Case Detail

HCA 1767/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1767 OF 2014

______________________

BETWEEN
	L.J. SMITH, INC.	Plaintiff
	and
	CHANCELLOR PRECIOUS METALS (VU) LIMITED (焯華貴重金屬有限公司)	1st Defendant
	LEE SHU KAI (李樹佳)	2nd Defendant

______________________

Before: Deputy High Court Judge Seagroatt in Court

Date of Hearing: 11 December 2014

Date of Decision: 11 December 2014

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D E C I S I O N

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1. In August 2014, the plaintiff, an American Company, was through fraudulent and therefore criminal manipulation of e‑mail contact, induced to pay sums totaling US$280,199.80 intended for its customer, into a bank account held at the HSBC Bank in Hong Kong in the name of a company identical to that of the 1^st defendant.

2. The plaintiff obtained a Mareva injunction against the named defendant company and the 2^nd defendant.

3. The 2^nd defendant is the admitted controller/director/principal shareholder of two companies of exactly the same name, incorporated by him — one in Hong Kong, on 14 November 2013 and the other in Vanuatu in December 2011. Both bear the same bracketed part of their name as “(VU)” even though only one was incorporated in Vanuatu. As I said before, this is calculated to mislead or confuse, perhaps deliberately so.

4. The bank account concerned, number 499‑746626‑838 opened on 16 January 2012, was made the subject of the injunction. The company search against the name or information from another source had revealed an address in Hong Kong – viz 20, Queen’s Road, Central. On the face of it the plaintiff had sued the correct company. However, it appeared that in May 2014 the 2^nd defendant applied to deregister the Hong Kong company he says “as a business decision”, but had already incorporated a company of exactly the same name in Vanuatu. He further states that the original “1^st defendant [in this action] is not the right party to be sued since it is [no longer] the holder at the HSBC of that account” and added, has no account at the HSBC. It was obviously necessary for the Vanuatu company to be substituted for the Hong Kong company as the 1^st defendant, as the 2^nd defendant had in effect agreed. This was done. However, the documents disclosed by the bank, reveals that the account is held by the Vanuatu registered company and was opened by the 2^nd defendant as the sole signatory. They also show the company as stated to have a Head Office in Hong Kong and a Business Address at Room 2014, 21^st Floor, Infinitus Plaza, 199 Des Voeux Road Central, Hong Kong. In fact both companies may have been operating the same account.

5. This is also the company’s Business Address stated on its Certificate of Incumbency dated 5 April 2013. It is stated thereon that the 2^nd defendant is its director.

6. Although the Vanuatu company is not registered in Hong Kong, its stated Head Office and place of business in Hong Kong means that under section 803(5)(a) service can be effected on it within the jurisdiction by sending the process or notice to, or leaving it at the place of business. Therefore there is no need for the plaintiff to apply for, or for the court to consider, service out of the jurisdiction under Order 11, rule 1.

7. I do not propose to repeat all the matters set out in my short judgment (6 pages) which I delivered when I dismissed the defendants’ appeal on 20 November 2014, printed copies of which were supplied a few days thereafter.

8. Suffice it to say that the 2^nd defendant affirmed that, in respect of the money fraudulently transferred to the HSBC account, he “has no direct interest in it” and “I am willing and able to pay or transfer the sum into court or to dispose of the same in such manner as the court may direct.” He has done nothing to put this into effect. All this was known to the defendants’ lawyers well before this appeal which is entirely without merit.

9. Since the defendants’ argument in the course of the hearing of the appeal from the Master which I rejected, there was in the skeleton submissions for the purpose of this hearing for leave to appeal, an attempt to advance it in a fashion which simply demonstrates the fallacy behind it.

10. In essence the defendants say that the court should ignore its compliance with section 803(5)(a) of the Companies Ordinance by contending that the statement as to place of business and its Head Office should be regarded as of no relevance because there is no evidence of business dealings. This is nonsense. The need to comply with section 803(5)(a) is to ensure that a foreign company which is not registered in Hong Kong but seeks certain facilities for business purposes eg banking, can be served with proper process or notice.

11. The defendants cannot be heard to say that they have registered or recorded a place of business in Hong Kong only in order to circumvent the need to register a foreign company in Hong Kong, and, in the same breath state that it was only a contrivance to that end and that it does not hold itself out as actually having business in Hong Kong. That would be a clear deception.

12. In fact it is quite clear that the 2^nd defendant was operating the company bank account at the HSBC because payments were being made out of the HKD account to recipients which included at least one Hong Kong company, and out of the USD account to dispose of the money fraudulently received by it. In his affirmation he stated that these recipients were all clients or business associates. Thus there was clearly business activity.

13. The numbers of the HKD account cheques are not consecutive indicating that at least four other cheques were used between the first and the last of these three.

14. My attention has been directed to a number of judgments which are wholly irrelevant to the factual matrix with which I am concerned.

15. On 8 December 2014, the defendants lodged a further affirmation by the 2^nd defendant which purports to exhibit documents supporting its fanciful, almost spurious argument. The contents of the affirmation itself are at least questionable and in some respects incorrect. The documents exhibited to it are highly dubious, suspiciously “emerging from the woodwork” at the 11^th hour. If these documents are genuine, why do they arrive at this late stage and in this form?

16. The form purporting to be a change of address on an HSBC form, is undated, and not signed by the bank. The other two documents could have been prepared and signed at any time. I decline to allow the affirmation to be filed but “de bene esse” I allowed comment upon it. They do not change the position at all.

17. There is no legitimate argument available to the defendants. I referred in my judgment to Mr George Chu’s argument to the effect that the Certificate of Incumbency may be out of date. I do not understand how that could possibly affect the matter. There is no evidence from the defendants to challenge the position. There are only admissions which make the plaintiff’s case unanswerable. There is no reasonable prospect of success. I can see no other reason why leave to appeal should be granted. The application is therefore refused with costs which I assess summarily at HK$60,000 inclusive, payable forthwith.

	(Conrad Seagroatt)
	Deputy Judge of the Court of First Instance
	High Court

Mr Shaphan Marwah, instructed by Cheung & Lee, for the plaintiff

Mr George Chu, instructed by Chan & Yau, for the 1^st defendant

HCA 1767/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1767 OF 2014

______________________

BETWEEN
	L.J. SMITH, INC.	Plaintiff
and
	CHANCELLOR PRECIOUS METALS (VU) LIMITED (焯華貴重金屬有限公司)	1st Defendant
	LEE SHU KAI (李樹佳)	2nd Defendant
______________________

Before: Deputy High Court Judge Seagroatt in Court

Date of Hearing: 20 November 2014

Date of Judgment: 20 November 2014

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J U D G M E N T

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1. There are two companies with the identical name Chancellor Precious Metals (VU) Limited. One is incorporated in Hong Kong with company number 1996084 and the other was incorporated in Vanuatu in the South Pacific with company number 37689 on 14 December 2011. The identical naming has the potential for confusion whether done deliberately or not.

2. The first, the Hong Kong company was the 1^st defendant in an action brought by the plaintiff, L.J.Smith, Inc. The plaintiff obtained an ex parte injunction against the then 1^st defendant. The 2^nd defendant is the sole director and a shareholder of the 1^st defendant.

3. The basis for the Mareva injunction granted on 15 September 2014 and continued inter partes on 19 September 2014, was the fraudulent use of a false e‑mail account to cause the plaintiff to remit sums totalling US$280,199.80 in August 2014 to an HSBC account believed to be in the name of the then 1^st defendant, the Hong Kong company. This company was deregistered on 30 May 2014 over two months before the payments were made.

4. The injunction granted included the said HSBC account no 499‑746626‑838. At the time of the transfer of the sums to this account, effected by the fraudulent devices, the 1^st defendant was believed to have an address in Hong Kong at 20, Queen’s Road, Central. The company search confirmed the name of the defendant company in Hong Kong. The plaintiff’s proceedings were therefore on the face of it properly constituted.

5. In an affirmation dated 19 September 2014 the 2^nd defendant (being the director and shareholder of the original 1^st defendant, the Hong Kong company) confirmed that the Vanuatu company of the same name is in fact also his vehicle.

6. In paragraph 4 of that affirmation he states, on oath that he deregistered the Hong Kong company as a “business decision” and had incorporated the company of the same name in Vanuatu. Moreover he says that the money in the HSBC account “stays there” and he “has no direct interest in it”. It is difficult to know what he means by that last clause unless it be an acknowledgement that neither he nor his company (ie the current 1^st defendant) has any claim upon it.

7. He went on to say that “the 1^st Defendant is not the right party to be sued since it is [no longer] the holder at the HSBC of that account” and has no account at the HSBC.

8. On the basis of this information the plaintiff applied to substitute the new 1^st defendant (the Vanuatu company) for the Hong Kong company. Such a decision and the procedure instituted to achieve that, was appropriate and straightforward.

9. On 24 October 2014, Master Hui made an order in accordance with the plaintiff’s summons which was issued on 13 October 2014. That was an entirely proper decision under Order 15, rule 6. At that hearing the 2^nd defendant, no doubt as director of the proposed new 1^st defendant, opposed the application. It is difficult to discern any logic in that. The 2^nd defendant provided the information which made that course necessary. Common sense dictated that the plaintiff’s application ought to have been unopposed. It was an example of wasted costs and time, not the first example in this litigation, Louis Chan J having had to penalise the defendants earlier this month (7 November 2014).

10. The new 1^st defendant and the 2^nd defendant now appeal against Master Hui’s decision. In a long written skeleton argument, counsel for the defendants has set out much material which is not directly relevant to this appeal.

11. The basis of the learned master’s decision is unarguably correct. The new 1^st defendant (the Vanuatu company) took over the HSBC account formerly held by the original 1^st defendant or has always held that account. That is the account subject to the injunction granted originally by Le Pichon J on 10 September 2014.

12. The 2^nd defendant has on several occasions stated that he controlled the original 1^st defendant, the Hong Kong company, deregistered that company, formed the new 1^st defendant company, a Vanuatu company, with identical title, and controls that as director and shareholder. That company, through him, opened the HSBC account. That is the end of the matter on the question of the substitution of the defendant.

13. He further stated on oath as I have set out earlier that the money in the HSBC account stays there and he has no direct interest in it. He was however the sole signatory on that account when it was operated either by the Hong Kong company or the Vanuatu company and remains so while the new (Vanuatu) defendant operates it.

14. In the affirmation sworn on 19 September 2014 he said, “I am willing and able to pay or transfer the sum into Court or to dispose of the same in such manner as the Court may direct.”He has not done so.

15. In his 3^rd Affirmation sworn on 12 November 2014 he said, “It is true that I have control of the 1^st defendant and Vanutatu (sic) company.”

16. The other contention on its behalf is that there was no application under Order 11, rule 1 for leave to serve the substituted defendant (the Vanuatu company) out of the jurisdiction.

17. This too is misconceived. Although a foreign company incorporated outside Hong Kong, it has an address within Hong Kong at which service can properly be effected. The current 1^st defendant (the Vanuatu company) has as its business and correspondence address on the Certificate of Incumbency, Room 2104, 21^st Floor, Infinitus Plaza, 199, Des Voeux Road Central, Hong Kong. That is dated 5 April 2013. The 2^nd defendant is identified as the only director.

18. The HSBC Business Integrated Account Opening Form for the Vanuatu company (37689) records the Head Office as being in Hong Kong and the Business Address as 2104, 21^st Floor, Infinitus Plaza, 199, Des Voeux Road, Central, Hong Kong, ie as on the Certificate of Incumbency. The authorised user of the account is the 2^nd defendant. He is the only signatory. The number of the account is 499‑746626‑838. This is the account into which the money, the subject of this action was, through fraud, paid.

19. The Vanuatu company (the new 1^st defendant) has not been registered in Hong Kong. But as set out above it has established a place of business in Hong Kong. Its head office is stated by the 2^nd defendant who operates its HSBC bank account in Hong Kong, as being in Hong Kong. Section 803(5)(a) of the Companies Ordinance provides that any process or notice to be served on a non‑Hong Kong company which has a place of business in Hong Kong is sufficiently served if left at, or sent by post to the place of business. That has been done. It would not be appropriate or necessary to seek leave under Order 11, rule 1.

20. Mr George Chu has sought to argue that reliance cannot be placed upon the Certificate of Incumbency or the HSBC account opening form in relation to the business address/head office disclosed on them. There is no evidence that these documents have been updated. Although he sought leave to file a further affirmation I declined to allow this. It is far too late and I am extremely sceptical about the 2^nd defendant’s credibility. There is no substance in this additional point.

21. As a matter of practical good sense the solicitors for the 2^nd defendant could and should have accepted service on behalf of the new 1^st defendant. By not doing so, time and cost have been wasted again. This appeal is dismissed with costs. I was asked to make a summary assessment of these costs and Mr Chu for the defendants raised points of objection in relation to certain aspects. I took all these into account in assessing them at HK$125,000. I adopted the indemnity basis. These costs were to be paid forthwith.

22. After I had concluded this exercise Mr Chu said in effect, he opposed summary assessment and wanted an order for formal taxation. Under Order 62, rule 9A(1) and (2), a party can always raise objections in respect of a summary assessment on final taxation of the action which, if successful, can be reflected in an adjustment to the final figure. Accordingly my summary assessment stands.

23. Although I dismissed the appeal I thought it appropriate to look again at Master Hui’s order as to costs of the defendants’ application and hearing before him, as the appeal is in effect a rehearing. I decided that I would vary the costs order he made in favour of the defendants to one of no order as to costs. I have done this because I consider that such a variation reflected the merits of the case which have been ventilated in great detail before me and I have had the benefit of seeing the broader picture. I have also had more time to consider the papers together with material which has appeared since the master’s decision. It is in no way to be seen as a correction of the learned master’s approach.

24. Mr Chu for the defendants objected to my approach on the basis that the plaintiff had not filed a cross‑appeal notice. However Mr Kim, in his skeleton argument had given due notice that he would raise this point and that is sufficient in any event, quite apart from the court’s powers on a rehearing.

	(Conrad Seagroatt) Deputy Judge of the Court of First Instance
	High Court

Mr Minju Kim, instructed by Cheung & Lee, for the plaintiff

Mr George Chu, instructed by Chan & Yau, for the 1^st and 2^nd defendants

L.J. SMITH, INC. v. CHANCELLOR PRECIOUS METALS (VU) LTD AND ANOTHER

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