Hsin Chong Construction (Asia) Ltd v. Henble Ltd

HCCT 23/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO. 23 OF 2005

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BETWEEN

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Before: Hon Reyes J in Chambers

Date of Hearing: 12 May 2005

Date of Judgment: 12 May 2005

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J U D G M E N T

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I.  Introduction

1.Henble is the developer of 31 Tin Hau Temple Road, a residential project.  Henble employed Hsin Chong as main contractor.  The project was originally to have been completed by 12 July 2003.  But practical completion took place on 23 November 2003. 

2.Hsin Chong claims from Henble at least the following amounts: $2,868,502 under Interim Payment Certificates Nos.17 and 18; $975,000 as the balance of retention monies; and $2,954,000 for 134 days’ prolongation.  Henble denies that anything is payable.  Instead, Henble counterclaims for liquidated damages of $2,670,000 attributable to 89 days’ delay and unliquidated damages running to some $2 million for alleged wrongful acts of trespass and nuisance by Hsin Chong’s workers in the course of the project.

3.Hsin Chong seeks an interim injunction under Arbitration Ordinance (Cap.341) (AO) s.2GC to restrain Henble from disposing of $8 million of assets pending resolution of the parties’ dispute.  The $8 million represents the amounts claimed by Hsin Chong plus legal costs.  Hsin Chong also asks for discovery in aid of any injunction granted.  The question is whether I should grant such an injunction and discovery.

II.  Background

4.Henble is a subsidiary of Continental Holdings Limited (CHL), a listed company.

5.The dispute between Henble and Hsin Chong is subject to a domestic arbitration agreement. 

6.By letter to Henble dated 12 March 2005, Hsin Chong gave notice of its intention to commence arbitration in light of Henble’s continued failure to pay the monies claimed by Hsin Chong.

7.At the same time Hsin Chong learned that Henble had sold the Tin Hau property for about $170 million on 28 February 2005.

8.Further investigation by Hsin Chong showed that, in a notice dated 25 January 2005 convening an EGM to approve disposal of the Tin Hau property, CHL had stated:-

“USE OF PROCEEDS

The entire sale proceeds of HK$170 million from the Disposal will be used as the [CHL] Group’s general working capital and it is estimated that the net proceeds form the Disposal will amount to approximately HK$168 million.”

9.The Tin Hau property was Henble’s sole significant asset. As a result of the property's sale, Hsin Chong became concerned that it could not enforce any arbitration award. Henble (Hsin Chong feared) would transfer the sale proceeds to other companies within the CHL group.  The proceeds could not then be attached (Hsin Chong reasoned) if an arbitration award was made against Henble.

10.Consequently, Hsin Chong’s solicitors repeatedly sought undertakings from Henble.  The undertaking were to the effect that Henble would retain some $5 million of the Tin Hau property proceeds to satisfy any award in Hsin Chong’s favour.  Henble refused to give any assurance.  As far as Henble was concerned, Hsin Chong had no entitlement to an undertaking.

11.By an Originating Summons dated 29 March 2005 Hsin Chong applied to this Court for an injunction and discovery under AO s.2GC. 

III.  Discussion

12.AO s.2GC provides:-

“	(1)	The Court or a judge of the Court may, in relation to a particular arbitration proceedings, do any of the following:-
		(a)	make an order directing an amount in dispute to be secured;
		...
		(c)	grant an interim injunction or direct any other interim measure to be taken.
		....
	(6)	The Court or a judge of the Court may decline to make an order under this section in relation to a matter referred to in subsection (1) on the ground that:-
		(a)	the matter is currently the subject of arbitration proceedings; and
		(b)	the Court or the judge considers it more appropriate for the matter to be dealt with by the relevant arbitral tribunal.”

13.Case law suggests that in the normal situation a party seeking interim relief under AO s.2GC should apply in the first instance to the arbitrator seised of a dispute.  See AO s.2GC(6) andLeviathan Shipping Co. Ltd. v. Sky Sailing Overseas Co. Ltd. [1998] 4 HKC 347, at 355D-H. 

14.But Hsin Chong has applied to the High Court because there is as yet no arbitrator.  Hsin Chong believes that there is an urgent need to prevent Henble from dissipating assets, so that it cannot wait for an arbitrator to be appointed.  Henble does not challenge the appropriateness of applying to this Court (as opposed to an arbitrator) in the circumstances of this case.

15.Both Mr. Wong (appearing for Henble) and Ms. Christine Mak (appearing for Hsin Chong) accept that, for this application, the same test applies as that which the Court uses on Mareva injunctions.  Essentially, Hsin Chong must show that it has an arguable case and that there is a serious risk of Henble removing assets from the Court’s jurisdiction to render any arbitration award nugatory.

16.In their submissions, Mr. Wong and Ms. Mak engage in considerable discussion as to whether Hsin Chong or Henble has a strong or weak case.  I am prepared to assume that, for the purposes of granting interim relief, Hsin Chong has an arguable, possibly even a strongly arguable, case.  It seems to me that the real issue is whether there is compelling evidence that Henble is dissipating assets in an objectionable way.

17.Ms. Mak says that there is strong evidence of dissipation. She suggests that Henble’s sole business was the development of the Tin Hau property.  The project now over, there is nothing restraining Henble from transferring the sale proceeds to other companies within the CHL group.  Indeed, CHL has made no secret of its intention to cause Henble so to do. 

18.The monies (Ms. Mak submits) can easily be transferred to the accounts of offshore CHL subsidiaries and removed from the Court’s jurisdiction.   Hsin Chong’s concern is heightened (Ms. Mak stresses) by the refusal of Henble or CHL to give any assurance that $8 million will be held by them to abide Hsin Chong’s claim.

19.I am not persuaded by Ms. Mak’s arguments.

20.The Court does not grant Mareva injunctions lightly.  It does not readily order a respondent to put up security as a condition of being allowed to defend itself against a claimant.  The burden is squarely on Hsin Chong to adduce cogent evidence of commercially sharp practice, that is, the dissipation of assets in an attempt to render oneself immune to adverse awards.

21.To my mind, there is nothing surprising or unusual about Henble transferring the sale proceeds to other companies within the CHL group to be used as working capital.   A transfer by Henble would give rise to a debt due from the transferee to Henble.  That debt would remain an asset within Henble’s books.  The account receivable is capable of assignment and has economic value. 

22.It is true that monies might be transferred to an obscure company within the group for the sole purpose of evading any liability to Hsin Chong.  But, assertion apart, there is just no evidence of Henble’s intention to act in such a way.  On the contrary, the avowed intention in CHL's EGM notice is to use the sale proceeds as working capital.

23.What, one asks rhetorically, is Henble expected to do?  To hold $170 million idle in Henble’s bank accounts to abide the outcome of disputed litigation would not be the most productive way of using funds. 

24.Hsin Chong says that Henble should retain at least $8 million.  But why should Henble do so, where Hsin Chong’s claim is merely a personal one and Hsin Chong has no security interest over the sale proceeds?  That Henble is not minded to give any assurance over the retention of $8 million is not relevant.  Hsin Chong is not entitled to such an assurance as a matter of law.

25.Ms. Mak submits that Henble’s failure to pay Hsin Chong anything is indicative of questionable motives on Henble’s part. But the fact is that Henble does not accept that anything is due to Hsin Chong.  It is not possible (and it would be undesirable) at this interim stage to dismiss Henble’s arguments as doomed to fail.  I do not think that one can infer anything from Henble’s disagreement and consequent refusal to pay.

26.I note that, as far as I can see, Henble has made no secret of its intention for the Tin Hau project and its proceeds. On 25 January 2005 CHL’s shareholders were told how the sale funds were to be used.  On about 28 January 2005 Dr. Charles Chan of CHL told Mr. Jason Wong of Hsin Chong that Henble was “thinking of selling the Project in one go”.   All that was long before Hsin Chong’s application for interim relief was issued at the end of March 2005.

27.It is significant that Hsin Chong has not mounted an ex parte application.  In the conventional Mareva case, an applicant proceeds ex parte, because it is feared that an inter partes summons would prompt a respondent to dispose of assets before the application can be heard.

28.Here Hsin Chong rightly felt that the situation did not warrant an ex parte application.  That indicates that at the time of application the serious risk of dissipation of assets typical of genuine Mareva situations was not present

29.If assets were going to be dissipated, that would already have occurred long ago, between the January 2005 notice and Hsin Chong’s March 2005 application.  In such case, equity does not act in vain.  It does not usually order injunctions where time has elapsed and an injunction would in effect be locking the stable door after the horse has bolted.

30.In my judgment, there is no basis for granting a Mareva or other interim injunction to restrain Henble.  By its application, Hsin Chong (it seems to me) is in reality attempting to put itself in a position akin to that of a secured creditor. 

31.It follows that I should also refuse an ancillary direction that Henble disclose the location of its assets.

IV.  Conclusion

32.Hsin Chong’s application is dismissed.  I shall hear the parties on costs.

Ms Christine Mak of Messrs J Chan, Yip, So & Partners, for the Plaintiff

Mr Anson M K Wong instructed by Messrs Gallant Y T Ho & Co., for the Defendant