of the Petitioner’s Shares fixed by the Valuer, to run from the date of valuation being 29 July 2004 to 12 December 2006, at the rate of 1% over the best lending rate of HSBC prevailing during this period, and thereafter at the prevailing judgment rate;
(8)	Subject to (9) below, the 2nd Respondent do pay the Petitioner the value of the Petitioner’s Shares together with interest thereon within 14 days from the publication of the valuation by the Valuer for the purchase of the Petitioner’s Shares;
(9)	There be liberty to the 2nd Respondent to apply for further orders or directions relating to the payment of the purchase price not later than 14 days after the publication of the valuation by the Valuer;
(10)	The 2nd Respondent do pay the Petitioner the costs of these proceedings including any costs reserved and the costs of this application;
(11)	There be an order nisi that the costs of the valuation of the Petitioner’s Shares be borne by the 2nd Respondent with liberty to the 2nd Respondent to apply to vary the said order nisi not later than 14 days after the publication of the valuation by the Valuer;
(12)	There be liberty to all parties to apply for further orders and directions generally.

24.  I will make the following orders in HCA No .2183 of 2004:

(1)	The 2nd Defendant, Sing Yip Construction Engineering Ltd., do pay the sum of $3,247,828 to the Plaintiff, King Fung Construction Work Co. Ltd. together with interest on the said sum at the rate of 1% over the best lending rate of HSBC prevailing from time to time from the date of the Writ to 12 December 2006 and thereafter at Judgment rate;
(2)	The Plaintiff’s claim against the 1st Defendant be dismissed;
(3)	There be an order nisi that the costs of the Plaintiff be borne by the 2nd Defendant;
(4)	There be an order nisi that the costs of the 1st Defendant be borne by the Plaintiff.

HCA 2183/2004

香港特別行政區

高等法院原訟法庭

民事司法管轄權

案件編號2004年第2183號

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HCA 2183/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2183 OF 2004

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J U D G M E N T

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Introduction

1.  This is the Defendant’s application to discharge a Mareva injunction made ex parte by Sakhrani J. on the 25 September 2004 and then continued by Reyes J. on the 30 September 2004 at a short inter partes hearing where, by agreement, the order was continued until it came on for hearing before me.  The jurisdiction is commonplace but it is useful to begin by setting out the test to be applied when deciding whether to grant such an order.  This is succinctly recited in the headnote to the report of the English Court of Appeal’s decision in Ninemia Maritime Corporation v. Trave Schiffahrtsgesellschaft mbh & Co. K.G. “The Niedersahkn” (1984) 1 All ER 398 as follows:-

“The test to be applied by the court when deciding to exercise its statutory discretion to grant a Mareva injunction to a plaintiff pursuant to s.37 of the Supreme Court Act 1981 whenever it ‘appears to the court to be just and convenient to do so’ is whether, after the plaintiff has shown that he has at least a good arguable case and after considering the whole of the evidence before the court, the refusal of a Mareva injunction would involve a real risk that a judgment or award in the plaintiff’s favour would remain unsatisfied because of the defendant’s removal of assets from the jurisdiction or dissipation of assets within the jurisdiction.

A Mareva injunction will not be granted merely for the purpose of providing a plaintiff with security for a claim, even when it appears likely to succeed and even when the granting of the injunction will not cause hardship to the defendant.”

2.  This is a dispute between a Mr Lau Kai Yam who owns 70% of the Plaintiff company and the 1^st Defendant, Mr Yip Kwai Chor who owns the remaining 30% and who is also the controlling shareholder of the 2^nd Defendant, the other shareholder being his daughter.

3.  Both men are involved in the building industry as sub-contractors specialising in the erection of formwork into which concrete will be poured, out of which the particular building which is being erected will take shape.  Before he incorporated his business, Mr Lau traded as a firm bearing the name King Fung.  He had grown his business to the extent that the value of the sub-contracts awarded to him ran into tens of millions of dollars.  He took advice and formed the Plaintiff Company on the 9 March 2001.

4.  Mr Lau came to know Mr Yip, who was also carrying out formwork sub-contracts, in his case through the 2^nd Defendant, when they both obtained work from Sino Land at their large Park Avenue development close to Olympic Station in Kowloon.  Mr Yip impressed him as a person of substance in this type of work with a capacity to invest sums of $2 to $3 million, at short notice, into formwork contracts.  In 2002 Mr Lau obtained two contracts at Kings Park and Ma On Shan to the value of $80 million which were to be both time-consuming and capital intensive.  In those circumstances he invited Mr Yip to become a shareholder in the Plaintiff expecting that he would be able to inject needed capital into the business.  These injections of capital would come as a shareholder’s loan as opposed to equity capital given the fact that the Plaintiff’s issued share capital was only $10,000.

5.  Mr Yip agreed and in May 2002 Mr Lau had transferred to him the 30% shareholding that had been in the name of a dormant shareholder.  Mr Lau says that in doing so he had no intention to ‘gift’ Mr Yip a share in the Plaintiff’s future profits and success if he contributed nothing to those profits.  He describes it in his affirmation of 23^rd September 2004 as a “business co-operation based on mutual trust and confidence.”

How the parties fell out

6.  Mr Lau says that shortly after becoming a shareholder, Mr Yip showed himself to be unreliable.  He rarely attended the building sites to supervise or offer guidance to the Plaintiff’s foreman or staff.  Complaints were received from the principal contractor at King’s Park that he was not up to the job.  As to the hoped for monetary contributions that Mr Lau had expected, these never materialised.  In fact the contrary was the case and according to Mr Lau he was asked for and lent Mr Yip $2.5 million on five occasions in the course of 2003.  These payments are particularised in paragraph 7 of the Statement of Claim and form an important element of the claim against Mr Yip (as 1^st Defendant).

7.  The next aspect of the claim concerns what are described as “the back-to-back contracts”.  The background to this is that in April 2003 Mr Lau obtained a sub-contract for the Plaintiff for a building project at Kam Chin Village, Fanling from the principal contractor Hong Kong Construction Company Ltd.  Mr Lau says that he told Mr Yip that as the projects at Ma On Shan and King’s Park had taken up much more time and resources that he, Yip, should do his share as his partner by taking on the Kam Chin Village work himself.  Mr Lau reasoned that if he did not do this work Mr Yip would take 30% of the profits without doing anything to earn them.  Mr Lau suggested that he do this contract as the Plaintiff company’s sub-contractor at 90% of the price that the main contractor would be paying the Plaintiff, thereby giving the Plaintiff a 10% profit margin.  According to Mr Lau, Mr Yip agreed to this proposal provided that he involved his company the 2^nd Defendant to carry out the work, which Mr Lau was agreeable to.  On this basis the Plaintiff company sub-contracted this work to the 2^nd Defendant.  These works, he says, started in April 2003.

8.  Mr Lau obtained a further sub-contract from China Overseas Building Contraction Company Ltd. for works above Hang Hau MTR station which he also sub-let to the 2^nd Defendant on identical terms.  These works started at the end of May or early June 2003.

9.  In relation to these contracts Mr Lau complains that Mr Yip’s and therefore the 2^nd Defendant’s performance was ‘extremely disappointing’.  He says the 2^nd Defendant did not fulfil its financial obligations to its own staff and trade creditors.  He says that as a result of this the Plaintiff was, from time to time, required to settle invoices from the 2^nd Defendant’s materials suppliers and other trade creditors as well as making cash advances to the 2^nd Defendant.  In paragraph 11 of the Statement of Claim there is particularised an amount of $3,547,828 paid to or on behalf of the 2^nd Defendant for Kam Chin Village and Hang Hau [pages 29-30 of the main bundle].

10.  To compound matters, according to Mr Lau’s evidence, the Plaintiff would transfer interim payments that it would receive from the principal contractor to the 2^nd Defendant soon after it received these payments so as to enable the 2^nd Defendant to meet its obligations to its workman and trade creditors.  In this way $9,635,742 was paid to the 2^nd Defendant in addition to the $3.5 million which I have just described.

11.  Mr Lau says that on 9^th September 2003 he had a meeting with Mr Yip and confronted him about these payments and asked when he proposed to repay the personal loan $2.5 million and re-imburse the amounts advanced to the 2^nd Defendant for the two sub-contracts.  Mr Lau affirms that Mr Yip told him that the $2.5 million and the $3,547,828 would be repaid by the end of October 2003.  At paragraph 13[page 31] he says that Mr Yip signed an acknowledgement of these two amounts and the following day a repayment of  $300,000 was made to the Plaintiff.  This in fact is the only payment received from either defendant.

12.  Mr Lau therefore quantifies the claim as $2.5 million owing from Mr Yip (1^st Defendant) to the Plaintiff and as surety for the 2^nd Defendant’s performance of its sub-contract $3,247,828 (being 3,547,828 less $300,000).  The 2^nd Defendant is said to owe the $3,247,828 as principal debtor.

13.  As will emerge more fully in a moment, Mr Yip was detained in the Mainland over civil dispute from October 2003 until June 2004.  Mr Lau’s case therefore is that the Plaintiff company had to take over the two back-to-back contracts and had to incur further expenses including the 2^nd Defendant’s workmen’s wages.  The claim against 2^nd Defendant is for the difference between the 90% of the value of the contracts that the Plaintiff would have had to pay the 2^nd Defendant on the back-to-back basis and the excess over the 90% that it actually paid which comes to $5,647,441.

14.  The summary of the claim is at page 34, being the prayer to the Statement of Claim.  As against the 1^st Defendant (Mr Yip) $2.5 million for the personal loan; $3,247,828 for payments on behalf of the 2^nd Defendant for which he said to have stood as surety and $5,647,441 being the claim as explained in the previous paragraph, again as the 2^nd Defendant’s surety.  As against the 2^nd Defendant the claim is for $3,247,828 and the $5,647,441.

The 1^st and 2^nd Defendants’ response

15.  Whilst the Plaintiff’s case as put in Mr Lau’s evidence may appear to be well documented and compelling a real feature of the evidence is that Mr Yip has put up an equally trenchant defence to this action and in fact got in the first shot, as it were, by presenting a winding-up petition in the Companies Court on 29^th July 2004 which has yet to be resolved.  This action was not started by the Plaintiff until 21^st September 2004.  The petition (now amended) appears at page 375 of the bundle.  The Plaintiff is the company that is sought to be wound up by Mr Yip under sections 168A and 177 of the Companies Ordinance on the ground that the company is being operated in a manner unfairly prejudicial to himself including his removal from his directorship, and his right to inspect the company accounts.

16.  Mr Yip’s main affirmation starts at page 211to 228 of the bundle.  Presently, I will need to refer to the main points made by Mr Yip, but by way of general observation it is important to note that much is in dispute.  In his affirmation he seeks to paint Mr Lau as the villain in the piece, with him as victim.  An assessment will therefore need to be made in order to conclude whether the Plaintiff company has established a good arguable case as a pre-requisite to the grant of the injunction.  The disputes as to fact are largely incapable of resolution on paper.  Most of the factual disputes can only be resolved at the trial.  Nevertheless, that having been said the Plaintiff should not be deprived of its interim relief just because factual disputes are incapable of definitive resolution.  A ‘good arguable case’ does not require the applicant for an injunction to go that far.

17.  Of the two of them Mr Yip wishes to present himself as the bigger player in this type of work with better connections.  He says it was he who obtained the Ma On Shan and King’s Park contracts through his contacts with China Overseas Building Construction Company Limited (“China Overseas”), the main contractor.  He signed those contracts and makes the serious charge that Mr Lau then signed copies in order to hold himself out as the one who had obtained them.  He then goes on to affirm that the reason why he was asked to become a shareholder was not because he was expected to inject capital but because of his connection with China Overseas for whom he had done work in the past.

18.  As to the general thrust of Mr Lau’s evidence that he would not expect Mr Yip or the 2^nd Defendant to share in the Plaintiff’s profits without earning those profits he says that he had done much in securing no less than five sub-contracts and supervising the completion of works until his detention in the Mainland in October 2003.  He says without his having secured those contracts this work would not have come the Plaintiff’s way.  He points to the fact that he owned 30% of the company and that Mr Lau had in fact gone as far as promising 50% of the profits.

19.  As to the loan of $2.5 million his case is that far from being a personal loan they had both agreed that the time had come for them to distribute profits amongst themselves.  This was just before Chinese New Year 2003.  They both drew $2.5 million.  He says Mr Lau could have drawn even more but he has no way of checking on this.  He also says that if this has to be a loan it does not comply with s.157A Companies Ordinance because there was no resolution in general meeting to provide for this.  As to the narrative on the photocopies of the cheques and the cheque stubs, these are entirely self-serving having been written on there by Mr Lau to help make out his case that these payments were a loan.

20.  As to the conduct of the contracts Mr Yip strongly challenges the version put forward by Mr Lau and says that these contracts were properly performed by him until his detention on October 2003 which occurred out of spite by local officials, relating to the construction of a primary school at Mr Yip’s ‘native’ village.  He suggests that Mr Lau then took advantage of his enforced absence and has now concocted an account of misconduct by him in the completion of the back-to-back contracts.  His case is that it is only after discovery has taken place and a proper enquiry is conducted that the truth with emerge and will show that in fact nothing in owing to the Plaintiff.  He has now been unlawfully removed from the company and this is why he has applied to the Companies Court to seek redress.

Conclusion

21.  This summary of the evidence in sufficient to show how sharply contested the matter has become.  It is quite impossible to arrive at any reliable view of which side in his be believed without the evidence being tested.  Nevertheless, some tentative conclusions can be ventured even at this stage.  The matter in fact conveniently divides itself into the dispute over the alleged personal loan of $2.5 million and the other parts of the claim which are inter company, disputes save for the fact that Mr Yip is also said to be personally liable as surety for the 2^nd Defendant’s performance.

The Claim for $3,247,828 and $5,647,441

22.  I have come to the conclusion that these elements of the case are far too much in the air for me to say to the Plaintiff has made a good arguable case at this, perforce, paper stage of the litigation.  There are allegations and cross allegation going to and fro although I appreciate that the Plaintiff has produced what is said to be voluminous supporting documentation.  The Defendant has made strong comment about this evidence.  It is much too premature to think in terms of a Mareva injunction with the evidence in this state.  At best there is an equality of argument – both sides have a perfectly respectable case well short of being compelling without the weight and conviction that sworn oral evidence tested by cross-examination can bring to a case which is at present only on paper.  I do not consider that this can properly be described as a good arguable case, with the result that this part of the Plaintiff’s application falls at the first hurdle.

The 1^st Defendant as surety

23.  This aspect does not arise for consideration where I am declining to grant the Plaintiff an injunction against the 2^nd Defendant but I should observe that, even if I was so inclined, I would not have felt able to say that Mr Yip should be enjoined as surety.  The evidence is simply not there to trigger the Mareva jurisdiction.  There is no written document evidencing Mr Yip’s suretyship.  All I have is Mr Lau’s word for it.  As it stands at present this is simply not good enough.  This part of case must therefore fail, no proper basis having been established.

The personal loan for $2.5 million

24.  This is a discrete matter between the Plaintiff and Mr Yip as 1^st Defendant.  Mr Lau is more clear-cut and impressive in this regard.  The payments are very clearly documented and there is what purports to be a contemporaneous narrative on the cheques, as photocopied, and the cheque stubs.  Mr Yip says that this is just the two of them drawing down profits.  This needs to be finally determined but I am far more confident as to the Plaintiff’s evidential platform.  This evidence really does have the ring of a good arguable case of a loan.  The first hurdle has been cleared with something to spare but short of final proof, which must remain for trial.  Where this has been accomplished I must now turn to the second stage which is to decide whether the refusal of the injunction would involve a real risk that a judgment in the Plaintiff’s favour would remain unsatisfied because of the Defendant’s removal of assets or dissipation of those assets within the jurisdiction.

25.  Mr James Cheng, for the 1^st Defendant, submits that the Plaintiff has failed to make out this limb of the case.  At best it is highly speculative.  The 1^st Defendant is serious about this litigation and it was he who came to the Companies Court before this action was started against him which is a mere reaction to the winding-up petition.

26.  It needs to be remembered that before judgment a plaintiff is free to do as he likes with his assets and that this jurisdiction, which restricts that right, should only be exercised where all the conditions are shown to exist.  These orders cannot be made as a matter of course.

27.  On the Defendant’s side of the argument is the fact that he has dealt with the action in a most conscientious way by providing detailed instructions to his solicitors and it was he who went on the offensive first by bringing the winding-up petition.  He also says that he continues to reside at his home, which he owns, and he continues to operate his business in Hong Kong.  Against this the Plaintiff merely recites the incantation that the Defendant “…is unlikely to keep his assets which may be used to satisfy the judgment.  There is accordingly, a real risk of dissipation of assets in his case.”

28.  Whilst, I suppose, such a risk must always exist in every case, more than a bare appreciation of that risk is required.  The cases call for a ‘real risk’.  Such a finding usually involves something in a defendant’s conduct in the past, either connected with the particular case, or in his previous commercial dealings which would create a sense of alarm or a warning that if unrestricted such a thing might happen.  I have no such sense of apprehension in this case which might persuade me to order the 1^st Defendant to preserve assets of $2.5 million in Hong Kong.

29.  I appreciate that the Plaintiff has fortified its’ undertaking in damages to the extent of $1 million and as much as $2 million by way of fortification is offered on the papers, but where the Plaintiff has failed to show a real risk of dissipation, the question of fortification does not arise.  The Plaintiff has failed to get to the stage of fortification which is entirely related to the balance of convenience.  That is the ultimate stage of the enquiry which the court will not be troubled with until the applicant for the injunction demonstrates that it is entitled to the injunction on the merits and, if that is achieved, that the injunction should be ordered because of a real risk of dissipation.  The Plaintiff has failed at this second stage on this part of the claim.

30.  Accordingly, the ex parte order will be discharged and the matter must now proceed to trial in the usual way.

Costs

31.  As I have not heard argument I propose to make an order nisi that the costs, to include costs previously reserved, should be the Defendants’ costs in the cause, so that if the Defendants’ ultimately succeed in the action they will get these costs and if they fail they will only have to bear their own costs of the injunction application before the previous judges who have heard this matter as well as the costs before me.

Mr Albert Yau, instructed by Messrs Yip, Tse & Tang, for the Plaintiff

Mr James Cheng, instructed by Messrs Jonnie Yam, Jacky Lee & Co, for 1^st Defendant to 2^nd Defendant