Agritrade Resources Limited Through the Joint Provisional Liquidators Ng Kian Kiat, Oon Su Sun and E. Alexander Whittaker and Another v. Ashok Kumar Sahoo

HCA 1660/2020

[2021] HKCFI 1605

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1660 OF 2020

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D E C I S I O N

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The application

1.This is the Defendant’s application by summons dated 7 April 2021 seeking leave to appeal to the Court of Appeal the order of this court dated 23 March 2021 continuing the worldwide Mareva injunction granted by G Lam J on 28 September 2020 (the “Injunction”), together with ancillary orders (the “Decision”).  The Defendant advanced five grounds of appeal.

2.Counsel have no dispute about the general principles applicable to leave to appeal.  Leave will generally be granted where:

(a) there are reasonable prospects of success; or

(b) some other reason in the interest of justice is established.

3.Under (a), the prospect of success must be reasonable and more than fanciful, without having to be probable.  An applicant has to show more than just an arguable case, but an appeal that has merits and ought to be heard, although he does not have to demonstrate that the appeal will probably succeed.  The threshold is not high: see T v W[1]. 

4.Under (b), the Court of Appeal will not interfere with an exercise of discretion unless the judge erred as a matter of law, misunderstood the evidence, took into account irrelevant factors, failed to take into account relevant factors or had acted blatantly outside the scope of the discretion that no reasonable tribunal would have done: see LYYC v CHL and CSMS[2].  An applicant may rely on this limb if it can be shown that the appeal would present the Court of Appeal with an opportunity to provide the much needed clarification on an area of the law or to entertain an argument that the law ought to be changed, or the question is one of general principle to be decided for the first time, or a ruling would be to the public advantage: see Xu Ying v Xu Weihong[3].

5.Refusing to set aside an injunction is as much an exercise of discretion as granting an injunction.  The plaintiff has to show a good arguable case.  Hence, to seek leave to appeal an interlocutory injunction, the defendant has the higher burden of showing that the plaintiff does not even reach this relatively low threshold.  This is all the more difficult where the defendant’s arguments are based on contested facts that cannot be resolved at the interlocutory stage.  Hence, applications to set aside interlocutory injunctions are often best left to trial save for exceptional cases: see Dormeuil Frères SA v Nicolian International (Textiles) Ltd[4] quoted in Ming Hsieh v Xu Zhe & Ors[5].

Ground (1): No reflective loss

6.The Defendant argues that this court erred in law in holding that the Plaintiff’s claim is not barred by the no reflective loss rule and that the court should have applied Landune International Limited v Cheung Chung Leung Richard[6].  This court had considered Landune International Limited and distinguished it from the present case on the fact on the basis that the funds in question were not funds of Agritrade Power Venture Pvt Ltd (“Agritrade India”) but the Plaintiff’s funds diverted by the Defendant to Agritrade India and while the funds were under his control when it was with Agritrade India to misapply them: see paragraph 76 to 79 of the Decision.  That the funds were transferred from the Plaintiffs to Agritrade India and documented in Agritrade India’s books as well as bank records in relation to the transfers is neither here nor there. That was just part of the scheme used by the Defendant to divert the funds.

7.The Defendant argues that at paragraph 87 of the Decision this court misunderstood the evidence because as shown in Defence counsel’s Annex I the amount of US$13,088,740 actually injected into Entwickeln India Energy Private Limited and SKS Power Generation (Chhattisgarh) Limited (“SKS”) was higher than the amount the Plaintiffs transferred to Agritrade India thereby evidencing there was no misappropriation by the Defendant.  As pointed out in that paragraph, this court has no misunderstanding about the evidence.  The dispute is what happened to these funds.  As the analysis show, an amount of US$5,060,000 from the funds was unaccounted for.

8.Having distinguished Landune International Limited on the fact, this court dismissed the Defendant’s argument on no reflective loss as novel and doomed to fail.  This is a determination based on the court’s provisional view of the facts of the case which the court was entitled to find.  This court’s decision is based on contested evidence which should be left to trial rather than to appeal against an interlocutory decision.

9.The Defendant attempts to bring this ground of appeal within the “public interest” limb.  This is obviously misconceived.  The law on reflective loss is well established.  Neither the Plaintiffs nor the Defendant argues that the law is otherwise.  What the Defendant disputes is the provisional finding of the court on which the law is to be applied.  This is something which should be left to trial and not to the Court of Appeal under the pretext of “public interest”.

Ground (2) -  Error in holding the Plaintiffs had made out a good arguable case on quantum at the ex parte stage 

10.This issue was addressed by this court at paragraphs 64 to 67 of the Decision.  At the ex parte stage, the Plaintiffs sought injunction in the amount of US$12,675,000.  The amount was reduced by this court to US$5,060,000.  Relying on this court’s comment that “proof of quantum is not satisfactory”, the Defendant argued that this court erred in holding that the Plaintiffs had made out a good arguable case on quantum at the ex parte stage and submitted that this court should have found the Plaintiffs had failed to make out a good arguable case on quantum.  Ms Cheung, counsel for the Defendant, quoted Universal Entertainment Corporation & Another v Kazuo Okada[7]in support of her proposition.

11.Mr Brown, counsel for the Plaintiffs, submits that the facts in Universal Entertainment Corporation are materially different from the present case.  The plaintiff in that case applied for injunction for an arbitrary sum and made no effort after a lapse of three years to develop its case on quantum despite it was able to do so with expert evidence.  Here, the Plaintiffs did neither.  It was defrauded.  The Plaintiffs made clear to the court that it did not know how much because the Defendant who was trustee of the funds defrauded refused to provide information.  Doing the best it could at that stage, the Plaintiffs calculated a figure and used it as the ceiling.  Mr Brown submits that there is nothing arbitrary about the ceiling and there is nothing unusual in the injuncted amount being adjusted downwards subsequent to the ex parte hearing and that it is not a basis for finding that a plaintiff failed to make out a good arguable case on quantum at the ex parte stage.

12.I agree.  This issue is a question of fact which is to be determined qualitatively and not quantitatively.  Taken to the extreme, Ms Cheung’s submission would mean that a plaintiff would fail if its proof is just short of a dollar.  That cannot be right.  At the ex parte stage, because of the need for urgency, the applicant has to proceed even though the evidence may be inchoate.  Any order made by the court is provisional and subject to review at the inter parte stage.  Taking the very quantitative approach as Ms Cheung suggests under such pressing circumstances could not work.  In my view, an arguable case on quantum is shown, if a quantum which is not fanciful and which justifies the injunction is proved.   If the quantum claimed is shown to be excessive at the inter parte stage, it may be reduced.  If the defendant restrained suffers loss in the interim period, the plaintiff is liable to make good the loss under its undertaking for damages.

Ground (3) -  Error in concluding the Plaintiffs’ selective production of bank statements did not amount to material non-disclosure

13.The Defendant argues that since only seven out of 400 pages of spreadsheets (which the Plaintiffs now accept are bank statements downloaded from the bank’s website) were produced before the ex parte judge, the Plaintiffs were guilty of material non-disclosure, such that the Injunction should be discharged, and whether the non-disclosure was deliberate is irrelevant in the objective test in determining materiality.

14.These issues were extensively addressed at the hearing and in paragraphs 68 to 75 of the Decision.  As Mr Brown rightly submits, the issue as to whether there has been material non-disclosure is one for the discretion of the first instance court which the appellate court will not interfere save in rare and limited circumstances.  At the second ex parte hearing, G Lam J confirmed receiving the seven pages of bank statements.  He was referred to Abhijeet’s email of 22 May 2020 to which all the 400 pages of bank statements were attached and his email of 9 July 2020 in which Abhijeet said, referring to his email of 22 May 2020, that he had already sent the bank statements to the Plaintiffs.  Given the extreme care and importance the ex parte judge attached to the bank statements, he must have realized that the seven pages covered the period from 1 April 2019 to 31 March 2020 which is the material period in issue and it would serve no purpose to examine the rest of the 400 pages which covered the period before 1 April 2019.  Hence, having viewed the seven pages and the two emails, the ex parte judge did not find it necessary to call for more hard copies of bank statements and held the Plaintiffs “probably passed the threshold”. 

15.At the inter parte stage, this court is of the same opinion.  From the Decision, it can be seen that nothing really turned on those 400 pages or the seven pages that were viewed by the ex parte judge.  They served no more than providing the documentary evidential support for the transactions if such corroborating evidence was called for.  As observed in paragraph 71 of the Decision, the Plaintiffs did not know what happened to the funds and the Defendant did not respond to the Plaintiffs’ demand for explanation, viewing the bank statements in the absence of the Defendant’s explanation could not untangle what had been done by the Defendant in relation to the funds transferred.  In fact, the Defendant has not pointed to a single transaction that appeared in the pages not produced that was material to the ex parte judge’s consideration.  That is perhaps the unspoken reason why the Plaintiffs only produced seven pages as sample for consideration by the ex parte judge. 

16.Ms Cheung submits that in holding that the name of the file containing the bank statements can be seen from one of the pages in the exhibits this court did not appear to have considered the principle that a party cannot discharge its duty of full and frank disclosure by exhibiting documents without reading the material terms for the judge’s benefit or making distinct reference to the point in the body of an affidavit. This complaint is frivolous as the bank statements speak for themselves. 

17.Ms Cheung argues that in holding that the ex parte judge did not find it necessary to look at all 400 pages of bank statements after seeing the seven pages produced, this court failed to appreciate that there was nothing before the ex parte judge to suggest that there were bank statements provided to the Plaintiffs beyond the seven pages produced.  For reasons as explained in paragraph 14 above, the ex parte judge was fully aware of the existence of the 400 pages of bank statements.

18.Ms Cheung argues that the statement “This is a computer generated statement and does not require a signature” was not drawn to the ex parte judge’s attention and that these words weaken the Plaintiffs’ case that the spreadsheets were not authentic.  The Plaintiffs accepted at the inter parte stage that the bank statements were authentic, but they were misled by Abhijeet’s emails.  As the Plaintiffs were misled, their failure to draw those words to the attention of the ex parte judge is understandable.  I have found at paragraph 74 of the Decision that it was a reasonable misunderstanding not reflective of any intention to mislead. 

19.As I concluded in paragraph 75 of the Decision, the argument about the Plaintiffs’ failure to produce all 400 pages as deliberate material non-disclosure with intent to mislead is overblown and mis-focused.

Ground (4) - Failure to take into account relevant factors in assessing risk of dissipation

20.The Defendant complains that this Court failed to take into account that the transfer of certain properties by the Defendant mentioned in paragraphs 134 to 137 of the Decision were effected before the Injunction was ordered and it was wrong to take that into account in assessing the risk of dissipation. Ms Cheung quoted and relied on the ex parte judge’s comments that the transfer did not amount to breach the Injunction.

21.This Court’s assessment of the risk of dissipation is set out in paragraphs 97 to 101 of the Decision. The Defendant’s conduct relied on by the Court were his misapplication of US$2,450,000 for purchasing a property for himself from Gupta Steel Corporation Pvt Ltd (“Gupta Steel”); his self-dealing in SKS’s compulsory convertible debentures (“CCDs”); and misappropriating US$100,000 from Agritrade Mauritius for paying the CCDs. These are very substantial evidence of fraud pointing to risk of dissipation. In addition, the Plaintiffs have shown a good arguable case as to the misappropriation of the sum of US$5,060,000. The property transfers relied on by the Defendant are related to the Plaintiffs’ Variation Application[8]. They never formed part of the basis of the Court’s assessment of risk of dissipation. It is difficult to understand how the Defendant could establish that the intended appeal has good prospects of success because the Court of Appeal may find that this court failed to take into the ex parte judge’s comments in assessing the risk when the underlying facts based on which the comments were made were not relied on by this court in the assessment.

Ground (5) – Error in allowing the 2^nd Plaintiff’s applications to continue the Injunction and for ancillary disclosure and Variation Order

22.Ms Cheung argues that the 2^nd Plaintiff’s informal discontinuance as a party in this action has a substantive impact. She referred to paragraph 40 of the Plaintiffs’ statement of claim in which it is alleged that at least US$9,575,000 (of which US$3,300,000 is not even alleged to have originated from the 1^st Plaintiff) was transferred from the 2^nd Plaintiff and not the 1^st Plaintiff. At the highest, this means that the amount injuncted may have to be reduced by about a quarter. 

23.This point was not raised at the hearing.  It was only raised in the Defendant’s reply submission in this leave application when the Plaintiffs had no opportunity to respond.  It is axiomatic that a party may cause a third party to transfer funds for and on its behalf.  The fact that funds were transferred by the 2^nd Plaintiff is not conclusive as to their ownership and cannot exclude the possibility that they are funds of the 1^st Plaintiff or funds jointly owned by the 1^st and 2^nd Plaintiffs. This is particularly the case as the 1^st and 2^nd Plaintiffs are associated companies.  The defect in the 1^st Plaintiff’s case could be cured by amendment to the pleading. 

24.This ground, even if it may succeed, is obviously not a good appeal point and should be left to trial.

Conclusion

25.For the above reasons, the proposed appeal has no prospect of success.  Accordingly, leave to appeal is refused with costs to the 1^st Plaintiff.

Mr Toby Brown, instructed by Messrs. Howse Williams, for the 1^st and 2^nd Plaintiffs

Ms Jasmine Cheung, instructed by Messrs. Gall, for the Defendant