Chow Chor Leung t/a Raytontex Trading Co v. Rafaella Sportswera Inc and Another

HCA005211/1989

1989, No. A5211

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H E A D N O T E

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MAREVA INJUNCTION - REMOVAL OF ASSETS FROM JURISDICTION - TEST IN REGARD TO DANGER OF DEFAULT IN 'REMOVAL' CASES - TAILORING INJUNCTION TO AVOID INTERFERENCE WITH ORDINARY COURSE OF BUSINESS - MONETARY LIMIT - FORTIFICATION.

1989, No. A5211

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Bokhary J. in Chambers

Dates of hearing: October 2, 5, 6, 10, and 11, 1989

Date of delivery of judgment: October 11, 1989

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J U D G M E N T

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1. Some interesting and difficult points have been argued before me; and if it were not important that I come to a decision without delay I would have welcomed an opportunity to take some time to consider and compose my judgment. As things stand, however, I feel that I should give my decision, and my reasons for that decision, straightaway.

2. The Plaintiff is a firm trading in Hong Kong. Its business includes the supply of yarn. In the course of such business, it supplied yarn to the 1st Defendant, a corporation domiciled in the state of Delaware but resident in the state of New York.

3. Such deliveries were to textile manufacturers in Hong Kong with whom the 1st Defendant had placed orders for garments destined for resale in the United States. A number of such deliveries were made by the Plaintiff and paid for by the 1st Defendant this year.

4. The last delivery, however, has not been paid for. That delivery, which was made on July 15, 1989, was of 19,676.80 pounds of yarn for US$159,382.08 That sum, the price of the yarn delivered but not paid for, forms one head of the Plaintiff's claim. The other head of the Plaintiff's claim is damages, which it puts at US$158,607.96, arising out of the allegedly wrongful cancellation by the 1st Defendant of outstanding orders for yarn, totalling 151,055.20 pounds.

5. A Mareva injunction of the "all assets" type without any monetary limit was granted ex parte by Deputy Judge Findlay, Q.C. against both Defendants on September 14, 1989. The matter came before me inter partes on September 22, 1989, when I discharged the ex parte injunction as against the 2nd Defendant; refused to make any other injunction against it inter partes; and permitted the adjournment by consent of the matter as between the Plaintiff and the 1st Defendant, which is what I am delivering judgment in now.

6. It is conceded by the 1st Defendant that the Plaintiff has a good arguable case.

7. The garments made from the yarn delivered but not paid for are still, I am told, in Hong Kong. These garments are among the goods affected by the ex parte injunction.

8. Essentially, this is a case in which what is sought to be prevented is the removal of assets from the jurisdiction, it being the 1st Defendant's intention, if free to do so, to cause those, among other, garments to be shipped to the United States.

9. I have been taken through the cases from the Mareva Case itself, Mareva Compania Naviera S.A. v. International Bulkcarriers S.A. [1975] 2 Lloyd's Rep. 509 to the recent decision of the Court of Appeal in England in Derby & Co. Ltd v. Weldon (Nos. 3 & 4) [1989] 2 W.L.R. 412 and the even more recent decision of the Court of Appeal here in which that decision was considered, Bank of India v. Murjani, Civil Appeal Nos. 48 and 49 of 1989, May 17, 1989 (unreported).

10. The scope of Mareva relief - and the conditions governing its grant - have been, and still are, evolving. Over the years, one has seen extensions from the prevention of the removal of assets from the jurisdiction to dissipation of assets within the jurisdiction and then to the dissipation of assets outside the jurisdiction.

11. The present case is, as I have said, essentially one concerning the removal of assets from the jurisdiction. That being so, what Lord Justice Lawton said at p.p.671G to p.672D in Third Chandris Shipping Corporation v. Unimarine S.A. [1979] 1 Q.B. 645 seems to provide the best guidance for present purposes on the question to which one moves once a good arguable case has been shown or conceded. What the learned Lord Justice said is as follows :-

"There must be facts from which the Commerical Court, like a prudent, sensible commercial man, can properly infer a danger of default if assets are removed from the jurisdiction. For commercial men, when assessing risks, there is no commerical equivalent of the Criminal Records Office or 'Ruff's Guide to the Turf'. What they have to do is to find out all they can about the party with whom they are dealing, including origins, business domicile, length of time in business, assets and the like; and they will probably be wary of the appearances of wealth which are not backed up by known assets. In my judgment the Commerical Court should approve applications for Mareva injunctions in the same way. Its judges have special experience of commercial cases and they can be expected to identify likely debt dodgers as well as, probably better than, most businessmen. They should not expect to be given proof of previous defaults or specific incidents of commercial malpractice. Further they should remember that affidavits asserting belief in, or the fear of, likely default have no probative value unless the sources and grounds thereof are set out : see R.S.C., Ord. 41, r. 5(2). In my judgment an affidavit in support of a Mareva injunction should give enough particulars of the plaintiff's case to enable the court to assess its strength and should set out what inquiries have been made about the defendant's business and what information has been revealed, including that relating to its size, origins, business domicile, the location of its known assets and the circumstances in which the dispute has arisen. These facts should enable a commercial judge to infer whether there is likely to be any real risk of default. Default is most unlikely if the defendant is a long established, well known foreign corporation or is known to have substantial assets in countries where English judgments can easily be enforced either under the Foreign Judgments (Reciprocal Enforcement) Act 1933 or otherwise. But if nothing can be found out about the defendant, that by itself may be enough to justify a Mareva injuncton."

12. Applying those guidelines to the material before me, I am driven to conclude that the proper inference is that there would be a serious danger of default if the 1st Defendant were left free to remove all of its assets from the jurisdiction.

13. But the matter does not end there. The ultimate test of whether an injunction should be made is whether it is just and convenient to make it.

14. I do not think that it would be just or convenient to make an injunction as wide as the one made ex parte. But I do think that there is a case for some form of injunction. In Avant Petroleum v. Gatoil Overseas [1986] 2 Lloyd's Rep. 236 at p.243, Lord Justice O'Connor pointed out that the nature of the injunction has to be tailored to the facts of the case and that the overriding task once a decision has been taken that it is proper for a Mareva injunction to be made is to see that the injunction fits the facts of the case.

15. What I think it is just and convenient to do is to make an injunction which gives the Plaintiff as much protection as it is possible to give it without interfering with the 1st Defendant's right to conduct business in the ordinary way. I do not think that it can be said that exporting garments made from yarn for which one should have, but has not, paid is conducting business in the ordinary way.

16. Therefore, bearing in mind the need to tailor the injunction to the facts and circumstances of the case, and the need to see that the 1st Defendant is not prevented from conducting business in the ordinary way, I would make an injunction preventing the 1st Defendant from removing from the jurisdiction garments made from the yarn the subject-matter of the delivery on July 15, 1989, and from dealing in or with those garments within the jurisdiction. I cannot at the moment remember in which of the cases cited to me it was said, but I do recall a statement in one of those cases to the effect that some relief in regard to activities within the jurisdiction is generally necessary to prevent the circumvention of an order the purpose of which is to protect a Mareva plaintiff from the consequences of removal of assets from the jurisdiction. That is not quite the way it was put in the judgment I have in mind; but that is the effect of it. And quite independently of that judgment, I think that such measures against possible circumvention have generally to be taken.

17. Whether or not a monetary limit should be placed on a Mareva injunction is not always an easy question. The various considerations - some pointing in favour of the provision of a limitation of this sort and some pointing against it - were discussed by Lord Denning, M.R., in Z Ltd v. A-Z & AA-LL [1982]1 Q.B. 558 at p.576 c - g.

18. All things considered, I think that the better course in the present case is to place a monetary limit on the Mareva injunction; and the monetary limit that I place on it is one of US$159,382.00, i.e. the price of the yarn the subject-matter of the delivery on July 15, 1989, leaving out the eight cents with which I do not propose to complicate the matter. The claim for the price does stand in a stronger position than the claim for damages said to arise out of the wrongful cancellation of outstanding orders.

19. This concludes what I have to deal with - subject to the question of costs, on which I will hear counsel now, and subject also to the question of fortification, which the parties have agreed should be dealt with after I have given my judgment. I will hear the argument on costs now; and I will listen to counsel as to what they suggest I do about setting aside some time to deal with the question of fortification.

[Argument on costs followed by an adjournment to October 16, 1989, for further argument on costs and for certain other matters to be dealt with.]

October 16, 1989

20. There are a number of matters outstanding. Most of them are ancillary to what I have already ordered. But something said to me since I gave judgment makes it necessary for me to deal with one other matter which is not, strictly speaking, ancillary. It is this : In the course of the hearing, everybody proceeded in the belief that all the unpaid for yarn had been made into garments. After I gave judgment, Mr Graham, for the 1st Defendant, received instructions to the effect that this was not so. Apparently, some of the unpaid for yarn has been made into garments; but some of it remains in its original state. I have already indicated that my order covers the unpaid for yarn in its original state as well as the garments made therefrom. Connected with this is the fear which the 1st Defendant had at one time that it would have difficulty in identifying what goods - to use that neutral term to cover yarn and garments made from yarn - were covered by my order and what goods were not.

21. Since then enquiries had been made; and Mr Graham informs me that his client no longer has any difficulty identifying what goods are covered and what goods are not covered by the injunction which I have made. Mr Graham also says that he understands that the ex parte order has gone. That, of course, is right. The ex parte order is replaced by the order I have made inter partes. That, I thought, was clear. But if there was any doubt about it, I have removed that doubt by what I have just said.

22. The next matter that falls to be dealt with is the undertaking as to damages to be given by the Plaintiff. The first problem which arose had to do with the fact that the Plaintiff is in fact Mr Chow Chor Leung trading as Rayontex Trading Co. but is described merely as 'Rayontex Trading Co.' in the writ. The matter is further complicated by the fact that there is in existence a company which goes by the name of Rayontex (Hong Kong) Co. Ltd, but which trades, or will trade, as Rayontex Trading Co.

23. One can see how a number of problems could arise if matters were left as they are. The solution is, Mr Graham accepts, to grant the application made by Mr Dicks, for the Plaintiff, to amend the Plaintiff's name as it appears in the writ to read "Chow Choir Leung trading as Rayontex Trading Co." I grant that application. That removes the 1st Defendant's anxiety as to the person from whom they are getting an undertaking as to damages.

24. Another matter remains in regard to the undertaking. The 1st Defendant applies for the fortification of that undertaking. I do not propose to recite the arguments and counter-arguments in that regard. The principle is, as I understand it, this : The Court will order fortification where it appears just and proper to protect the defendant by making such an order; and in arriving at the amount to be put up by way of fortification, the Court has to take a broad view. Indeed, there have been cases where the Courts have said that if a detailed enquiry were necessary, that may be a very good reason for not ordering fortification. That is not to say that a party seeking fortification does not have to make out a case for fortification and provide the Court with some material for the purpose of selecting a figure. What it does mean is that if there are arguments and counter-arguments on the amount, the Court has to take a broad view without resolving all those arguments.

25. Having said all of that, I have come to the conclusion that it is appropriate to order fortification; and I order that such fortification be by way of a bank guarantee in the sum of HK$100,000. The Plaintiff will no doubt obtain a draft guarantee and submit it to the 1st Defendant's solicitors for their approval. Failing their approval, the matter will have to go to the Registrar for his approval of the form of the guarantee. If the form of the guarantee is not approved by the Registrar by 4 o'clock in the afternoon on Friday this week, the 1st Defendant will be at liberty to make such application as it thinks fit in regard to the question of fortification, which application, I anticipate, would be one for the payment into Court of the sum. That I have mentioned, HK$100,000.

26. Mr Graham, turning to another matter, has asked for liberty to apply for an inquiry as to damages sustained by reason of the ex parte order which has now gone. Mr Dicks's position is that the 1st Defendant cannot be stopped from doing that and does not require any liberty for the purpose. I take the view that the 1st Defendant is at liberty to make such an application if it is so advised. And in case it is not so at liberty in the absence of my granting it liberty, I do so.

27. That may not be the only matter in respect of which the parties may wish to apply between now and the trial. Therefore, I give both parties - and indeed to all parties since the 1st Defendant is not the only defendant - liberty to apply generally.

28. The only remaining matter, therefore, is the question of costs. Each side has argued that it is entitled to costs. In the course of the argument, I suggested that the appropriate order to make may be one that the costs be in the cause. All things considered and having heard counsel, I take the view that that is indeed the appropriate order to make. The Plaintiff had to come here to get an injunction; and they have not left empty-handed. On the other hand, the 1st Defendant, by its efforts, has succeeded in reducing the ambit of the order to something considerably less than that being pressed for by the Plaintiff. I could have reserved the costs; but that would involve the trial judge going into a lot of material which he might not otherwise have to go into. And such a course, although it would have the merit of preserving everything until the position is clearer, would probably itself generate considerable costs. That being so, costs in the cause is the order I consider appropriate, and which I make. This appears to deal with everything which had been left outstanding - apart, of course, from the gratitude which I should, and do, express to counsel on both sides for their assistance in this matter.

Representation:

Mr A. Dicks (instructed by Richards & Butler) for the Plaintiff.

Mr P. Graham (instructed by Clifford Chance) for the 1st Defendant.