Lloyds Bank International Ltd and Another v. Victor Folch Vernet and Others

HCA009151/1982

Mareva Injunction-a solicitor sued in damages for negligence and breach of duty - local assets of solicitor were frozen by a Mareva injunction obtained ex parte - his legal firm has substantial partners and carries a heavy insurance coverage-Mareva injunction was discharged on solicitor's ex parte application - Plaintiffs applied ex parte on notice to the solicitor for restoration.

BETWEEN

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Coram: Hon. Liu J. (In Chambers)

Date:18 April 1983

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JUDGMENT

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1. On the 30th March 1983, the plaintiffs sought and obtained an ex parte Mareva injunction against, inter alia, the 10th defendant with a consequential order for discovery. The 10th defendant was further ordered together with Messrs. Johnson, Stokes and Master as the 13th defendant in this action to make discovery relating to transactions or movements of funds between the 1st to the 4th defendants and the 6th to the 10th defendants and also certain companies from, whenever applicable, October 1978. The 10th defendant was also ordered to preserve all the relevant documents.

2. On the 4th April, during the Easter vacation, upon an ex parte application made on behalf of the 10th defendant, the Mareva injunction against him together with its consequential order for discovery was discharged. The challenge to the further order for discovery relating to transactions and movements of funds was adjourned sine die with liberty to restore insofar as that order relates to alleged privileged documents. The preservation order against the 10th defendant was, however, also discharged upon his undertaking to the same effect.

3. This is the plaintiffs' ex parte application on notice to the 10th defendant for restoring the Mareva injunction discharged together with the incidental order for discovery.

4. On the 30th March, counsel for the plaintiffs categorically stated that no allegation of fraud was being made against the 10th defendant but that the plaintiffs would reserve their position on that score. It was alleged that between the Lo's and the 1st defendant, there had been a great deal of fraudulent activities. Counsel claimed that the 10th defendant was "in the middle of these frauds". In particular, the 10th defendant was said to have signed, as a director of the 11th defendant company which in turn was a nominee service company for Long Harbour Estate Limited, a document acknowledging receipt of $700,000 from Kar Chuen Limited when in fact it was not so received. That receipt arose from a series of transactions yielding an alleged profit of $700,000 to Long Harbour, whereby Kar Chuen Limited sold to Long Harbour Estate Limited certain premises in Kwai Chung which were subsequently acquired by the 2nd plaintiff. The allegation was that Long Harbour Estate Limited never received any part of this $700,000 which went into the purchase of a flat in Spain by the 1st defendant but that the 10th defendant lent his name to a document which, with proper diligence, he ought to have known to contain an untruth. Critical comments were also passed on the 10th defendant's involvement with $1,037,500, being the alleged part payment of the purchase price by Long Harbour as well as on the conveyancing documents adopted for these kwai Chung premises. Counsel also laid great stress on the significance of the 10th defendant's awareness of Mr. Folch's interests and activities as reflected in other documents. It was claimed that the calculated and convoluted manner in which (the Lo's and the 10th defendant had) conducted the affairs (showed) that they (were) the sort of persons whose assets would be difficult to trace at the best of time". As against the 10th defendant, the plaintiffs have established a good arguable case, though presently lacking in particularity on the pleading.

5. Therefore, on the 30th March, the 10th defendant was put in a category of his own apart from Messrs. Johnson, Stokes and Master, itself the 13th defendant, of which the 10th defendant was a partner but is now a consultant. The court was invited to infer some real risk of removal of assets out of jurisdiction by the Lo's and the 10th defendant from their alleged conduct, with particular emphasis on the 10th defendant's attendance to legal and other documents in the midst of alleged frauds said to have been perpetrated by the Lo's.

6. On the 4th April, upon the ex parte application of the 10th defendant, his counsel took great pains in pointing out that the only claim against the 10th defendant and his firm Messrs. Johnson, Stokes and Master was founded on negligence and/or breach of duty in the discharge of professional duties and as such lay in damages. Criticism was also levelled at alleged non-disclosure on the part of the plaintiffs, with counsel's submissions on which I found myself at variance. Much was also sought to be made capital of the lack of reference to the professional insurance coverage which the 10th defendant apparently enjoyed in conjunction with other members of Messrs. Johnson, Stokes and Master, the 13th defendant. Messrs. Johnso, Stokes and Master have throughout been a party to the action, and if the 10th defendant's position had not been put differently from other members of that firm, the all too well recognised standing of Messrs. Johnson, Stokes and Master would hardly have required any insurance fortification. Therefore, insurance coverage could not have been sufficiently material to the plaintiffs' ex parte application on the 30th March.

7. On behalf of the 10th defendant, it was further complained that whilst the plaintiffs' formal claim against him had yet to be formulated both in particulars and in quantum, there was no justification for freezing all his local assets. The 10th defendant pleaded through counsel that there was an urgent need for putting an end to the mischiefs which the Mareva injunction had created, and he placed on record that he had no intention whatsoever to dissipate his assets.

8. On the other hand, the plaintiffs contended that there was no emergency or urgency for the 10th defendant to apply ex parte on the 4th April, that there was no true warrant for withholding the giving of notice of his ex parte application to the plaintiffs and that the 10th defendant failed to disclose his assets or his encounter with I.C.A.C. as regards his travel documents.

9. This ex parte application of the plaintiffs has taken quite a long time to finish, but in the end I find it quite unnecessary to go into all these allegations and counter-allegations.   The plaintiffs' ex parte application to restore the discharged Mareva injunction against the 10th defendant can be disposed of within a narrow compass.

10. The 10th defendant was at the material time a partner of a substantial firm of solicitors in Hong Kong. In addition, that firm carried insurance well in excess of the plaintiffs' suggested claim of some $70 million, the substance and extent of which have yet to be formally advanced. The question as to whether or not the 10th defendant would personally be in default by the absence of his own assets in Hong Kong is, of course, not immaterial, but the facts that the claim against him remains unquantified and hence that the extent of his likely personal default remains unascertained must tell against the plaintiffs. It must be an equally material consideration as to whether any judgment that may be obtained against the 10th defendant would be nugatory without his assets. The 10th defendant has and will have substantial former partners in Hong Kong. At all material times, they carried a more than adequate insurance coverage. The claim against the 10th defendant, as succinctly analysed by Mr. Lee and Mr. Sakhrani, was and is to-day sounding in damages for professional negligence and/or breach of duty. Both the 10th defendant and his firm are subjected to the same claim. In reality, there is almost no likelihood of any judgment given against the 10th defendant in this action being left unsatisfied. In determining the gravity of the risk of removal of assets from our jurisdiction, assuming it to exist, what must not be overlooked is whether the effect of such removal would stultify any judgment that the plaintiffs may obtain. There are no facts for me to infer a real danger of default in satisfying any such judgment against the 10th defendant on the plaintiffs' claim as presently formulated even if his personal assets are to be taken out of jurisdiction. There was and is little need for the plaintiffs' protection. We know of no steps taken against the 10th defendant by his former partners in Messrs. Johnson, Stokes and Master to deter or discourage him from removing his assets, and that would stand as some testimonial to the claim that he is not expected to put himself or his assets beyond reach for partnership contribution.

11. Even if I were wrong in my approach as a matter of law, that is to say, personal default is in fact not merely an important but the crucial factor for consideration, in the light of an apparently uninhibited recourse to his former partners and the general insurance coverage, the little tangible benefit to the plaintiffs as contrasted with the disturbing consequences of a Mareva injunction to the 10th defendant would not, in practical terms, justify the Draconian measure which this court is invited to embrace in the exercise of its discretion in equity.

12. The immediate lifting of a Mareva injunction is always unquestionably urgent, but there seemed to be no valid ground for not putting the plaintiffs on notice. However, the 10th defendant had and still has an overwhelming case on the merits despite the other criticisms directed at his ex parte application made on the 4th April, on which I need express no concluded view. That is sufficient to bring the plaintiffs' present ex parte application to a close. The ex parte application of the plaintiffs therefore fails, and subject to what counsel has to say, costs must follow the event.

Representation:

Mr. Charles Ching, Q.C. with Mr. Allman Brown instructed by Messrs. Deacons for Plaintiffs.

Mr. Martin Lee, Q.C. and Mr. Sakhrani,Q.C. with Mr. Warren Chan instructed by Messrs. M.K. Lam for 10th Defendant.