Standard Charter Securities Ltd v. Arthur Lai and Others

1993, No. A2757

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Hon. Woo, J. in Chambers

Dates of hearing : 23rd, 26th and 27th April 1993

Date of handing down judgment: 28th April 1993

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JUDGMENT

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1. This is an application by summons dated 8/4/93 taken out on behalf of the 3rd, 4th and 8th defendants for discharge of the ex parte Order of 1/4/93 made in favour of the plaintiff by Deputy Judge Evans and continued by the Order of 15/4/93 of Deputy Judge Yam. Deputy Judge Yam's Order was made inter partes with reference to, inter alios, these defendants' application for discharge. Mr. Ronny Tong, Q.C. for the plaintiff fairly agreed that he was not in a position to raise any argument on issue estoppel based on Deputy Judge Yam's Order or that the present defendants were in any way barred from making this application. For the purpose of this judgment, I do not differentiate between the two Orders, for the latter Order was but a continuation of the first one apparently without any attempt to deal with or dispose of this application.

2. From the Statement of Claim, it can be seen that the plaintiff's claims against the eight defendants are briefly as follows. D1 and D2 are brothers. D 1, D2 and D3 were at all material times directors of the plaintiff. D4 is and was a nominee of D3 in respect of his property and she is joined as a defendant on that basis. She holds a shares trading account No. M0410 with the plaintiff as nominee for D3. D5 ("Mandarin") is and was a nominee of D1, D2 and/or D3, and holds a shares trading account with the plaintiff as such nominee. D6 ("Wealthcorp") is and was similarly such a nominee. D7 is and was a nominee of D2 and is joined as a defendant on that basis. D8 is and was a nominee of D3 in respect of his property and is joined as a defendant on that basis. D8 holds the legal title to the property which D3 now says to be his and D4's matrimonial home. On about 16/5/90, Tomson Pacific Limited ("Tomson") agreed to purchase from Bond Corporation hlternational Holdings Limited ("Bond Holdings") 461,564,910 ordinary shares in the capital of Bond Corporation International Limited ("Bond"). Sawbridge Limited ("Sawbridge") agreed to purchase another 419,950,494 Bond shares ("the Remaining Shares") from Bonding Holding. The plaintiff agreed with Sawbridge to act as brokers in the placement of the Remaining Shares and Tomson agreed with Sawbridge to act as underwriter in that agreement. D1, D2 and/or D3 received a secret commission or payment in the sum of $26,400,000 from Tomson in relation to the shares bought by Tomson and the payment was made by Tomson to Mandarin as nominee for D1, D2 and/or D3. D1, D2 and/or D3 also received a secret commission or payment in the sum of$12,000,000 from Bond Holdings in relation to the sale of the shares to Tomson, which was paid to Wealthcorp as nominee for D1, D2 and/or D3 upon completion of the placement of the Remaining Shares. Further, despite a memorandum dated 1/5/90 signed by Christopher Wigan on behalf of Standard Chartered Asia Limited (the plaintiff's holding company) and the plaintiff to all members of the plaintiff's staff, prohibiting them from engaging in person or house dealings of shares and warrants of Bond until further notice, D1, D2 and/or D3 caused 8,050,494 shares in Bond to be placed with Mandarin as their nominee, which gave rise to a profit of $1,264,443.94. The plaintiff also claims against D1 D2, D3, Mandarin, Wealthcorp and each of them for conspiracy to injure the plaintiff by unlawful means.

3. Just to recapitulate the plaintiff's claims against the present defendants, the claim against D3 is that he as a director and employee of the plaintiff was in breach of his fiduciary duties and trust towards the plaintiff in making secret profits out of the said transactions complained of. The claim against D4 and D8 is purely based on the allegation that these two defendants are and were at all material times the nominees of D3.

4. Deputy Judge Evan's Order of 1/4/93 was made against all eight defendants. It consists of, inter alia, a Mareva Injunction and an Order to file affidavits disclosing assets. The relevant issues before the Deputy Judge were, as far as the present defendants are concerned, as follows:

Issue (1): whether there was a good arguable case of the plaintiff's claim against D3, i.e., whether there were breaches of fiduciary duty or trust by D3 as a director and employee of the plaintiff;

Issue (2): whether there were grounds for thinking that D3, D4 and/or D8 had assets in Hong Kong;

Issue (3): whether D4 and/or D8 were the nominees of D3 in holding assets which was the only reason for which they were joined as defendants; and the issue can be narrowed to whether the assets shown to be in the names ofD4 and/or D8 belonged to D3;

Issue (4): whether there were grounds for believing that there was a real risk that D3, D4 and/or D8 would dissipate assets to frustrate judgment.

5. It appears to me that there is no dispute, nor can there be in view of the evidence, over Issue (2). Mr. Robert Tang, Q.C. for the three defendants has conceded for the purpose of this application that the plaintiff has a good arguable case against D3 for breaches of fiduciary duty and trust, i.e., Issue (1), but submitted that various matters which had not been disclosed to the Deputy Judge are material to Issues (1), (3) and (4) and that by reason of the non-disclosure, the Order should be discharged. Issues (3) and (4) are, of course, hotly disputed.

6. On the law concerning material non-disclosure, there seems to be no dispute that an applicant for an ex parte injunction must make full and frank disclosure of all relevant matters, including those against his application.

7. The law is succinctly summarised by Ralph Gibson LJ in Brink's Mat Ltd v. Elcombe & Ors. [1988] 1 WLR 1350, CA. At 1356G to 1357F, the learned Judge said:

"In considering whether there has been relevant non-disclosure and what consequences the court should attach to any failure to comply with the duty to make full and frank disclosure, the principles relevant to the issues in these appeals appear to me to include the following.

(1) The duty of the applicant is to make a 'full and fair disclosure of all the material facts': see Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 KB 486, 514, per Scrutton LJ.

(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v. Kensington Income Tax Commissioners, per Lord Cozens-Hardy MR at p.504, citing Dalglish v. Jarvie (1850) 2 Mac. & G. 231, 238, and BrowneWilkinson l in Thermax Ltd v. Schott Industrial Glass Ltd. [1981] FSR 289,295.

(3) The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour [1985] FSR 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have, known if he had made such inquiries.

(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J. of the possible effect of an Anton Piller order in Columbia Picture Industries Inc. v. Robinson [1987] Ch. 38; and ( c) the degree of legitimate urgency and the time available for the making of the inquiries: see per Slade LJ in Bank Mellat v. Nikpour [1985] FSR 87, 92-93.

(5) If material non-disclosure is established the court will be 'astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure H. is deprived of any advantage he may have derived by that breach of duty': see per Donaldson LJ in Bank Mellat v. Nikpour, at p.91, citing Warrington LJ in the Kensington Income Tax Commissioners' case [1917] 1 KB 486, 509.

(6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case be presented.

(7) Finally, it 'is not for every omission that the injunction will be automatically discharged. A locus poenitentiae may sometimes be afforded': per Lord Denning MR in Bank Mellat v. Nikpour [1985] FSR 87, 90. The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms.

'when the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant ... a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed': per Glidewell LJ in Lloyds Bowmaker Ltd v. Britannia Arrow Holdings Plc, ante, pp.1343H-1344A."

8. What is material to be disclosed on an ex parte application was dealt with in Citibank NA v. Express Ship Management Services Ltd. [1987] HKLR 1184, CA at 1190D, where it was held that the court was not concerned with whether the matters not disclosed would if they had been disclosed have caused it to refuse to grant the ex parte order; and the test was whether the court should have these matters in the weighing scales.

9. The applicant must make a full and frank disclosure of all relevant matters, including those against his application. In O'Regan and Ors v. Iambic Productions Ltd [1989] New Law Journal 1378, at p.1378, Sir Peter Pain said:

"It is clearly the duty of counsel and of the solicitor to point out to the judge any points which are to their client's disadvantage, which the judge should take into account in considering whether or not to grant the injunction. It is difficult for a judge upon an ex parte injunction at short notice to grasp all relevant points .... "

10. The extent of the duty to disclose is also dealt with by Gee on Mareva Injunctions and Anton Piller Relief, 2nd Ed., where at p.81, the learned author states:

"It may not be a sufficient answer to an allegation of non-disclosure for a plaintiff to say that the relevant information giving rise to the defence was contained in an exhibit, though not referred to in the body of the plaintiff's affidavit in the context of a possible defence. Exhibits to such affidavits are often voluminous, and since ex parte applications for Mareva or Anton Piller relief are often dealt with comparatively shortly and the judge may not have had the opportunity of considering the papers in detail before the hearing, the applicant has the responsibility of ensuring that all relevant points are presented clearly and distinctly. Thus in Siporex Trade SA v. Comdel Commodities Ltd [1986] 2 Lloyds Rep 428 at p.437, Bingham J said that the applicant must 'identify the crucial points for and against the application, and not rely on the mere exhibiting of numerous documents'. Any contractual provision (e.g. an exclusion clause) which is relevant to the court's consideration of the application should be referred to and preferably set out in the body of the affidavit. It will not usually be sufficient simply to exhibit the entire contract.

Accordingly, it is of the utmost importance that the plaintiff carefully considers the nature of the cause of action and the facts on which it is based before formulating the application. A thorough check should be made to ensure that all defences actually raised by the defendant are identified and fairly summarised in the affidavit."

11. Mr. Tong has led me through some of the significant evidence against D3 for his knowledge and involvements in the transactions from which D1, D2 and/or D3 obtained the profits which the plaintiff claims belong to it. Although Mr. Tang has conceded that the plaintiff has a good arguable claim against D3, he nevertheless submits that even on Issue (1), there was material non-disclosure which must be considered.

12. An affidavit of Gary Wong, a director of the plaintiff, sworn on 1/4/93, was before Deputy Judge Evans in support of the application for Mareva Injunction. That affidavit consisting of 30 pages with exhibits of not less than 400 pages was the only evidence before the Deputy Judge. Gary Wong deposed to the fact that D3 was a close friend and colleague of D1. Mandarin applied to open a margin dealing account with the plaintiff in July 1990 ("Mandarin's account") and the first transaction was carried out on 24/7/90. D3 was the account executive of Mandarin's account. In regard to the alleged secret commissions paid to Wealthcorp and Mandarin, Gary Wong mentioned two letters which were exhibited to his affidavit. A letter dated 16/5/90 on the letter paper of ChinTung Limited (the plaintiff's name at the material times) addressed to Bond Holdings purported to confirm that the plaintiff was aware of a fee of $12,000,000 to be paid by Bond Holding to Wealthcorp for services rendered in respect of the introduction of Tomson to Bond Holding leading to the sale of shares. This letter was signed by D2 and D3. Another letter dated 31/5/90 on Tomson's letter paper and addressed to Mandarin stated that Tomson agreed to pay Mandarin a cash commission of $26,400,000 seven days before the completion date of Tomson's purchase of the Bond shares. Mandarin's acceptance was signed by D3 on its behalf.

13. Regarding the placement of Bond shares with Mandarin, it was against an express prohibition of the plaintiff contained in the memorandum dated 1/5/90 signed by Wigan on behalf of the plaintiff and circulated to all its staff. This memorandum was exhibited to Gary Wong's affidavit.

14. Gary Wong's affidavit dealt further with D3's involvements in the transactions complained of as well as the dishonest disposition of D3 and the likelihood or real risk of dissipation of assets belonging to him and held for him by his alleged nominees D4 and D8:-

(a) Mandarin, a Liberian company, opened Mandarin's account in July 1990 and the first transaction was carried out on 24/7/90. D3 was the account executive of Mandarin's account. The account opening form was not completed until 8/3/91. As Mandarin was a foreign company, a guarantor was required for the account and this was given by Patrick Poon dated 30/6/90 although Gary Wong believed the plaintiff did not receive the guarantee until June 1991. The statements of Mandarin's account had been sent to an address in Taipei. Instructions for Mandarin's account invariably/normally came from D3 and he accepted deliveries of shares for the account. Even though attempts were made by Patrick Yeung, a director of the plaintiff, to formalise the account opening procedure regarding the account, at credit committee meetings of the plaintiff, D1 and D2 never answered for Mandarin, but D3 always did. D3 however never disclosed the beneficial ownership of the account and stalled attempts to formalise the account. It was thought that D3 was concealing the identity of a Taiwanese beneficiary (for Taiwan foreign exchange control purposes).

(b) Regarding Mandarin's purchase of 8,050,494 Bond shares in the placement that was closed on 25/7/90, Gary Wong produced documents to show that one Hauxton Limited was allocated a total of 68,050,494 shares on 19/7/90. Hauxton's name appeared on various lists compiled by the plaintiff with dates ending on 31/7/90 showing the places and breakdown of the shares placed with each of them. Mandarin's name appeared first in a list dated 25/7/90 where a notation "margin A/C Mandarin" was written against the reference to Hauxton's allocation of 8,050,494 shares. Mandarin's name was only included in a typed list dated 31/7/90. Hauxton started dealing through the plaintiff in September 90 but never formally opened an account or provided the necessary account opening-documentation, and D3 was the account executive and the statements of account were addressed to "Hauxton Ltd, c/o D3".

(c) Neither Patrick Yeung nor Gary Wong had seen the letter dated 16/5/90 signed by D2 and D3 prior to their interview on 9/3/93 with the Inspector appointed on 28/8/92 by the Financial Secretary investigating the affairs of T omson and Bond and since 23/1 0/92 also of Hauxton and Mandarin, and the plaintiff had been unable to locate a copy of this letter in its files.

(d) On 12/3/93, the plaintiff's solicitors were allowed by the Inspector to transcribe a copy of the letter dated 31/5/90 signed by D3.

(e) The Inspector confirmed to the plaintiff's solicitor that both payments of $26.4 million and $12 million (or AUD$ 2 million) were received by Mandarin.

(f) The plaintiff had made inquiries with all the books of minutes of various meetings of ChinTung Limited and ChinTung Holdings Limited and was unable to find any evidence that D1, D2 or D3 made any disclosure of the payments received by or through them or Wealthcorp or Mandarin.

(g) There were various contract notes in which the buyer/seller has been switched between Mandarin and Wealthcorp, showing close connection between them.

(h) D3 was aware of both payments.

15. Pausing here for a moment, there is further evidence before me, which was not available to Deputy Judge Evans, and it is shown in square brackets below.

(i) [All directors of the plaintiff at the material time have been approached and none of them is aware of the payment of $26.4 million.]

(j) [D3 has admitted he signed the two letters dated 16/5/90 and 31/5/90, and explained that he was asked by D1 to do so. He was told by D1 that all the other directors of the plaintiff had agreed to the payments.]

(k) [D3 believed that D1 had some interest in Mandarin.]

(l) D3 was the account executive of D4's dealing account with the plaintiff numbered M0410 ("D4's account").

(m) The account opening documentation describes D4's occupation as "housewife".

(n) D3 applied to the plaintiff for and was granted a loan to D4's account on 7/7/87 (a mistake for 7/7/89), proposed by D3 to be repaid by 24 monthly instalments arranged by direct deduction from his monthly salary from the plaintiff. A total of $444,000 was therefore deducted from D3's salaries.

(O) The plaintiff had in August 1990 written to D3 to propose to deduct his interim bonus from D4's account describing it as "your investment account".

(p) On 7/4/92, $660,839.82 was transferred from D3's own dealing account with the plaintiff ("D3's account") to D4's account.

(q) On 8/4/92, $540,000 was transferred from D3's account to D4's account.

(r) On 15/9/92,48,000 Wai Kee warrants were withdrawn from D3's account and delivered to D4.

(s) On 22/9/92, $600,000 was transferred from D4's account to D3's account.

(t) On 15/1/93, a cheque for $606,150 was drawn on D4's account in favour of Wardley James Capel Limited, the company for whom D3 now worked.

(u) On 21/1/93, a stock withdrawal and delivery form was completed on D4's account, with a remark stating "client will collect above shares this morning by himself".

(v) On 23/2/93, $336,400.17 was transferred from D8's dealing account with the plaintiff ("D8's account") to D4's account, following a request by D3 to transfer the credit balance from D8's account to D4's account. D3 had a beneficial interest in D8. (This last sentence, apparently a comment, must be viewed together with (z) below).

(w) On 4/3/93, a cheque for $1 million from Wardley James Capel for whom D3 worked was paid into D4's account.

(x) There were examples of applications and transactions being switched between D3's and D4's accounts.

(y) The signatory ofD4's account was believed to be D3 although he signed in English D4's name. [This D3 admits]. D4's signatures on documents were in Chinese.

(z) The directors and shareholders ofD8 were D3 and D4. [This evidence is now admitted by Mr. Tong to be partially wrong as D3 has not been a shareholder ofD8 since August 1989]. D3 had a beneficial interest in D8.

(aa) The plaintiff was aware of the property owned by D8 [which D3 and D4 say is their matrimonial home] being an asset of D3/D8.

(ab) D3 kept dealing accounts with the plaintiff in the name of himself, D4 and D8.

(ac) Evidence of dishonesty was shown by the payments directed to Mandarin and Wealthcorp and D3's answering for and dealing with these two companies' dealing accounts with the plaintiff, and his failure to disclose to the plaintiff the beneficial interest in Mandarin, more specifically referred to above.

(ad) By reason of the aforesaid matters, the inference or conclusion was that the assets owned by D3 were held not in his own personal name but in the name of his wife D4 and D8 and also in the name of Mandarin, which suggested that D3 had already thought about and taken steps to try to divest himself of assets which, more normally, would remain in his own name.

16. Mr. Tang complains of non-disclosure of the following material facts. The plaintiff has alleged that D3 but not D1 and D2 had always answered for Mandarin without disclosing that D1 had already left the employ of the plaintiff in August 1990. In fact, Gary Wong alleged that D 1 left the plaintiff in April 1991. The plaintiff further failed to inform the court of the prevailing practice of the plaintiff that the account executive was responsible for the account to sign the form requesting for delivery of shares in the account (which, according to Gary Wong's evidence, was apparently the case with regard to Mandarin). The plaintiff has alleged that D3 had stalled the formalisation of Mandarin's account without referring to the credit committee meeting minutes demonstrating that D3 had asked other directors/officers of the plaintiff to follow up this matter with people in Taiwan direct.

17. Having done a company search of D8, the plaintiff failed to disclose to the court that D3 was only a director of D8 and had not held any shares in D8 since August 1989. The plaintiff highlighted a few transactions and alleged that D3 owned D4's and D8's accounts without informing the court that D4 had carried out hundreds of or possibly up to a thousand transactions in her account. Had such numerous transactions in her account been disclosed, the few transactions specifically referred to by the plaintiff in Gary Wong's affidavit would have been shown to be insignificant. The plaintiff also failed to disclose to the court the fact that D4 had in response to a margin call turned up at the office of Patrick Yeung and gave a cheque to cover the margin call pursuant to her promise made personally to Patrick Yeung. Further, while the plaintiff suggested that D3 had thought about and taken steps to try to divest himself of assets, it did not disclose to the court that D4's and D8's accounts had been established respectively in 1986 and 1989, long before the transactions complained of. In about the winter of 1991, when the plaintiff introduced a rule that no staff could trade in stocks and shares except with the prior permission of the department head concerned, D3 always obtained prior permission from Patrick Yeung for trading in his own account and in order to avoid suspicion, D3 had also obtained prior permission from Patrick Yeung for all trading done in D4's and D8's account, though those were not his own trading. However, this fact was not disclosed by the plaintiff.

18. Viewing all the relevant evidence now, and especially bearing in mind the serious allegations of dishonesty made by the plaintiff against D3, I am of the opinion that the following matters are material and should have been disclosed or drawn to the court's attention at the ex parte stage. These matters are based on the evidence of D3 on affirmation which have not been challenged by the plaintiff on affidavit.

(a) Although D3's allegation that D1 had left the plaintiff in August 1990 is disputed by the plaintiff who says that D1 only left in April 1991, Mr. Tong has not told me that the fact (albeit borne out by the exhibits to Gary Wong's affidavit) that D1 was not at the credit committee meetings of the plaintiff had been drawn to the attention of the Deputy Judge. This fact and the prevailing practice of D3 as the account executive of Mandarin's account to answer questions concerning Mandarin are in my view material. For without them, the court in merely reading Gary Wong's affidavit (especially with the allegations that D1 only left the plaintiff in April 1991 and that Mandarin was the nominee of D1, D2 and/or D3) would be led to quite a firm belief that D3 had some beneficial interest in Mandarin who received the payments and made the profit from the placement, the subject matters of the plaintiff's claim. That belief would drive the court to conclude that there was a very strong arguable claim against D3 that he had received the payments and profit through Mandarin, and that he deliberately concealed his interest in Mandarin from the plaintiff.

(b) Another material fact is that D3 ceased to be a shareholder of D8 in August 1989, although the date of the cessation might not have been apparent to the plaintiff from the documents exhibited to Gary Wong's affidavit. The plaintiff should, in view of its allegation of D3 having a beneficial interest in D8 and its specific assertion of D3 being D8's shareholder, have made better enquiries in this regard. Failing to disclose or to apprise the court specifically of D3's ceasing to be a shareholder of D8 and the date of such cessation taking place before the transactions complained of must have misled whoever reads Gary Wong's affidavit to believe that D3 was still a shareholder of D8. This matter is material for considering whether D8 was a nominee of D3 and whether D3 was divesting his interest in D8 with a view to frustrate the plaintiff's claim, and if so when.

(c) The facts that D4 had in response to a margin call turned up at the office of Patrick Yeung and gave a cheque to cover the margin call pursuant to her promise made personally to Patrick Yeung and that there were numerous transactions of trading carried out in D4's account must be relevant for considering whether D4 was D3's nominees, and within the plaintiff's enquires. Failing to inform the court of these facts but simply referring the court to various transfers amongst D4's, D8's and D3's accounts would give a false impression to the court. These matters must be relevant for being put into the weighing scales.

(d) Although Gary Wong had mentioned in his affidavit that on 7/7/87 (which is a mistake for 7/7/89), D3 applied to the plaintiff for and was granted a loan to D4's account, to be repaid from his own salary, I do not think the court's attention had been directed to the facts that D4's account was opened in 1986 and D8's account was opened in 1989. These opening dates are important in that they took place well before the middle of 1990 when the transactions complained of occurred. Without distinctly pointing out the account opening dates to the court, the reader of Gary Wong's affidavit would tend to think that D3 had after the questioned transactions started to create these accounts to divest his assets.

(e) There is another material fact. In about the winter of 1991, when the plaintiff introduced a rule that no staff could trade in stocks and shares except with the prior permission of the department head concerned, D3 always obtained prior permission from Patrick Yeung for trading in his own account and (in order to avoid suspicion, according to D3) D3 had also obtained prior permission from Patrick Yeung for all trading done in D4's and D8's account, though those were not his own trading. This fact demonstrates above board dealings by D3, and must be material for considering the question of his honesty or otherwise and whether there was a real risk of dissipation of assets. By way of contrast, this fact is also relevant to the plaintiff's allegation that Mandarin is D3's nominee.

19. There are various authorities on the approach of the court when it is found that there is material non-disclosure. In Shenzhen Universal Enterprises Industry & Trade Co. Supplies & Anr. v. Wei Bun Trading Co. Ltd. & Ors. [1989] HKLR 470, CA, at 474H-475D, the Court of Appeal discharged the ex parte order where it held that there was non-disclosure material to the existence of a good arguable case, although not finding it necessary to decide whether the non-disclosure was deliberate.

20. In Jordache International (HK) Ltd & Ors. v. Guess ?, Inc. & Ors. [1987] HKLR 314, CA, when dealing with serious and substantial material non-disclosure in obtaining ex parte an Anton Piller order, Cons, VP, delivering the judgment of the Court, said at pp.320J-321B:

"The judge made no finding that the non-disclosure by the plaintiffs was deliberate in the sense that it was done for improper motives, what Mr. Adlous has characterised as 'wilful non-disclosure'. And certainly there is no suggestion that those whom the plaintiffs had instructed were parties to any such conduct. But even though the rights of an absent party have been innocently infringed by reason of non-disclosure the courts must not lightly allow another to keep the benefit thereof And where the non-disclosure has been, as in this instance, both serious and substantial, the court should allow it only if there are good and compelling reasons. With respect to the judge, the reasons on which he relied fall far short of that standard, and we ourselves are unable to find others. In our view the yield ought not to have been taken into his consideration.

When that evidence is removed, then, with respect, the case for an injunction collapses, simply because, quite regardless of whether the plaintiffs can show the subsistence and ownership of any particular copyright or confidential information, they cannot show that the seventh defendant has committed any infringement. "

21. In Behbenhani & Ors. v. Salem & Ors. [1988] 2 All ER 143, CA, at p.14ge-g, considering whether to discharge an existing injunction and grant a fresh injunction where there had been non-disclosure of material matters, Woolf LJ said:

"It is preferable, in my view, each case to be considered on its own merits, taking into account the public interest which exists in protecting the administration of justice from the harm that will be caused if applicants for the draconian relief of Mareva and Anton Piller orders do not, on an ex parte application, make disclosure of all material facts, whether the non-disclosure is innocent. I recognise the strain placed on legal advisers and the pressure under which they have to work, especially in large commercial actions, where prompt steps sometimes have to be taken in order to protect their clients' interests. However, if the court does not approach the question of the non-disclosure of material matters in the way that has been indicated in earlier decisions, there will be little hope of solicitors who are subjected to such pressures appreciating the importance of making full disclosure and, more important, bringing home to the clients the serious consequences of non-disclosure.

... it is most important that the court assesses the degree and extent of the culpability with regard to the non-disclosure, and the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court."

22. In Tate Access Inc. v. Boswell [1991] Ch. 512, at p.532H-534D, Sir Nicolas Browne-Wilkinson V-C said:

"No rule is better established, and few more important, than the rule, 'the golden rule', that a plaintiff applying for ex parte relief must disclose to the court all matters relevant to the exercise of the court's discretion whether or not to grant relief before giving the defendant an opportunity to be heard. If that duty is not observed by the plaintiffs, the court will discharge the ex parte order and may, to mark its displeasure, refuse the plaintiff further inter partes relief even though the circumstances would otherwise justify the grant of such relief. …

… the court has to consider all the circumstances of the failure to make proper disclosure and whether such failure was innocent or deliberate and has to weigh the public interest in maintaining the golden rule as against the requirements of justice in deciding whether or not to grant the plaintiff inter partes relief to which he would otherwise be entitled.”

23. It is extremely important for the litigant and members of the legal profession who represent him to bear always in mind the duty to disclose all material facts for the judge to consider and weigh for deciding whether to grant or refuse ex parte relief. Such disclosure includes undoubtedly all the points in favour of the respondent who has not the opportunity of being heard and all the points that are to the disadvantage of the applicant himself. The duty to disclose Call1iot simply be fulfilled by exhibiting voluminous documents covering the points to the supporting affidavit but without making any distinct reference to the points in the body of the affidavit itself or when addressing the judge at the often short hearing, for it would then impose upon the judge the impossible task of reading and digesting all the materials in the exhibits in the often short time available before the hearing of the application, which impossibility must have been reasonably appreciated or anticipated by the applicant's legal advisers.

24. The applicant and his legal advisers would in these circumstances rest upon the hope that the judge would have appreciated the points to the advantage of the respondent who is not heard when considering the application, or when the respondent applies for discharge of the ex parte order for material non-disclosure, the applicant would fall back upon the argument that even when all these points are examined inter partes, the ex parte relief should nonetheless continue or fresh injunctive relief should be granted. Countenancing such behaviour would, I venture to say, be tantamount to allowing lawyers to knowingly indulge in a lax practice in not fulfilling their duty to comply with what Browne-Wilkinson VC described as "the golden rule", although the non-disclosure may not be castigated as deliberate. Mareva injunctions and Anton Piller orders invariably interfere seriously with the respondent's rights and freedom in his dealing with his business and livelihood and the courts should always be apprised of all the material facts and circumstances in deciding whether to grant such relief. Without the assistance of the legal profession in readily and astutely fulfilling their duty in this regard, the drawing of a proper and reasonable balance between the conflicting interests by the court cannot be achieved. I think that insofar as a serious material non-disclosure, albeit not deliberate one, has been exposed, the court should have no hesitation to discharge the ex parte order and refuse to grant any fresh injunctive relief in favour of the applicant.

25. These items of material non-disclosure I set out above will surely have bearing on the court's consideration on Issues (1), (3) and (4). Mr. Scott, solicitor having the conduct of these proceedings on behalf of the plaintiff, has deposed that the plaintiff's legal advisers were dealing with a very complex case and working under a considerable time constraint. However, the shortage of time under which the plaintiff’s legal advisers worked before bringing the ex parte application must be viewed with the degree of urgency that the matter should receive and be dealt with. There is no evidence to show that there was imminent danger of dissipation of assets by the present defendants. On the contrary, D3 and D4 still kept their share trading accounts with the plaintiff on the date when Deputy Judge Evans granted the ex parte order, and there is now evidence from D4 that on 29/3/93, just a couple of days before the ex parte Order was granted, she paid into her account with the plaintiff $600,000. I accept that the plaintiff must have wished to obtain a Mareva injunction against all the defendants as soon as possible in order to protect its interest despite the lack of imminent danger, but that wish and the degree of urgency in the circumstances of this case, unlike other needy cases, should not in any way be allowed to dilute the duty to comply with "the golden rule".

26. In conclusion, although there is no evidence to show that the non-disclosure was deliberate and Mr. Tang accepts that, I am of the view that the ex parte order made by Deputy Judge Evans and continued by Deputy Judge Yam ought to be discharged, and I so order.

27. I am asked by Mr. Tong to grant a fresh Mareva in the terms of the ex parte order of Deputy Judge Evans. Mr. Tong urges me that in view of all the evidence and allegations of the parties now available, such a fresh injunction should be made. Mr. Tang on the other hand, not only stresses the significance of the matters not disclosed in relation to Issues (3) and (4), but also submits that there is no credible evidence to show that D3 and D8 are the nominees of D3 and that there is not any real risk of dissipation of assets. The plaintiff has no substantive claim against D4 and D8 and the only reason for D4 and D8 to be joined as defendants is that they are alleged to be nominees of D3 and holding D3's assets.

28. Issues (3) and (4) are linked. Insofar as there is credible evidence or good reasons are shown that assets in the names of D4 and D8 belong to D3, then a Mareva may be granted in respect of D4 and D8; on the other hand, such evidence or good reasons showing a history of D3 divesting his assets could or would form a basis for showing a real risk of D3 dissipating his assets for frustrating any judgment that the plaintiff may obtain in this action.

29. I will first consider the authorities on the question of ownership of the assets sought to be restrained.

30. A very helpful note is to be found on pages 523- 524 of the Supreme Court Practice, 1993, Vol. 1:

"Where there is dispute as to ownership of assets to be made the subject-matter of a Mareva injunction, the following principles have been laid down by the Court of Appeal in SCF Finance Co. Ltd. v. Masri [1985] 1 WLR 876; [1985] All E.R. 747.

(1) If the assets appear to belong to a third party they should not be included in the scope of the injunction without evidence that they are the defendant's;

(2) The mere assertion of the defendant that a third party owns the assets need not be accepted without inquiry and the same principle applies to claims by a third party to intervene to vary the injunction to exclude the assets;

(3) The Court must do its best to do what is just and convenient between all concerned;

(4) In a proper case the Court may direct an issue to be tried either before or after the main action as to the ownership of the assets.

The plaintiff must adduce evidence that the assets in question are in fact those of the defendant; it is not enough for the plaintiff to show merely that there is a serious issue to be tried as to the ownership of the assets (Allied Arab Bank Ltd v. Hajjar [1987] 3 All E.R. 739, CA)."

31. For justifying the making of a Mareva Injunction against a defendant who is not a substantive one or a third party, Lloyds LJ in SCF Finance Co. v. Masri, ibid., said at 884B:

"Where a plaintiff invites the court to include within the scope of a Mareva injunction assets which appear on their face to belong to a third party, e.g., a bank account in the name of a third party, the court should not accede to the invitation without good reason for supposing that the assets are in truth the assets of the defendant."

32. In T.S.B. Private Bank International S.A. v. Chabra [1992] 1 WLR 231, at 242C, Mummery J. used the term "credible evidence" in this connection. He said:

"The company is a party to this action. It is properly a party to this action under RSC Ord. 15, r. 6. There is a cause of action against Mr. Chabra. Although there is no cause of action against the company, there is credible evidence, not contradicted by evidence from Mr. Chabra, that assets apparently the property of the company may, in fact, be assets of Mr. Chabra and therefore available to satisfy a judgment obtained against him. In these circumstances, if an injunction against Mr. Chabra is inadequate to protect the plaintiff from the risk that assets vested in the company may become unavailable to satisfy the judgment obtained against Mr. Chabra, an injunction should be made against the company to prevent it from dissipating assets."

33. The matters not disclosed at the ex parte stage must therefore also be viewed in the light of these authorities. And when they are so viewed, the significance of the non-disclosure is highlighted. Further, despite the length of Gary Wong's affidavit containing no less than 30 pages, and despite the long relationship between the plaintiff and D3 prior to his departure, there was no attempt to apprise the court of the background and family and personal particulars of D3, which must be relevant to Issue (4), which is whether there is a real risk that the present defendants would dissipate assets.

34. In Chow Chor-leung v. Rafaella Sportswear Inc. [1990] 1 HKLR 449, CA, at 451 E-452A, the Court of Appeal cited with approval and adopted the guidelines laid down in Third Chandris Shipping Corpn. v. Unimarine SA. [1979] 1 QB 645. At pp.671G to 672D of the report, Lawton LJ said:

"There must be facts from which the Commercial Court, like a prudent, sensible commercial man, can properly infer a danger of default if assets are removed from the jurisdiction. For commercial men, when assessing risks, there is no commercial equivalent of the Criminal Records Office or 'Ruff’s Guide to the Turf’. What they have to do is to find out all they can about the party with whom they are dealing, including origins, business domicile, length of time in business, assets and the like; and they will probably be wary of the appearances of wealth which are not backed up by known assets. In my judgment the Commercial Court should approve applications for Mareva injunctions in the same way. Its judges have special experience of commercial cases and they can be expected to identify likely debt dodgers as well as, probably better than, most businessmen. They should not expect to be given proof of previous defaults or specific incidents of commercial malpractice. Further they should remember that affidavits asserting belief in, or the fear of, likely default have no probative value unless the sources and grounds thereof are set out: see R.S.C., Order 41, rule 5(2). In my judgment an affidavit in support of a Mareva injunction should give enough particulars of the plaintiff's case to enable the court to assess its strength and should set out what inquiries have been made about the defendant's business and what information has been revealed, including that relating to its size, origins, business domicile, the location of its known assets and the circumstances in which the dispute has arisen. These facts should enable a commercial judge to infer whether there is likely to be any real risk of default. Default is most unlikely if the defendant is a long established, well known foreign corporation or is known to have substantial assets in countries where English judgments can easily be enforced either under the Foreign Judgments (Reciprocal Enforcement) Act 1933 or otherwise. But if nothing can be found out about the defendant, that by itself may be enough to justify a Mareva injunction."

35. In O'Regan and Ors v. Iambic Productions Ltd [1989] New Law Journal 1378, at p.1379, Sir Peter Pain said:

"There are numerous paragraphs in the authorities relating to Mareva injunctions which make it plaint that unsupported statements and expressions of fear carry very little, if any, weight. The court needs to act on objective facts from which the court can infer that the defendant is likely to move assets abroad or dissipate them within the jurisdiction. ...

36. There is another material point. It is clear that to support a Mareva application there should be evidence before the court dealing with the background of the defendant company and of the director of the defendant. I now know that he is clearly a family man, resident in Bristol, and a man of good standing (apart from this matter) with a successful company.

37. It has been made clear ever since Third Chandris Shipping v. Unimarine [1979] 2 All ER 972 that it is the duty of a plaintiff applying for a Mareva order to provide the court with information about the defendant. ..."

38. It has been disclosed in the affidavits filed on behalf of the plaintiff that the present defendants have kept their share dealing accounts with the plaintiff even up till now, although D3 has since July 1992 left the plaintiff to work for another broker in Wardley James Cape! Ltd. D3 was earning a substantial salary from the plaintiff and has acquired considerable experience in stock market trading. D4 and D8 have not been shown to have taken any or any recognizable steps to frustrate any claim to be brought by the plaintiff. The plaintiff, has however, not said a word about D3's family background, which it must have known with D3 working for it for a number of years.

39. D3 alleges that he is a family man with two young children, that he and D4 have not acquired any right of residence in any other country and that the property owned by D8 is their matrimonial home. These facts are unchallenged by the plaintiff. There is also evidence from D4 that on 29/3/93, just a couple of days before the ex parte Order was granted, she paid $600,000 into her account with the plaintiff. All the above evidence tends to support Mr. Tang's submission that there is no real risk that assets will be disposed of to frustrate judgment.

40. On the other hand, Mr. Tong has drawn my attention to the fact that despite D3's knowledge that D1 had some interest in Mandarin and that the payment of $26.4 million was to be received by Mandarin apparently on behalf of D1, D3 chose not to reveal the beneficial ownership of Mandarin to the plaintiff or even told the plaintiff to make inquiries with D1. Apart from D1, D2 and D3, there were five other directors of the plaintiff at the material time. Had D3 not been involved in the questioned transactions in a culpable way, he should have simply told other directors that D1 had an interest in Mandarin and the plaintiff should chase after D1 for the opening documentation in respect of Mandarin. According to D3's own evidence, he was apparently blindly satisfied with what D1 told him that the payments to be received by Wealthcorp and Mandarin from Tomson and Bond Holdings had been known and agreed to by the other directors without raising the matter with any other director or seeking to see a Board resolution. Even if D3 had not himself received any part of the payments and profits, or been instrumental in causing them to be paid to D1, D2, Mandarin and/or Wealthcorp, he was acting in a suspicious manner in concealing all these matters from the plaintiff which an honest director would not do. Knowing that D1 had some interest in Mandarin, D3 should also have alerted or at least inquired with other directors whether Mandarin taking up the placed Bond shares would be against the prohibition of 1/5/90 imposed by the plaintiff. The non-disclosure found by me is not material to this issue on concealment.

41. D3's transfer in August 1989 of his shares in D8 to D4 and his raising a loan of $370,000 repayable with his salary to pay off the indebtedness of D4's account allegedly as gifts must be viewed in the light of a pending claim in the tune of $84 million in High Court Action A5081 of 1989 brought by ChinTung Futures Ltd. in September 1989 against him. I am of the view that D3 must have realised that if he remained a shareholder of D4, his shareholding as well as his other assets would be liable to be charged for the satisfaction of a possible judgment in that action. The transfer and loan indicate D3's preparedness to divest his assets. Although I have been told by Mr. Tong very fairly that D3 settled that claim for about $1 million, that is ex post facto, and might not have affected D3's mind when giving his shares in D8 to D4 and obtaining the loan.

42. For considering a real risk of dissipation, it is relevant to note the following authorities. In Guinness Plc v. Saunders [1987] The Independent, April 15, (cited in Goldrein & Wilkinson, 2nd Ed., 185-186), Browne-Wilkinson VC said:

"In my judgment dishonest behaviour is relevant to Mareva relief not by reference to what is pleaded but by reference to the possibility or likelihood of its existing. Whether or not pleaded, if there is dishonesty or suspicious of dishonesty, that will be an important ground on which Mareva relief can be obtained."

43. In Agip v. Jackson [1990] 1 Ch. 265, Millet J. said that "secrecy is the badge of fraud."

44. In Honsaico Trading Ltd. v. Hong Yiah Seng Co. Ltd. [1990] 1 HKLR 235, Godfrey J. thought that "an unacceptably low standard of commercial morality" giving the court a feeling of uneasiness would drive the court to the conclusion that there was a real risk of dissipation of assets.

45. Based on all these matters, Mr. Tong asks me to draw the inference that D3 was of questionable integrity, which justifies a Mareva. I think he is right.

46. Mr. Tong has also drawn my attention to various aspects of the evidence in support of the plaintiff's case that D4 is the nominee of D3. It is admitted that D4 started to be a non-working housewife since 1988. Yet, the figures involved in D4's account are huge although in the middle of 1989, the value of her share portfolio was small and insignificant. As I said before, on 7/7/89 D3 borrowed from the plaintiff $370,000 for repaying indebtedness of D4's account and in August 1989 D3 gave his shares in D8 owning the matrimonial home to D4 as a gift. In September 1989, ChinTung Futures Ltd. brought the huge claim against D3. In August 1990, D3 used part of D3's bonus to repay the indebtedness of D4's account. There were also a number of transfers from D3's account to D4's account, for instance, $660,839.82 on 7/4/92, $540,000 on 8/4/92, and 48,000 Wai Kee warrants on 15/9/92. On the other hand, from D4's account to D3's, there were transfers of securities and a sum of $600,000.

47. Last but by no means least, all the account opening documentation and withdrawal documents concerning D4's account have been admitted to have been signed by D3 writing D4's name in English, which shows that D3 was the only person who could effect any transfer of interest therein despite the fact that D4 remained the holder in name. Of course, if there were to be a dispute between D3 and D4 regarding the ownership of this account, D4 could probably freeze this account in her name until the dispute be resolved. The fact that D3 has been operating this account apparently with complete freedom including withdrawal of interest therefrom does give rise to the belief that he has or has retained interest in it. D3 's explanation is that he has been advising D4 in respect of her investment in shares and he has been handling and signing all these documentation for her upon her authorisation and purely for convenience, "so that she would not have to visit the Plaintiff's office frequently". I do not see why the convenience required or wished to be enjoyed would have gone to such an extent as enabling D3, but not D4, to have full control of the account. A single-occasion inconvenience, for example, of bringing home the account opening documentation as well as a power of attorney or authorisation for D4's execution empowering D3 also to operate the account (without D4 losing control) would have avoided all D4's trouble from attending to any further formality, and such negligible inconvenience would not even by D4's save for her putting pen to paper for a moment.

48. Mr. Tang stresses that there is no law against a person giving money or assets to his wife and to provide for his family unless he is insolvent at the time and that there is no duty for anyone to maximise his assets in case he should have creditors in future. How right it sounds. However, making gifts is very different from making gifts with a retention of full control over the assets given.

49. D4's account is now worth about $7.2 million, whereas D3's account is now worth about $2.2 million. Although there is evidence that for a period of 10 months between 3/4/92 and 3/2/93 D4's account reaped profits over $2 million, the discrepancy between the worth of the two accounts does require further explanation than those already given. D3 was working for the plaintiff earning a substantial income, and has thereafter been working with Wardley James Capel. On the other hand, D4 has been a housewife since 1988. D4 has not proffered any explanation with supporting evidence save for the $600,000 that she put in on 29/3/93 and her answering the margin call by Patrick Yeung. Neither she nor her husband has disclosed the source of her funds.

50. In the circumstances, while not attempting at all to decide the issue of nomineeship, which must be a matter for the trial, I am of the view that there are good reasons for supposing that the account in D4's name belongs to D3, or in other words, D4 is D3's nominee in respect of this account. If follows that there are also good reasons to believe that D3 has divested his assets.

51. I am told, and it seems undisputed, that D8's account with the plaintiff has remained dormant after the entirety of its credit balance was transferred to D4's account on 23/2/93. As D8's director, D3 was handling and signing all the documentation in respect of D8's account. There does not seem to be anything suspicious or sinister about this. D8 'is not shown to have any other asset except the matrimonial home. Again it does not seem at all sinister that D8 was a property holding company for the matrimonial home of D3 and D4 who were its only equal shareholders. However, D3's shares in D8 were given to D4 in August 1989, just shortly before ChinTung Futures' huge claim against D3 was instituted. Bearing in mind the timing of this transfer, and overshadowed by the view that I have formed on D4's nomineeship, I am driven to the same conclusion that there are good reasons to suppose that D8 is D3's nominee.

52. I have not forgotten the fact that there is no evidence to show that either D4 or D8 is likely to dissipate assets. But in view of my conclusions concerning D3 and the nomineeships, I think a Mareva should be issued against all the three present defendants.

53. There is no challenge that the plaintiff is substantial and good enough for its cross-undertaking as to damages and it is common ground that arrangements have been made for trading to be done in respect of these defendants' accounts with the plaintiff. It appears that not much damage will be caused by the order I am about to make, and if these defendants do suffer any damage and are vindicated at the trial, they have the plaintiff's cross-undertaking to look forward to. In the circumstances, although I have discharged the ex parte order for material non-disclosure, I am prepared make a order in the same terms as the Order of Deputy Judge Evans, following the course adopted by the Court of Appeal in Shenzhen Universal Enterprises Industry & Trade Co. Supplies & Anr. v. Wei Bun Trading Co. Ltd. & Ors., ibid., subject to the plaintiff's undertaking through counsel to take out a summons for the same, and of course subject to a cross-undertaking as to damages.

54. In view of the partial success of each of the parties, I make an order nisi that the parties' costs of these defendants' summons and of this hearing be in the cause, with a certificate for leading counsel and one junior counsel.

55. I think this judgment is of some interest to the legal profession, especially on the duty to make full and final disclosure on ex part applications, and unless either of the parties before me objects within 14 days of receipt of this judgment, I propose to have a copy lodged with the Supreme Court Library.

56. I am left to thank counsel for their five sets of skeleton submissions and the assistance they have so unfailingly rendered me in this matter, without which I would not have been able to give this judgment at such a short time.

Mr Robert Tang, Q.C., Mr. Louis Chan, Mr. Lawrence Law and Mr. Don So (on the instructions of Messrs. Ho, Wong & Wong) for the 3rd, 4th and 8th defendants.

Mr Ronny Tong, Q.C., Mr. Paul Shieh and Mr. Kaiser Kong (on the instructions of Messrs. Freshfields) for the plaintiff.