HCA 2511/2018
[2019] HKCFI 271
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 2511 OF 2018
________________________
| BETWEEN |
| | XING FA (HONG KONG) IMP. & EXP. LIMITED | Plaintiff |
| | (興發香港進出口有限公司) | |
| and |
| | SUNGSAN INTERNATIONAL CO., LIMITED | Defendant |
________________________
| Before: | Deputy High Court Judge To in Chambers |
| Date of Hearing: | 2 November 2018 |
| Date of Decision: | 2 November 2018 |
| Date of Reasons for Decision: | 31 January 2019 |
________________________
REASONS FOR DECISION
________________________
Introduction
1. On 23 October 2018, upon the ex parte application of the plaintiff, I granted a world-wide Mareva injunction with ancillary disclosureorder (the “Injunction Order”) against the defendant and leave to issue and serve the writ out of jurisdiction on the defendant pursuant to Order 11 of the Rules of the High Court. Funds in the sum of US$6.6 million payable under five letters of credit were frozen under the Injunction Order. The Injunction Order was continued at an inter partes hearing on the return date on 2 November 2018. The defendant’s application to discharge and/or vary the terms of the Injunction Order was dismissed.
2. At a hearing on 7 December 2018, the Seoul Branch of Bank of China (“BOC”), as the negotiating bank in respect of the five letters of credit, applied to vary the Injunction Order. By his decision dated 20 December 2018, Mr Recorder Manzoni SC granted BOC’s application and allowed payment to be made under the five letters of credit.
3. On 8 January 2019, the defendant took out two summonses seeking to discharge and/or to vary the Injunction Order returnable before the summons judge on 11 January 2019. Deputy High Court Judge Keith Yeung SC ordered the summonses to be heard on 16 January 2019 before this court together with the defendant’s application for leave to appeal the Injunction Order.
4. These applications were made before the reasons for my decision was handed down. The delay in handing down my reasons for decision was in part occasioned by the fact that the court file and bundles were being used in the various applications and were unavailable for preparation of the reasons for the decision and a break in my term of appointment. The situation was unsatisfactory. Hereunder are my reasons for the decision.
The background
5. The plaintiff is a company incorporated in Hong Kong engaged in trading business. It is a subsidiary of a listed company in Shanghai.
6. The defendant is a company incorporated in the Republic of Korea engaged in the business of rubber trading.
7. Lonkey Industrial Co Ltd Guangzhou (“Lonkey”) is a companyincorporated in the People’s Republic of China (the “PRC”) engaged in thebusiness of manufacturing and trading of detergents and industrial products,including acrylonitrile butadiene styrene (“ABS”) and linear low-density polyethylene (“LLDPE”).
8. The plaintiff and Lonkey have a long-term relationship in import and export business since 2016. Lonkey had limited credit facilities with banks which limited its ability in applying for letters of credit for its trading activities with the plaintiff. They entered into an arrangement under which the plaintiff would, in accordance with Lonkey’s instruction, place order for goods from a supplier specified by Lonkey, pay by a 90-day term letter of credit, and then resell the ordered goods to Lonkey. Lonkey would pay the plaintiff for the goods ordered before the expiry of the letter of credit. As at 2018, the plaintiff and Lonkey had conducted transactions in this manner in the total value of US$28 million.
9. Starting from February 2018, Lonkey specified the defendant as its specified suppliers. Since then, 16 such transactions have been made among the plaintiff, the defendant and Lonkey under the above arrangements. The goods ordered were to be delivered to a warehouse in Shanghai managed by a company known as Shanghai Pinju International Logistics Co, Ltd (“Shanghai Warehouse”), which would then issue a certificate of title to the goods.
10. According to the plaintiff’s chief financial officer (“Tan”), the processing of these transactions was as follows. The process began with Lonkey sending scanned copies of two sets of a sale and purchase agreement for the goods between the defendant and the plaintiff (a PRC version with a PRC arbitration clause and a Korean version with a Korean arbitration clause) and a set of sale and purchase agreement for the same goods between the plaintiff and Lonkey. After approval by the plaintiff, the plaintiff would send hard copies of the three sets of signed and chopped sale and purchase agreements to Lonkey. Lonkey would then request the plaintiff to open a letter of credit with the defendant as beneficiary. On the same day, the plaintiff would submit the above documents to Industrial and Commercial Bank of China (“ICBC”) for opening a letter of credit in favour of the defendant. When the letter of credit was issued, the plaintiff would inform Lonkey via WeChat the particulars of the letter of credit. Lonkey would pay the plaintiff five days before the letter of credit was due to expire.
11. Upon receipt of the letter of credit, the defendant would preparethe documents required under the letter of credit and forward them to ICBC. These documents include commercial invoice, packing list and delivery order. It would deliver the goods ordered to Shanghai Warehouse which would issue the certificate of title to the goods. Lonkey would also send a copy of the same documents to the plaintiff. Upon payment to ICBC, the bank would release the above documents to the plaintiff. The plaintiff would deliver the above documents and the certificate of title to the goods received from Shanghai Warehouse to Lonkey for collecting the goods from Shanghai Warehouse.
12. All went well until the last seven transactions when Lonkey informed the plaintiff that the delivery orders and certificates of title given to Lonkey by the plaintiff, which were issued by the defendant, could not be used to retrieve goods from Shanghai Warehouse. Upon enquiry with Shanghai Warehouse, it was discovered that the certificates of title and delivery orders were forged and no such ordered goods had been delivered to Shanghai Warehouse.
13. At an interview with the defendant’s general manager (“Sung”), Sung gave a statement dated 19 October 2018 confirming the following. He was the general manager of the defendant and was in charge of the transactions in question. He had known a person named Mao Zheng Xin (“Mao”) who introduced himself as the President of Zhejiang Maxway Import & Export Co Ltd (“Zhejiang Maxway”). He communicated with Mao by WeChat. Mao offered him a business opportunity involving transaction of letters of credit wherein the defendant was to enter into salescontracts with some traders. Under the arrangement, the defendant wouldbe paid by a 90-day letter of credit and would pay the buyers by telegraphictransfer upon the date of negotiation of the letter of credit. The defendantdid not have to manufacture or ship the goods but would take a commission for its services from the price difference between the sale and resale.
14. Sung confirmed entering into the seven contracts of sale of ABS or LLDPE with Long Contin on behalf of the defendant and seven resale contracts with the plaintiff under the above arrangements. He admitted preparing the resale contract between the defendant and the plaintiff, applying the defendant’s company chop to the documents and sending them to Mao, not to the plaintiff. He received from Mao or his associates, not from the seller Long Contin, through WeChat images of the delivery orders, commercial invoices and packing lists under the contract between the defendant and Long Contin. Then, Sung prepared similar sales and purchase agreement between the plaintiff and defendant by amending the price to give the defendant a profit which he called “commission”. He reproduced similar delivery orders, commercial invoices and packing lists for the contract between the plaintiff and defendant. Then he presented the documents to KEB Hana Bank, the negotiating bank. Presumably, he also presented the letter of credit issued by ICBC which he received from the plaintiff. He said the defendant had an arrangement with KEB Hana Bank under which the bank would pay the defendant immediately upon the confirmation of the documents after deducting interest for the 90-day period. Then, he immediately remitted the purchase price under the sale and purchase agreement with Long Contin by telegraphic transfer.
The plaintiff’s application
15. The plaintiff’s application for worldwide Mareva injunction was made pursuant to section 21L of the High Court Ordinance. To invoke the jurisdiction of the court to grant the order sought, which has extraterritorial effect, the plaintiff has to satisfy the court[1]:
(1) that the plaintiff has a good arguable case;
(2) that (a) there are no assets or no sufficient assets within the jurisdiction to satisfy the plaintiff’s claim; and (b) that there are assets outside the jurisdiction; and
(3) that there is a real risk of dissipation or secretion of those assets so as to render any judgment which the plaintiff may obtain nugatory.
In the alternative, if the court finds that the arbitration clause in the sales and purchase contracts prevails, the plaintiff would pursue the application under section 21M as an alternative ground.
16. The plaintiff’s claim is based on money had and received as well as fraud. However, Mr Hon, counsel for the defendant, argues that there is nothing set out in the Indorsement of Claim suggesting that the plaintiff’s claim is based on fraud. He relied on the plaintiff’s writ of summons filed on 25 October 2018 in which it is stated that the claim is based on money had and received. He submitted that fraud was not specifically pleaded and there was no claim for equitable damages, a relief commonly sought in claims involving fraud.
17. It is clear from the plaintiff’s skeleton submissions, both at the ex parte and inter partes hearing, that fraud was heavily relied on. The requirement under Order 18, rule 8 of the Rules of the High Court that fraud must be specifically pleaded applies to a statement of claim which is to be served before the expiration of 14 days after the defendant has given notice of intention to defend. Mr Hon’s reliance on the Indorsement in the generally indorsed writ is misconceived. It is also clear from the supporting affirmations that fraud is patently obvious. I shall deal with this issue more fully under arguable case below.
18. Mr Hon also argues that it is not clear as to how the law chosenby the parties under the arbitration clause, whether Korean law or PRC law,would apply. This submission was made in the context of apportionment of loss on the basis that both the plaintiff and the defendant are victims of Mao’s fraudulent scheme. As submitted by Mr Hui, counsel for the plaintiff, this is entirely predicated upon the application of foreign law and it is trite that the defendant bears the onus of showing what foreign law applies if it so asserts. No grounds whatsoever have been put forward by Mr Hon.
Good arguable case based on fraud
19. There is no dispute that the plaintiff is the victim of a fraud. The issue is whether the defendant is part of that fraudulent scheme. Mr Hon argues that the defendant was ignorant of Mao’s fraudulent scheme and is asmuch an innocent victim as the plaintiff. But in my view, there is a world of difference between what the plaintiff did and what the defendant did.
20. Both the plaintiff and the defendant were involved in using letters of credit to finance Lonkey’s purchase of goods. Under the plaintiff’s arrangement with Lonkey, the plaintiff was to buy goods from specified seller and then resell the same goods to Lonkey. The defendant was the plaintiff’s specified seller or supplier. Three parties were involved, namely, Lonkey, the plaintiff and the defendant. Lonkey’s staff sent scanned images of the sale and purchase agreement to be entered into between the plaintiff and the defendant (as the supplier of goods). The plaintiff would sign and chop the agreement and send it back to Lonkey andwould apply to ICBC for letter of credit in favour of the defendant as seller. In a normal case, the seller would prepare the documents required under theletter of credit and forward them to ICBC. The documents would include commercial invoice, packing list and delivery order. Only the seller has knowledge of the particulars to be filled in these documents. There was a genuine underlying sale and resale of goods under the sale agreement between the plaintiff and the seller and the resale agreement between the plaintiff and Lonkey. What the plaintiff did was based on information coming from Lonkey or the defendant.
21. However, in the present case, the defendant added a fourth party to the chain, Long Contin. Long Contin was the seller in this four party transaction. The defendant became a reseller and the plaintiff became a re-reseller. There was nothing too unusual for the defendant to purchase goods to meet its contractual obligation owing to the plaintiff, but what was unusual was the artificiality or fictitious nature of its transaction with Long Contin as I shall discuss below.
22. On Sung’s evidence, he entered into a separate arrangement with Mao which he tagged onto the arrangement between the plaintiff and Lonkey without Lonkey’s or the plaintiff’s knowledge and consent. Mao,on Sung’s evidence, was the President of Zhejiang Maxway. That company has nothing to do with Lonkey or the plaintiff. What was important was that Sung knew there were no underlying sale and resale of goods. It was all a paper exercise, on Sung’s own case, to earn a commission for the defendant’s “services”. The defendant admittedly had no business in dealing with the goods sold under the contracts. Sung admitted that:
“ from [the defendant’s] perspective, there was never any physicaltrading or delivery of the cargo. [The defendant] never delivered any ABS to [Shanghai Warehouse], neither did [the defendant] enter into any contract with [Shanghai Warehouse].”
Sung did not actually negotiate any sale and purchase agreement for goods with Long Contin. He merely received the information about the terms of the agreement from Mao and then based on the WeChat images of the delivery orders, commercial invoices and packing lists under the contract between the defendant and Long Contin he received from Mao, he prepared similar documents and presented them to KEB Hana Bank as the delivery orders, commercial invoices and packing lists under the contract between the defendant and the plaintiff to obtain payment. By those documents it created, it represented to the bank that goods of certain description, quantity,packaging, weight existed and were delivered to Shanghai Warehouse, whenthe defendant never checked and had no reason to believe such goods wereat such warehouse nor was the defendant in fact the beneficiary of any suchgoods under its agreement with Long Contin. There was no underlying sale and purchase of goods and he knew it. Had ICBC known there was no underlying sale and purchase of goods, it certainly would not have issued the letters of credit. If that was not fraud, what else could be?
23. Furthermore, under the scheme, the defendant paid Long Contin before the funds under the letters of credit were received. It had an arrangement with Hana Bank to make funds available for it to pay LongContin, presumably by way of banking facilities or loan on the security of the letters of credit. When the funds under the letters of credit were released,the funds would be used to discharge the loan. Had there been genuine sale and purchase of goods between the defendant and Long Contin, this arrangement would be good financial management. In the absence of genuine sale and purchase, the inference is that the arrangement was part of a fraudulent scheme designed to effectively dissipate the funds and make the defendant judgment proof. The defendant was a party to that fraudulent scheme.
24. I am mindful of the fact that there were nine similar transactions processed under Mao’s arrangement without any problem. This may lend weight to the defendant’s argument that it has no knowledgeof Mao’s fraud and was itself an innocent victim. Those nine transactionsare also evidence of the sophisticated nature of the fraud. If the defendanthad genuinely entered into sale and purchase agreements with Long Contininstead of merely generating documents from WeChat images given to himby Mao, he may have a more credible argument of being an innocent victim. But given the fictitious nature of these seven transactions and his concerted effort with Mao in creating false documents I mentioned in the preceding paragraph, the inference of guilt was far stronger than an inference of innocence. The defendant was obviously a partner with Mao in the fraud.
25. The following are other miscellaneous evidence pointing to fraud. The certificate of title purportedly issued by the Shanghai Warehouse was forged. The purported storage agreement between the defendant and Shanghai Warehouse was forged. Mao was arrested by the Guangzhou Police on 8 August 2018 in relation to the letters of credit.
26. In conclusion, I am satisfied that the plaintiff has proved a good arguable case of fraud against the defendant.
Arguable case based on money had and received and unjust enrichment
27. “Money had and received” is the old common law form of action for the cause of action of unjust enrichment based on mistake:Cheong Shing Ltd v Yu Kwan[2] and Westdeutsche Landesbank Girozentralev Islington London Borough Council[3]. In unjust enrichment cases, the issues are:
(1) Was the defendant enriched?
(2) Was the enrichment at the plaintiff’s expense?
(3) Was the enrichment unjust?
(4) Are any of the defence applicable?
28. In addition to the conclusion reached in the preceding section, there is no dispute that the scheme was a fraudulent one. The plaintiff incurred liability under the letters of credit with which the defendant obtained payment. There can hardly be any argument that the answers to the first three questions are in the affirmative. Even on the defendant’s own admission, it has been enriched at least by US$67,487.32 as commission. The only remaining question is how much more it has been enriched out of the fraudulent scheme. The only defence raised by the defendant is Sung’s plea of ignorance and that the defendant has already paid out to Long Contin.
29. As my analysis in the preceding section shows, there is no substance in Sung’s plea of ignorance. His admissions contained in his affirmation and statement are far from proving ignorance. That apart, ignorance is not a defence, for dishonesty is not a necessary requirement for restitution.
30. As for the defence of having paid out to Long Contin, I think by that, the defendant is raising the defence of bona fide change of position. I think there was actually no change of position because on the defendant’s own case, it had paid Long Contin before payments under the letters of credit were received. The defendant’s case is that it had arrangement with the negotiating bank so that it can pay Long Contin less interest for the 90-day period by way of a loan before the payment under the letters of credit were released. When the payment under the letters of credit were released, they were used to discharge the loan. In fact, the whole scheme was designed to have that effect of causing the plaintiff to issue letters of credit which were used to pay Long Contin before the funds were due to be released under the letters of credit so that the funds were immediately dissipated when they were released. That was what was designed to take place and the defence of change of position is not applicable. I therefore do not find it necessary to consider Mr Hui’s argument about the defendant’s failure to make inquiries from the plaintiff before paying out the money to Long Contin.
31. Mr Hon argues that there was nothing improper or commercially unacceptable for the defendant to rely on such documents (meaning presumably the sale and purchase agreement between Long Contin and the defendant, commercial invoice, packing list, etc). As pointed out by Mr Hui, this is evidence from the bar table. Nowhere in Sung’s affirmation was it ever suggested that Sung believed the documentswere true. On the contrary, Sung’s evidence was that he received scanned copies of the sale and purchase agreement between Long Contin and the defendant, the commercial invoice and packing list. The sale and purchase agreement was with the defendant and Sung knew there was no such sale of goods by Long Contin to the defendant. How can it be argued that the defendant’s use of the documents was proper and commercially acceptable?
32. Mr Hon argued that what the defendant did was what the plaintiff and Lonkey had been doing, ie trading on documents. With respect, there is a world of difference between what they did. What the plaintiff did was supported by underlying transaction, a genuine sale and purchase agreement in ABS. What the defendant did was not. When Lonkey discovered that no goods were delivered, it stopped payment. Butwhen the defendant was informed that no goods were delivered (actually, it knew that there was no sale and purchase under the agreement), it resisted the plaintiff’s application for injunction. As I have mentioned above, the whole purpose of the arrangement of paying Long Contin before funds under the letters of credit were released was to make the money out of reach of the plaintiff and to make the defendant judgment-proof. To put it crudely, the defendant was just printing documents and selling them. There is no such commercial practice as trading on documents simpliciter. It is monstrous to suggest that the parties were involved in trading in a few pieces of paper for millions of US dollars. Fraud is written on the face of these documents generated by the defendant.
33. In conclusion, Sung and through him, the defendant knew the sale and purchase agreements between Long Contin and the defendant,commercial invoice, packing list and delivery order were not genuine and not supported by underlying sale and purchase of goods. With that knowledge, they presented the documents and the letters of credit to the bank to obtain payment. The defendant’s suggestion that the plaintiff does not have a good arguable case based on money had and received is nothing short of fanciful.
The defendant’s assets
34. The defendant seeks to discharge the Injunction Order on the ground that the plaintiff has offered no evidence that the defendant has assets whether within or outside the jurisdiction. It relies solely on Sung’s assertion that before the funds from the letters of credit were released, the defendant had remitted the money to Long Contin by telegraphic transfers. Hence, there was no evidence of any assets in Korea. The defendant being a Korean company operating in Korea, prima facie, has no assets in Hong Kong.
35. I am aware of the defendant’s alleged arrangement with HanaBank to pay Long Contin before funds from the letters of credit were received. I have been shown the telegraphic transfers purporting to evidence such payments. But I have not been shown documentary evidence evidencing such peculiar arrangement from Hana Bank, such as loan agreement or facility letters. I have not been shown bank statements showing such debit balance as a result of the advance so that when payment under the letters of credit were received, the funds were to be applied to discharge the loan. Even if there were such arrangement, it does not necessarily mean that the funds from the letters of credit represent the entirety of the defendant’s financial resources and that it has no other bank accounts, no other resources,no other properties and no other securities to support its banking facilities of at least over US$6 million.
36. Whether a foreign company has assets at its place of incorporation or business in the foreign location is a matter of evidence and inference from surrounding circumstances. It is true that the plaintiff has adduced no documentary evidence to show the defendant has assets inKorea. But the circumstances suggest that the defendant has substantial assets. It was capable of conducting business to the tune of US$6 million solely with the plaintiff. It is reasonable to assume that the defendant does not operate solely for the purpose of trading with just one party in the whole world. It is an on-going trading business involving, prima facie, substantial transactions. The inference must be that it has substantial assets to support a business of that nature. The argument based solely on the basis that the funds under these letters ofcredits had been dissipated is not full and frank disclosure. Sung also shied away from mentioning what the defendant business was. For the purpose of the present application, I am satisfied that the plaintiff has discharged the burden of proving existence of assets in Korea to support the granting of an injunction order.
Risk of dissipation of assets
37. The thrust of the plaintiff’s argument on risk of dissipation of assets is the defendant’s lack of commercial integrity. Risk of dissipation of assets is a matter of evidence. Sometimes, direct evidence of dissipation may be available. But very often such evidence is not available. The court has to rely on inferences. Risk of dissipation may be inferred from evidence of low commercial morality. In Honsaico Trading Ltd v Hong Yiah Seng Co Ltd [4], Godfrey J said:
“ [24] I am not here to punish the defendant because I disapprove of its conduct; that is not the purpose of a Mareva injunction. But,if I come to the view that its conduct, in relation to this transaction,leaves me so uneasy that I am driven to the conclusion that thereis a real risk that a judgment in favour of the plaintiff might remainunsatisfied, then I conceive it to be my duty to grant the injunction. It may be that some cash will come to the hands of the defendant which would be easily removable out of the jurisdiction, but I attach no very considerable weight to that. It is the case as I havealready pointed out that the defendant is a foreign corporation, but it is a substantial one, and I place no great weight on that either.
[25] I have, however, come to the conclusion that the defendant has exhibited an unacceptably low standard of commercial morality in its dealings with the plaintiff; and this drives me to conclude that there is a danger that if the defendant thought it was in its best interests to do it, it would not shrink from attempting to defeat the interests of the plaintiff under any judgment that the plaintiff might obtain here.”
38. I have said much about the fraudulent scheme to which the defendant was a party. The inference of risk of dissipation of assets couldbe readily drawn. In addition, the prior arrangement of paying Long Contin by way of a loan to be discharged immediately upon receipt of the funds from the letters of credit is strong evidence of risk of dissipation of assets. It may be evidence of good financial management by a company with limited financial resources. But the totality of the evidence, particularly, the defendant’s creation of the sale and purchase agreement with Long Contin, commercial invoice, packing list and delivery order when there was no underlying sale and purchase of the goods, enabled me to draw as the only irresistible inference that once funds fall in the hands of the defendant, they will quickly disappear. This is particularly so as the defendant is a foreign corporation which the hands of the law may find difficult to reach.
39. It is pertinent to note that despite the usual disclosure order has been made, the defendant thus far has been completely silent on the whereabouts of its assets. Of the seven letters of credit, two have been paid. The defendant refused to disclose the whereabouts of those funds. Mr Hon explains that this is because the defendant is seeking to oppose the Injunction Order and disclosure order. With respect, this is a bad excuse. An order is intended to be obeyed. Even if it is challenged, it should be complied with. If the defendant is really concerned about confidentiality,it may provide the information in a sealed envelope and request for it to be deposited with the court pending the inter partes hearing, the application to discharge or appeal of the Injunction Order. Again, some adverse inference on risk of dissipation may be drawn from such wanton disregard of the disclosure order.
40. I am well satisfied that the risk of dissipation is high.
Material non-disclosure
41. The defendant seeks to discharge the ex parte Injunction Order on the grounds of material non-disclosure. It is trite law that for any ex parte application, the applicant must make proper inquiries before makingthe application and should also bring to the court’s attention any point that could have been made by the defendant provided that (a) the point is one that the defendant would reasonably be expected to raise in due course; and (b) the point is not one that can be dismissed as without substance or importance: New Asia Energy Ltd v Concord Oil (Hong Kong)Ltd[5] and SNE Engineering Co Ltd v Chim Kee Machinery Co Ltd[6]. Material facts include not only facts known to the applicant but also any additional facts which would have been known if proper inquiries had been made. It relies on the following non-disclosures.
42. Mr Hon submits that under clause 13 of the Korean version ofthe sale and purchase agreement, the plaintiff should take out insurance on the goods sold but the court was not informed of such insurance, let alone the terms of the insurance and the coverage, which would affect the extent of the loss to be suffered by the plaintiff. That clause only provided that insurance was “to be covered by the buyer”. It does not impose a contractual obligation on the buyer, ie the plaintiff to insure the goods. In any event, as no goods were actually delivered, the insurance or coverage are of no assistance or relevance. Furthermore, whether the plaintiff has obtained insurance does not affect the defendant’s liability towards the plaintiff or, if insured, the insurer by subrogation. The defendant’s argument is a complete red herring.
43. Mr Hon argues that the plaintiff’s claim in respect of seven letters of credit was exaggerated because only two had been paid and five have not. That would trim down the claim substantially. He argues that it is difficult to conceive that the issuing bank with knowledge or information that the shipping documents are forged, as the plaintiff alleged,would honour the letters of credit. Mr Hon’s argument is misconceived. First, I have no misunderstanding that only two letters of credit have been paid and five have not been yet. The injunction sought is precisely to protect the remaining five from being paid. Indeed, the issuing bank expressly informed the plaintiff that it would require a court order before it would suspend payments under the letters of credit. Second, as I have already indicated at the ex parte hearing that as a matter of commercial and banking practice, it was most likely that the negotiating bank would in any event honour the payments, leaving the plaintiff a debt owing to the issuing bank as obviously Lonkey would not pay for goods not received. There was no material non-disclosure.
44. Mr Hon submits that the plaintiff had misrepresented Sung’s role. He argues that Sung and the defendant all along cooperated with the plaintiff’s investigation and gave a statement. He argues that in paragraph 16.2 of his skeleton submission, Mr Hui misrepresented that Sung admitted the storage agreement between the defendant and Shanghai Warehouse was a false document. That statement in the skeleton submission is capable of giving rise to that implication. Be that as it may,I was shown the transcript of a recorded conversation between Sung and the plaintiff’s investigators and Sung’s statement. Sung was told by the interviewers that the agreement was fake and Sung replied “I know”. That was the sole basis of Mr Hui’s skeleton submission. At this hearing,Mr Hui maintains his stance that Sung made an admission that the storage agreement was false. Viewed in its proper context, Sung was acknowledging that the agreement was fake but not asserting he was the maker of the document. In my view, the statement in Mr Hui’s skeleton submission was just counsel’s argument which did not find favour with me. Having provided the primary evidence based on which such argument was advanced, the argument could not be described as material non-disclosure. On the other hand, Sung’s statement, as I have analysed, was a clear admission that he was a party to the fraud.
45. Mr Hon argues that in paragraph 16.3 of his skeleton submission, Mr Hui misrepresented that Sung, along with Mao and his associates, prepared the forged sale contract, delivery orders, commercial invoices and packing lists. He submits that Sung did not forged the documents. For reasons as given in my analysis earlier, this was not the impression which Sung’s statement gave me. There was no misrepresentation.
46. Mr Hon argues that in paragraph 17 of his skeleton submission, Mr Hui portrayed the defendant as having made substantial amount of profit from the transactions by pocketing the money under the letters of credit but without having to pay for the goods when, except for a small commission, the money under the letters of credit was paid to Long Contin. Given the role played by Sung as disclosed in his statement, the defendantwas a party to the fraudulent scheme. As such, the suggestion in Mr Hui’s skeleton submission could not be wrong.
47. Mr Hon argues that in paragraph 22.1 of his skeleton submission, Mr Hui insinuated that the defendant knew that the sale and purchase agreement, delivery orders, commercial invoices and packing lists were false at the time when Sung produced them to the plaintiff’s investigators, but that was clearly not the case. For reasons as given in my analysis of Sung’s statement, I agree with Mr Hui’s suggestion that Sung and therefore the defendant made the documents and knew they were false as there was no underlying sales of goods.
48. Mr Hon argues that in paragraph 22.2 of his skeleton submission that despite knowing that Mao was arrested by the police on 8 August 2018, Mr Hui misrepresented that the defendant nevertheless proceeded with the transactions with the plaintiff. He argues that Sung clearly did not know of the arrest until early October 2018. Given the cloud over Sung’s involvement, Mr Hui might well be mistaken. If he was, it was an honest mistake which should fairly be excused. In the totality of the evidence, this mistake has insignificant bearing.
49. Mr Hon refers to paragraph 22.3 of Mr Hui’s skeleton submission in which Mr Hui misrepresented Sung as a party to the fraud. Mr Hon submits that representation does not sit well with the plaintiff’s email dated 18 October 2018 from Tom Zhao to Sung thanking Sung for his assistance at the interview and for his statement. In the light of my analysis of Sung’s statement, Mr Hui was correct. Tom Zhao was not a trained investigator. He did not have the full documents and particulars at the time of the interview. The inference is that Tom Zhao was deceived by Sung. There is no question of material non-disclosure.
50. Mr Hon argues that the plaintiff was aware that Sung and Maocommunicated mainly via WeChat and had access to the full WeChat historywhich could demonstrate that Sung did not play any part in Mao’s fraudulent scheme. The defendant also has the WeChat history. I have not heard any argument how the history could demonstrate Sung’s non-involvement in the fraudulent scheme. In fact, Sung’s involvement as disclosed in his statement was unequivocal.
51. In conclusion, I find that the grounds for discharging the ex parte Injunction Order based on material non-disclosure are all frivolous or unsubstantiated.
Lack of urgency for ex parte application
52. Mr Hon submits that there is no extreme urgency or secrecy which warrants the application for an injunction to be made on an ex parte basis. The starting point is that applications for interlocutory injunctions should be made inter partes after the commencement of proceedings. Deviations are only permitted in certain limited and exceptional circumstances, the most obvious of which is a situation which concerns matters of such extreme urgency that there is no time to warn the defendant of what is proposed, or where the purpose of the injunction will or may well be frustrated if the defendant is informed of what is being proposed, or where the defendant simply cannot be found.
53. Mr Hon argues that the parties were in discussion about the missing goods at least for over a week prior to the application. The defendant was therefore alerted and would have taken all necessary measures to dissipate the assets. The fact was even as at 18 October 2018, the plaintiff was of the belief that the defendant was not a party to the fraud. It was only after consultation with its legal team that the plaintiff had a clearer picture of the defendant’s involvement. The application was then made on 23 October 2018, after only two working days. That must be withthe hope that the defendant, in the belief that the plaintiff was not aware of its fraudulent scheme, have not disposed of its assets. If the application were made inter partes, the risk of dissipation would be high. There was a need for secrecy.
54. Mr Hon argues that there was no urgency as the plaintiff was aware that the defendant had fully paid Long Contin. I disagree. There was urgency as the negotiating banks may make payment under the letters of credit at any time, resulting in a liability owed by the plaintiff to the issuing bank. Furthermore, it is reasonable to assume that the defendant has other assets, apart from the funds under the letters of credit, which may be restrained. Where fraud is involved, there is prima facie urgency and secrecy.
Conclusion
55. In conclusion, I am satisfied that the plaintiff has shown a goodarguable case based on fraud or money had and received; that the defendant has assets in Korea; and that there is a high risk of dissipation of assets by the defendant, which would render any judgment to be obtained by the plaintiff empty. The defendant has failed to make out a case of material non-disclosure and has advanced no good reasons for variation of the termsof the Injunction Order. Accordingly, the Injunction Order is extended on similar terms until trial of the action or further order. The defendant’s application to discharge or vary the terms of the Injunction Order is dismissed. The plaintiff shall have costs of the application and costs of the hearing on 23 October and 2 November 2018.
| | (Anthony To) |
| | Deputy High Court Judge
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Mr Lawrence Hui and Mr Adrian Wong, instructed by Zhong Lun Law Firm, for the plaintiff
Mr Kevin Hon and Mr Moses Park, instructed by F. Zimmern & Co., for the defendant
[1] Hong Kong Civil Procedure 2019, para 29/1/83
[2] (2008) 11 HKCFAR 594 at para 54, per Litton NPJ
[3] [1996] AC 669 at 683B
[4] [1990] 1 HKLR 235 at 240F–I, per Godfrey J (as he then was)
[5] [2002] 2 HKC 681
[6] [2013] 1 HKLRD 410 at para 25