Jayson Finance Co Ltd v. Helnond Ltd and Others

HCA001170/1984

BETWEEN:-

Coram: The Honourable Mr. Justice Jones in Chambers.

Dates of hearing: 30th March and 2nd April 1984

Date of delivery of judgment: 5th April 1984

Mr. C. Ching, Q.C. and Mr. D. Fung (Tang & So) for the Defendants.

Mrs. M. Clough (Deacons) for the Plaintiff.

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J U D GM E N T

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1. This is an application to vary or discharge a Mareva injunction that was granted ex parte by Hunter J. on the 21st February 1984.

FACTS

2. K.C. Jay who died on the 6th October 1982 was a prominent businessman in Hong Kong. During his lifetime he formed the Jayson Group of Companies. The plaintiff and the first defendant were members of the group. K.C. Jay appointed his wives and children to be the directors and shareholders of these companies, but retained overriding control. He was described by the second defendant as a benevolent despot.  K.C. Jay left surviving him Wong Kwan Yee (first wife) three other wives or concubines viz. the second defendant Lee Wah Ying and the third defendant and several children, both legitimate and illegitimate. Hanson Jay who has been joined as the third party in this action is the youngest son of K.C. Jay by the first wife. Hanson Jay is a director and shareholder of the plaintiff having been appointed as a director on the 27th October 1982. The third defendant is also a director. The second defendant was a director, but resigned on the 15th February 1984. She also resigned her directorships of three other companies on that day. The second and third defendants are the only directors and shareholders of the first defendant. K.C. Jay was a director until his death.

3. K.C. Jay appointed the second and third defendants and Hanson Jay to be the executors of his will. However, the second and third defendants have renounced probate. It is apparent that the second and third defendants are on bad terms with Hanson Jay.

4. The second defendant was married to K.C. Jay in 1968. She lived with K.C. Jay at 50 Island Road Deep Water Bay together with the first wife until his death. The second defendant is actively engaged in the business of Allied Exchange Limited foreign exchange brokers in which she is the principal shareholder and a director. Since June 1983 she has been the acting chairman of the Hong Kong Foreign Exchange and Deposit Brokers Association. The third defendant is a housewife. According to the second defendant K.C. Jay formed the plaintiff Company in 1972 as a vehicle to finance the purchase of property and for investment. Monies were advanced by the plaintiff and the companies in the group interest free and without security. None of the directors or shareholders in the group were consulted by K.C. Jay about these transactions.

5. In April 1980 K.C. Jay decided to purchase office premises for the Jayson Group on the 23rd Floor of Tower II in Admiralty Centre.  The property was acquired in the name of the first defendant a shelf company.  In order to purchase the property three interest free advances amounting to $17,250.00 were made to the first defendant by the plaintiff. These funds were transferred to the plaintiff interest free from other companies in the group. K.C. Jay also lent $8,006,585 to the first defendant interest free and without security to purchase the property. The transaction was carried out by K.C. Jay without consulting or obtaining the approval of the other directors of the plaintiff who at that time were the second and third defendants and Ernest Jay another son of the first wife.

6. A writ was issued by the plaintiff against the defendants on the 21st February 1984 claiming inter alia repayment of $17,250,000 and an account of profits from the date of the advances.

LAW

7. The principles to be applied when considering whether to grant a Mareva injunction were set out in The Niedersachsen (1983) 2 Lloyd's Law Reports 628 where it was held:-

"........... that (1) the evidence had to be looked at as a whole and although a good arguable case was no doubt the minimum which the plaintiffs had to show in order to cross the threshold for the exercise of the jurisdiction, the Court had to consider the evidence as a whole in deciding whether or not to exercise this statutory jurisdiction;

(2) the machinery of the Mareva injunction could not be invoked for the purpose of providing plaintiffs with security for claims even when these appeared likely to succeed, and even when there was no reason to suppose that an order for an injunction or the provision of some substitute security by the defendants would cause any real hardship to the defendants;

(3) the test was whether on the assumption that the plaintiffs had shown at least a good arguable case, the Court concluded on the whole of the evidence 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.

(4) while it was obviously up to the defendants what evidence they put before the Court, the plaintiffs were equally clearly entitled to comment adversely upon any evidence which the defendants might adduce; whether the inter partes hearing took the form of an application by the defendants to discharge the injunction, or whether the injunction was only granted for a limited time and then there was then an inter partes hearing as to whether or not it should be continued, the Judge had to consider the whole of the evidence as it then stood in deciding whether to maintain or continue or to discharge or vary the order previously made;

(5) the ultimate test for the exercise of the jurisdiction was whether in all the circumstances, the case was one in which it appeared to the Court to be just and convenient to grant the injunction;"

Lord Denning in Third Chandris Corporation v. Unimarine S.A. (1979) 1 Q.B. 645 referred to the exercise of the discretion at p. 667:-

"      Accepting that the jurisdiction is available, the question arises: In what circumstances should it be exercised? In Mareva Compania Navicra S.A. v. International Bulkcarriers S.A. [1975] 2 Lloyd's Rep. 509, 510, I said:

In Rasu Maritima S.A. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara (Government of the Republic of Indonesia intervenign) (Pertamina) [1978] 1 Q.B. 644, 661, I ventured to extend this to a case where the plaintiff can show that he has a "good arguable case," ...................."

8. Kerr, L.J. had this to say in Z Ltd. v. A-Z (1982) 1 Q.B. 558 at p. 585:-

"It follows that in my view Mareva injunctions should be granted, but granted only, when it appears to the court that there is 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.".

GOOD ARGUABLE CASE

9. The plaintiff contends that the advances were made in breach of article 76 of the plaintiff's Articles of Association for non-disclosure by the second and third defendants as sole directors and shareholders of their interest in the arrangements between the plaintiff and the first defendant. The plaintiff also seeks to rely on Article 91 which provides that two directors shall constitute a quorum and questions arising at a meeting shall be decided by a majority of votes. Mrs. Clough who appeared for the plaintiff submits that despite the fact that the second and third defendants were the only directors and shareholders they should still have formally disclosed their interest at a directors meeting. Having regard to the facts of this case when K.C. Jay was the only other director and was fully aware of. the situation I find this submission unrealistic. In my opinion the plaintiff's reliance upon any breach of Articles 76 and 91 would not succeed.

10. However the plaintiff's main ground is that the advances were ultra vires as they were not expedient for the benefit of the company or otherwise made in furtherance of the company's objects and were therefore in breach of Clause 32 of the plaintiff's memorandum of association. Clause 32 provides:-

"    To lend and advance money or give credit to such persons or companies and on such terms as may seem expedient, and in particular to customers and others having dealings with this Company, and to guarantee the performance of any contract or obligation and the payment of money of or by any such persons or companies, and generally to give guarantees and indemnities."

Mrs. Clough relies strongly upon Rolled Steel Products (Holdings) Ltd. v. British Steel Corporation (1982) 1 Ch. 478 where it was held:-

"        ................ that the power to lend and advance money in clause 3(k) of the plaintiff's memorandum of association was not a separate object of the plaintiff but an ancillary power to be exercised in furtherance of the substantive objects and purposes of the plaintiff; that an exercise of the ancillary power would be ultra vires, using the term in a wide sense, if the power was not exercised for the purposes of the campany to the knowledge of the defendants; that, since the director S. knew that the guarantee, at least to the extent of any moneys in excess of the plaintiff's debt to S.S.S., was not in the interests of the company and the defendants, C. Ltd. and the British Steel Corporation, knew that the guarantee had been entered into for the purposes of S.S.S. and S. personally, they had knowledge that the guarantee and the debenture, to the extent of the sun guaranteed, had been executed by the plaintiff for a purpose other than a purpose authorised by its memorandum of association; and that, accordingly, the guarantee would be set aside and there would be an order for the sum guaranteed to be repaid with interest.

Per curiam. Shareholders, even acting unanimously, cannot authorise a transaction which is ultra vires in the wider sense of being an application of the company's assets for purposes other than those that the company is authorised to pursue and cannot ratify such a transaction.".

11. I have been told that this case is subject to appeal.

12. On the other hand Mr. Ching for the defendants drew my attention to Charterbridge Corporation Ltd. v. Lloyds Bank Ltd. (1970) 1 Ch. 62 where it was held :-

"..... that where, as here, a company was carrying out the purposes expressed in its memorandum, and did an act within the scope of a power expressed in it, that act was within the powers of the company; that the memorandum of a company set out its objects and proclaimed them to persons dealing with the company and it would be contrary to the whole function of a memorandum of objects unequivocally set out in it should be subject to some implied limitation by reference to the state of mind of the parties concerned; and that the state of mind of officers of C. Ltd. and the bank as to whether the transaction was intended to benefit the company was irrelevant on the issue of ultra vires.

..............further that, alternatively, even if the intention was relevant on the issue of ultra vires, the directors acting as intelligent and reasonable men might reasonably have concluded that the transaction would have enured to the benefit of C. Ltd.".

13. Mr. Ching. also cited in support of his argument In re Horsley & Weight Ltd. (1982) 1 Ch. 442, In re Halt Garage Ltd. (1982) 3 A11 E.R. 1016, Cotman v. Brougham (1918) A.C. 514 and Anglo-Overseas Agencies Ltd. v. Green (1961) 1 Q.B. 1 where it was held that each of the objects was to be read in isolation and not as ancillary to or limited by earlier paragraphs.

14. Mr. Ching submitted that even if Rolled Steel Products does apply the second and third defendants would be entitled to relief under Section 358 of the Companies Ordinance. Section 358 provides:-

"(1)   If in any proceeding for negligence, default, breach of duty, or breach of trust against a person to whom this section applies it appears to the court hearing the case that that person is or may be liable in respect of the negligence, default, breach of duty or breach of trust, but that he has acted honestly and reasonably, and that, having regard to all the circumstances of the case, including those connected with his appointment, he ought fairly to be excused for the negligence, default, breach of duty or breach of trust, that court may relieve him, either wholly or partly, from his liability on such terms as the court may think fit."

Mrs. Clough replied by submitting that even if the defendants were puppets of K.C. Jay they could not escape liability to repay the amount claimed and cited in support Selangor United Rubber Estates Ltd. v. Cradock (No. 3) (1968) 1 W.L.R. 1555.

15. However, I see no reason why the second and third defendants should not invoke this section for they may obtain relief if they acted honestly, reasonably and ought fairly to be excused. Although I do not agree with Mrs. Clough that the plaintiff has a strong case there is undeniably an arguable case on the authority of Rolled Steel Products.

REAL RISK

16. In support of the plaintiff's application for the injunction before Hunter, J., Hanson Jay said that the second defendant left Hong Kong on the 10th February 1984 and that he did not know if she intended to return.

17. Neither the second defendant nor the third defendant's secretary from whom he made enquiries knew where the third defendant had gone or when she would be back although the secretary said she had gone on holiday. Another member of the third defendant's staff said she had left to attend to some family business and would return in a few days.

18. Hanson Jay referred in his affirmation to further writs that have been or will be shortly issued against the defendants or some of them or other companies in which they are interested. In support of his belief that there is a risk that the second and third defendants will remove substantial sums of money controlled by them out of the jurisdiction he avers in paragraph 22 as follows :-

"22. I believe that. the 2nd and 3rd Defendants have substantial assets of their own in Hong Kong but I am anxious that they may leave Hong Kong or put their assets beyond the reach of their creditors. For some considerable time the 2nd and 3rd Defendants have talked about emigrating from Hong Kong, originally both the 2nd and 3rd Defendants were planning to go to Australia but recently the 2nd Defendant intimated to me that the 3rd Defendant might go to Horway or Canada. It is possible that now these proceedings have been brought the 2nd and 3rd Defendants will implement those plans and withdraw their assets from Hong Kong. On the 17th February, 1984, the 2nd Defendant told me that she wanted to go away, but she was not sure where."

Hanson Jay also contended that the renunciations of probate, the resignation of the directorships by the second defendant and the first defendant's mortgage of the Admiralty Centre property in November 1983 constituted additional reasons for his belief that the defendants may leave Hong Kong.

Second defendant's affidavit

19. In answer to Hanson Jay's affirmation the second defendant says as follows:-

"30.   In Hanson's affirmation, the impression is given that I renounced probate to K.C. Jay's Will because I intended to leave Hong Kong. I hereby state as a fact that I have never had any such intention. Indeed, I was born and raised here and am a local resident. I have relatives and friends in Hong Kong. I have property and assets here. I have lived all my life in Hong Kong and intend to stay here for the foreseealbe future.

31.   I am still an active member of all the various clubs mentioned in paragraph 13 above. As earlier stated, I am still the Acting Chairman of the Hong Kong Foreign Exchange Brokers Association. The house where I am presently living, namely, House B1 in Springfield Garden, No. 9 Shouson Hill Road which is a property given to me by K.C. Jay and registered in the name of Yee Ching Yin Co. Ltd. of which I am the major shareholder, aid I have no intention of disposing of it. I moved here from 50 Island Road on Christmas Eve 1983, a year or so after K.C. Jay's death, so as to enjoy greater privacy for the time being. I frequently go back to 50 Island Road where I still keep my bedroom where I put my clothes and personal effects. Since 1st April 1983 Wong Kwan Yee has moved away to Canada. I also own another property in Kowloon Tong, namely, Flat 12C at No. 3 Eastbourne Road which is registered in my name as to which I also have no intention of disposing.

38.   I wanted to go to Japan but Irene planned to take her two daughters to Canada. We eventually decided that Irene and her children should join me in Japan after their visit to Canada so that we could return together to Hong Kong. There was nothing sinister in our trips. Hanson well knew that we were going on vacation rather than emigrating and that we would be returning to Hong Kong. The impression given by Hanson in his affirmation that Irene and I were about to flee Hong Kong with our assets is a complete distortion of the true state of affairs and misleading in the extreme. It is true that in 1983  Irene and I, like most people with Hong Kong passports that I know, talked about the possibility of emigrating to other countries in view of the 1997 question. However, this was no more than discussion as to the future of Hong Kong. Neither Irene nor I have taken any active steps to apply for immigration anywhere and certainly in the foreseeable future, with confidence in Hong Kong renewed, we have no intention of emigrating.

39.   Irene left for Canada with her daughters on 10th February 1984 shortly after the Chinese New Year holidays. In the evening of the same day, I spoke to Hanson over the telephone and, during the course of that conversation, I mentioned to him that Irene was currently away from Hong Kong.

40.   A few days later, that is to say, about 13th February 1984 Hanson rang me and said that he proposed to convene board meetings on 21st February 1984 for various companies in the Jayson Group (including Jayson Finance) in which Irene and I held interests. I asked him the reason for holding the proposed board meetings.  He replied that the various boards intended to discuss revision of staff salaries for the new year. As matters transpired (although I did not realise it at the time), this reply was wholly misleading.

41.   I told Hanson either in the same conversation or shortly thereafter that Irene was on vacation and was not due back until the end of the month (i.e. the end of February 1984) and I thereupon suggested that the meetings be postponed until after her return. Hanson replied with words to the effect : "Let's hold the meetings in Irene's absence just to show her that we can do without her.".

44.   I recall also telling Hanson over the telephone probably on or about 17th February 1984 that I proposed to go away for a few days for a holiday. Shortly thereafter on 18th February 1984, I left for Japan and there met up with Irene and her children. I did not realise at the time that Hanson would exploit our absence from Hong Kong to pass a resolution that Jayson Finance commence the present proceedings against Helmond, Irene and me, a matter which was not on the agenda or any of the notices that I had received.".

Third defendant's affidavit

20. The third defendant generally confirmed the evidence set out in the second defendant's affidavit.

21. In answer to Hanson Jay's allegations she states:-

"7.  I renounced probate to the Will of K.C. Jay on 13th January 1984 because I could not tolerate Hanson's mounting hostility and refusal to cooperate, particulars whereof are set out in Edna's affirmation. Thereafter during the Chinese New Year holidays Edna and I planned to take a vacation which we eventually scheduled for shortly after the Chinese New Year holidays.

8. Although in 1983 I did talk about the possibility of looking for an alternative home in view of the 1997 question, I certainly have no intention of emigrating in the forseeable future. I hold a Hong Kong passport and, like most Hong Kong passport holders that I know, the 1997 question has been most disturbing and all of them at one time or another have been talking about the possibility of emigrating in due course. However, with confidence renewed in Hong Kong, I have no plan for emigrating in the forseeable future and do not intend to do so. I have not made any application to emigrate anywhere. Recently I have only been away on holiday. I took my daughters Joyce and Catherine, aged respectively 6 and 5, who are daughters of my union with K.C. Jay, to Canada. Edna wanted to go to Japan and we eventually decided to join her there after our trip to Canada. My daughters and I were scheduled to fly to Vancouver on 10th February, to go on to Tokyo and to return to Hong Kong on 23rd February 1984. I made specific arrangements to absent my daughters from school and to absent my eldest daughter Joyce from ballet lessons from that time until the end of February 1984. .........................................

10. ................. I was born and raised here and have lived all my life in Hong Kong. I am a local resident and, unlike K.C. Jay and his sons, do not hold resident status in any other country. The flat where my daughters and I live, namely, Apartment 14A of Greenland Court, 56 MacDonnell Road is my own property and registered in my name and I have no intention of disposing of the same. I have considerable assets in Hong Kong apart from the said property and these are locked into holdings of shares in private companies, namely, companies within the Jayson Group, which shares were given to me by K.C. Jay during his lifetime. Many of my friends and all my close relatives, including my parents, now aged 66 and 67, live in Hong Kong. I have no intention of leaving Hong Kong. The passage in Hanson Jay's Affirmation relating to my absence from Hong Kong in the crucial period of February when he applied for the said Order from the Honourable Mr. Justice Hunter is wholly misleading and untrue because as he well knew I was away on holiday and would return by the end of February.".

In his second affirmation Hanson Jay comments in paragraph 24 as follows:-

"If as they now say, neither the 2nd and 3rd Defendants have ever had any intention of leaving Hong Kong for good or of disposing of their assets, I am glad to hear it but of course I was not to know that when the application for the Mareva injunction was made ex parte.".

As can be expected there is a considerable dispute of fact in the evidence contained in the affidavits.

CONCLUSIONS

22. Five risks were averted to by Hanson Jay:-

I agree with Mr. Ching's submission that the ground based on other actions is meaningless for they are only claims and not judgments. There was no evidence that the defendants knew about these actions until after the present proceedings were instituted whilst the strength of the claims is not known. The second and third defendants intend to defend the other actions.

23. Mrs. Clough concedes that the renunciations of probate and resignation of the directorships by the second defendant do not provide sufficient grounds by themselves, but are factors to be taken into account that the intention of the de endants was to lessen their ties with Hong Kong. However, the evidence does not support the allegation that either of the defendants intended to do so. I am therefore unable to accept this submission. In my opinion they were included to bolster a weak case. Again although the third defendant did leave Hong Kong she has now returned. A perfectly reasonable explanation has been given by the third defendant for her departure which has not been challenged by Hanson Jay. No allegation was made in respect against the second defendant.

24. The final ground that the defendants should have decided to mortgage their own property is without merit. There was no evidence that by so doing they were dissipating their assets.

25. Criticism can be levelled at Hanson Jay for non-disclosure of certain matters at the time of the application before Hunter J. By way of illustration it is clear from paragraph 21 of his second affirmation that he knew why the third defendant had left Hong Kong whereas this was not disclosed in his earlier affirmation. Again this evidence was not consistent with his statement that it was not until the 10th February 1984 that he was told by the second defendant that the third defendant had left Hong Kong. The evidence of risk placed before the Court based upon the evidence of Hanson Jay was flimsy, and unrelibale. I am not satisfied that a full and frank disclosure was made by Hanson Jay.

26. In my judgment the evidence did not support the contention that there is a real risk that the assets of the defendants will be removed abroad or that they will be dissipated. In fact the evidence goes the other way. As a result I shall make an order that the injunction be discharged. Costs to the second and third defendants. There will be a certificate for two Counsel.

Representation:

Mr. C. Ching, Q.C. and Mr. D. Fung (Tang & So) for the Defendants.

Mrs. M. Clough (Deacons) for the Plaintiff.