Bank of India v. Heera Lalchand Shahani and Others

HCA003706/1979

Coram: Zimmern. J.

Date of Judgment: 31 August 1979

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DECISION

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1. The Plaintiff in this interlocutory application is a well known bank incorporated in the Republic of India and carries on business, inter alia, in Hong Kong and Osaka. In the last mentioned place it has a customer of many years standing called Lalchand and Sons which I shall refer to as the "customer".

2. The Plaintiff on 24th August, 1979 issued a writ out of the High Court against four Defendants namely Heera (1st), Kishin (2nd), Gobind (3rd) all brothers surnamed Lalchand Shahani and 4th their mother Mohini with the same surname. The addresses of the Defendants were indorsed on the writ with exactitude, the 1st Defendant in Japan and the others in Hong Kong. Those others have been served but not Heera the 1st Defendant.

3. By its Statement of Claim indorsed on the writ the Plaintiff claims against all the Defendants as partners of its customer in Osaka and in the alternative in respect of the 1st Defendant as sole proprietor and the other three as guarantors under two guarantees (the sums of Yen 676,624,281 and US$55,334.45) being a debt due and owing by the customer to the Plaintiff in Osaka which though demanded remains unpaid.

4. The Plaintiff by way of summons issued on 30th August, 1979 applied to the Court as against the 1st Defendant exparte and the other three Defendants inter partes for various injunctions. There were nine of them - two against each Defendant and the last against them all. Summarising them briefly, the individual injunctions, all in the same form, ask for: first, the Defendant be restrained from disposing or dealing with certain shares registered in the Defendant's name in four companies and second, the Defendant do forthwith deposit in Court the share certificates in respect of the shares referred to. The last asks for all the Defendants to be restrained from conducting the affairs of the named companies otherwise than in their ordinary course of business.

5. The application was supported by an affidavit sworn to by a solicitor in the firm of the Plaintiff's solicitors in Hong Kong and he deposes that the matters set out are based on the Plaintiff's records and the information supplied to him by the named manager of the Plaintiff's branch in Osaka save where otherwise stated. The affidavit exhibits various copies of accounts, guarantees, partnership agreements, letters, land and company registry records and sets out the shareholdings of the first three Defendants and others in a private company which with the 2nd Defendant wholly own the shares of another private company which another to all intent and purpose wholly owns the shares of a third private company. This third company owns a property in Hong Kong known as Hollywood Commercial House said to be worth over $10,000,000. The 4th company mentioned in the application is a small import and export company in which all the Defendants are share holders. The affidavit shows that the Plaintiff is holding securities in Japan for its loans to the customer with a book value of over Yen 400,000,000 though it is said the market value is far less. Furthermore, the Plaintiff in Osaka has applied to the Japanese Court which has granted a provisional attachment order in respect of shares of a Kobe property owned by the 2nd and 4th Defendants and an injunction restraining the 1st and 3rd Defendant from leasing or otherwise dealing with their share of the same property. There is a further order as regards the customer's office there. In the affidavit there are suggestions at best shadowy that the 2nd, 3rd and 4th Defendants have homes in Japan. The land registration record shows the 3rd private company has owned Hollywood Commercial House since 1973. The 2nd Defendant filed an affirmation on behalf of the 3rd and 4th Defendants and himself disputing the claims and deposing that he has been a resident of Hong Kong upwards of 20 years with his family and his children go to school here. His visits to Japan have been at best casual.

6. Mr. Andrew Li appeared for the Plaintiff and Mr. Anthony Dicks for the 2nd, 3rd and 4th Defendants. The 1st Defendant has not been served was not represented. It is not out of any disrespect to them that I do not set out their arguments which lasted a day and a half before me at the end of which I dismissed the application with costs and at the request of both counsel I said I would give my reasons in writing which I now do.

7. The application was, as stated by Mr. Li, for "Mareva" injunctions. These were injunctions were first granted in England in 1975 and their usefulness has been accepted by the Commercial Courts there and has spread to Hong Kong. Lord Denning in the Rasu Maritima S.A. case⁽¹⁾ at pp. 524 to 530 has set out the law and history of these injunctions for all to see and I am not going over them here. In essence since 1975 the High Court in England upon exparte application has in certain cases utilized its powers under section 25(8) of the Supreme Court of Judicature Act 1873 (our section 19(1) of the Supreme Court Ordinance) to freeze the assets within the jurisdiction of defendants without the jurisdiction in respect of claims for debt owing and due or in damage justiciable in England when it was thought until then that it was settled law that the assets of a defendant were untouchable until judgment. (See the speech of Lord Hailsham in the "Siskina." case). By statute the High Court is empowered to grant an injunction by an interlocutory order in all cases in which it shall appear to the Court to be just or convenient. In what circumstances then will a Court deem it just or convenient to grant such an interlocutory injuncition remembering what had been thought settled law? Kerr J. said this procedure would be justified for practical reasons where:

"A plaintiff has what appears to be an indisputable claim against a defendant resident outside the jurisdiction but with assets within the jurisdiction which he could easily remove and which the court is satisfied are liable to be removed unless an injunction is granted".

Lord Denning endorsed the above passage in the "Rasu Maritima S.A." case⁽¹⁾ at 527. In introducing that passage of Kerr J.'S into his judgment it is interesting to note what Lord Denning said of the first two cases in which Mareva injunctions were granted and I quote:

"This Court was there presented with sets of facts which called aloud for the intervention of the Court by injunction. Study those facts and you will see that it was both just and convenient that the Courts should restrain the debtor from removing his funds from London. Unless an interlocutory injunction were granted exparte the debtor could and probably would by a single telex or telegraphic message deprive the shipowner of the money to which he was plainly entitled."

8. A study of the facts of those two cases does show that they fall completely in line with the practical reasons which justify the grant as enunciated by Kerr, J.

9. Applying the above to the facts of instant case:

10. First it is argued that the Plaintiff has unanswerable claims against the 1st Defendant for the full sums claimed and against the 2nd, 3rd and 4th Defendants in the sum of ?63315.000.000. For the sake of argument I am prepared to assume all that. The fact remains that the Plaintiff Bank is a secured creditor and again for the purpose of argument I completely ignore that all the transactions referred to took place in Japan and have nothing to do with Hong Kong whatsoever and that Japanese law would probably apply. Accepting that a secured lender can sue on the covenant to repay without realising his security, I find it hard to visualise how it can be just or convenient to grant an injunction to freeze a further asset of a defendant borrower until and unless the Plaintiff can give the fullest particulars of the securities, their valuation, the reason for extending the loan over the value of the securities held and the nexus between the further asset and the reason for the extension. Otherwise the short answer to the Plaintiff is to proceed to judgment in the usual way. On this very first ground the Plaintiff's application fails.

11. Second it is argued that though in all Mareva injunction cases so far in England the defendant has been out of the jurisdiction, there is no reason why the injunction should not be extended to a defendant within the jurisdiction. Indeed it is argued, Lord Denning did say in the Rasu Maritima case (supra)⁽¹⁾ at page 530:

"But I would not limit the jurisdiction in the way he did. I think the courts have a discretion in advance of judgment to issue an injunction to restrain the removal of assets. Whether the defendant is within the jurisdiction or outside. This discretion should not be fettered by rigid rules".

That passage came in the last paragraph of his judgment where earlier at page 526 he had said:

"Now for the present law. So far as concerns defendants who are within the jurisdiction of the court and have assets here, it is well established that the court should not, in advance of any order or judgment allow the creditor to seize any of the money or goods of the debtor".

He then went on to say that the proper remedy was to get judgment, set out the various authorities and then said:

"None of those statements were made, however, in relation to a defendant who was out of the jurisdiction but had money or goods in this country. I do not think they should apply the principle which was applied by the customary courts in older times and by the courts of the continent of today".

Prima facie there is a conflict between these two parts of his judgment but I think it is more apparent than real for reading his judgment as a whole it is abundantly clear that what he said in the ultimate paragraph was really to emphasize that he was not in any way fettering the discretion of a judge to grant interlocutory injunction. Whatever the future might hold in England for defendants within the jurisdiction there is less reason in Hong Kong for such a grant for we already have the draconian order 44A, rule 1 of which reads:

"If in any action, not being an action for the recovery of immovable property, the defendant is about to leave the jurisdiction of the Court, or has disposed of or removed from the jurisdiction of the Court his property or any part thereof, the plaintiff may, either at the institution of the action or at any time thereafter until final judgment, apply to the Court to call upon the defendant to furnish sufficient security for his appearance to answer any judgment that may be given against him in the action."

There is no such counterpart in the English rules.

12. As the 2nd, 3rd and 4th Defendants reside within the jurisdiction the Plaintiff's claim against them on this ground also fails.

13. I now turn to the assets within the jurisdiction which the Plaintiff seeks to freeze. They consists of shares in private companies which the Plaintiff says on the evidence before the Court are their sole assets and there would be no disruption in the business of those companies upon an order restraining dealing in those shares. Of course, the Plaintiff is really interested in the building owned by the third named company. To show that the Plaintiff's contentions are untenable I have only to consider two matters, though in other cases no doubt more might well have to be considered. They are first whether the assets could easily be removed from the jurisdiction second whether on the evidence and the history of matter the Defendant is liable or likely to remove the assets out of the jurisdiction so as to render empty the Plaintiff's prospective judgment. Dealing with the first the assets before the courts in those cases have been money or goods. I do not see why money should not include things, besides goods, which are in Hong Kong easily converted into money for example, bearer bonds, shares in public companies listed and commonly bought and sold in the stock exchanges, unencumbered flats. The assets herein are shares in private companies albeit controlled down the line by the Defendants. In the affidavit filed on behalf of the Plaintiff under paragraph 19 the deponent said:

"It is relatively easy to dispose of the shareholdings referred to in paragraph 16 above and there is a strong demand for it. One is in effect disposing of Hollywood Commercial House."

A bold expression of opinion which has no place in an affidavit. I cannot accept that such shares are easily converted into cash. It is unrealistic. Turning to the second all I need say is that on the evidence and the history of the matter before me the Plaintiff has failed to arouse even the slightest suspicion in my mind, that the Defendants or any of them are liable or likely to remove assets out of the jurisdiction by reason of the Plaintiff's writ. The Plaintiff again fails.

14. Since I gave reasons for dismissing the Plaintiff's application at the request of both counsel and the reasons show that the Plaintiff's failure was complete, I think it apposite to cite Lord Denning's reminder in The "Assions"⁽³⁾:

"The Judge said that caution should be used in granting Mareva injunctions. I agree with him. The Mareva injunction has proved most valuable in practice to the City of London and to all those who operate in the shipping world and elsewhere. But we must be careful that it is not stretched too far, else we should be endangering it. It must be kept for proper circumstances and not extended so far as to be a danger to the proper conduct of business. So, while supporting it wholeheartedly for all proper cases, we must be careful that it is not extended too far."

Representation:

Andrew Li (Wilkinson & Grist) for Plaintiff

A.R. Dicks (Stevenson, Low & Co.) for 2nd, 3rd & 4th Defendants.

(1) (1977) 3 W.L.R. 518

(2) (1977) 3 W.L.R. 828-829

(3) (1979) 1 L1. L.R. 331 @ 334