Kck Energy Conservation System Ltd v. Chau Kee Holdings Co Ltd and Others
Read the full judgment text of DCCJ 97/2020 on BabelCite. This District Court judgment was delivered on 21 June 2021.
1. This is the application of the defendants (called “CKH”, “D2” and “D3” respectively) to discharge the Mareva injunction granted on 7 April 2020 on an ex parte basis and continued on 17 April 2020 after an inter-partes hearing (“the Order”).
Cites 7 cases
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DCCJ 97/2020 [2021] HKDC 740 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 97 OF 2020 -------------------- BETWEEN
-------------------- Before: His Honour Judge Ko in Chambers (Open to public) Date of Hearing: 16 June 2021 Date of Decision: 21 June 2021 -------------------- DECISION -------------------- A. Introduction 1.This is the application of the defendants (called “CKH”, “D2” and “D3” respectively) to discharge the Mareva injunction granted on 7 April 2020 on an ex parte basis and continued on 17 April 2020 after an inter-partes hearing (“the Order”). 2.Alternatively, D2 seeks to vary the Order to the extent that he be allowed to spend $64,560 per month towards his ordinary living expenses and $80,000 per month on legal advice and representation until trial. 3.The application, in both respects, is opposed by the plaintiff (“KCK”). B. The parties’ respective case 4.At the heart of KCK’s case is the oral agreement made between Mr KC Lai (“Mr Lai”) for KCK and Mr Kiwi Li (“Mr Li”) for CKH in about 2013 as pleaded in paras 5-7 of the Re-Amended Statement of Claim (“RASOC”). 5.According to its counsel (Mr Billy Ma), KCK is claiming against the defendants:- [1]
6.On the part of the defendants, their counsel (Mr Tim Yu) outlined the following defences in his submissions:- [2]
7.It is the defendants’ case that there was an oral joint venture agreement between KCK and CKH as pleaded in paras 30-33 of the Defence and Counterclaim (“D&CC”), and CKH is:-
C. The relevant procedural history 8.Letters before action (dated 26 November 2019) were sent to CKH to the attention of its directors. When there was no response, KCK issued the Writ herein on 7 January 2020 to commence these proceedings. 9.On 19 March 2020, D2 and D3 took out a summons to strike out the claim against them. The application was supported by the affirmation of D3 (“D3 I”). By an order dated 23 June 2020, leave was granted to withdraw the application. 10.On 6 April 2020, KCK made an ex parte application for Mareva injunction, which was granted by HH Judge KC Chan (“the ex parte Judge”) on 7 April 2020. 11.On 9 April 2020, KCK took out an inter partes summons for continuation of the ex parte Mareva injunction and amended its Statement of Claim. 12.At the hearing on 17 April 2020, HH Judge Harold Leong (“the inter partes Judge”) made the Order after hearing Mr Ma and Mr Yu (then representing D2 and D3 only). 13.On 15 January 2021, the defendants issued the summons for their present application. D. The discharge application 14.Mr Yu has helpfully summarised the grounds for discharging the Mareva injunction, both procedural and substantive, under the following headings:-
15.Before I turn to these grounds, I need to deal with a preliminary objection raised by Mr Ma. E. Preliminary objection 16.Mr Ma observes that the defendants had ample time and opportunity prior to the inter partes hearing to file evidence to oppose the Mareva injunction but chose not to do so. Relying on para 29/1/34 of the Hong Kong Civil Procedure 2021 and para 24-016 of Gee on Commercial Injunctions, 7th edition (2020), he argues that given (i) the hearing on 17 April 2020 was inter partes in nature and (ii) the 9-month delay[3] on the part of the defendants in making the application, the defendants are not entitled to apply to discharge or vary the Order without good grounds or change of circumstances. 17.Mr Yu explains that the defendants have taken more time than they initially expected to launch the application given the voluminous documentation (running into 24 bundles and almost 5,500 pages) and D3’s (unsuccessful) legal aid application. 18.In my view, the objection is misconceived. The material part in Hong Kong Civil Procedure 2021 is in these terms:-
19.The quotation from Gee, relating to the principle that there should be finality and points should be taken promptly, is to the same effect and applies “when there had been a consent order for continuance of an injunction … or a contested inter partes application for an injunction…”. 20.Mr Ma confirms that Mr Yu did inform the inter partes Judge that D2 and D3 would apply to discharge/vary the injunction in due course and the Judge did not hear argument on the intended application. CKH was then absent and unrepresented. It was in that context that the Judge made the Order to continue the ex parte Mareva injunction “until the determination of the proceedings, or unless before then it is varied or discharged by a further Order of the Court.” Therefore, the Order was not made by consent and not made following a full or contested inter partes hearing. 21.Given the usual term (on page 6 of the Order) that the defendants may apply to vary or discharge the Order upon giving advance notice to KCK’s solicitors, I do not think Mr Ma’s objection based on delay carries any weight. 22.I rule against KCK on its preliminary objection. F. No reason for applying on an ex parte without notice basis? 23.I shall take these two grounds together. 24.First, Mr Yu argues that in breach of para 32(3) of Practice Direction 11.1, KCK has failed to set out the facts relied upon in justifying its ex parte application, such as the reasons for not giving notice to the defendants. Following Yifung Developments Ltd v Liu Chi Keung Ricky [2014] 4 HKLRD 483 at paras 15-16, he urges me to set aside the Order on this ground alone. 25.Secondly, he complains that the ex parte application was made late – over 6 months after the dishonoured cheques. He observes that the key basis for KCK’s application was that the defendants had demonstrated conduct of low commercial morality by reason of the dishonoured cheques. If KCK could perceive real risk of dissipation of assets from the dishonoured cheques, it has failed to explain why it did not apply for Mareva relief earlier. 26.It is trite that an ex parte application is justified where the purpose of the injunction may be frustrated by the defendant being given notice of the hearing: para 29/1/34 of Hong Kong Civil Procedure 2021. The ex parte application in this case should be viewed against the following background:- [4]
27.In paras 54-62 of his third affirmation (“D2 III”), D2 refuted KCK’s accusation that there had been back-dating or cover up and attributed the change of shareholdings and directorship to a fundamental disagreement between him and D3 over the company’s business direction. He sought to explain away the replacement of the Form ND2A by saying that that was due to the mistake of CKH’s company secretary. 28.He claimed (in para 63 of D2 III) that he had been present at CKH’s registered office on 3 April 2020 for the whole day and that there had not been any visitor. He challenged KCK to identify the clerk who had attended the premises. He suggested that in any event CKH’s operation had mostly gone online and given the pandemic, it was “entirely reasonable for [CKH] to be closed and business to be carried out elsewhere.” 29.Mr Yu also submits that the change of shareholdings and directorship in 2019 did not prevent D2 from being sued personally and should not be viewed as evidence of dissipation of assets. 30.In my view, the circumstances highlighted above justified KCK into thinking that subsequent to its letters before action (i) CKH had ceased its operation; and (ii) D2 had tried to distance himself from CKH and D3 in order to evade potential liability:-
31.It is D2’s evidence that he sometimes covered for CKH when the latter experienced “short-term liquidity issues”.[8] There were occasions in 2018 when D2 had used his personal cheques to pay for KCK’s invoices after the dishonouring of CKH’s cheques.[9] In those circumstances, KCK cannot be criticized for not applying for Mareva relief immediately after the dishonour of the three cheques in question. Anyway, mere delay, without more, is not fatal and the defendants are far from demonstrating that it would be unreasonable or practically unjust to grant the Order: see Abbott GmbH & Co KG v Pharmareg Consulting Co Ltd [2009] 3 HKLRD 524 at paras 80-95. 32.As observed by Mr Lai,[10] it was surprising (to say the least) for D2 to be present at CKH’s registered office for the whole day on 3 April 2020 given that D2 had already resigned his directorship and transferred away his shareholdings due to “fundamental disagreement” with D3 several months ago. 33.I rule against the defendants on both procedural grounds. G. No good arguable case against D2 and D3? 34.Mr Yu concedes that KCK has a good arguable case against CKH. The concession is in order. Even on the basis of the defendants’ case (that there was the alleged joint venture agreement with a profit sharing ratio of 8:2 between KCK and CKH), it behooved CKH to pay KCK’s invoices representing KCK’s 80% share of the profit. 35.As regards D2 and D3, Mr Yu’s complaints that (i) the alleged guarantee and warranty are lacking in particulars; (ii) there was no mentioning of the allegations prior to April 2020; and (iii) there was no documentary evidence in support of the allegations. 36.Upon the direction of the ex parte Judge, Mr Ma prepared a schedule enumerating the occasions when D2 had used his personal cheques to settle KCK’s invoices for CKH.[11] The practice began in August 2016 and continued until October 2019, which roughly coincided with the timing of the guarantee and warranty alleged by KCK.[12] 37.Whilst a court may be hesitant in finding that a director has assumed personal responsibility for an act attributed by law to his company especially in circumstances when an intervening company structure is used as in this case, express assumption of personal legal responsibility may be evidence that he is “taking off his corporate hat so that … it is reasonable for [a third party] to look to the proprietor’s personal pocket book as opposed to the company’s…”: per Buckley J in the English case of Ojjeh v Waller (unrep, Queen’s Bench Division, 14 December 1998) quoted in Threshold Consultants Limited v Boost Investments Limited [2020] HKCFI 415 at para 152. In my view, the points raised by Mr Yu are matters for trial as in the Threshold Consultants case (see the discussion in paras 141-154). 38.Mr Yu and Mr Ma only addressed me briefly on KCK’s alternative claim based on the dishonoured cheques. This is understandable as the alternative claim is subsumed in the (larger) primary claim. Anyway, the defence that the cheques in question were “conditional” does not sit comfortably with defendants’ own case on change of payment practice in 2018 requiring CKH to, inter alia, provide post-dated cheques as security of payment for its purchase orders to KCK. The post-dated cheques would not amount to security given the agreement that they “would not be presented for payment until KCK had obtained consent from CKH”[13] alleged by the defence. 39.It bears repeating what was said in Natural Dairy (NZ) Holdings Ltd (in provisional liquidation) v Chen Keen [2020] HKCFI 2491 at para 80: “The threshold of ‘a good arguable case’ is much higher than ‘a serious issue to be tried’ under the American Cyanamid principles. While the plaintiff need not go so far as to persuade the court that it is likely to win, it needs to show a case which is more than barely capable of serious argument, albeit not necessarily one that the judge believes to have a better than 50% chance of success. The existence of a good arguable defence does not necessarily negate a good arguable case …”. I am quite satisfied that KCK has a good arguable claim against D2 and D3. H. There was material non-disclosure? 40.Here, Mr Yu complains that KCK had failed to disclose the following information to the ex parte Judge in breach of paras 32(4) and (5) of Practice Direction 11.1:-
41.I reject these submissions. The fact that CKH was incorporated after the oral agreement alleged by KCK was expressly mentioned in the supporting affirmation (see Lai I, paras 7 & 9) and highlighted by Mr Ma (see paras 11 & 13(1) of his skeleton argument) before the ex parte Judge. Such information was not withheld from the ex parte Judge. It is KCK’s case that the oral agreement was subsequently confirmed by CKH’s purchase orders (see Lai I, paras 11-13 and Mr Ma’s skeleton argument, paras 13(2)-(3) & 14). Whether this would be accepted by the court is a matter for trial. 42.I was taken by both counsel to the voluminous documentation filed by the parties. In my view, that was quite unnecessary. As I said at the hearing, these documents on the precise dealings between the parties may be relevant in the eventual trial but not material or necessary to enable the ex parte Judge to exercise his discretion properly: see para 29/1/51 of Hong Kong Civil Procedure 2021. 43.There was in my view no material non-disclosure. I. There was no real risk of dissipation of assets? 44.Before the ex parte Judge, Mr Ma justified the application by submitting that the defendants had the track record of using dishonoured cheques and such conduct left much to be desired from a commercial morality point of view.[17] 45.Pursuant to the ancillary disclosure order (para 2 of the Order), CKH and D3 (its remaining director/shareholder) have confirmed that they both have no assets of an individual value of $100,000 or more.[18] This is surprising given the volume of transactions between the parties over the years reaching almost $10 million.[19] 46.Mr Ma has uncovered further evidence of dissipation from the voluminous material filed by the defendants:-
47.Furthermore, D2 failed to volunteer his beneficial ownership in JW West (Hong Kong) Limited and Carry Hong (Group) Limited in pursuance of the ancillary disclosure order. His explanation (that these companies do not hold assets over $100,000 for his benefit)[24] remains to be tested. 48.Whilst D2 has owned up to his 95% beneficial ownership in Algonquin (HK) Limited, Mr Ma is concerned that D2 has failed to disclose all the documents relating to the company’s finance.[25] The fact that D2’s wife is the other director/shareholder of the company[26] means that it would be easy for the company to dispose of its industrial unit and car parking space in Wah Fung Industrial Centre valued at about $5.5 million.[27] 49.There is also evidence that Mr Li had taken part or concerned in the management of CKH whilst he was still an undischarged bankrupt without leave of the court in contravention of section 480(1) of the Companies Ordinance, Cap 622.[28] In my view, this casts a dim light on the commercial morality of the management of CKH. 50.In my view, there is real risk of dissipation of assets by the defendants in this case. J. The variation application 51.To recap, D2 asks for $64,560 per month for his ordinary living expenses and $80,000 per month to continue to defend this action. 52.D2 has disclosed that there are $113,949.69 in his personal account and $549,429.36 in his joint account with his wife. If his application is allowed, these moneys can be cleared out within 6 months. 53.Mr Ma certainly has cause to doubt D2’s sincerity in disclosing his assets:-
54.The Order presently provides (on page 5) that D2 may spend $30,000 per month towards his ordinary living expenses. This is already more than the $25,000 he received each month from CKH in 2018/2019.[30] Mr Ma suspects that D2 has other sources of income or resources to maintain his high standard of living.[31] I tend to agree given the above circumstances. Consequently, I have decided not to vary the current level of living expenses D2 is entitled to under the Order. 55.Turning to his legal expenses, D2 claims to have spent almost $1 million on this action (including almost $600,000 on this application).[32] This is rather exorbitant bearing in mind the early stage of this litigation. 56.As I pointed out to the parties, the Order only provides for legal expenditure “until the final adjudication of the Plaintiff’s summons to be taken out seeking continuation of the present injunction Order”. To enable the defendants to further defend this action, I agree with Mr Ma’s suggestion to allow the defendants to expend up to $100,000 on legal advice and representation up to and inclusive of exchange of witness statements. K. Disposition 57.For the above reasons, I dismiss the defendants’ application to discharge the Order and D2’s application to vary the Order. 58.On my own volition, I amend the “EXCEPTION TO THIS ORDER” section of the Order by adding a new para 1A that: “This Order does not prohibit the defendants from spending $100,000 on legal advice and representation in this action up to and inclusive of exchange of witness statements.” 59.On costs, I make an order nisi that the defendants do pay KCK’s costs in opposing this application forthwith with certificate for counsel save that the costs of the affirmations filed by both parties should be in the cause as those affirmations can stand as witness statement of the respective witness.
Mr Billy N P Ma, instructed by Ha & Ho, for the plaintiff Mr Tim C H Yu, instructed by Poon & Cheung, for the 1st to 3rd defendants [1] See para 4 of his skeleton argument. [2] See para 8 of his skeleton submission. [3] From April 2020 to January 2021. [4] Taken from Mr Lai’s affirmation (“Lai I”) and Mr Ma’s skeleton argument for the ex parte hearing. [5] CKH only acknowledged service of the Writ in May 2020 after the Order. [6] D3 I, para 7. [7] See para 15 of the affirmation of Mr Li. [8] See D2 III, para 38(b). [9] See the 4th affirmation of Mr Lai (“Lai IV”), para 50. [10] Lai IV, paras 93-95. [11] At Bundle 20, pp 4818-4821. [12] See RASOC, paras 9A, 9B, 13A(3)-(5) and 13B. [13] See D&CC, para 10(4). [14] See para 24 of Mr Yu’s skeleton submission. [15] See paras 25-26 of Mr Yu’s skeleton submission. [16] See para 27 of Mr Yu’s skeleton submission. [17] See paras 70-76 of Mr Ma’s skeleton argument dated 6 April 2020. [18] See the 2nd affirmation of D3. [19] See Lai IV, para 104(a) and the table of all transaction records between KCK and CKH exhibited as “LKC-5” to Lai I. [20] See Bundle 19, p 4615. [21] See D2 IV, paras 30-31. [22] See Lai IV, paras 104(c) and (d). [23] See D2 IV, para 24. [24] See D2 IV, paras 39-40 & 42-43. [25] See paras 126-127 of his skeleton argument. [26] See the company documents exhibited as “HLS-2” to D2 I [Bundle B2, pp 259-260]. [27] See the first and second affirmation of D2. [28] See Lai III, paras 18-21. [29] See D2 III, paras 80 & 86-88. [30] See Bundle B19, pp 4616-4617. [31] See para 141(7)-(8) of his skeleton argument. [32] See the skeleton bill exhibited as “HLS-11” in D2 III, Bundle B20, pp 4784-4790. | |||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under DCCJ 97/2020