American Express International Banking Corporation v. Willie Yu and Others

HCA011138/1982

HEADNOTE

Mareva Injunction. Jurisdiction in England now statutory by virtue of section 37(3) of the Supreme Court Act 1981. No similar provision enacted in Hong Kong, but as the law confirms that previously adopted the same principles were applied. Order for discovery also made otherwise the injunction would be ineffective.

BETWEEN

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Coram: Jones J. in Chambers

Date: 13 December 1982

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JUDGMENT

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1. On the 20th November 1982 an interlocutory injunction known as a Mareva injunction was granted ex pane in favour of the plaintiff. The order reads:-

"The defendants and each of them, by themselves, their servants or agents or otherwise howsoever be restrained and an Injunction be granted restraining them and each of them from removing any of their assets from the jurisdiction or howsoever transferring, pledging, charging or disposing of them and in particular restraining them and each of them from so removing, transferring, charging or disposing of shares directly or indirectly held by the defendants or any of them in Lakeland Company Limited, Wing Kee Trading Company Limited and Hang Lung Bank Limited and the 3rd defendant's property or interest in a residential flat situate at Kennedy Road, Hong Kong, until the inter panes summons to be issued herein and made returnable on the 29th day of November 1982 at 9.30 o'clock in the fore noon has been heard and determined or until further order."

The order was coupled with an order for discovery.

2. The inter partes summons was adjourned by consent on the 9th November and the 2nd December when the injunction was continued. The time for complying with the order for discovery was extended.

3. By this application the defendants seek to discharge the injunction.

FACTS

4. The plaintiff entered into a General Loan and Collateral Agreement in writing with Dollar Credit and Financing Limited (hereinafter called "the Company") on the 7th April 1976 for banking and credit facilities. The defendants by a joint and several guarantee in writing dated the 19th May 1980 guaranteed the indebtedness of the Company up to the sum of HK$80,000,000.00. The Company is a subsidiary of Dollar Credit (Holdings) Limited. On the 15th November 1982 the directors of Dollar Credit (Holdings) Limited announced that the Company was unable to meet its current liabilities. As a result trading in the shares of Dollar Credit (Holdings) Limited on the stock exchanges was suspended. On the 18th November 1982 the Company was indebted to the plaintiff in the sum of HK$44,958,192.00, which is the amount claimed in the writ.

5. A document dated the 18th November 1982 described as 'A Preliminary Proposal' signed by the 2nd and 3rd defendants and headed "Without Prejudice" was sent to all creditor banks and deposit-taking companies. The document contained a suggestion that a creditor's meeting be held on the following day. As this document is particularly relevant I set out the contents in full.

A PRELIMINARY PROPOSAL

To : All Creditor Banks and Deposit-Taking Companies

6. In support of his argument that this document was admissible despite the claim to privilege, Mr. Litton who appeared for the plaintiff cited In Re Daintrey Ex Parte Holt ⁽¹⁾ where Vaughan Williams J. at pages 119 and 120 said: -

Turner v. Fenton ⁽²⁾ was also cited by Mr. Litton.

7. In this case there was no dispute at the time the notice was written. Further the notice amounted to an act of Bankruptcy by the defendants which might prejudice the plaintiff. For these reasons I am of the opinion that the document is not privileged from production in evidence. Even if the document had been privileged I consider that the privilege was waived at the meeting held on the 19th November, 1982.

8. The plaintiff demanded repayment of the sum due from the Company and the defendants on the 19th November 1982, but no payment has been made.

9. The meeting held on the 19th November 1982 was attended by the representatives of thirty-nine creditor banks including the plaintiff. Only the 3rd defendant of the three defendants was present. Mr. Ian Marsh, the Assistant Vice-President and Marketing Manager of the plaintiff who attended the meeting stated in his affidavit dated the 20th November 1982 that during the discussion of the Preliminary Proposal the 3rd defendant said that if any legal action was taken against any of the guarantors, they would probably declare themselves bankrupt. The 3rd defendant also said that the present liabilities of the Company amounted to approximately HK$620 million bat that a sum of HK$100 million could be called in. However the 3rd defendant said that the guarantors were prepared to stand by the Company and had available a substantial amount of shares in the Hang Lung Bank together with properties in Los Angeles. He therefore anticipated that the guarantors would be able to realise assets worth HK$600 million. The 3rd defendant referred to an offer that had been made to purchase the defendants' shares in the Hang Lung Bank for the sum of HK$200 million. Although the 3rd defendant said that the offer had not been made in writing, he considered it to be a firm offer.

10. During the meeting an Advisory Committee was formed and a firm of auditors was appointed by the creditors to investigate the Company. The 3rd defendant agreed at the meeting that the defendants had suspended payment of all their debts and that there would be no preferential payments.

11. The writ in this action was issued on the 22nd November 1982. No defence has been filed by the defendants. Neither the 1st defendant who has left Hong Kong nor the 2nd defendant have filed an affidavit in these proceedings.

12. In his affirmation dated the 26th November 1982 the 3rd defendant confirmed the truth of the contents of the preliminary proposal and the statement that the defendants own 87.5% of the beneficial interest in the shareholding of Lakeland Co. Ltd. which holds 50% of Wing Kee Trading Co. Ltd. which indirectly controls 80% of Hang Lung Bank Ltd. The 3rd defendant estimated that the shares of Lakeland Co. Ltd. were worth about HK$200 million. The 3rd defendant contended that the main object of the meeting on the 19th November was for the purpose of appointing a merchant banker to look into the preliminary proposal and to propose a scheme of settlement. The defendants clearly desired that legal action by the plaintiff be deferred pending the result and recommendations of the merchant banker. A draft of the agreement for the sale and purchase of the shares in Wing Kee Trading Co. Ltd. was exhibited to the 3rd defendant's affirmation. The draft agreement is subject to conditions that directors nominated by the buyer would be accepted by cling Kee Trading Co. Ltd. in place of those representing the defendants and to verification of the accounts of Wing Kee.

13. The evidence contained in the affidavit of Mr. A. P. Fox, the plaintiff's solicitor, reveals that the 2nd and 3rd defendants also have assets in Singapore. The 3rd defendant was the registered owner of a residential property Martia Street, Singapore. However on the 18th November 1982 the property was transferred to Lee Hoi Kwong Pte Ltd. in respect of which company the 3rd defendant owns the entire capital. It is believed that the consideration for the transfer did not amount to the true open market value. Mr. Fox's affidavit further states that 50 million shares in the name of Lakeland Co. Ltd. in ding Kee Trading Co. Ltd. have been charged to the Hang Lung Bank Ltd. as security for overdraft facilities up to HK$40,000,000.00 which was extended on the 11th November 1982. That affidavit also discloses that Chard Estates Ltd. a company which appears to be controlled by the 3rd defendant held until mid September 1982 a substantial number of shares in the Ka Wah Bank.

14. The plaintiff filed affidavits on behalf of eighteen creditor banks which depose to the fact that over HK$300 million is owed to them by the Company. All the debts have been  guaranteed by the defendants or by at least one or two of the defendants.

LAW

15. The Court has power to grant a Mareva injunction when it appears that there is a debt due and owing and there is a danger that the debtor may dispose of his assets in order to defeat the plaintiff's claim before judgment.

16. In England the jurisdiction to grant a Mareva injunction was originally derived from section 45 of the Judicature (Consolidation) Act 1925, but is now statutory by virtue of section 37(3) of the Supreme Court Act 1981. Section 37(3) provides: -

"The power of the High Court ... to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the High Court, or otherwise dealing with, assets located within that jurisdiction shall be exercisable in cases where that party is, as well as in cases where he is not, domiciled, resident or present within that jurisdiction."

The jurisdiction in Hong Kong stems from section 19 of the Supreme Court Ordinance Cap. 4 which says: -

17. However, there is no equivalent provision in Hong Kong of section 37(3) of the Supreme Court Act 1981. Mr. Lee who appeared for the defendants submitted that section 37(3) does not apply in Hong Kong for it is designed only to affect a defendant who deals with his assets within the jurisdiction and not with regard to a disposal of his assets outside the jurisdiction. He cited William Chen and Another v. Chen Lee Hong-man ⁽3) where Sir Alan Huggins, V.- P. at page 629 said:-

"I am quite satisfied that the whole basis of a 'Mareva' injunction is the danger that property within the jurisdiction will be taken out of the jurisdiction, and it is not a remedy which is to be given merely because property is somehow to be put beyond the reach of the plaintiff. It is true that a 'Mareva' injunction will be so worded not merely that the property will not be removed from the jurisdiction by the defendant but that it will not be dealt with within the jurisdiction. The purpose of that is to prevent its being removed from the jurisdiction by somebody else. As I say, I do not think that this is a remedy which was ever understood to be available, in effect, in every case where there is a risk that the defendant will dispose of property."

18. Apart from deciding that the plaintiff did not have a valid claim the Court of Appeal did not consider that it was an appropriate case to grant a Mareva injunction.

19. On the other hand Mr. Litton contends that section 37(3) is merely explanatory of the law before it became statutory.

20. In a later case Z Ltd. v. A-Z and AA-LL ⁽⁴⁾ Lord Donning considered section 37(3) where he said at pages 293 and 294: -

21. The granting of a Mareva injunction is a discretionary remedy which must depend upon the facts of each individual case. See C. B. S. United Kingdom Ltd. v. Lambert and Another ⁽⁵⁾. If Mr. Lee's interpretation is correct it would frustrate the whole purpose of the remedy. I am satisfied that section 37(3) gives statutory effect to the law that was applied before it came into force.

22. It is clear that there is ancillary power to make an order for discovery if it is just and convenient to render the injunction G effective. See Bekhor v. Bilton ⁽⁶⁾, Z Ltd. v. A-Z and AA-LL ⁽⁴⁾ and C. B. S. United Kingdom Ltd. v. Lambert and Another⁽⁵⁾

CONCLUSIONS

23. The plaintiff's claim is not in dispute.

24. The proposal to sell the shares in Wing Kee Trading Co. Ltd. amounts to no more than a bare assertion whilst no value has been given to the flat in Kennedy Road.

25. Mr. Lee submits that there is no reason to suggest that the defendants will remove their assets from the jurisdiction. However, this optimism is not supported by the facts. The 1st defendant has already left Hong Kong whilst the 2nd and 3rd defendants are free to do so at any time. There is clear evidence which has not been refuted that the defendants have taken steps both in Bong Kong and Singapore to re-arrange their assets. It is further highly probable that the defendants have other assets in Hong Kong which have not been disclosed. Those assets in Hong Kong can easily be transferred beyond the jurisdiction at a moment's notice.

26. No tangible proposals have been put Forward] by the defendants to justify the discharge of the injunction. The evidence leads irresistibly to the conclusion that there is a real risk that the defendants may remove their assets from the jurisdiction. Accordingly it is just and convenient for the injunction to continue. Compliance with the order for discovery is extended until the 20th December 1982 at 5.00 p.m. Costs in the cause. Liberty to apply to stay, vary or discharge the order.

(1)    (1893) 2 Q. B. 116

(2)    (1982) 1 W.L.R. 52

(3)    (1981) H. K.L.R. 628

(4)    (1982) 2 W.L.R. 288

(5)    (1982) 3 W.L.R. 746

(6)    (1981) 1 Q.B. 923

Representation:

Mr. H. Litton, Q.C. and Mr. R. Riberio (Deacons) for plaintiff.

Mr. M. Lee, Q.C. and Mr. W. Chan (P.T. Yeung & Co.) for defendants.