UNIVERSAL EXPORTS GROUP LTD v. ZECHIN TECHNOLOGY CO LTD

HCA 2613/2016

[2018] HKCFI 283

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2613 OF 2016

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________________________

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DECISION

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1.  This was a summons taken out by Universal Exports and Group Limited (“the plaintiff”) on 18 October 2016 for continuation of the 2^nd Mareva injunction it obtained on 17 October 2016 restraining Zechin Technology Co Limited, a company incorporated in Hong Kong (“the defendant”) from removing from Hong Kong or in any way disposing of or dealing with any of its assets within Hong Kong including monies held in an account with the Hong Kong and Shanghai Banking Corporation Limited (“HSBC”) up to the value of US$2,241,126 (“the funds”). At the conclusion of the hearing, the Decision was reserved which I now give.

The issue arising

2.  The only issue for determination is whether there is a real risk of dissipation, it being common ground that the plaintiff has a good arguable claim against the defendant for the repayment of the funds.  The relevant background that gave rise to the claim is outlined below. 

Background facts

3.  The plaintiff is the assignee under a Deed of Assignment dated 5 October 2016 made with The Prepaid Company (Pty) Ltd (“TPC”) of TPC’s rights acquired by TPC by virtue of an agreement (“the August agreement”) contained in two letters dated 12 and 16 August 2016 (collectively “the August letters” and respectively “the 12 August letter” and “the 16 August letter” (more particularly described in §§5 – 6 below) and made between AG Cellular Dealership Close Corporation (“AGC”), the defendant and others expressed to be for the benefit of TPC.

4.  This action seeks to enforce TPC’s rights under the August agreement, written notice of assignment to the defendant having been given on 6 October 2017.  TPC’s rights arose in the following way:

(i)   AGC is a South African importer of mobile phones and telecommunications equipment which began trading with the defendant in 2013, purchasing the latter’s mobile phones and tablets on a regular basis.

(ii)   AGC regularly issued written purchase orders (reflecting orders previously placed orally and agreed between AGC and the defendant).  AGC would invariably pay a deposit of 8 – 15% with the balance payable on an “open account” basis for 60 days.

(iii)   AGC was aware that the defendant maintained export credit insurance provided by Sinosure and at some point understood from the defendant that Sinosure imposed a credit limit of US$6 million[1] for goods delivered to AGC but AGC had not seen (and had never been provided with) the Sinosure insurance contract.

(iv)   However, AGC was aware that despite the alleged credit limit, in practice, the defendant continued to deliver goods even when overdue payments exceeded the credit limit.

(v)   In July 2016, when AGC was seriously in arrears to the tune of approximately US$5.4 million, the defendant chased AGC for payment stating that no more goods would be delivered if the outstanding invoices were not settled.

(vi)   AGC then approached TPC (a wholesaler of mobile phones and tablets) the end buyer of the goods ordered by AGC) concerning the matter and TPC agreed to deal directly with the defendant as a third party purchaser.

(vii)   That led to the August letters and a meeting on 27 September 2016 (“the September meeting”) considered below. 

(a)   The August letters

5.  The 12 August letter from AGC to the defendant specifically provided that the balance of the purchase price in respect of the order (after taking into account the deposit already paid by AGC) (“the balance”) was to be allocated towards paying for the goods under the 1^stpro forma invoice dated 14 August 2017[2] and not to any historic liability.  The 16 August letter set out the specifics for the delivery of the goods in three tranches: (a) “immediate release” of the 1^st tranche, (b) “week day following receipt of [the 1^st tranche], (c) “day following receipt of [the 2^nd tranche]”.  As earlier noted, the August letters were expressed to be for TPC’s benefit.  They were countersigned by the defendant’s sales and overseas director Jason Zhang (“Mr Zhang”) for the defendant and constituted the August agreement.

6.  Under the August agreement, payment was due from TPC upon TPC’s freight forwarder being in possession of the goods.  However, prior to delivery of the 1^st tranche, TPC was asked to make payment upfront.  On 19 August 2016, TPC acceded to the request and paid US$1,107,532 for the 1^st tranche after which the 1^st tranche goods were delivered in two shipments made on 30 August and 1 September.

7.  The defendant then required TPC to make payment upfront for the 2^nd and 3^rd tranches before making delivery.  Again, TPC complied by making payments on 7 and 16 September totalling US$2,241,126 (being the funds).  However, the defendant refused to deliver any further goods although they had been readied for shipment on 19 September 2016.

8.  On 22 September 2016 the defendant informed AGC and TPC that the three payments received from TPC would be applied towards settling AGC’s historical indebtedness on the ground that Sinosure had revoked insurance coverage.

(b)   The September meeting

9.  This was held at the defendant’s offices on 27 September 2016 at which TPC was represented by Andrew Leigh Sack, Chen Cheng and Ellian Perch and the defendant by Mr Zhang.

10.  Mr Sack’s evidence is to the effect that he informed Mr Zhang that the plaintiff, on behalf of TPC, demanded the return of the funds from the defendant.  Mr Zhang indicated that the funds had been used to settle the historic debts of AGC with the defendant and that even if TPC or the plaintiff were to pursue recovery of the funds, the defendant was “a paper company”.  Mr Sack understood that as meaning that the company could be closed any time.  Mr Zhang also said that if TPC or the plaintiff were to pursue the matter, the defendant would install a software to lock all the devices that had already been delivered and were in the market. In short, Mr Zhang indicated that the return of the funds or shipment of the goods was not possible.

11.  The affidavits of Ms Chen and Mr Perch concerning the September meeting support Mr Sack’s account.

12.  Mr Zhang accepts that he did make the statements attributed to him during the September meeting. He explained that it was impossible to make further shipments because Sinosure had refused to provide any further insurance coverage in relation to the goods. He also relied on a set-off agreement which he understood had been reached earlier between Li Nanbiao (“Mr Li”) and AGC’s Anthony Goodman (“Mr Goodman”).

13.  According to Mr Li (see §§20 – 23 of his 2^nd affirmation dated 19 May 2017), after receipt by him of the email dated 12 August 2016 from Sinosure warning the defendant not to send goods to AGC if default continued, it was agreed between him and Mr Goodman that all payments made by AGC to the defendant would first be applied to settle the earliest outstanding invoices ie “1^st money paid in, 1^st invoice settled” (“the set-off agreement”).  Mr Goodman denies the existence of such an agreement.  That conflict of evidence is a matter for resolution at trial.

Procedural history

14.  Apart from the risk of dissipation issue, there are certain outstanding costs issues to be decided by this court and it would be convenient to mention them at this point.  They arose as follows:

(i)   On 7 October 2016, the plaintiff after accepting the defendant’s repudiation of the August agreement, issued a writ seeking repayment of the funds for non-delivery of goods.  On the same day, the plaintiff issued an ex parte summons and obtained the 1^stMareva injunction but which was discharged at the inter partes hearing for material nondisclosure of the plaintiff’s financial condition.

(ii)   At the hearing of the plaintiff’s 2^ndex parte summons on 17 October 2016, Wong J made the order sought but required the plaintiff to fortify its undertaking by making payment of HK$9 million into court by three instalments.

(iii)   On 22 October Madam Justice Au‑Yeung ordered the 2^nd Mareva injunction continue until noon on 24 October, pending the outcome of the inter partes hearing by DHCJ Kwok SC for hearing on 24 October at 9 am.

(iv)   After the inter partes hearing on 24 October 2016, DHCJ Kwok SC continued the 2^ndMareva injunction, conditional on payment of the balance of the plaintiff’s fortification which was duly made by 31 October.

(v)   The defendant’s application for leave to appeal the 24 October order was dismissed by DHCJ Kwok SC who made no order as to costs.

(vi)   The Court of Appeal granted the defendant leave to appeal and later allowed the defendant’s appeal on 3 April 2017, making an order in terms of the consent summons of 24 March 2017.  Accordingly, it ordered inter alia that:

(1)the 2^ndMareva injunction be continued until final determination of the inter partes summons;

(2)costs of the 2^ndinter partes summons (including the hearings on 22 and 24 October) be reserved; and

(3)costs of and incidental to:

(a)   the defendant’s summons of 4 November 2016 for leave to appeal (including the hearing on 2 December 2016),

(b)   the renewed application for leave before the Court of Appeal in HCMP 3478/2016, and

(c)   the appeal to the Court of Appeal

be in the cause of the plaintiff’s summons.

Applicable legal principles

15.  It is well-established that apart from showing a good arguable case, the plaintiff needs to show that a refusal of an injunction would involve a real risk that a judgment or award in his favour would remain unsatisfied: see Ninemia Corp v TraveSchiffahrts GmbH [1983] 1 WLR 1412 at 1422H.

16.  Gee on Commercial Injunctions, 6^th Edn at 12-033 sets out some of the factors that may be relevant, for example, the nature of the assets that are to be subject to the proposed injunction and the ease or difficulty with which they could be disposed of or dissipated, the nature and financial standing of the defendant’s business, the length of time it has been in business, the domicile or residence of the defendant, any intention expressed by the defendant about future dealings with its assets within the jurisdiction and the defendant’s behaviour in respect of the claims.

17.  As the Court of Appeal made clear in ULFCAR International AS v Miles and Others [1991] Lexis Citation 1533, 29 August 1991 (at p 3),

“ … the appropriate test … is whether, on the assumption that the plaintiffs have shown at least ‘a good arguable case’, the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied.” (emphasis added)

Risk of dissipation

18.  The plaintiff relies primarily on what was said at the September meeting, specifically, in relation to the defendant being a “paper company”, and the threat to lock the devices already supplied and in the market.  Ms Cheung, counsel for the plaintiff, submitted that in the context, the statement of the defendant being a “paper company” was a clear expression of intent that if the plaintiff pressures for repayment, the defendant could and would render the judgment an empty judgment.  Further the threat to lock devices already delivered and in the market demonstrated low commercial morality on the defendant’s part.

(1)   The “paper company” statement

19.  Mr Zhang’s explanation for making that statement was that Mr Sack was putting a lot of pressure on him to ship AGC’s ordered productsby referring to TPC’s payments on behalf of AGC.  As he believed that the defendant had no trading relationship with TPC whatsoever, he became “very agitated and felt very unreasonable and at the spur of the moment and purely out of anger” told Mr Sack that the defendant was a paper company.  It was said that as shown in the defendant’s audited accounts, the defendant is clearly not a paper company (in that it has real operations and has generated substantial income and profits in the last few years) which Mr Sack should have known.

20.  The following matters arise from Mr Zhang’s explanation: (a) his knowledge (if any) of TPC’s interest under the August agreement, and (b) the nature of the defendant’s “operations” in Hong Kong.

21.  Whether or not the defendant maintained a trading relationship with TPC would not appear to be the relevant consideration since implicit in Mr Zhang’s explanation was that TPC was an unknown third party and effectively a complete stranger to the August agreement.  That, however, could not be the case because TPC featured prominently in the August letters (signed by Mr Zhang only five to six weeks earlier) inasmuch as it (or its nominees) was the designated recipient of the goods to be delivered and, importantly, it was the entity responsible for making payment of the balance under the August agreement.  It was also expressly stated that the benefits of the August agreement would enure for TPC’s benefit.

22.  Further, viewed objectively, what could have been the rationale underpinning the August agreement?  If it was not for facilitating the delivery of the goods ordered to the end buyer (TPC) who would pay the defendants directly for the same, what was its purpose?  Why would TPC agree to make payment if the goods it had ordered as end buyer would not be released?

23.  The defendant’s case as to why Mr Zhang signed the August letters on behalf of the defendant was that AGC’s manager Tracy Hu represented to Mr Zhang that AGC’s (historic) debts would be paid.  But that is no answer to any of the matters raised in §22.  

24.  It is also noteworthy that the (mis)representation allegation is not made by Mr Zhang (despite his having filed an affirmation in opposition to the continuation of the 2^ndMareva injunction) but by Mr Li in his 2^nd affirmation who did not provide particulars or contemporaneous documentary evidence in support.

25.  It is not suggested that Mr Zhang is not conversant with the English language.  He signed the August letters and absent any explanation from him as to what purpose he thought they were to serve or what he thought he was signing, prima facie, he must be taken to have understood what he was signing.

26.  Turning to the defendant’s operations in Hong Kong, its financial statements for 2015 and 2016 are in evidence.  For 2016, they show a turnover of approximately US$215 million and a net profit of US$0.35 million or a return of 0.16%.

27.  The statement of financial position as at 31 March 2016 is noteworthy in the following respects: (i) the amount due to trade creditors exceeds accounts receivable; (ii) while net assets of US$0.85 million odd are shown, that is only after taking into account its 100% interest in a PRC subsidiary, namely, Longconn Electronics (Shenzhen) Co Limited valued at US$0.95 million. However, that does not necessarily translate into recourse against the assets of the subsidiary: first there is a subsisting guarantee given by the subsidiary in respect of the defendant’s banking facilities and second, it is unclear to what extent the subsidiary’s assets are reachable by a creditor (if at all).

28.  Mr Li and Chen Jia were and are the members and directors of the defendant.  Mr Li’s 1^st affirmation dated 16 November 2016 describes the defendant as a private limited company incorporated in Hong Kong with its principal place of business located in Shenzhen.  It is in the business of sourcing and trading of telecommunications products and is used as a representative office by its parent, Zechin Communication Co Limited (“Zechin China”).

29.  The defendant’s Hong Kong registered address is at the office of its company secretary but as Mr Li explained (at §7):

“ [a]s most of its business operations are conducted in Shenzhen, the [d]efendant did not (and still does not) operate any office in Hong Kong … It is however necessary for the [d]efendant to cater for its customers in Hong Kong. As a result, the [d]efendantmainly serves as a contact point with them in facilitating businesstransactions and communication as well as for trading convenience ‌…”

30.  Mr Lo, counsel for the defendant, sought to demonstrate that the defendant has clients internationally and was a company of substance by referring to contracts it entered into with entities worldwide, trading in products manufactured by well-known manufacturers and also selling handsets manufactured by its parent Zechin China through Longconn. 

31.  It was submitted that the defendant’s business has a “close connection with Hong Kong” in that foreign clients with a Hong Kong subsidiary would direct the defendant to deliver goods to designated warehouses or local forwarders in Hong Kong.  Upon clients’ request, the ordered goods would also be shipped via Hong Kong to various destinations worldwide.  Commercial invoices for orders issued by the defendant showing its Hong Kong address.

32.  While there is no doubt that that is how the defendant operates its business, the fact remains that the defendant is but a “contact point” with a Hong Kong address but does not maintain an office as such in Hong Kong where it has no staff.  In other words, its operations are carried out fromShenzhen albeit using its Hong Kong address.  Other than the HSBC account, it is not evident what assets the defendant has in Hong Kong.  That assets in the form of monies in a bank account can easily be dissipated requires no elaboration.

33.  While the mode the defendant chooses to adopt to conduct its business operations is a matter for the defendant and not the court, nevertheless, the court may take notice of the nature of those operations and whether they could easily be transferred to or assumed by a new entity.  Where there is effectively but a post box[3] situated within Hong Kong and no known assets other than the HSBC account, the risk of dissipation is obvious. That is but common sense.

(2)   The “locking” of devices statement

34.  Turning to the statement relating to the “locking” of devices, Mr Zhang explained that it was “to give some pressure back” to Mr Sack that he (Mr Zhang) said that if AGC did not repay the accrued debts, the defendant would “lock” the products by way of firmware upgrades.  He stated that as a matter of fact the defendant has never done such “locking” and did not know if it was technologically possible and that it was “also said out of the spur of the moment”.

35.  The plaintiff submitted that the utterance of those words amounted to a threat and constituted good evidence of low commercial morality because if it were true, it could have a devastating impact on the plaintiff/TPC’s trade reputation and future business prospects.  If it were untrue, that the defendant saw fit to resort to a blatant lie for the purpose of putting pressure on the plaintiff is conduct that is indicative of low commercial morality.  Having regard to the nature of TPC’s business, I would agree.  

36.  On the basis of the good arguable case put forward by the plaintiff, the point of the August agreement was to enable the end buyer (TPC) to pay for and take delivery of the goods and indeed the 1^st tranche was delivered. As regards the 2^nd and 3^rd tranches, payments were effected on 7 and 16 September 2016.  The goods should have been shipped on 19 September 2016 but were not.

37.  While Sinosure’s revocation of coverage was the reason given as to why the defendant could not deliver any more goods, the terms of Sinosure’s insurance coverage are not in evidence.  There is no evidence (much less solid evidence) as to when exactly Sinosure became so entitled and, indeed, when exactly it revoked coverage.

38.  The revocation notice exhibited and dated 22 September 2016 appears to be prospective, relating to losses caused by the buyer or incurred by banking transactions after midnight of 23 September 2016.  The evidence in the hearing bundles regarding revocation is at best tenuous.

39.  Had the defendant complied with its contractual obligations under the August agreement, it would not have been in a position (seemingly, wrongfully), to appropriate the TPC payments towards the discharge of AGC’s historic debts.  The appropriation has the hallmarks of an afterthought since it would appear that it did not take place until several days after 19 September 2016.  In other words, the defendant chose to breach the August agreement for its own purposes.  Such conduct would also be indicative of low commercial morality.

Conclusion

40.  Having regard to all the matters considered above and to the factors mentioned in §16 above, I am of the view that the risk of dissipation in the present case is real.  Assessed objectively, the paper company utterance, made in the circumstances set out above, is undeniably a threat that any pursuit for repayment of the funds would be futile.  The fact that the only known assets consists of monies in a bank account, the risk of dissipation looms large.   

41.  When that is coupled with the manner in which the defendant has seen fit to conduct itself following the August agreement, including the threat to lock the devices supplied, it is appropriate to order that the 2^nd Mareva injunction be continued until after trial of the action or further order.

Costs

42.  There is to be an order nisi that the costs of the 2^ndinter partes summons (including the costs of the hearing on 22 August and 24 August 2016 hearing) and the costs referred to in §14(vi)(3) above be to the plaintiff with certificate for counsel.

HCA 2613/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2613 OF 2016

___________________

___________________

___________________

REASONS FOR DECISION

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Decision on 2 December 2016

1.  On 2 December 2016, I dismissed the defendant’s summons for leave to appeal issued on 4 November 2016 and said reasons for my decision would be handed down later.  As the plaintiff did not ask for costs, I made no order as to costs.

2.  My reasons follow.

Relevant background

3.  On 19 May 2010, the defendant was incorporated in Hong Kong with its registered office in Central, Hong Kong.

4.  At all material times, the defendant maintained a bank account in Hong Kong with The Hongkong & Shanghai Banking Corporation Limited (“HSBC”).  This account was frozen under all the Mareva injunctions in this case.

5.  On 7 October 2016 (Friday), the plaintiff issued the writ against the defendant.

6.  On the same date, ie 7 October 2016, the plaintiff applied ex parte and obtained a Mareva injunction against the defendant.

7.  On 11 October 2016 (Tuesday), the plaintiff issued an inter parte summons for the continuation of the Mareva injunction until trial or further order.

8.  (1)   14 October 2016 (Friday), was the return date of the 11 October 2016 inter parte summons.

(2)   On 14 October 2016, the plaintiff was represented by Mr Patrick Siu of counsel.

(3)   The defendant was absent from, and unrepresented at, the hearing on 14 October 2016.  It had not acknowledged service of the writ.  No evidence had been filed on its behalf.

9.  On 14 October 2016, I made the following orders:

(1) The injunction order dated 7 October 2016 be discharged.

(2) The summons dated 11 October 2016 be dismissed.

(3) Costs of ex parte application and inter parte application be borne by the plaintiff.

Reasons for my decision were handed down on 24 October 2016, Monday (“Reasons for Discharging first ex parteMareva”) which I incorporate by reference.

10.  On 17 October 2016 (Monday), the plaintiff applied ex parte again and obtained a Mareva injunction against the defendant.

11.  On 18 October 2016 (Tuesday), the plaintiff issued an inter parte summons for the continuation of the Mareva injunction until trial or further order.

12.  (1)   On 21 October 2016 (Friday) was the return date of the inter parte summons.  It was returnable before another judge.

(2)   On 21 October 2016 was originally listed for handing down the Reasons for Discharging first ex parte Mareva.

(3)   In the event, the court was closed on 21 October 2016 because of the hoisting of typhoon signal number eight.

13.  (1)   On 22 October 2016 (Saturday), Au‑Yeung J adjourned the inter parte summons to 24 October 2016 (Monday) before me.

(2)   The handing down of the Reasons for Discharging first ex parte Mareva was postponed to 24 October 2016 (Monday).

14.  On 19 October 2016 (Wednesday), Gallant acknowledged service of the writ on behalf of the defendant.

15.  (1)   On 24 October 2016, the plaintiff was represented by Ms Janine Cheung of counsel and the defendant by Mr Benny Lo of counsel. 

(2)   The plaintiff has filed further evidence since the hearing on 14 October 2016.

(3)   The defendant has not filed any evidence by 24 October 2016.

16.  On 24 October 2016, after hearing counsel for the plaintiff and counsel for the defendant, I continued the Mareva injunction until trial or further order, conditional upon the plaintiff fortifying its undertaking to pay damages by payment into court of HK$9 million by three instalments.  I declined the defendant’s request to adjourn the inter parte hearing for the defendant to file evidence in opposition.  The defendant had offered to continue the injunction until the determination of the adjourned inter parte hearing.  I ordered costs in the plaintiff’s cause.

17.  By summons issued on 4 November 2016 (Friday), the defendant applied for leave to appeal against my decision on 24 October 2016.

18.  The application for leave to appeal came on for hearing before me on 2 December 2016 (Friday).  After Mr Benny Lo had concluded his submissions, I dismissed the defendant’s application without calling on Mr Jonathan T Y Chang for the plaintiff.  As the plaintiff did not ask for costs, I made no order as to costs.

The hearing bundles

19.  The defendant submitted the following bundles for the hearing on 2 December 2016:

(1) A “Paginated Bundle of Court Documents for Hearing”; and

(2) A “Paginated Bundle of Exhibits for Hearing”.

20.  The two bundles contained a total of no less than 595 pages of documents.  The time estimate of the hearing was 30 minutes.  Very few of the documents had been referred to at the hearing.  It seems that the defendant’s legal advisers had not taken heed of the court’s repeated criticism of the indiscriminate inclusion of documents in hearing bundles.

Affirmation of Li Nianbiao affirmed on 15 November 2016 on behalf of the defendant

21.  An Affirmation of Li Nianbiao affirmed on 15 November 2016 (Tuesday) on behalf of the defendant was included in the “Paginated Bundle of Court Documents for Hearing”.  The Affirmation was made after the hearing on 24 October 2016.  So far as I am aware, the defendant had made no application for leave to admit such evidence, whether under Order 59, rule 10 of The Rules of the High Court, Cap 4A, or at all.

22.  I asked Mr Benny Lo whether this Affirmation was admissible.  He asserted that it was.  When asked for the reasons, he gave some sort of reasons.  In the end, he stated categorically that he was not relying on the Affirmation.  As he was not relying on it, it is not necessary for me to consider its contents and not necessary for me to rule on its admissibility.

Section 14AA, High Court Ordinance

23.  Section 14AA of the High Court Ordinance, Cap 4, provides (so far as relevant):

“(1) Except as provided by rules of court, no appeal lies to the Court of Appeal from an interlocutory judgment or order of the Court of First Instance in any civil cause or matter unless leave to appeal has been granted by the Court of First Instance or the Court of Appeal.”

“(4)[1] Leave to appeal for the purpose of subsection (1) shall not be granted unless the court hearing the application for leave is satisfied that —

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

Defendant’s arguments

24.  The defendant relied on the fact that the defendant’s only shareholders and directors were individuals residing outside Hong Kong in Mainland China and that the defendant had not been legally represented in these proceedings until 19 October 2016 when it filed an Acknowledgment of Service.  The defendant contended that I “plainly erred” by not giving the defendant a sufficient opportunity to file evidence and obtain legal advice and assistance; that I “failed to observe the fundamental rules of natural justice, due process, procedural fairness and/or audi alteram partem” and that I failed to recognise the primary aim “as provided for under RHC O.1A r.2(2)”.

25.  The defendant’s arguments conveniently ignored the fact that the defendant is a corporate entity incorporated in Hong Kong, with a registered office in Central, Hong Kong and maintained a bank account in Hong Kong with a bank in Hong Kong.  These are matters of choice.  In this day and age, residence outside the jurisdiction is of no or only marginal relevance in terms of time required to put in affidavit evidence.  The subject matter is an interlocutory Mareva injunction which by its nature is required to be dealt with expeditiously.  Legal representation is a matter of choice and it is incumbent on the defendant if it wishes to be legally represented to instruct lawyers in time for the hearing.  The defendant has between 7 October 2016 (or 11 October 2016) and 24 October 2016 to file evidence in opposition, or at least explain why it had still not done so.  But the defendant had filed no affidavit evidence and had come to court expecting an adjournment on demand.  Plainly, if the defendant and its legal advisers had acted with due diligence, the defendant could have filed evidence in opposition, or at least provided a cogent reason why it had not and justifying its request for time. The defendant’s expectation, even with an offer of continuation of the Mareva injunction, is not a legitimate expectation.  A purpose of a return date is to dispose of cases with no ground for resistance.  This was such a case.  Plainly, the court’s time could be better used.

26.  There are grounds for the exercise of my discretion in refusing an adjournment.  The appeal does not have a reasonable prospect of success and there is no other reason why the appeal should be heard.

[1] The relevant sub‑section is not section 14AA(3), as stated in §15 of “Defendant’s Skeleton Argument in support of application for leave to appeal”.

HCA 2613/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2613 OF 2016

____________________

____________________

____________________

REASONS FOR DECISION

____________________

Introduction

1.  On 7 October 2016, the plaintiff issued the writ against the defendant.

2.  On the same date, the plaintiff applied ex parte and obtained a Mareva injunction against the defendant.

3.  On 11 October 2016, the plaintiff issued an inter parte summons for the continuation of the Mareva injunction until trial or further order.

4.  The plaintiff’s inter parte summons came before me on 14 October 2016.  I made the following orders:

(1)   The injunction order dated 7 October 2016 be discharged.

(2)   The summons dated 11 October 2016 be dismissed.

(3)   Costs of ex parte application and inter parte application be borne by the plaintiff.

5.  My reasons are as follows.

The plaintiff’s affidavit evidence on “good financial condition”

6.  Mr Andrew Leigh Sack, the sole director of the plaintiff, deposed in §17 his affidavit sworn on 7 October 2016 as follows:

“17. In particular, the Plaintiff agrees to give undertakings as to damages to the Defendant should it transpire that any ex-parte injunction should not have been granted. I submit that the plaintiff has a good financial condition. A copy of its draft Income Statement made up to 31 August 2015 and a copy of extracted pages from its draft accounts which has been reviewed by the auditor but has not yet been signed are produced and shown to me at the Exhibit Bundle ‘ALS‒2’ [EB/24–29]. As can be seen, as at 31 August 2016, the Plaintiff was making a profit of USD 1,166,166.45. For the year ended 31 August 2015, the profit made by the Plaintiff was HK$10,661,530.”

7.  That was the only affidavit evidence on the plaintiff’s financial condition.

The plaintiff’s skeleton submissions

8.  The “Skeleton Submissions for the Plaintiff (For the ex‑parte hearing on 7.10.2016)” was completely silent on the plaintiff’s financial condition.

9.  The “Skeleton Submissions of the Plaintiff” for the inter parte hearing was also completely silent on the plaintiff’s financial condition.

Plaintiff’s evidence on financial condition for inter parte hearing

10.  The plaintiff did not file any evidence on its financial condition for the inter parte hearing.  More importantly, there was no explanation for the half‑truths (see below) quoted in §6 above.

Full and frank disclosure

11.  A party making an ex parte application has the duty to make full and frank disclosure on all material matters.  The primary duty is to disclose on affidavit evidence.  The duty is not discharged by making partial disclosure on oath or deposing to half truths.  When an applicant makes a statement on oath, the court should be entitled to assume:

(1)   the statement is borne out by the documents exhibited in support; and

(2)   more importantly, the statement is not contradicted by documents exhibited.

12.  In other words, the court is entitled to assume that the applicant acts with utmost good faith, failing which the position of the ex parte judge would be extremely difficult, if not impossible.

13.  In Standard Charter Securities Limited (formerly known as ChinTung Limited) v Arthur Lai and others, HCA 2757/1993, 28 April 1993, Woo J (as he then was) referred to Gee on Mareva Injunctions andAnton Piller Relief, 2^nd Ed, where at p 81, the learned author stated:

“It may not be a sufficient answer to an allegation of non‑disclosure for a plaintiff to say that the relevant information giving rise to the defence was contained in an exhibit, though not referred to in the body of the plaintiff’s affidavit in the context of a possible defence. Exhibits to such affidavits are often voluminous, and since ex parte applications for Mareva or Anton Piller relief are often dealt with comparatively shortly and the judge may not have had the opportunity of considering the papers in detail before the hearing, the applicant has the responsibility of ensuring that all relevant points are presented clearly and distinctly. Thus in Siporex Trade SA v. Comdel Commodities Ltd [1986] 2 Lloyds’ Rep 428 at p.437, Bingham J said that the applicant must ‘identify the crucial points for and against the application, and not rely on the mere exhibiting of numerous documents.’ Any contractual provision (e.g. an exclusion clause) which is relevant to the court’s consideration of the application should be referred to and preferably set out in the body of the affidavit. It will not usually be sufficient simply to exhibit the entire contract.

Accordingly, it is of the utmost importance that the plaintiff carefully considers the nature of the cause of action and the facts on which it is based before formulating the application.  A thorough check should be made to ensure that all defences actually raised by the defendant are identified and fairly summarised in the affidavit.”

The unaudited and unsigned financial statements

14.  Returning now to §17 of Mr Andrew Leigh Sack’s affidavit, while the unsigned “Income Statement for the year ended 31 August 2015” did show “Profit / (Loss) for the year” of HK$10,661,530, it also showed “Accumulated losses brought forward” of (HK$16,494,637) and “Accumulated losses carried forward” of (HK$5,833,107).  The “General and administrative expenses” dropped from HK$23,264,253 for the preceding year to HK$12,841,938.

15.  The unsigned “Balance Sheet as at 31 August 2015 showed “Net current liabilities”, “Net liabilities” and a “Shareholder’s deficit” of (HK$5,823,107).  Plainly as at 31 August 2015, the plaintiff was insolvent and unable to pay its debts.  Of the “Current assets” of HK$92,210,853, HK$8,938,003 was “Amount due from a director” and HK$1,297,380 was“Amount due from related companies”.  ‌In view of the director’s indebtedness to the plaintiff of HK$8,938,003, it was questionable whether the director had the financial ability to keep the plaintiff as a going concern.  If the director should sink, the plaintiff might sink with it.

16.  There was no evidence that the auditors gave an unqualified audit opinion.

17.  No person in his right mind would say that “the plaintiff has a good financial condition” as at 31 August 2015.

18.  There is a one‑page “Profit and Loss Report (Year end [sic] August 31 2016)” showing “Profit / (Loss)” of “US$1,166,166.45 ”.  The figures in the financial statements for year ended 31 August 2014 and year ended 31 August 2015 were all in HK$. The figures in the one‑page“Profit and Loss Report (Year end [sic] August 31 2016)” were all in US$.  The “Profit and Loss Report” was also in a completely different format from the “Income Statement” for the preceding two years.

Conclusion

19.  There is no evidence on the net asset value or the shareholder’s deficit of the plaintiff as at 31 August 2016.

20.  Given the terrible financial condition as at 31 August 2015, the plaintiff should have produced cogent evidence on its net worth as at 31 August 2016 or time of the ex parte application. What was placed before the ex parte judge was the half‑truths which were highly misleading.

21.  I am driven to the conclusion that the plaintiff has failed in its duty to make full and frank disclosure before the ex parte judge.  The plaintiff took no step to redeem itself at the inter parte stage.

22.  I was firmly of the opinion that the ex parte injunction should be discharged and that no fresh injunction should be granted.  That was why I made the orders referred to in §4 above.