Martin Richard Walsh and Another v. Kee Keah Huat Eric

HCA012159/1999

HCA No. 12159/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12159 OF 1999

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Coram: Deputy Judge Z.E. Li in Chambers

Date of Hearing: 11 August 1999

Date of Handing Down Judgment: 25 August 1999

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J U D G M E N T

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The Plaintiffs went ex parte before Jackson J. on 28th July 1999 and obtained a Mareva injunction with ancillary discovery order ("the Injunction"). The parties came before me on 11th August 1999 on return and the Defendant succeeded in his application for discharge of the Injunction. In refusing to continue the Injunction, I said full reasons in writing will be given. These are my reasons.

2.I was not troubled with intricate points of law because Mr. Thomson for the Plaintiffs and Mr. Harris for the Defendant were at one on the applicable principles: In order to obtain a Mareva injunction, an applicant must establish (1) a good arguable case for his substantive claim and (2) a real risk of dissipation of assets. The test of a good arguable case is one capable of serious argument but not necessarily that which a judge considers has more than a 50% chance of success. On the question of real risk of dissipation of assets, the court may grant a Mareva injunction if it is shown that the defendant has acted fraudulently or dishonestly even if there is no specific evidence of risk of dissipation of assets. The applicant for an ex parte Mareva injunction is under a duty to act in the utmost good faith and disclose to the court all material matters. This duty extends to bringing to the court's attention particular points, of weakness in the applicant's case and of defences and evidence in support of them, which may not be immediately obvious from a quick read of the evidence but which are material to the decision whether or not to grant the injunction.

3.Counsel conceded for the purposes before me that the Plaintiff has a good arguable case. The grounds on which Mr. Harris for the Defendant applied for discharge of the Injunction are that: (1) there was material non-disclosure and (2) there is insufficient proof of dishonesty leading the court to find real risks of dissipation of assets. Mr. Harris also pointed out that the standard of proof of dishonesty making up a good arguable case is lower than that for dishonesty on the question of real risks of dissipation of assets. Mr. Thomson for the Plaintiff did not quarrel on this point.

Material Non-Disclosure

4.The requisite starting point on this issue must be the relevant parts of the skeleton arguments presented by Mr. Graham who appeared for the Plaintiffs before Jackson J.:-

"1. The 1st and 2nd Plaintiffs on 14th February 1997 and 5th March 1997 paid cheques to the Defendant for a total of $3,000,000.

2. They were paid to the Defendant so that they could be on-paid to a company called Excel Step Ltd. in which the Plaintiffs were to get 200,000 shares (1st Plaintiff) and 2,800,000 shares (2nd Plaintiff).

3. The Plaintiffs were to be equity investors in Excel Step which was to be a holding company for various companies that owned and operated restaurants.

4. The facts relied upon are set out in

(1) the Statement of Claim

(2) the affidavit of Martin Richard Walsh.

5. The causes of action are

(1) false misrepresentations inducing the Plaintiffs to pay the total sum of $3,000,000 to the Defendant i.e. an action in deceit;

(2) breach of trust/dishonest misappropriation of the sum of $3,000,000;

(3) recovery of the total sum of $3,000,000 by tracing or damages plus interest and lost opportunity cost on such total sum.

6. The claim is supported by strong evidence. See in particular affidavit of Martin Richard Walsh paras. 12(a) and (c) para. 13 and written memoranda exhibited, para. 14(the cheques payable to the Defendant) para. 26(a) paras. 27 and 30 as to $3,948,378 due from a director (the Defendant). See also the Defendant's admissions made on 15th July 1999 and paragraph 50 and the report from Mr. Martin Hall of Lee and Allen.

7. There is compelling evidence of a pattern of dishonest behaviour and disregard for normal standards of business morality. These are well founded allegations of dishonesty and breach of trust.

(1) it is likely that if the Defendant has notice of the Plaintiffs' intention to bring the present proceedings he would immediately take steps to remove assets from the jurisdiction or secret assets or otherwise attempt to make himself "judgment proof". There is ample evidence that the Defendant has assets in the jurisdiction;

(2) it is likely that if the Defendant has notice of the Plaintiffs' intention to issue proceedings and litigate the matters in question he would take steps to destroy or hide company documents (which are under his power and control as managing director of PGL) and any personal documents as may assist the Plaintiffs in recovering their misappropriated monies.

5.Allegations in affidavit evidence placed before Jackson J. fall into two categories: (1) allegations relating to the initial sting and (2) allegations relating to a number of instances of corporate financial irregularities and abuse by the Defendant as majority shareholder. Since the main cause of action is based on the alleged initial sting, complaints of corporate financial irregularities and abuse, even if proven true, are not directly relevant except to the extent that they tend to show a pattern of dishonesty or low business morality.

6.So far as the initial sting is concerned, this is what the 1st Plaintiff's affidavit ("the First Affidavit") sworn on 24th July 1999 says:-

"9. I was first introduced to Kee by Walker who has been a good friend of mine since I arrived in Hong Kong January 1994. My initial meetings with Kee were socially at the restaurants that Walker and I frequented.

10. Kee then approached me in February 1997 with the idea of expanding his existing business which was then operating Phukets Mid-Levels (under Huge Billion), Ricos (under Sino Force), Pane E Vino (under Craigside) and a restaurant in Quarry Bay called the Thai Café under Maxwell Corporation. He told me that 2 of the restaurants, Phukets Mid-Levels and Ricos, were extremely profitable and, in order to minimise their tax liabilities, he proposed to set up a holding company for all 3 restaurants and then to expand the group of restaurants by injecting more capital into the holding company. His proposal is recorded in a memo he gave me in February 1997 ("The February 1997 Memo"), a copy of which is now produced and shown to me marked "MRW-1". In this he explained that he had already acquired a company, Excel Step Ltd., as a "shell company" which had not been used and this would be used as the holding company.

11. What he said made sense to me. I could see for myself that Phukets Mid-Levels and Ricos were always full of customers. I agreed to invest $3 million in this venture. In retrospect I should have conducted due diligence investigations but I had spare cash to invest and trusted him at the time.

12. During our discussions, Kee in response to questions from me verbally assured me of the following:

(a) The holding company which we were setting up would be a "clean" company and owed no debts to anybody, and the same applied to the companies which were already set up and operating the restaurants. In the circumstances, it was implicit that all of the capital I invested would go straight into the restaurant businesses.

(b) That the new company would own the Thai Café. This is clear from the February 1997 Memo. In fact Kee insisted that Thai Café be included in the Group. If I did not agree to this our deal would not proceed. A further memo to me dated 11th February 1997 alleged that Thai Café was generating a licensing fee of HK$30,000 per month. Now produced and shown to me marked "MRW-2" is a copy of that memo.

(c) That the money I was to invest would be put straight into the new holding company as capital and I (or a company nominated by me) would be allotted shares in return.

13. In mid-February 1997, I sent a memo to Kee to confirm that the 2nd Plaintiff, then Abertay, and I would invest in Excel Step which was to own all 4 restaurants as follows:

The Abertay shareholding of 2,800,000 shares of $1 each or 28%.

My personal shareholding in my own name of 200,000 shares of $1 each or 2%.

The agreement recorded that if the restructuring did not take place Kee would refund my money. Kee signed his agreement on this memo, a copy of which is now produced and shown to me marked "MRW-3".

14. As a result of the verbal agreement described above, I made Global's and my investment into the company by paying the sum of $3,000,000 to purchase shares in the holding company as follows:

14.2.97 Abertay cheque to Kee $1,000,000

5.3.97 Abertay cheque to Kee $1,800,000

5.3.97 My personal cheque to Kee $200,000

Now produced and shown to me marked "MRW-4" are true copies of the cheques making these payments.

15. The money was paid directly to Kee as he claimed that PGL was still in the process of being set up. The agreement was that once PGL had been set up the money would be invested as capital in that company. The Group was to own five restaurants within 6 months. These would be Phukets Mid-Levels, Ricos, Pane Vino, Thai Café, and another branch of Phukets to be set up in Wanchai known as "Phukets Thai Delicacy" ("Phukets Wanchai"). Phukets Wanchai was to be operated under a further subsidiary of PGL's to be acquired. This was Captain Hill Ltd. ("Captain Hill").

.........

MISREPRESENTATION PRIOR TO MY INVESTMENT

.........

26. At the time of my investment, contrary to Kee's representations as set out above.

(a) It seems from the audited accounts that the holding company was not "clean" and had debts. At least this was the situation as of 31 January 1998. I had not approved the accruing of any debts prior to that date.

(b) The Thai Café was not, at the time of my investment, nor is it at present owned by the Phukets Group or one of its subsidiary companies. Now produced and shown to me marked "MRW-13" are copies of the following searches carried out by my solicitors.

(i) Business Registration of Maxwell Corporation Ltd.

(ii) Business Registration of Citiwin (H.K.) Ltd.

(iii) Business Registration of Chan Kei Hung Keith

(iv) Company Search of Maxwell Corp. Ltd.

These records show that:

(i) Maxwell may have at all times owned Thai Café.

(ii) At the date of my investments Maxwell was not owned by PGL/Excel Step.

(iii) A memo from Kee to me dated 11 February 1997 explains that the person running the Thai Café is a "lessee" and paying rent (presumably to Maxwell) of $30,000 per month.

(iv) PGL only became the owner of Maxwell on 20 November 1997.

(v) The audited accounts for PGL up to 31 January 1998 state that Maxwell is a 100% subsidiary and its activity is the licensing of Thai Café to Citiwin Ltd.

(vi) Whilst (v) may be correct we only saw those accounts in June 1999 by which time Phukets Group Ltd. had on 10 May 1999 become only a minority shareholder with Wesslen being the main shareholder.

(vii) According to BR searches the business of Thai Café has been run by the following:

- Maxwell Commencing 9.3.95

- Citiwin commencing 1.1.97

- Keith Chan commencing 6.1.97

.........

SUSPICION THAT THE MONEY FROM SHARES WERE NOT INVESTED IN THE COMPANIES

29. I began to suspect that the amount showing as being due from a director either represented the fund which I paid to Mr. Kee to invest in the companies in return for my shares which he subsequently failed to do or the money was subsequently taken out from the companies in which case such granting of loans was certainly not authorised by me ......

PGL BOARD MEETING ON 15 JULY 1999 AND SUBSEQUENT EVENTS

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45. I attended the PGL Board meeting of 15 July 1999. Present were myself, Kee and Wesslen ......

47. ......

(c) As for the money Global and I had given to him as capital for the company Kee admitted he had not paid that into the company but had kept it himself. He claimed to be entitled to do this as he considered he had sold shares to me and the money Global paid was consideration for this. He then however admitted that he did not in fact own the shares in the first place."

7.Mr. Harris for the Defendant Mr. Kee contended that Mr. Walsh and those who represented the Plaintiffs did not make full and frank disclosure to Jackson J. at the ex parte stage on a number of matters. Consider the following major points Mr. Walsh sought to present to the court at the ex parte stage:-

(1) There was an agreement between he and Mr. Kee that $3 million would be paid for new shares of Excel Step (later known as PGL) as a new holding company for the purpose of injecting increased capital into the restaurant group. The arrangement was not for purchase of Mr. Kee's equity in the restaurant group. The existence of this agreement is supported by a memo "MRW-3". See para. 13 of the First Affidavit.

(2) Mr. Kee represented to Mr. Walsh that Thai Café was to form part of the restaurant group under the new holding company. See para. 15 of the First Affidavit. The Thai Café did not in fact stay within the group. See para. 26(b) of the First Affidavit. Thus the implicit complaint is that the group has been deprived of something precious.

(3) In as much as Mr. Kee purported to sell part of his equity in the restaurant group to Mr. Walsh, Mr. Kee in fact did not own any equity. See para. 47(c) of the First Affidavit.

8.In relation to the first point, Mr. Walsh did exhibit the memo. That is not good enough. There are abundant authorities to the effect that crucial documents must not be buried in a pile of exhibits but must be recited to draw the court's attention to their full terms. Moreover, problems with interpretation of such documents and weaknesses that may detract from the weight to be given to them should be pointed out to the court. The actual memo is like this:-

"[Photocopy of Defendant's identity card]

It is agreed:-

1. That Abertay Limited will purchase 2,900,000 shares of the fully authorized share capital of 10,000,000 of the holding company Excel Step Ltd.

2. That M.R. Walsh will also purchase 100,000 shares of Excel Step Ltd.

3. Upon the restructuring which Eric Kee is processing, Excel Step Ltd. will own:-

a) Sino Force Holding Ltd.

b) Pan E Vino

c) Phukets

d) Thai Café

4. If the restructuring does not take place Eric Kee will refund all monies paid.

5. Abertay agrees to make a downpayment of HK$1,000,000 out of the HK$2,900,000 due to Mr. Eric Kee.

[Manuscript of Mr. Walsh:-

'Eric,

Does this look OK for a provisional agreement?

Martin

Manuscript of Mr. Kee:-

O.K.

Signature]"

9.The memo, therefore, is in fact a provisional agreement drawn up by Mr. Walsh himself, the alleged victim of fraud. It reflects a serious effort to tie down Mr. Kee - Mr. Kee's identity card is photocopied onto the document so that there would be no dispute over identity and the memo contains an express provision on the only circumstance under which Mr. Kee must refund the $3 million. Moreover, the operative word used for the shares was "purchase" which can be distinguished from "subscribe" or other words suggesting injection of capital for new shares instead of transfer of equity as asserted by Mr. Walsh; this is reinforced by words in the memo that the money from the Plaintiffs was "due" to Mr. Kee and that it was Mr. Kee who would have to refund. Whilst it is open to the Plaintiffs to argue that the $3 million was for injection of capital for new shares of Excel Step, it is at least equally arguable, on the face of the memo, that the Plaintiffs were purchasing part of the equity Mr. Kee would hold in Excel Step, i.e. some shares in Excel Step would be issued to the Plaintiffs instead of Mr. Kee in consideration of payments to Mr. Kee himself. It is only when the re-structuring of the restaurant group does not take place as agreed that Mr. Kee would have to return monies to the Plaintiffs. It does not matter whether Jackson J. would have nonetheless granted the ex parte Injunction. The problem is that the attention of the learned judge was not drawn to the said questionable features of the memo and, in my view, these features are material for the consideration of the court.

10.In regard to the second point, bearing in mind the contents of the small paragraphs (i), (ii) and (iii) in paragraph 26 of the First Affidavit quoted in full above and that the part concerning Thai Café and Maxwell (the operating company of Thai Café) in the First Affidavit by Mr. Walsh was placed under the heading MISREPRESENTATION PRIOR TO MY INVESTMENT, Mr. Walsh insinuated that he had very little knowledge about Thai Café before and after his investment except that which may be gleaned from public records. One is further given the impression that Thai Café not now part of the restaurant group was mysteriously taken off the group to the prejudice of the interests of the Plaintiffs.

11.However, in another affidavit attributed to him filed on 12th August 1999 ("the Second Affidavit"), Mr. Walsh revealed after the ex parte Injunction was granted that:

"13. ...... My reaction was that I was interested in the group i.e. with the two successful restaurants in it but not the loss making Thai Café. Eventually I bowed to the Defendant's insistence that Thai Café was to be included."

And in a Third Affidavit attributed to him also filed on 12th August 1999, Mr. Walsh further revealed that:

"8. ...... Using my expertise as a former Vice President at Dillon Read, I put together a deal, on a full disclosure basis which the Defendant and Wesslen accepted. The effect of this was that Mr. Walker bought Phukets Wanchai and the balance sheet was cleaned up. I do not have the final documentation relating to the actual sale. I also wish to point out that the Defendant and Wesslen then approached me with a similar deal whereby Mr. Wesslen bought the Thai Café but this time there was no consideration involved. I also agreed to this so the net result was a smaller group of 3 restaurants which were then making a profit. This issue is however not relevant to my present claim."

12.So, in fact, Mr. Walsh knew that Thai Café was making a loss before he made the investment. He did not want it in the group. Mr. Kee and Mr. Wesslen discussed with him about disposal of Thai Café. He agreed to the sale without consideration of Thai Café to Mr. Wesslen. He was also instrumental in hiving off another liability and cleaning up the balance sheet. If anything, such information and evidence from the Plaintiffs indicate that Mr. Kee did not pass off Thai Café as a profitable undertaking. And, within a short period of time, one of partners took Thai Café off the books of the restaurant group. By his own admission, Mr. Walsh was able to see to it that the Plaintiffs had investment in a group of only profitable restaurants. What was the MISPRESENTATION? Why were such information and evidence which the Plaintiffs had had all along not placed before Jackson J.?

13.As to the third point, Mr. Walsh would have the court believe that $3 million was to be injected by the Plaintiffs into the restaurant group in return for new shares in the holding company of the group; instead, although new shares in the holding company were issued to the Plaintiffs, they were shares originally intended for Mr. Kee. So, according to Mr. Walsh, Mr. Kee wrongly pocketed $3 million that should go into the holding company. Worse still, Mr. Kee allegedly admitted that he (the Defendant) did not own the shares in the first place.

14.There is a clear case of subterfuge here. Before the Plaintiffs entered the picture, Mr. Kee and his other partners were operating several restaurants. The record shows that Mr. Kee held over 80% of the shares of a company operating one of the restaurants and over 90% of the shares of another of the restaurants. All parties agreed that there would be a re-structuring by selecting a clean company as a parent company to hold all the restaurant operating companies. But, consider this. Had the Plaintiffs not joined in, shares in the restaurant operating companies held by Mr. Kee and his partners would be transferred to the parent company in return for shares in the parent company. Provided that the issue of shares in the parent company to Mr. Kee fairly reflected the value of the equities in the restaurant operating companies he transferred to the parent company, it cannot be said that Mr. Kee was not entitled to or did not own the shares in the parent company. Indeed, Mr. Walsh stated, only later, in the Third Affidavit that:

"6. In addition nowhere does the Defendant provide any plausible explanation or breakdown as to how two existing restaurants (Rico and Phukets (Mid-Levels), one with a franchise (Thai Café) and one to be opened (Pane Vino) could possibly be valued at $10 million. Whilst the Defendant may be entitled to claim some goodwill value for his shares in the operating companies, that had to be on the basis that the companies were debt free as the Defendant admits was part of the deal. The Defendant now admits that they were not debt free ..."

15.Since Mr. Walsh himself concedes that Mr. Kee may claim some goodwill value, it is bizarre and implausible that Mr. Kee would as Mr. Walsh alleged in his First Affidavit admit that Mr. Kee did not own the shares in the first place. Credit for the goodwill value, however little Mr. Walsh thought it was worth, should be given at the ex parte stage. In compliance with their duty to full and frank disclosure, the Plaintiffs should have also informed the court that Mr. Kee's equity in the two existing restaurants was over 80% in each case as apparent from public records even if the Plaintiffs had not been informed by Mr. Kee of his huge holdings. The Plaintiffs should moreover inform Jackson J. that in the opinion of Mr. Walsh, before he invested into the restaurant group, the two existing restaurants were extremely successful. All these information, properly considered, may lead the court to find that the Plaintiffs' claim is an exaggeration.

16.Another matter which goes to the weighing scales and may influence the court's decision at the ex parte stage is the background of Mr. Walsh. I have already referred to paragraph 8 in the Third Affirmation wherein Mr. Walsh stated that he used his expertise in putting together a deal for the sale of Phukets Wanchai from the restaurant group to Mr. Walker on full disclosure basis. This late disclosure reveals two interesting factors. First, Mr. Walsh did have expertise in selling business assets. So he may well be a consummate investor or adviser of investors. Secondly, Mr. Walsh was aware of the importance of full disclosure from the vendor.

17.In fact, Mr. Walsh made more pertinent subsequent revelations. In the Second Affidavit, Mr. Walsh stated that:-

"7. ... I have not since 1993 been a stockbroker or investment banker. I was previously Vice President of Dillon Read. I specialised in Initial Public Offers ("IPOs"), i.e. the process whereby private companies become public listed companies. My role included advice to the private companies as to how to build up to attain a public listing. I resigned from Dillon Read in December 1993.

9. ... From my business knowledge as an ex-investment banker due to my years at Dillon Read, I would have strongly advised my former clients against investing in just the existing restaurants. I would certainly not have done it myself. I have in the past had experience of advising companies involved in the restaurant business. The maximum acceptable time period for investors to recover their initial investment is 2 years. In fact usually 11/2 years is the aim."

But, of course, Mr. Walsh said elsewhere that he had been stupid and fooled by Mr. Kee.

18.Now, had the court had the benefit of such aforethought from Mr. Walsh at the ex parte stage, question naturally arises as to why he would invest in the restaurant group against his better knowledge and advice. The restaurant group was valued at $10 million. Assuming further injection of $3 million cash, the total investment would be $13 million. Could Mr. Walsh have anticipated that in 2 years time the group would bring in net profits of $1.5 million each year and all these net profits would go to him alone so that he can recover his initial investment in the maximum acceptable time period? How was he so gullible?

19.Finally, it is abundantly clear from the Statement of Claim and the First Affidavit that the Plaintiffs regarded Mr. Kee as having pocketed $3 million cash and given the Plaintiffs nothing of real value in return. In fairness, the Plaintiffs did admit that shares in the holding company of the restaurant group were issued to them, although the Plaintiffs also gave the impression that the shares were worthless. But there is another matter which only came out in the Second Affidavit:-

"19. Sub-paragraph(n)

The Defendant claims that I have not acknowledged receipt of a return on the Plaintiffs' investment of HK$216,000 so far. This money was received before I knew that Kee had been dishonest and had not invested my money into the holding company. Should I receive repayment of my initial investment, together with full interest and costs and any other damages to which I am entitled as claimed in the statement of claim in this action, I will give credit for this sum."

20.There are several points here. The extent or whether credit should be given for the $216,000 is a matter for the court to decide, not the Plaintiffs. Perhaps the Plaintiffs were not satisfied with the amount of return, but the return does amount to a substantial sum and it may go to show that Mr. Kee did not just skim and make off with the Plaintiffs' money. The fraud was not as serious as some cases the court has seen. More importantly, the fact that return was given is factor for the court to take into account in considering risk of dissipation assets.

21.Mr. Harris did advance other points on material non-disclosure. I do not think it is useful to discuss all of them one by one although further instances of material non-disclosure reveal themselves in the discussion below on risks of dissipation of assets. Mr. Harris also pointed out that Mr. Walsh at a number of places in his affidavits stated certain beliefs bearing adverse reflection on Mr. Kee, however, the bases for such beliefs were not given.

22.In the premises, I had no difficulty in coming to the conclusion that the Plaintiffs had failed to make material non-disclosure. As I have indicated to the parties at the conclusion of the hearing, I found the Plaintiffs economical on the facts, short of being fair to the Defendant and strong on stretching their case. Accordingly, the Injunction must be discharged.

Real Risks of Dissipation of Assets

23.There is no direct evidence of dissipation of assets. But the Plaintiffs contended that there is a pattern of dishonesty or low business morality on the part of Mr. Kee. To this end, the Plaintiffs referred to (1) the initial sting and (2) a number of instances of corporate financial irregularities and abuses.

24.I have already assessed the evidence concerning the initial sting and found that although the Plaintiffs have a tenable case, their case is remarkably weakened when considered in light of the challenges the defence may raise. The Plaintiffs maintained the same case before me only that their additional evidence filed after the ex parte Injunction was granted cast more doubt on the credibility of Mr. Walsh. The so-called good arguable case here is rather questionable and in my view does not amount to credible proof of real risks of dissipation of assets.

25.It would be idle here to examine each and every complaint of corporate financial irregularity or abuse made by the Plaintiffs although all allegations were considered before I discharged the Injunction. I think one only has to look at a number of readily identifiable instances to get the flavour and general nature of the Plaintiffs' complaints.

26.Mr. Walsh in his affidavits maintained that he had been denied access to the accounts of the companies. In around middle 1999, when the audited accounts of the companies came out, Mr. Walsh and forensic accountants acting on his behalf wrote to the other side a number of letters containing searching questions on the financial affairs of the companies. These letters have been produced as proof of prior denial of access. I cannot take them as such. The letters may also be evidence of manoeuvres on the part of the Plaintiffs to feint ignorance. The Plaintiffs did not inform Jackson J. that in fact Mr. Kevin Redmond, Mr. Walsh's assistant, used to go to the office of the companies' accountant to help. Mr. Walsh and his accountant had access to all the restaurant business' documents. After Mr. Kee revealed this in paragraph 10 of his affirmation filed on 9th August 1999, Mr. Walsh did not deny such positive assertion in his two subsequent affidavits. One wonders therefore if Mr. Walsh was so much in the dark as he claimed to be. Mr. Walsh did say that he (Mr. Walsh) took a more active role in the restaurant business only since the middle of 1998, not from October 1997 as stated by Mr. Kee. Mr. Walsh also stressed that the audited accounts of the companies came out late. Now, since Mr. Walsh had been anxious to acquaint himself with the financial affairs of the companies, why did he not ask for whatever books and accounts he wanted in the middle of 1998 when according to his own position he began to take an active role in the business. And if he did ask but was refused, why did he not take action then instead of waiting for one year especially when he had already noticed a number of so-called irregularities and abuses?

27.The Plaintiffs contended that the companies were unclean and referred to the audited accounts as evidence of financial irregularities. In fact the accounts show that the holding company advanced monies to its subsidiaries - the restaurant operating companies for restaurant setting up and decoration expenses. Such advances I should think are normal. The accounts also show that some of the restaurant operating companies owed monies to the directors. I note first that these are not trading debts. I note further that these are also on account of decoration expenses. Mr. Walsh in the First Affirmation admitted that he himself lent $1 million to the holding company. So I really do not see how the Plaintiffs can complain that directors lent monies to their companies.

28.There is some force in the Plaintiffs' complaint that Mr. Kee drew over $3 million from one of the companies to pay for a settlement agreement Mr. Kee had with some previous shareholders. However, one should give credit to Mr. Kee in that this loan was properly posted as director's loan. It is not as if Mr. Kee illicitly and secretly tried to siphon off money from the companies. Moreover, it must also be remembered that Mr. Wesslen, the other director, agreed to this loan. So it is not a case of Mr. Kee taking a loan without proper authority.

29.The Plaintiffs by affidavits filed on their behalf tried to present a picture of Mr. Kee himself alone manipulated the affairs and finances of the group to the disadvantage of minority shareholders like the Plaintiffs. But, as already mentioned, Mr. Wesslen has always been on the board of the companies and even Mr. Walsh in his affidavits said Mr. Wesslen was involved in the decisions made for the companies. So the Plaintiffs made general and specific allegations of abuse but at the same time also revealed in their own evidence that Mr. Kee was not and could not be a dictator. Two examples illustrate the real situation. Mention has been made about the Thai Café which was a liability for the restaurant group. Mr. Walsh's own affidavit confirmed that Mr. Wesslen took this liability off the books of the group. Obviously, Mr. Kee and Mr. Wesslen were not conspiring to undermine the value of the investment of minority shareholders like the Plaintiffs. Moreover, before Thai Café was transferred to Mr. Wesslen, Mr. Kee and Mr. Wesslen discussed with and obtained approval from Mr. Walsh to the transaction. It should also be noted in passing that Mr. Walsh became a director of the holding company in the middle of October 1997 even though the Plaintiffs combined are minority shareholders only. Another example is the treatment of the Ferrari car bought by the Defendant but posted as an asset of one of the companies. There is not even suggestion from the Plaintiffs that Mr. Kee used company or other people's money to pay for the car. Mr. Kee posted the car as a company asset for obvious tax reasons. Many people do that. When Mr. Walsh and Mr. Wesslen insisted, the car was taken off the books of the company concerned. Is this evidence of Mr. Kee running the corporate affairs according to his wishes alone? I should think quite the contrary.

30.The Plaintiffs relied on company returns and documents signed by Mr. Kee to the effect that shares allotted by the holding company to all shareholders were paid for in cash when in fact only the Plaintiffs had paid cash. Arguably, this is a breach of section 45 of the Companies Ordinance, Cap. 32. Now, as mentioned earlier, the shares issued to Mr. Kee by the holding company may be treated as paid for in kind by surrendering his equities in the restaurant operating companies to the holding companies. There are several ways of doing it in terms of accounting treatment. One way is for Mr. Kee to pay real cash to the holding company for issue of shares to him and then the holding company pays him back in cash for transfer of his shares in the restaurant operating companies. Apparently this was not the method adopted. I am not sure if the actual method adopted amounts to a breach of the Companies Ordinance; it depends on how the relevant transactions were recorded in the books. Assuming there was breach, to say that such breach is proof of dishonesty is like elevating illegal parking to fraud by way of cheating government revenue in not feeding a meter. The court has to take a robust approach and be alive to realities. Businessmen do cut corners but not every corner-cutting is morally or legally reprehensible.

31.The Plaintiffs referred to a previous dispute between other investors and Mr. Kee over starting Phukets Mid-Levels through Huge Billion. This dispute ended up as HCA 7399 of 1994. The claim by the Plaintiffs in that High Court action against the same Defendant is similar in nature as that herein. The Plaintiffs relied on this previous case as evidence of repeated dishonesty. Mr. Kee has explained that that action had been settled out of court on terms under which he refunded the money put up by the other investors without interest. Litigants settle for all sorts of reasons. I cannot take the settlement reached by Mr. Kee with previous investors as an admission on the part of Mr. Kee that he cheated those investors.

32.Mr. Walsh in paragraph 3 of the Second Affidavit stated that Mr. Kee had told him, for some time, that his parents had been living in Penang, Malaysia and own a house there. On this basis, Mr. Walsh is afraid that Mr. Kee may depart to Penang if judgment is obtained against him. In my view, of course there is always a risk that a judgment debtor may seek refuge with relatives overseas but the fact that a defendant has parents living outside Hong Kong does not even ex hypothesis pose real risks that he would abscond. For the record, Mr. Kee disclosed his connections with Hong Kong as follows:-

"Background - Connection with Hong Kong

3. I am 38 years old. I am Chinese and was born in Hong Kong. I have strong family connections with Hong Kong. My parents live in Hong Kong. My brother is an officer in the Hong Kong Police, and my sister works for a garment business in Hong Kong as well as being a wife and mother. I have been married to Zhanel Lau for eight months. My wife works in Hong Kong.

4. Since leaving school in Hong Kong all my business interests have been in Hong Kong. I have no business interests outside of Hong Kong. I am relatively well-known in Hong Kong because, as a martial arts expert, I have appeared in 12 Hong Kong films. I have also been involved in producing 2 films in Hong Kong, in which I also acted. Acting did not keep me fully occupied and during the 1980s I ran a garage specialising in repairing sports cars, in which I had always had an interest. The garage specialising in repairing sports cars, in which I had always had an interest. The garage was in Mosque Junction just off Robinson Road in Mid-Levels. When I set up the restaurants to which I refer below I gave the garage business to the employees......"

33.I believe the court must not lose sight of the purpose of considering risks of dissipation of assets. The fundamental objective of granting a Mareva injunction is to preserve assets so that a potential judgment debtor cannot remove out of the jurisdiction assets liable to execution. With that in mind, even where it is proven that the potential judgment debtor has been dishonest or has low business morality, if the court is satisfied that the potential judgment debtor has no intention to dissipate assets or has assets in the jurisdiction that are reasonably secure and sufficient to satisfy judgment, Mareva injunction should not be granted.

34.For the reasons I have given, I did not think the Plaintiffs have made out a pattern of dishonesty or low business morality on the part of Mr. Kee. Furthermore, even from the Plaintiffs' own materials, there is positive evidence that Mr. Kee will more likely remain in Hong Kong in any event. As Mr. Harris pointed out, when sued in HCA 7399 of 1994, Mr. Kee did not pack up and leave for Penang. He stayed in Hong Kong and paid off millions to the other investors. The Plaintiffs bemoaned that the money used to pay for the settlement was borrowed from one of the restaurant operating companies. On the other hand, Mr. Kee explained that he had advanced about $2 million to the company. Moreover, the loan from the company was agreed by Mr. Wesslen and so properly authorized. Taking further into account the facts that Mr. Kee has properties in Hong Kong and that he is drawing a substantial salary for managing the profit making restaurant group, hence Mr. Kee would stand to lose quite a lot should he abscond, I think it is safe to say that he has very little incentive to leave Hong Kong.

35.Last but not the least, Mr. Kee does have valuable assets to satisfy judgment in this case. The Plaintiffs' claim is for refund of $3 million. In fact, the Plaintiffs have got over 30% shares in the holding company of a profit making restaurant group. These shares would have to be transferred back to Mr. Kee if the Plaintiffs succeed in this action. Mr. Kee himself alone holds about 48% of the shares in the holding company. All these shares together, totalling over 78% of the equities of a profit making restaurant group with a nominal value of $10 million, are of substantial value. These shares alone should more than cover the entire judgment should the Plaintiffs succeed totally. There is no reason at all for Mr. Kee to do anything that would sabotage the value of the shares he is holding. In the worst scenario, in case Mr. Kee decides to run down the restaurants or to dispose of his equities in the restaurant group, the Plaintiffs as shareholders and having a seat on the board of the holding company would be among the first to know and would have no difficulty in mounting an urgent fresh application for Mareva injunction.

36.In the premises, on the ground that there is no real risk of the Plaintiffs, if successful, being left with an empty judgment after trial, the ex parte Injunction ought to be discharged at once. I so ordered. On the same ground and circumstances I have considered, I rejected the Plaintiffs' application for interim continuation of the Injunction pending consideration of appeal against my judgment.

37.Mr. Harris for the Defendant applied for costs to the Defendant, such costs to be taxed and paid forthwith. Mr. Thomson submitted that since the Plaintiffs would only be entitled to costs in the cause when they succeed in getting a continuing interlocutory injunction, the Defendant should also only get costs in the cause upon obtaining discharge. With respect, the reason for ordering costs in the cause when a plaintiff succeeds on an application for interlocutory injunction is that the plaintiff may well lose in the main action after trial in which case the Plaintiff should of course bear costs retrospectively. In the situation like the present, the application for injunction is deemed unjustified irrespective of the outcome of the main action. It has become accepted practice in this situation to, as it were, close the chapter. Accordingly, I ordered the Plaintiffs to pay the Defendant's costs, such costs to be taxed and paid forthwith if not agreed.

Representation:

Mr. James Thomson instructed by Messrs. Deacons, Graham & James for the Plaintiffs

Mr. Harris instructed by Messrs. Richards Butler for the Defendant