Langcork Ltd v. Yat Ming Investment Co Ltd and Another

HCA010514/1983

H.C. Action Nos. 10014 & 10514/83

Hearing date: 2nd, 5th to 8th and 12th September 1983

Action No. 10014 of 1983

IN THE HIGH COURT OF JUSTICE

BETWEEN

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Action No. 10514 of 1983

IN THE HIGH COURT OF JUSTICE

BETWEEN

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Coram: Hon. Mayo, J.

Date: 16th September 1983

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JUDGMENT

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1. The defendants in both of these cases were the same. Although both applications are (inter alia) for the continuance of ex parte injunctions which were granted involved different questions it was agreed that there was sufficient common ground to justify the applications being heard at the same time.

2. In H.C.A. 10514/1983 Mr. Justice Macdougall granted an ex parte injunction which in effect restrained the defendants from dealing with any of their property during the currency of the injunction. The second defendant owns all of the paid up share capital of the first defendant. It is common ground between the parties the first defendant owned two Letters B which conferred upon them valuable rights. For the purposes of this application it is sufficient to note that a Mr. Chiu Ming-siu (Mr. Chiu) had previously been the owner of 5001 of the 5002 shares issued in the first defendant. After a series of negotiations and transactions the shares were transferred to the second defendant. One matter arising out of these negotiations was the allegation that Mr. Fong Ming, the plaintiff in H.C.A. 10014/1983, had, together with another gentleman, introduced the second defendant to Mr. Chiu and accordingly was claiming a commission of $3 m.

3. It is the plaintiff's case that a group of 10 people became interested in these transactions when 2nd defendant informed them that there was a possibility of taking over Mr. Chu's interest It was agreed that these 10 people should form a syndicate to invest in the said Letters B. The plaintiff company, which had a nominal share capital of $20 was formed to provide a vehicle for the interests of the syndicate. The basic idea was that Mr. Chiu would sell his interest in the first defendant and there should be a joint venture between the second defendant and the syndicate and that efforts should be made to negotiate with the Government to obtain an agreement for the exchange of the land comprised in the Letters B for valuable land which it was proposed should be developed. The terms o?the relationship between the second defendant and the syndicate were evidenced in an agreement which was drawn up by a solicitor Mr. T.C. Chan and dated the 16th August 1980. In this agreement the second defendant acknowledged that he was a trustee for members of the syndicate in respect of their half share in the assets in the first defendant.

4. Members of the syndicate paid $2.5 m. in August 1978 to the second defendant as a contribution towards the acquisition of Mr. Chiu's interest. Further payments up to $6.35 m. were made at a later date but it is not necessary to consider these in any detail at the present time.

5. Mr. Chiu appears to have subsequently come to the conclusion that the Letters B were much more valuable than he had realised. In April 1979 he instituted legal proceedings against the second defendant, Mr. Peter Mark a solicitor and the first defendant. In these proceedings he sought a Declaration that he was still the owner of shares in the firs defendant and sought from the Court consequential relief. The g first defendant also commenced legal action in April 1980 in connection with a mortgage which had been granted by a company called Romulus earlier in connection with another transaction relating to the Letters B. Romulus were seeking to recover $15 m. which they had advanced in connection with this transaction. It is the plaintiff's case that although the second defendant had been a party to all this litigation they had also been involved and had made considerable financial contributions which had enabled the first defendant and the second defendant to settle the cases on terms which had been mutually advantageous.

6. The legal proceedings with Romulus were settled in September 1980. On 13th October 1980 the Letters B were sold to a company called Cellberg for $113 m. On the 15th October the second defendant paid $6.5 m. to the plaintiff for repayment of out-of-pocket expenses. Also the second defendant made arrangements for $26 m. to be paid to the plaintiff for distribution amongst members of the syndicate. Various other payments were also made. However a balance of $20 m. was retained by the first defendant. It is the plaintiff's case the distribution of moneys I have referred to was a preliminary distribution and that it was in the contemplation of all parties that a final distribution would be effected in due course. Several reasons were advanced to justify the delay in making a final distribution. One was that it would be necessary to set aside a sum of $20 m. to meet possible claims from the Commissioner of Inland Revenue. Another was that Mr. Chiu was threatening further litigation. There was also other litigation pending.

7. It is evident from the affidavit sworn by the second defendant in reply to the summons that the first defendant paid to him two dividends of $76 m. and $8 m. in February 1981. These moneys comprised part of the said proceeds of sale of the Letters B.

8. Mr. Chiu implemented his threat to institute further legal proceedings. He claimed that when he had agreed to the earlier litigation being comprimised he had been labouring under mistakes of fact. This subsequent litigation did not meet with much success and Mr. Chiu's Statement of Claim was struck out in January 1982. However it was not until the 31st March 1983 that his appeal against this decision was dismissed by the Court of Appeal as it had not been prosecuted with sufficient diligence.

9. It is perhaps also pertinent to observe that two other parties had commenced proceedings in relation to these various transactions. The second defendant attended to this litigation. The total amount involved in these claims amounted to approximately $5.6 m. One of the reasons put forward by the second defendant for members of the syndicate agreeing to the distribution I have earlier referred to being in full and final satisfaction of all their claims was that they might be able to absolve themselves from any further involvement in all of the litigation which had taken place and was then being conducted.

10. The plaintiff's case is that the defendant had not informed any of the members of the syndicate that the litigation with Mr Chiu had finally been disposed of. The affirmation in support of the plaintiff's summons was affirmed by Mr. Szeto Liang (Mr. Szeto). His wife was a syndicate member. Mr. Szeto affirms in his affirmation that he had had numerous business transactions with the second defendant. Mr. Szeto added in his affirmation that he met the second defendant at the Mandarin Hotel on the 25th July 1983. Mr. Szeto claimed that at this meeting the second defendant informed him that on account of the present uncertain political situation in the Colony it was his intention to immigrate to Canada where other members of his family were now residing. In addition to this he had been reluctant to discuss business affairs relating to the relevant transactions. Mr. Szeto then became alarmed and feared that it was the intention of the second defendant to move assets including the trust property which had not yet been distributed to members of the syndicate out of the Colony. It was for this reason that he had seen fit to make an application to the Court to safeguard the interests of members of the syndicate. Mr. Szeto also affirmed that for tax reasons a decision had been made to put the Plaintiff Company into voluntary liquidation. It appears however from the papers that the liquidation has not yet been finalised and that the liquidator has agreed to the present litigation. Mr. Szeto also included in his affirmation allegations to the effect that the defendant had been deliberately ellusive. He had encountered difficulty in contacting him. The second defendant denied these allegations. But it is pertinent to observe at this juncture that there is remarkably little disparity in relation to the various events referred to in Mr. Szeto's affirmation and the second defendant's affidavit. The main issue between the parties of course is whether the distribution of $26 m. to the syndicate was a provisional distribution or whether it was, as claimed by the second defendant, a final distribution in full and final settlement of any claims which members of the syndicate may have. The plaintiff places reliance upon the terms recorded in the agreement of the 16th August 1980 and claims that it is significant there is no written memoranda to record any variation in the terms of this agreement. Mr. Hamilton who is representing the plaintiff contended that it was unlikely that members of the syndicate had voluntarily agreed to surrender substantial property rights for no consideration.

11. To complete an outline of the evidence before me it is necessary to make further reference to the second defendant's affidavit. This is not an entirely satisfactory document as I find myself largely in agreement with the observations made by Mr. Hamilton to the effect that the second defendant deals in generalities and rarely condescends to particularise in detail the various allegations he makes. He claims to be a wealthy man well placed in the community. He does not give any particulars of his wealth. He admits that he does have numerous interests outside the Colony and refers to arrangements which he had made to visit Ontario in Canada with a view to the possible purchase of real estate. He also refers to a possible visit to Adelaide, South Australia and that he might make a financial contribution towards his old University there. It occurs to me that in all of this he is being quite frank. However, equally, I can see that from the plaintiff's viewpoint there may be some basis for disquiet that assets including the trust funds allegedly held on behalf of members of the syndicate may be transferred out of the Colony. This must be seen in conjunction with the lack of evidence to the effect that the second defendant is in fact possessed of the wealth he claims.

12. One of the main themes or features of the second defendant's affidavit is a sense of outrage at the damage caused to him as a result of the ex parte injunction which has been granted against him. The injunction is framed in sufficiently wide terms to have the effect of freezing all of his business activities. In addition to this the second defendant points to the difficulty or impossibility of his being able to trace assets derived from the proceeds of sale of the Letters B. This is largely as a result of the passage of time which has elapsed since the sale of the Letters B in 1930.

13. Mr. Hamilton submitted that the plaintiffs had to establish that they had a good arguable case for the ex parte injunction to be continued. This basically amounted to there being a serious question to be tried. He referred to American Cyanamid Co. v Ethicon Ltd.⁽¹⁾ as laying down the test in this regard. He also referred to Rasu Maritima S.A. v Perusahaan (referred to as Pertimina)⁽²⁾. At p 661 of the Report Lord Denning MR. suggested that a plaintiff had to make out a similar type of case to the requirements of obtaining leave to serve process out of the jurisdiction. Having regard to the material contained in Mr. Szeto's affidavit he argued that there was no doubt that the plaintiffs had met these requirements. Mr. Hamilton then went on to consider the factors which should be weighed by the Court in determining whether a Mareva injunction should be granted. He did not accept that there was necessarily any difference in the law in this connection in Hong Kong to the English position. When the Court of Appeal had decided Chen v Chen⁽³⁾ it had not had the advantage of having before it the decision of the Court of Appeal in England in Z Ltd. v A-Z⁽⁴⁾. In particular he had in mind a passage from the judgment of Kerr LJ on p 585 as follows:

"It follows that in my view Mareva injunctions should be granted, but granted only, when it appears to the court that there s a combination of two circumstances. First, when it appears likely that the plaintiff will recover judgment against the defendant for a certain or approximate sum. Secondly, when there are also reasons to believe that the defendant has assets within the jurisdiction to meet the judgment, in whole or in part, but may well take steps designed to ensure that these are no longer available or traceable when judgment is given against him."

This passage indicated that situations where Mareva injunctions should be granted were not restricted to circumstances where there was evidence that it was within the contemplation of the defendant to remove assets from the jurisdiction. A perusal of cases involving Mareva injunctions showed that this was a fast developing area of the law and there was every reason to suppose that the Court of Appeal in Hong Kong would keep abreast of developments. However he argued that it was not necessary for him to go as far as this as it was clearly evident on the facts before the Court that it was likely that the second defendant would remove assets from the jurisdiction. He placed reliance upon the passages in the second defendant's affidavit to the effect that he had arranged a visit to Ontario, Canada with a view to purchasing land there. He also referred to the possibility of the second defendant making a financial contribution to his University in South Australia. It was a well known fact that immigration to either Canada or Australia may well be facilitated if either investments or substantial contributions were paid by anyone intending to settle in one of those countries.

14. Mr. Hamilton argued that even if he failed to satisfy the Court in respect of these submissions there was a further line of authorities upon which he could place reliance. These authorities related to the proposition that where a trustee held property for a beneficiary upon trust the Court would in an appropriate case grant an injunction to prevent the trustee from disposing of the assets. He claimed that the Agreement I have referred to in the outline of facts dated the 16th August 1980 contained an acknowledgment from the second defendant that he was holding the assets of the first defendant for the benefit of the plaintiff. This was an appropriate case for the Court to provide the plaintiff with the protection it was seeking as there was a risk that if it did not do so the trust funds might be dissipated. Mr. Hamilton referred to two passages in the judgment of Lloyd J. in PCW (Underwriting Agencies) Ltd. v Dixon and another(5). The first passage appears on p 163:

"In support of his argument on this wider ground counsel relied on A v C⁽⁶⁾, Bankers Trust Co. v Shapira ⁽⁷⁾and Chief Constable of Kent v V⁽⁸⁾ A v C was, so far as I know, the first case to highlight the distinction between the ordinary Mareva injunction and the right to trace in equity in pursuance of a proprietary claim. In that case there was a fund amounting to $383,871 which had been paid into an account at a bank. The plaintiffs said that the fund was the proceeds of fraud committed on the plaintiffs by the first five defendants, and that the fund belonged in equity to them. The bank was named as the sixth defendant. Robert Goff J held that the plaintiffs were entitled to an injunction to restrain the defendants from disposing of the trust fund, or what remained of it, quite apart from the Mareva injunction. Otherwise the trust fund might have disappeared before the action came on for trial and equity would have been invoked in vain. As Templeman LJ said in an earlier case, it is the concern of any court of equity to see that the stable door is locked before the horse has gone. See also the same distinction draw: by Ackner LJ in A J Bekhor & Co. Ltd. v Bilton⁽⁹⁾ at 936."

On p 164:

"The distinction between the ordinary Mareva plaintiff (to use Ackner LJ's phrase) and the case where the plaintiff is laying claim to a trust fund on the so-called wider ground, is thus clear. In the latter case the whole object is to secure the trust fund itself so that it should be available if the plaintiff should prove his claim. In the former case by contrast the plaintiff is not entitled to any security. The purpose of the jurisdiction, as is now clearly established, is not to provide the plaintiffs with any form of pre-trial attachment. It is simply to prevent the injustice of a defendant removing or dissipating his assets so as to cheat the plaintiff of the fruits of his claim."

Mr Hamilton developed his submission further. He argued that where there was evidence that trust funds had been intermingled with other assets of a defendant there was a power for the court to order discovery at this preliminary stage in the proceedings. This power was not based upon the powers conferred by Order 24 of the Rules of the Supreme Court but came within the scope of the inherent power of the court. In support of this contention he referred to Ackner LJ's judgment in Bekhor Ltd. v Bilton⁽⁹⁾ at p 937:

"As regards (a), Robert Goff J. described this as relating to the "proprietary claim". He held that in such cases there was good authority that the court may make orders with the purpose of ascertaining the whereabouts of missing trust funds. In London and County Securities Ltd. v Caplan (unreported), May 26, 1978, Templeman J, made an order for the purpose of enabling the plaintiffs to trace property acquired by the defendant and so take steps to seize that property if it derived from their assets.In Mediterranea Raffinera Siciliana Petroli S.p.A. v Mabanaft G.m.b.H. (unreported), December l, 1978; Court of Appeal (Civil Division) Transcript No. 816 of 1978, which was concerned with tracing the product of the plaintiff's assets, viz., a cargo of oil, delivery of which was alleged to have been obtained without the production of bills of lading, Mocatta J. made a sweeping order requiring directors and an employee of the defendant company to make full disclosure of certain specified facts on affidavits and directed that one of them should file an affidavit of documents. His order was upheld by the Court of Appeal and Templeman LJ. said:

Finally he referred to a passage in the judgment of Lawton LJ. at p 750 in C.B.S.United Kingdom Ltd. v Lambert and another ⁽¹¹⁾:

15. Mr. Litton represented the first and second defendants. He submitted that the ex parte injunctions which had been granted against his clients were most oppressive. By virtue of their being ex parte applications the second defendant had been afforded no opportunity whatever of making representations to the court. The order which had been obtained was served upon him and in practical terms it had the effect of freezing all his assets wherever they were situate. This had had the effect of paralysing all his business activities and occasioning him great personal hardship. The extent of the oppression could be seen from the form of the order which had been obtained. It is evident from the endorsement of claim in these proceedings that the amount being claimed by the plaintiffs is of an unlimited extent. In paragraph 1 a declaration is sought that the second defendant through the first defendant held the proceeds of sale of two letters of entitlement dated the 7th August 1974 upon trust for the plaintiff and the second defendant. A limit should have been built into the order which was obtained so as to reduce the consequences of the order upon the second defendant. Support for this can be seen from the judgment of Kerr LJ. at p 589 in Z Ltd. v A-Z.⁽⁴⁾:

"6.Before considering the form of Mareva injunctions in cases where it is intended to serve copies of the order on third parties, in particular banks, I must deal with the vexed problem as to whether it is better in the first instance to freeze the defendant's assets in the jurisdiction generally, or to make what have been referred to as "maximum sum" orders, i.e. injunctions which only freeze the defendant's assets up to the level of the plaintiff's prima facie justifiable claim, leaving him free to deal with the balance. As to this, it seems to me to be plain that the latter alternative must be preferred, unless the case is exceptional, like the present one. There are two obvious reasons for this preference. First, it represents no more than what a plaintiff can justifiably request from the court. Secondly, an order which freezes all assets is, in the ordinary case, bound to lead to an outcry from the defendant and to the need for an adjustment, at any rate if he is resident or carries on business within the jurisdiction. Further, such an order cannot in my view be justified in principle, save in wholly exceptional cases, unless it is clear that (a) his assets within the jurisdiction are insufficient to meet the claim, and (b) he is neither resident nor carries on business within the jurisdiction. It therefore follows, in my view, that the norm should be the "maximum sum" order, and that an order applying to all assets should be the exception."

Mr. Litton makes a further complaint concerning the drafting of the order. Unlike the precedents contained in Atkins Court Forms no attempt has been made to limit the extent of the order to assets within the jurisdiction. This omission adds to the embarrassment occasioned to the second defendant.

16. Another complaint made by Mr. Litton is that in his words Mr. Szeto was guilty of massive deception in his supporting affidavit. Mr. Szeto had made no attempt to portray an accurate description of the relationship which had subsisted between himself and the second defendant. This was particularly necessary so as to enable Mr. Justice Macdougall to form an accurate impression of the second defendant and his life style and circumstances. He had also referred to the second defendant as being ellusive and deliberately endeavouring to evade him. It could be seen from Mr. Szeto's supplemental affirmation that the allegations contained in the first affirmation were without foundation. There was also deception concerning other material matters. Mr. Szeto had omitted to state in his affirmation that when there had been the distribution in October 1980 all of the original documents had been returned to the second defendant. There was also a question of other moneys which the second defendant had paid to Mr. Szeto and his wife and these payments had not been referred to in the original affirmation. The explanation given by Mr. Szeto in his supplemental affirmation was that the main payment referred to related to a different transaction he had had with the second defendant relating to his, the second defendant's, half share of the proceeds of sale. Mr. Litton referred to R. v The General Commissioners for Income Tax Ex paste Polignac ⁽¹²⁾ as authority for the contention that there was a duty upon the deponent of an affidavit in support of an ex paste application to provide all relevant information and not to suppress any facts. The duty was to act uberimae fides. He also referred to Scales v Wong,⁽¹³⁾ Lazard Brothers v Midland Bank ⁽¹⁴⁾ and Tiptop Industries and another v David Tsoi and another (unreported) being O.J.A. 1540 of 1970.

17. I have considered these allegations of non-disclosure carefully. I accept that the picture portrayed by Mr. Szeto was not one which was favourable to the second defendant. However it must be borne in mind that a considerable volume of material is required in support of an application of this nature and it would become a virtually impossible task for applicants or their legal advisers to provide every possible item of information which may be of relevance to the application being made. I certainly do not consider that Mr. Szeto has been guilty of massive deception. I would go further and express the view that I do not consider on the evidence presently before me that there has been any material suppression or distortion of the evidence by Mr. Szeto. I would not be prepared to set aside the ex parte injunction on the ground that there has been material non-disclosure or suppression.

18. In dealing with the Substantive application I find it convenient to deal with this matter in a Similar manner to the way in which Mr. Litton addressed his submissions to me. I will first consider whether Mr. Hamilton has succeeded in making out a case on the Submissions I have already referred to that a Mareva injunction should have been granted. If he fails to make out such a case I will then consider whether there is any merit in his contention that an injunction should be granted on the basis that the second defendant is holding trust funds which should be protected from dissipation by the second defendant the trustee. I will then go on to consider discovery.

19. Mr Litton submitted that if a plaintiff was to be successful in obtaining a Mareva injunction he must surmount two thresholds. The first was that he must satisfy the court that he has a good arguable case. In this connection I do not think that his position was much at variance with the submissions which were made to me by Mr. Hamilton. However Mr. Litton did not agree that the plaintiff had succeeded in establishing this. He characterised the plaintiff's claim as being a Shadowy claim and lacking in merit. He placed emphasis upon the period of time which had elapsed since the distribution in October 1980. At that time all of the original documents namely the agreement of the 16th August 1980, a power of attorney from the second defendant to Mr. Harry Heung, the member of the syndicate with the largest share, authorising him to enter into negotiations with the Government concerning the Letters B and all the original copy receipts had been returned to the second defendant in October 1980. There was also the question of the outstanding litigation with other parties at this time and in particular the threat of a further action being commenced by Mr. Chiu. The members of the Syndicate would have received approximately five times their original stake and it was quite sensible that they would have been prepared to treat these payments in full and final settlement of their claims particularly if the second defendant had agreed to accept responsibility for any Subsequent litigation there may be. If all of these factors were considered cumulatively it appeared to be unlikely that the plaintiff would Succeed in his claim. With the greatest respect to Mr. Litton I do not for one moment accept the validity of this submission. As I have indicated previously all that is necessary for the plaintiff to do is to make out a good arguable case. While it is no part of my function at this stage in the proceedings to attempt to in any way express an opinion upon whether the plaintiffs will succeed in their claim I am nonetheless satisfied on the basis of the affidavit evidence before me that the plaintiff has established that it has a good arguable case. Accordingly the plaintiffs have surmounted the first threshold.

20. The question whether the plaintiffs have surmounted the second threshold is much more difficult. I find myself largely in agreement with Mr. Litton's submission that it is by no means certain that the Court of Appeal here in Hong Kong would necessarily have followed the principles propounded in Z v A-Z ⁽⁴⁾ if they had been aware of them. The reason for this is that section 19 of the Supreme Court Ordinance, Cap.4, being the section which confers the necessary power upon the court to make such orders is not couched in the same terms as section 37(3) of the Supreme Court Act 1981 in England. The English section is framed specifically to meet the type of situation which may be encountered in such cases whereas this is not the position with section 19. I do not though consider that this constitutes a serious difficulty. Decisions of the Court of Appeal in England while being persuasive authority are not binding upon me. This area of the law is developing rapidly. There have been more recent cases in the Court of Appeal in England and some of them provide greater assistance than Z v A-Z.⁽⁴⁾ There is however a proviso that caution must be exercised in rigidly applying the principles which are laid down to cases being heard in the courts here. One such case is the Ninemir Maritime Corporation v Trave (unreported) the decision having been handed down by the Court of Appeal on the 29th July 1983. This case dealt fairly exhaustively with the type of problems which arise in determining whether a plaintiff is able to establish that there is a real risk that a defendant will dispose of assets if a Mareva injunction is not granted. Mr. Rokison who appears for the plaintiffs in H.C.A. 10014/83 very kindly supplied us all with a copy of the draft judgment and it has proved to be most helpful. At p.22 of the draft Kerr LJ. lays down the test which must be adopted.

"In our view the test is whether, on the assumption that the plaintiffs have shown at least 'a good arguable case the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiffs would remain unsatisfied."

In dealing with what constitutes a real risk the court considers not only the possibility of the removal of assets from the jurisdiction but also the danger of dissipation of assets within the jurisdiction. At p.13 of the draft he states:

"We do not think that it would be useful to seek to lay down any standard of evidence which applicants for Mareva injunctions must satisfy in order to succeed upon an ex paste application. Bare assertions that the defendants are likely to put any asset beyond the plaintiff's grasp and are unlikely to honour any judgment or award are clearly not enough by themselves. Something more is required."

Equally at p.20 of the draft Kerr LJ. states:

"But as the law stands, this jurisdiction cannot be invoked for the purpose of providing plaintiffs with security for claims, even when these appear likely to succeed (we are speaking generally and not with reference to this case) and even when there is no reason to suppose that an order for injunction, or the provision of some substitute security by the defendants, would cause any real hardship to the defendants."

At p.26 Kerr LJ. refers to the evidence which was before the judge at first instance. He also refers to part of the judge's decision where he states that a defendant has no obligation to disclose their financial affairs, simply to answer a challenge from the plaintiffs which is unsupported by solid evidence. This would support the contention that a burden is first placed upon a plaintiff to supply necessary evidence in support of an application and the equally obvious conclusion that unless he does so there is no duty imposed upon the defendant to volunteer information which may be of assistance to the plaintiff. Kerr LJ. summarises the position at the end of the draft on p.29 as follows:

"The ultimate test for the exercise of the jurisdiction is whether, in all the circumstances, the case is one in which it appears to the court 'to be just and convenient' to grant the injunction. See section 37 of the Supreme Court Act 1981 which we have already set out. Thus, the conduct of the plaintiffs may be material, and the rights of any third party who may be affected by the grant of injunction may often also have to be borne in mind. See Galaxia Maritime S.A. v Mineralimportexport⁽¹⁵⁾ Further it must always be remembered that if, or to the extent that, the grant of Mareva injunction inflicts hardship on the defendants, their legitimate interests must prevail over those of the plaintiffs, who seek to obtain security for claim which may appear to be well founded but which still remains to be established at the trial."

21. It will be appreciated after reading the judgment in the Ninemir Maritime Corporation v Trave that it is necessary to weigh and consider a number of factors before deciding whether or not a Mareva injunction should be granted or continued. The scope for the exercise of a judicial discretion is quite wide. It seems to me that there is a good reason for this. On the one hand it is highly desirable that judges should not be inhibited from making orders for the issue of Mareva injunctions in suitable cases. Experience of the courts here indicates that the position here is similar to the position in London where a large number of such applications are made. Many of the applications are made against defendants who are acting mala fides. It would be wrong to lay down guidelines which imposed an unrealistic requirement upon plaintiffs to provide detailed information concerning prospective defendants. If requirements were unduly onerous this important relief could only be obtained in a small minority of cases. Against this has to be balanced the interests of a defendant who is acting bona fides. Mr. Litton argued most cogently that if an order was made in the present case for the injunction to be continued against the second defendant there would be few wealthy defendants in the Colony who would be immune from having Mareva injunctions made against them. All that would be necessary would be for a plaintiff to make bare assertions against a defendant and assuming that he was able to satisfy the court that he had a good arguable case he could then proceed to obtain an injunction which. would have the effect of freezing all of the defendant's assets. If this was correct it would then be necessary for the defendant to make detailed disclosure of all of his financial background and unless he was prepared to do so he would be placed in a virtually impossible position. Mr. Litton suggested that if this was the case the court would be turning the whole idea of Mareva injunctions upon its head. I can see considerable force in the contentions advanced by Mr. Litton in this connection. The difficulty however lies in differentiating between cases where defendants are acting male fides and genuine cases where a defendant is acting in good faith. If Mareva injunctions are granted too readily they could be used as an instrument of oppression or as a means of blackmail. I consider that the guidelines laid down in Ninemir Maritime Corporation v Trave are most helpful and probably the court is unlikely to be able to work out a framework which can balance the conflicting interests I have referred to more evenly.

22. It is now necessary to attempt to apply it to the circumstances of this case. In doing so it is necessary to take a broad view of the matter and have regard to all of the relevant evidence. As I have stated previously I am satisfied that the plaintiff has a good arguable case. However there are numerous aspects of the case which are much less than satisfactory. No convincing explanation has been forthcoming for the delay which has occurred in the plaintiffs bringing this claim. This of itself may arouse suspicions as to how well founded the claim may be. There is then the question of the conduct of the parties. Very little is known about the members of the syndicate save that on the face of the evidence before me they appear to have done very little if anything to assert any rights they may have or believe that they have. Equally nothing much is known about the liquidator of the plaintiff company. It is however significant to observe that he saw fit to commence action for the voluntary winding up of the plaintiff while this apparently very valuable claim remained outstanding.

23. The main allegation against the second defendant is that he has failed to account to the plaintiffs and members of the syndicate for moneys which are due and owing to them. He has strenuously denied this allegation. He has attempted to provide an explanation for his version of the relevant matters. At this stage it is impossible to attempt to come to any conclusions concerning the merits of his proposed defence. What is known about him and uncontroverted in evidence tends to redound to his credit. It is accepted that he has lived in the Colony for many years. It is also true to state that he assisted the plaintiff and members of the syndicate in making a very substantial profit. Virtually all of the information tending to indicate that he may wish to either go abroad himself or remove assets from the jurisdiction of the court flows from himself. On the face of it it would appear that he has acted with candour. Equally in adopting the test laid down by Kerr LJ. I am satisfied that if I make an order for the continuance of the ex parte injunction it will cause grave hardship to the second defendant. Indeed it could be said that the practical effect of the injunction would be to paralyse his business activities. I also believe that if I were to adopt this course I would in effect be simply furnishing the plaintiffs with a form of security for their claim pending the determination of this, action. Having considered all the relevant matters carefully I have come to the conclusion that I should not order the continuance of the ex parte injunction on the principles laid down for Mareva injunctions.

24. I will now consider the plaintiff's claim for an injunction based upon the submissions that the property is trust property and that accordingly a court can grant an injunction to restrain a trustee from disposing of the property or dissipating it if it appears to the court to be just and convenient so to do. I have already outlined in this judgment the submissions which were advanced by Mr. Hamilton in support of this proposition. Mr. Hamilton placed heavy reliance upon the authority contained in PCW (Underwriting Agencies) Ltd. v Dixon and another ⁽⁵⁾. Lloyd J. reviewed the facts of a number of cases where similar relief had been granted. In each of the cases reviewed reference was made to specific identifiable funds. Perhaps even more significantly reference was made to the particular facts of the earlier cases. The most helpful cases being Bankers Trust v Shapira ⁽¹⁶⁾, Chief Constable of Kent v V⁽¹⁷⁾ and A v C ⁽¹⁸⁾. All of these cases involved much more serious situations than the facts alleged in the supporting affidavits before me. I realise that each case is dependent upon its own individual facts. I also realise that I must resist any temptation to attempt to come to any conclusions based upon the facts before me. I have however inescapably come to the conclusion that the facts of the present case fall far short of the type of situation where judges have been prepared to grant injunctions in relation to trust funds. I have particularly borne in mind the fact that these alleged breaches of trust occurred a considerable period of time ago and up to the present time none of the members of the syndicate, who together with the second defendant were the beneficiaries of the trust funds, namely the balance of the proceeds of sale of the rights conferred by the Letters B, has seen fit prior to this action to assert any formal claim. I accept that the correct criteria for me to adopt in deciding whether or not to grant an injunction is whether it is "just and convenient" to grant such relief.

25. In this connection it is necessary for me to also weigh and consider the possible risk of either the first defendant or the second defendant disposing of or dissipating the trust funds. I do not think that the position is exactly the same as the factors I weighed when considering whether or not the Mareva injunctions should issue. The complication which arises is whether Chen v Chen ⁽³⁾ accurately reflects the present state of law in Hong Kong. I did not find it to be necessary to make a determination of this issue in view of the assistance I obtained from Ninemir Maritime Corporation v Trave. Whatever the answer may be to that question I am satisfied that there is no necessity for a plaintiff to establish that a defendant will remove assets from the jurisdiction when the application is based on the protection of trust funds rather than being a Mareva application. Even adopting this possibly lower threshold I do not consider that the plaintiff in this case has satisfied me that there is a real risk of the trust funds being dissipated if I declined to order that the ex parte injunction should continue.I have come to the conclusion that the plaintiffs have failed to make out a case under this head that the injunction should be continued.

26. I will next consider the application which has been made by the plaintiff for discovery. Mr.  Litton argued that the submissions made by Mr. Hamilton in this connection were wholly misconceived. The court's power to order discovery flows from section 12 of the Supreme Court Ordinance and Order 24 of the Rules of the Supreme Court. From this Mr. Litton submitted that discovery could only be ordered if the plaintiff was able to obtain a Mareva injunction and an order for discovery was made an adjunct of this. He found support for this argument from a passage in the judgment of Lawton LJ. at p 665 in R.H.M. Foods v Bovril Ltd. ⁽¹⁹⁾:

(19)    [1982] 1 WLR

"I am willing to accept that the affidavits to which I have referred have reasonably given the plaintiffs cause for suspicion; but at present there is not, in my judgment, any satisfactory evidence of fraud or, indeed, of disreputable conduct short of fraud. In my judgment, it would be unfair to the defendants to allow the plaintiffs to have discovery before they have set out in a statement of claim such allegations of deliberate deception as they feel justified in making. Discovery under R.S.C. 0,24 r.l, has to relate "to matters in question in the action" and so does discovery under rule 7: see rule 7(3). Until at least a statement of claim has been delivered the court can seldom know what are the matters in question in the action.

The need for definition of the issues probably explains why orders of the kind made by Warner J. are so rare. It is, I think, significant that the only case to which we were referred dealing with the making of an order for discovery before any pleading was delivered was Speside Estate and Trust Co. Ltd. v Wraymond Freeman (Blenders) Ltd.⁽²⁰⁾ In that case the purpose of the order was clearly to save costs. It was not for the purpose, as this application was, of fishing for evidence to support an allegation which it was submitted could be inferred from conclusions set out in affidavits."

In my view this passage is not conclusive authority that discovery can never be ordered unless pleadings have closed. I am satisfied that there is power to order discovery under section 45 of the English Act of 1925 and this subject is dealt with helpfully by Ackner LJ. at p 940 in Bekhor v Bilton ⁽⁹⁾. However having said this it is evident from the authorities I have referred to that it would only be in exceptional circumstances that an order for discovery would be made other than as an appendage to a Mareva order. The circumstances of this case would not warrant such an order being made.

27. In view of my decision to order that the ex parte injunction granted by Mr. Justice Macdougall should be discontinued I do not see any justification for making the order for discovery which is sought. This application will also be rejected. As a result of the conclusions I have reached there is no necessity for me to deal with the submissions which were addressed to me on the subject of undertakings required. To summarise the position the plaintiff's first summons for the continuance of the ex parte injunction is dismissed. So also is the plaintiff's summons of the 31st August for the limited discovery applied for. The defendant also issued a summons for the discharge of the ex parte injunction which was based on the non-disclosure of information by the plaintiff when applying for the ex parte injunction. This summons is also dismissed as I have stated earlier in this judgment that I did not consider that there had been material nondisclosure. It will be necessary for me to hear counsel before I make any order as to costs.

28. I will now turn to the applications which have been made in H.C.A. 10014 of 1983. The most convenient way of dealing with this matter is to provide an elaboration of the outline of facts I referred to at the commencement of this judgment. So that we do not have any confusion between the plaintiffs in these two actions I propose referring to the plaintiff in 10014 of 1983 as being Mr. Fong. Mr. Fong's initial involvement in this matter was his relationship with Ms. Chiu. Mr. Fong assisted Mr. Chiu in selling his interests in his shares in the first defendant and he claims that by virtue of this he became entitled to a commission or brokerage fee of $3 m. At the time of this sale Mr. Chiu was financially embarrassed and was unable to effect payment to Mr. Fong. Various discussions and negotiations followed.  Mr. Fong claims that there was then a meeting and amongst other things it was resolved that Mr. Fong should, in addition to the moneys which were to be payable to him, be entitled to a one-third interest in any profit the company might make on the sale of the Letters B. This is hotly contested. Mr. Litton referred to the actual wording of the minutes of the meeting and suggested that the only proper interpretation which could be placed upon the document was that the profits which were being referred to were not profits at large made by the first defendant on the sale of the Letters B but profits which might arise after Mr. Chiu had been able to sell the land at $290 per sq. ft. under another arrangement. Fortunately it is not in these proceedings necessary to analyse these transactions in any depth. Suffice it to say that if Mr. Litton's interpretation of the documents is the correct one the potential profit for Mr. Fong would have been very limited and if a substantial premium had been charged by the Hon Kong Government when exchanging the land the scope for potential profit would have been severely circumscribed. It would have been inconceivable that the profit could have been anything like the claim for $40 m. which was being made in these proceedings. There were further difficulties concerning the claim. The second defendant had not been present at the meeting I have referred to. However Mr. Fong pointed to another agreement he had struck with the second defendant when it had been agreed that in consideration for Mr. Fong helping the second defendant in connection with his litigation with Mr. Chiu the second defendant would accept and acknowledge Mr. Fong's rights which had been agreed at the earlier meeting.

29. There were then further agreements and discussions. These were interrelated with the matters I have referred to in the outline of facts in H.C.A. 10514 of 1983. To summarise Mr. Fong's participation in these agreements he received $2.39 m. The point at issue here between the parties is whether this payment of $2.39 m. was a payment in full and final satisfaction of Mr. Fong's claims in this connection or whether it was a part payment or a loan as he claims.

30. The endorsement of claim in 10014 of 1983 is set out in very brief terms. Mr. Rokison contended that if the endorsement of claim was read together with Mr. Fong's supporting affirmation it was apparent how the claim was formulated and there was sufficient information to enable the defendants to deal with the matter.  Mr. Litton did not agree. He pointed to numerous defects in the endorsement of claim. Perhaps the most serious being that no cause of action was included in the document. It was not evident whether the claim was being made in contract or in tort or whether it was claimed that the defendants or either of them were in breach of any statutory obligations. Mr. Litton submitted that there was an obligation imposed upon a plaintiff to include a cause of action in any endorsement of claim he might issue. In support of this he referred to a passage on p 603 of Lord Denning's MR judgment in Sterman v Moore ⁽²¹⁾:

"The first question is whether the indorsement on the writ was defective or not. Order 6 r.2(1) says that the writ must be indorsed

It will be seen from this passage that the omission was not fatal. However I find myself greatly in sympathy with Mr. Litton's contention that the endorsement on the writ is unsatisfactory and falls far short of what was required. I am not though prepared to go to the length of finding that Mr. Fong's claim is entirely deficient. This is a matter which can be much better determined at the trial of this action when the trial judge has the pleadings and all of the available evidence before him and when persons giving evidence will be tested by cross-examination.

31. In this action Mr. Fong proceeded along four main lines of attack against the defendants. He issued a Mareva injunction which had approximately the same effect as the Mareva injunction issued in 10514. He placed reliance upon the same facts as that case in support of the claim that there was a real risk of the defendants disposing of assets. Reliance was also placed upon arguments that even if Mr. Fong did not succeed on the Mareva injunction an injunction in normal terms should issue for the preservation of trust property which Mr. Rokison argued in a similar manner to Mr. Hamilton in H.C.A. 10514 of 1983. However Mr. Rokison attached particular emphasis to the $20 m, which the second defendant stated had been retained by the first defendant to cover possible tax liabilities. He submitted that whatever difficulties might be encountered in identifying other trust funds on account of assets having been disposed of and being intermingled with other assets of the second defendant there were no comparable difficulties concerning this deposit of $20 m. During the course of the hearing Mr. Rokison informed me that it was his intention to address submissions to me to the effect that I should order limited discovery against the defendants in a similar manner to the claim which was being made in H.C.A. 10514 of 1983 notwithstanding the fact that no formal summons had been issued seeking this relief. Mr. Litton strongly opposed my hearing such submissions in such circumstances. It was agreed between the parties that time should not be wasted in addressing me at length on this procedural matter and that arguments should be advanced de bene esse and that I should in the course of my judgment in due course make a determination upon this issue. Mr. Rokison submitted 2 draft summonses on the basis that I would rule in his favour. Having considered all of the surrounding circumstances, and in particular any prejudice which may be suffered by the defendants as a result of their not receiving due notice in the normal course of events, I have decided that I will entertain the arguments which were advanced to me and accordingly I rule that 1 am seized of these additional summonses. As will be seen later in this judgment this ruling has very little practical effect. The fourth line of attack was an application which was made under order 44A of the Rules of Supreme Court to treat the second defendant as an absconding debtor. The history of this litigation has not been entirely happy. The defendants exhibited copies of the various orders which were obtained prior to the hearing before me. It appears from these orders, and this was accepted by Mr. Rokison,that on the 18th August Mr. Justice Macdougall issued an order which embodied a Mareva injunction and also made an order that a warrant be issued to the bailiff in the prescribed form under Order 44A which enjoined the bailiff to arrest the second defendant and if he was unable to produce $40 m. he should be brought before the court to show cause why he should not be imprisoned until further order. A further ex parte application was made to Mr. Justice Macdougall on the 19th August. A further injunction was issued restraining the second defendant from dealing with or disposing of two properties. The first was his flat in Shiu Fai Terrace which was registered in the name of Gold Flame Co. Ltd. and the second was a flat in Broom Road registered in the name of Kau Yee Ping, the second defendant's wife. Also an application was made to "split up" the orders which had been made the previous day. Mr. Rokison informed me that the object of this exercise was to enable the plaintiff to proceed separately in respect of the Mareva injunction and the Order 14 proceedings. A further refinement was added. An order was further made directing the Attorney General to require the Director of Immigration to place the second defendant's name on his stop list so that if he attempted to leave the Colony he would be prevented from doing so. As if this was not enough a further order was obtained on the 20th August ordering that the name Howard Tao also be placed on the stop list as it was thought that the second defendant possessed a travel document which used that name. Apparently the motive for proceeding separately in respect of the Mareva relief and the order 44A relief was to "retain an element of surprise".

32. On the 26th August the Attorney General applied to the court for the discharge of the order placing the second defendant's name on the stop list. This was successful when the Mareva documents were served upon the second defendant an application was made ex parte on notice before Mr. Justice Jones and it is not entirely clear exactly what transpired, I am informed that it was on this occasion that the second defendant first heard formally of the existence of the Order 44A application. There appears then to have been agreement between the parties that the Order 44A proceedings should be held in what can best be described as suspended animation pending the outcome of the present application.Mr. Rokison informed me that the application under 44A should be regarded as an alternative form of relief. He did not seek an order under this rule unless his applications for the Mareva injunction and the injunction based on trust property failed. Mr. Litton argued forcibly that the sequence of events I have just described were indicative of oppression by the plaintiff and constituted an abuse of the process of the court. When this is considered in the light of the vague and amorphous claims which are being made by the plaintiff there must inevitably be grave suspicions concerning the bona fides of the plaintiff. I regret that I can see considerable merit in this submission.

33. I will now turn to the legal issues arising on the summonses issued by Mr. Fong. Mr. Rokison adopted all of the submissions made by Mr. Hamilton and Mr. Ronnie Hong in 10514 of 1983 and it is convenient to deal with the summonses in a similar manner to the other case. As regards the Mareva injunction Mr. Rokison emphasised that it was clear from the judgment of Lord Denning in Pertimina ⁽²⁾ that similar principles were adopted for Mareva injunctions as applied to other types of injunctions. He agreed with Mr. Hamilton that the correct test to adopt was whether the plaintiff had a good arguable case. It was incumbent upon the court to adopt the principles propounded in American Cyanamid Co. v Ethicon.⁽¹⁾ He said that he had Undoubtedly established this. This being the case he urged me to decide this application upon the balance of convenience. The plaintiff had made out a case that there was a real risk that the defendants would remove assets from the jurisdiction and that there would be a dissipation of the property with the result that enforcement of the judgment would be rendered much more difficult. He also adopted Mr. Ronnie Wong's submission that the Hong Kong Court of Appeal case Chen v Chen ⁽³⁾ was per incuriam. This was because the case involved a purely procedural matter and it could be seen from section 12 of the Supreme Court Ordinance, Cap. 4 that Hong Kong practice followed English practice. Mr. Rokison also argued that it could be seen from all of the cases which had been considered that it was not the intention or motive of the defendant which was the relevant consideration. What mattered was the effect of the defendant's actions.

34. Mr. Rokison invited me to consider the position of both parties in weighing the balance of convenience. It was obvious that there was a real risk either that assets might be removed from the jurisdiction or otherwise dissipated. If this happened there was a grave risk that any judgment eventually obtained by the plaintiff would remain unsatisfied. In particular it was necessary to have regard to the paucity or complete absence of any evidence to suggest that the second defendant would have available sufficient assets to satisfy the judgment if a Mareva injunction was not granted.   Balanced against this was the situation of the second defendant. No evidence had been deduced to show that he had suffered any exceptional hardship as a result of the ex parte order which had been granted. General assertions had been made that he had suffered inconvenience. Inconvenience to the second defendant could be greatly reduced if he placed before the court particulars of his assets. The court could then set aside a sufficient fund to provide for his day to day needs and any other expenditure which appeared to be reasonable. If eventually at the trial the plaintiff did not succeed in his claim the second defendant could commence proceedings based upon the undertaking the plaintiff had been required to give to the court. It was accordingly manifest that after all factors were duly weighed and considered the balance of convenience was undoubtedly in favour of the ex parte injunctions being continued.

35. The arguments advanced by Mr. Rokison are certainly attractive. However I believe them to be misconceived. I am satisfied that the correct test to adopt for Mareva injunctions are the guidelines set down so helpfully in Ninemir Maritime Corporation v Trave. I do not see anything to distinguish this case from H.C.A. 10514. If anything the case which is made out by Mr. Fong is weaker than Langcork's case. Also I have grave misgivings concerning Mr. Fong's conduct and motives in pursuing his claims in the manner he has. I have come to the conclusion that the Mareva injunction should be discontinued and I make an order accordingly.

36. I do not think that there is a great deal I can add concerning the claim that an injunction should be granted in respect of trust property. The situation is not the same in both cases. If Mr. Fong is able to maintain his claim to one-third of the proceeds of the Letters B it could be argued that the $20 m. being held by the first defendant is less than his share in the property and as a dividend has been paid out to the second defendant of $82 m. he is entitled to the whole of the $20 m, and this money is being held by the first defendant in trust for him. While reminding myself of the necessity not to attempt to try the case on the evidence before me I am nonetheless convinced that Mr. Fong's claim is so vague and nebulous that there is no realistic prospect of his being able to eventually recover anything like $40 m. or indeed $20 m. I do not think that it is necessary for me to repeat again my findings concerning the arguments relating to trust property in the earlier action. Suffice it to say that this application is also dismissed.

37. I do not see any difference in these actions concerning the claim for discovery. It is therefore consistent for me to also dismiss this application. This leaves us with the application under Order 44A of the Rules of the Supreme Court.

38. Mr. Rokison referred me to the judgment of Cons JA. in Shyam Naraindas Kirpalani v Days International Ltd. ⁽²²⁾ which held that a judge was not reposed with any discretion if a plaintiff had made out a case that the requirements of Order 44A had been complied with. The question of the exercise of any discretion arose when the defendant appeared and placed before the court some security and attempted to justify his position. It would seem to me after perusing the facts of that case that it was a rather unusual one. What is also clear is that Order 44A is designed to deal with the mischief of an absconding debtor. The order derives from the Indian Civil Code and considerable care needs to be exercised in its application. Having regard to the observations I have already made concerning the second defendant and the circumstances of the claim being made by Mr. Fang I have no doubt that Order 44A would have no application to the present situation. Accordingly this final limb of the four-pronged attack mounted by Mr Fong must also fail.

39. On account of the splitting of the ex parte summonses by Mr. Justice Macdougall which I have referred to earlier in this judgment the position concerning summonses before me may not be entirely clear.The parties have however agreed that I am seized of the two main summonses which were issued by Mr. Fong which are at p.110 and 114 of the plaintiff's bundle of documents and the summons issued by the defendants at p.116 of the bundle which is a summons to discontinue the ex parte injunctions on substantive grounds. Mr. Fong's two summonses must be dismissed for the reasons I have given. Equally the defendant's summons must succeed. There then remains the two summonses relating to discovery. As I have already indicated these also must fail. I will hear the parties as to costs.

(1)    [1975] AC 396

(2)    [1978] 1 QB 644

(3)   [1981] HKLR 628

(4)    [1982] 1 QB 558

(5)    [1983] AER 158

(6)   [1980] 2 AER 347

(7)    [1980] 3 AER 353

(8)    [1982] 3 AER 36

(9)    [1981] QB 923

(10)   [1980] 1 WLR 1274

(11)    [1982] 3 WLR

(12)    [1917] 1 KB 486

(13)    [1983] HKLR 110

(14)    [1933] AC 289

(15) [1982] 1 W.L.R. 539 (CA)

(16)    [1980] 1 WLR 1273

(17)    [1983] QB 34

(18)    [1981] 1 QB 956

(20)    [1950] Ch. 96

(21) [1970] 1 QB 596

(22)   [1982] HKLR 534

Representation:

Mr. Rokison, Q.C. & Mr. R. Sujanani (Poon & Sum) for Plaintiff in H.C. No. 10014/83

Mr. E. Hamilton, Q.C. & Mr. R. Wong (Philip K.H. Wong & Co.) for Plaintiff in H.C. No, 10514/83

Mr. H. Litton, Q.C. & Mr. A. Li (C.P. Lai & Co.) for 1st & 2nd Defendants in both actions