Re Mount Everest Investments Ltd

CACV000022/1988

Headnote

Setting aside of ex parte orders on grounds of material non-disclosure or Misstatement of facts. Principles to be applied in cases where such non-disclosure or misstatement was not deliberate.

IN THE COURT OF APPEAL

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Coram: Hon. Silke, V.-P., Barker & Fuad, JJ.A.

Date of hearing: 24th & 25th Ferbruary, 1988.

Date of judgment: 23rd March, 1988.

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J U D G M E N T

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Barker, J A. :

1. This is an appeal from a refusal by Jones J. to set aside an order which he had made ex parte on the 22nd December 1987 appointing the Official Receiver as provisional liquidator of Mount Everest Investments Limited (the Company) upon the application of a creditor James Capel (Far East) Futures Limited (the Petitioner).

2. The summons to set aside had been issued by two other creditors of the Company, namely Hui Chun Ping (Mr. Hui) and Plywah Company Limited (Plywah). Mr. Hui is the beneficial owner of all the shares in the Company and is a director of it, the only other director being Mr. Hui's wife, Jane Hui Wong Miu Ling. Mr. Hui also controls Plywah and Inversiones Kristina S.A. (Inversiones) which is a company incorported in Panama and which is another substantial creditor of the Company.

3. The Company was incorporated in Hong Kong in June 1979 as an investment company dealing in commodities and invested on the Hong Kong Stock Exchange and on the Hong Kong Futures Exchange.

4. The Company found itself in financial difficulties as a result of the world-wide stock market crash on the 19th October 1987. Accordingly, on the 21st October 1987 the Petitioner and an associate company, James Capel (Far East) Limited demanded a further margin of approximately HK$2,900,000.00 from the Company. In consequence, at a director's meeting of the Company held on that date it was resolved that as the Company had no readily available cash for the purpose Mr. Hui would charge some of his own assets in the sum of about HK$4,300,000.00 to secure the liabilities of the Company and that the Company would sell to Mr. Hui the Company's car, a Mercedes Benz, for HK$230,000.00, a Company flat at Shiu Fai Terrace for HK$1,500,000.00, and a house at Hong Lok Yuen with all its contents and a club debenture for HK$2,600,000.00 in consideration of the assets he had charged on behalf of the Company. The sales of the house and the flat were completed by Assignment on the 2nd November 1987 and two days later both Assignments were stamped. The Assignment of the house was registered in the Land Office on the 9th November 1987 and that of the flat on the 28th November 1987.

5. On the 23rd November 1987 the Directors of the Company resolved that because of its liability the Company should be placed into creditors' voluntary winding up under section 228 A of the Companies Ordinance and the requisite statutory declaration was registered on the same day in the Companies Register. At that meeting Mr. Ho Sik Lan (Mr. Ho), who had been the Company's auditor, was appointed provisional liquidator.

6. Before 11 a.m. on the 16th December 1987 Mr. Ho took possession of the registration books of two cars of the Company and the key to the Banque National de Paris deposit box in which an Aberdeen marina Club debenture was lodged.

7. At 11 a.m. on that day a creditor's meeting was held in Mr. Ho's office, which was chaired by Mr. Hui Mr. Timothy stocks attended to represent the Petitioner and James Capel (Far East) Limited, Mr. Ignatius Wong attended on behalf of Inversiones, Mr. Chubb represented the Petitioner's financial advisers, Ferrier Hodgson and Marfan and Mr. Ho was present as provisional liquidator. From the minutes as exhibited to Mr. Hui's affidavit dated the 12th January 1988 (the accuracy of which minutes has never been challenged) the meeting was a stormy one. Mr. Stocks and Mr. Chubb were calling into question Mr. Ho's diligence in Collecting and preserving the assets, books and records of the Company. James Capel wanted to have an independent liquidator namely Mr. Selwyn Mar of Ferrior Hodgson and Marfan. This was opposed, and Mr. Ho was appointed liquidator. Because of Mr. Stocks' anxiety to see the Company's books and records, an appointment was made for him to do so, on the 21st December 1987 at Mr. Ho's office, by which time such books and records were in Mr. Ho's physical possession Mr. Stocks did not keep this appointment.

8. On the 17th December 1987 Mr. Ho took possession of one of the Company's cars and of the other on the following day.

9. On the 18th December 1987 an application was apparently made to Jones J. under section 252(2) of the Companies Ordinance to remove Mr. Ho as liquidator. I say apparently because Mr. Ho was not notified of it, and it seems to have been made ex parte. It was supported by an affidavit of Mr. Stocks dated the 18th December 1987. For reasons which are not clear to me this application was not proceeded with.

10. Then on the 22nd December 1987 the Petition to wind up the Company on the grounds that it was insolvent and unable to pay its debts was presented by the Petitioner. The debt claimed by the Petitioner is HK$9,451,217.00. On the same day, the Petitioner sought the appointment of the official Receiver as provisional liquidator on the grounds that the assets of the Company Were in jeopardy. The summons was served on the Company after mid-day on the 22nd December 1987, and was returnable at 3 p.m. on the same day. No one from the Company appeared at the hearing for the reason that Mr. Hui was not in his office that day. In consequence, the summons was heard ex parte, and was supported by an affidavit of Mr. Stocks dated the 21st December 1987.

11. This was, to say the least of it, an unfortunate document. We were informed by Counsel for the Petitioner, and of course accept, that all Mr. Stocks did was to delete the date '18th' on the affidavit used in support of the application under section 252(2), substitute '21st' and remove two paragraphs from the original, leaving the remainder unaltered. This, in my view, is a cavalier method of dealing with a document as important as an affidavit sworn in support of a Summons.

12. It was submitted that because of serious misstatements of fact contained in the affidavit of the 21st December 1987 and because of the non-disclosure of material facts which should have been disclosed therein the ex parte order of the 22nd December 1987 should be set aside regardless of the merits.

I deal first with the misstatements of facts namely:-

(a)        In paragraph 10 of Mr. Stocks?first Affidavit he said:-

"Now produced and shown to me marked 'TS 2' is a photocopy of a Land Registry Sub-Division Register showing the record of owners for the Flat. That record of owners indicates that the Flat was sold by the Company to Bloomhall Limited, one of the parties indebted to the Company, on 28th November 1987 for HK$1,500,000.00 at a time when the liquidator had already been appointed."

And in paragraph 21 Mr. Stocks said:-

"...The Land Registry documents referred to in paragraph 10 above as Exhibit 'TS 2' show that the Company has continued to deal with its assets, particularly the Flat, since the appointment of the Liquidator..."

In paragraph 2(c) of his second affidavit sworn on the l9th January 1988 Mr. Stocks said:-

"The date in paragraph 10 of my December affidavit regarding the transfer of Flat C-1, 2nd floor, Greenville Gardens, Shiu Fai Terrace, Hong Kong is incorrect. The correct transfer date is 2nd November 1987, not 28th November 1987 as stated. In reading the Land Office extract, both I and my advisers misconstrued the date of registration as the actual transaction date."

And in paragraph 5(a) Mr. Stocks said:-

"Due to the error regarding the transfer date of the Greenville Gardens Flat, there are inaccuracies in the statements and comments in my December affidavit as regards the flat in the context of Mr. Ho and control of the assets of the Company. I, nevertheless, stand by my allegation that Mr. Ho, in his capacity as provisional liquidator, failed to take proper control of the property and assets of the Company."

Mr. Stocks does not disclose who his 'advisers' were or of what profession. But when Exhibit "TS 2" is looked at it is difficult to conceive how the entries can possibly have been "misconstrued". They read:-

13. Nothing in my judgment could have been clearer and more incapable of misconstruction. Perhaps Mr. Stocks meant to say 'misread' rather than 'misconstrued'. If he did, he ought to have been more careful.

14. In any event this was in my view a serious misstatement. Counsel for the Petitioner conceded it was material but submitted that it made no difference in the result to the granting of the order.

(b)    Mr. Stocks in paragraph 19 of his first Affidavit mentioned paragraph 27 of the Guidelines laid down by the Hong Kong Society of Accountants which reads:

"Where a practice or a partner or an employee of a practice has or during the previous two years has had, a professional relationship with a company, no partner or employee of the practice should accept appointment as liquidator of the company if the company is insolvent.''

15. In paragraph 20 Mr. Stocks continued:

"The Liquidator's breach of the Rules of the Hong Kong Society of Accountants was brought to his attention at the Creditors' Meeting. However, the Liquidator neither confirmed nor denied the breach."

In paragraph 2(d) of his Second Affidavit Mr. Stocks admitted that he had not brought this alleged rule to the attention of Mr. Ho at the Meeting, though he added that he had brought to Mr. Ho's attention the fact that Mr. Ho had placed himself in a conflict position.

16. Counsel for the Appellants did not place as great reliance on this inaccuracy as that contained in sub-paragraph (a) supra. Nevertheless it is a factor to be borne in mind in considering the whole picture.

17. I turn next to deal with non-disclosure of material facts namely:-

(a) In paragraph 21 of his first Affidavit Mr. Stocks stated that Mr. Ho had failed to take into his custody or under his control the Companies Assets and added:-

"To the best of my information and belief Mr. Hui continues to be in control of and have the full use of the vehicles and club debenture described in List "H" of the Statement of Affairs."

Order 41(5) (2) of the Rules of the Supreme Court provides:

"An affidavit sworn for the purpose of being used in interlocutory proceedings may contain statements of information or belief with the sources and grounds thereof."

The above paragraph 21 was in clear breach of the sub-Rule as were other paragraphs of the Affidavit. In addition to that non-disclosure Mr. Stocks failed to disclose:

(i) that at the Creditors Meeting Mr. Ho had confirmed that the registration books for the two cars were in his possession, that the cars were parked at Mr. Hui's residential address for safety reasons and that Mr. Ho had confirmed that he would obtain physical possession of the cars and park them in a public car park.

(ii) that the Club debenture had been discussed at the aforesaid Meeting when Mr. Hui had informed him that he had paid for all expenses including the last monthly fee himself.

(iii)    that he had never asked at the aforesaid Meeting who had possession of the Club debenture deed, yet he swore that to the best of his information and belief it was under Mr. Hui's control.

and,

(b) In paragraph 27 of his first Affidavit Mr. Stocks swore that the books and records of the Company were, to the best of his information and belief, in the possession of Mr. Hui (so. as at 21st December 1987) but omitted to disclose that at the creditors Meeting he had arranged to inspect the Company's books and records at 9 a.m. on the 21st December 1987 but failed to attend to carry out the inspection.

18. In paragraph 6(e) of his second Affidavit he said:-

"I do not deny that a meeting was arranged for 21st December 1987 to enable me to inspect the accounting records of the Company. I did not attend at that appointment as I was fully committed to the preparation of my December affidavit and to other matters in the office - I was due to fly to England on holiday in the evening of 21st December; the inspection of the accounts in the light of Mr. Ho's prior conduct and other factors did not appear to me to be of particular relevance."

19. This is a surprising sub-paragraph. It is silent as to what were the other matters in the office which Mr. Stocks had to prepare, but it is clear that the preparation of his December affidavit (and by this he must mean his affidavit of the 21st December 1987) could have taken up very little of his time, involving as it did the deletion of two paragraphs and the alteration of a date. Furthermore at paragraph 27 of his first Affidavit Mr. Stocks had sworn:-

"To the best of my information and belief the books and records of the Company are in the possession of Mr. Hui and other Directors of the Company and are at risk of being modified or destroyed."

20. It is incomprehensible that he would really believe that an inspection on the morning of the 21st December 1987 would be of no particular relevance.

21. To these submissions, Counsel for the Petitioner argued that, apart from the misstatement with regard to the Flat, which he conceded to be material but not decisive, the remainder of the Appellant's complaints were not significant in the context of the winding up. I interpose that items such as the cars, the Club debenture and the Company's books and records were thought at the time to be of sufficient significance to be the subject of vigorous questioning by Mr. Stocks and Mr. Chubb at the Creditor's Meeting and of mention by Mr. Stocks in his first Affidavit.

22. Counsel argues that once the Judge has found, as he did, that any misstatement or non-disclosure was not done deliberately to mislead the Court, he has a discretion whether or not to set aside the ex parte order, and once that discretion has been exercised in favour of the Petitioner, the Court of Appeal ought not to disturb it unless satisfied that its exercise was plainly wrong. It was moreover argued that it would be wrong to vitiate what has been done by the Official Receiver who has been acting as provisional liquidator for over two months, and that even if the Judge had known the correct facts he wouldstill have arrived at the same decision.

23. The fons et origo of thelaw on this topic is The King v. The General Commissioner for the purposes of the Income Tax Acts for the District of Kensington Ex parte Princess Edmond De Polignae ^(l).

24. At 495 Viscount Reading C.J. said:

"Before I proceed to deal with the facts I desire to say this: Where an ex parte application has been made to this Court for a rule nisi or other process, if the Court comes to the conclusion that the affidavit in support of the application was not candid and did not fairly state the facts, but stated them in such a way as to mislead the Court as to the true facts, the Court ought for its own protection, and to prevent an abuse of its process, to refuse to proceed any further with the examination of the merits. This is a power inherent in the Court, but one which should only be used in cases which bring conviction to the mind of the Court that it has been deceived. Before coming to the conclusion a careful examination will be made of the facts as they are and as they have been stated in the applicant's affidavit, and everything will be heard that he urged to influence the view of the Court when it reads the affidavit and knows the true facts. But if the result of this examination is to leave no doubt that the Court has been deceived, then it will refuse to hear anything further from the applicant in a proceeding which has only been set in motion by a misleading affidavit."

25. On appeal Lord Cozens-Hardy M.R. expressed his emphatic agreement with the Lord Chief Justice. But whereas Viscount Reading based his reasoning on the applicant's deliberate deception of the Court Lord Cozens-Hardy appeared to extend the principle when he said at 504:-

"The authorities in the books are so strong and numerous that I only propose to mention one which has been referred to here, a case of high authority Dalglish v. Jarvie. (2 Macq. & G. 231) which was decided by Lord Langdale and Rolfe B. The headnote, which I think states the rule quite accurately, is this:-

'It is the duty of a party asking for an injunction to bring under the notice of the Court all facts material to the determination of his right to that injunction; and it is no excuse for him to say that he was not aware of the importance of any facts which he omitted to bring forward.'

Then there is an observation in the course of the argument by Lord Langdale:

'It is quite clear that every fact must be stated, or, even if there is evidence enough to sustain the injunction, it will be dissolved'."

26. In Thermax Limited v. Scholt Industrial Glass Limited ⁽²⁾ (a case concerning an Anton Piller order), Browne-Wilkinson J. held, following the Kensington and Dalglish v. Jarvie⁽³⁾ cases, that on an ex parte application the party seeking relief must make full disclosure to the court of all matters within his knowledge and that if he fails to do so, even where that failure was an error of judgment only and not deliberate, the order must be discharged without investigating its merits. Browne-Wilkinson J. appears to have held that upon failure to make such full disclosure, discharge of the order must follow as a matter of law.

27. In Wardle Fabrics Limited v. G. Myristes Limited⁽⁴⁾ (another Anton Piller order case), Goulding J. held that the proper test to be applied by the Judge before whom the ex parte application was being made was not to ask if the judge had had before him the additional facts later disclosed would he have come to the same conclusion. The right test was:

"that the court must be fully Informed of all facts that are relevant to the weighing question which the court has to make in deciding whether or not to make the order."

28. These (and other cases) were considered by the Court of Appeal in Intercontinental Housing Development Limited v. Quek Teck-huat and Others ⁽⁵⁾ (a Mareva case).

In the case Fuad J.A. said at 1162:-

"However what has been consistently said in the authorities about the draconian nature of the Mareva remedy and the need for full and frank disclosure must, in my view, firmly be borne in mind, so that if the non-disclosure was both material and deliberate I find it difficult to envisage circumstances in which it could ever be proper to exercise the court's discretion in the applicant's favour by granting fresh relief.

Even when the non-disclosure is not deliberate, a court will be slow to assist the applicant because he has gained an advantage to which he was not entitled and of which he should normally be deprived."

29. In my judgment, and in the light of the foregoing cases the law on this matter is as follows:-

(a) The same principles are to be applied whether there has been material non-disclosure or material misstatements of facts and to all ex parte applications;

(b) Even if there has been material non-disclosure or misstatement of fact, the Court nevertheless has a discretion whether or not to set aside an ex parte order. This discretion will very rarely be exercised in favour of a person seeking to uphold the ex parte order in cases of deliberate non-disclosure or misstatement of material facts and with great caution even in cases where such non-disclosure or misstatement was not deliberate;

and (c) Normally a court will not assist a party to retain an advantage to which he was not entitled.

30. I am for my part satisfied that there was material non-disclosure and misstatement of facts. The Judge has found that this was not deliberate and I see no sufficient ground for disturbing that finding, even though no adequate explanation for the non-disclosure and misstatement has been forthcoming.

31. It was submitted on behalf of the Petitioner that this Court should not set aside the ex parte order because the Official Receiver has been in office as provisional liquidator for over two months and it would not be right to appoint strangers in his stead. I say strangers because Mr. Ho has deposed that in view of the objections which have been raised as to his acting as liquidator he wishes in any event to be relieved of that office.

32. But were this Court to refuse to set aside the ex parte order on that ground, it would be giving the Petitioner an advantage which he had got by having an ex parte order wrongly obtained, precisely what it was said in the International Development case ⁽⁵⁾ a Court should be slow to do. The Appellants have been prejudiced by the ex parte order in that-

(a) they have been or may be deprived of their costs and

(b) if there are independent liquidators appointed the Appellants' arguments on the hearing of the Petition might be stronger.

33. I would allow the appeal and set aside the ex parte order appointing the Official Receiver provisional liquidator. I would wish to hear Counsel as to what further Order should now be made.

34. I add only that in the light of my foregoing conclusions I have not felt it necessary to consider the other arguments which were advanced on behalf of the Appellants.

Silke, V.-P.:

35. I agree and also would wish to hear counsel on matters consequential.

Fuad, J .A.:

36. I also agree that the appeal should be allowed.

(1) (1917) 1 K.B. 486

(2) (1981) F.S.R. 209

(3) 2 Macq. & G. 231

(4) (1984) F.S.R. 263

(5) (1986) H.K.L.R. 1153

Representation:

Mrs. Margaret Clough (Ignatius Wong & Co.) for Appellant.

Robert C. Tang, Q.C. & R. Wong (Deacons) for Respondent.

Miss Angel Y.Y Li for Official Receiver.