Well Joint Trading Ltd v. Chiu Chung Chiu also known as Chiu Chung Chiu Thomas and Others

HCA 1768/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1768 OF 2011

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BETWEEN

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Before: Deputy High Court Judge Burrell in Court

Date of Hearing: 1 February 2012

Date of Judgment: 13 February 2012

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J U D G M E N T

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1.On 19 October 2011, Sakhrani J granted a Mareva injunction ex parte to the plaintiff. On 28 October 2011, DHCJ Carlson continued the order until further order. The plaintiff now seeks further continuation until trial and the defendants oppose the application and seek to set it aside.

BACKGROUND

2.The plaintiff is a joint venture company set up in 2002 by an Austrian company, VA Intertrading Aktiengesellschaft (“VAIT”) and the 1^st and 2^nd defendants (“Chiu” and “Fong”) for the purpose of trading in steel in Hong Kong.  Chiu and Fong became directors of the plaintiff.  It is the plaintiff’s case that the plaintiff was solely responsible for marketing steel in Hong Kong which had been supplied by VAIT from overseas.

3.In a nutshell, the plaintiff’s case will be that, unknown to its Austrian directors, Chiu and Fong have been dishonestly marketing steel supplied to them through two other companies, the 3^rd and 4^th defendants, and by dishonest means were keeping profits for themselves whilst VAIT was under the impression that the plaintiff had been the marketing company.  The names of the plaintiff, the 3^rd defendant and the 4^th defendant are similar.  It is the plaintiff’s (and VAIT’s) case that they had no knowledge that the 3^rd defendant and the 4^th defendant, companies owned by Chiu and Fong, were trading in steel, let alone VAIT’s steel.  Some, but not all, of VAIT’s senior personnel believed that the 3^rd defendant was a company solely engaged in the cement trade in China, but no more.

4.VAIT were only first alerted that a fraud may be being perpetrated on them in 2009, having received anonymous information to that effect.  Some initial investigations and enquires were made but it was not until 2011 that they fully believed they were being defrauded by Chiu and Fong.

5.The current state of the pleadings (statement of claim, defence and reply) refers to three transactions, one in 2004 and one (sub-divided into two) in 2011.

6.VAIT have received further information and are making further investigations and doing further research which, they say, will result in amendments to the statement of claim.

7.A summary of the plaintiff’s allegations, as they presently stand, are dealt with later in this judgment when I consider whether or not the plaintiff has a good arguable case.

8.The effect of the ex parte injunction is that Chiu and Fong must not dispose of any proceeds of sale (should they be sold) of three properties up to the value of the claim, namely US$3,596,022. Chiu has an interest in two of the properties, Fong’s interest is in the 3^rd property.

LEGAL PRINCIPLES

9.Before this injunction is continued, the plaintiff must establish that it has a good arguable case, that there are assets within the jurisdiction which are subject to a risk of dissipation and that the balance of convenience lies in favour of continuation.  Further, the court must be satisfied that there was no material lack of disclosure at the time of the ex parte application.

10.I am satisfied that each of these issues has been satisfactorily established and that, accordingly, this is a suitable case for the injunction to continue until trial or until further order.

11.I shall deal briefly with each requirement.

(a) Good arguable case?

12.In the context of injunction proceedings this expression means:

“… that an applicant for an interlocutory injunction need show only ‘a serious question to be tried’. In applications for Mareva injunctions, the formula ‘a good arguable case’ has been preferred. The court will not wish to be drawn into disputes as to evidence, … In order to show a ‘good arguable case’, the courts have held that ‘the plaintiff need not go so far as to persuade the judge that he is likely to win’. The plaintiff must show that his case ‘is one that is more than barely capable of serious argument, and yet no necessarily one which the judge believes to have a better than 50% chance of success.’ RHC 25/1/58”

13.Mr Norman Nip, the plaintiff’s counsel, has highlighted the key features of his case, as it presently stands.  In answer Mr Michael Chai, counsel for its defendants, emphasised the defence version of the facts.  He criticized parts of the plaintiff’s evidence but did not, in my judgment, raise any issues which eroded the plaintiff’s established position that there was indeed a serious issue to be tried.  Mr Chai’s submissions were more in the nature of a final speech after trial commenting on the weight to be given to any particular piece of evidence.

14.The fact remained that there existed evidence that:

(i) On 9 June 2011 after meetings and discussions between the parties Chiu and Fong agreed to resign as directors and signed an agreement in the presence of a solicitor which included the following (the plaintiff is “the Company”, Chiu is B, Fong is C and VAIT is A);

“The Company and Party A discovered inter alia that Party B and Party C had breached the shareholders’ Agreement, various directors’ duties towards the Company and committed acts causing substantial damages and loss to the Company and Party A; and

Party B and Party C shall jointly and severally compensate Party A and the Company the loss suffered as a result of fraudulent acts committed by Party B and Party C on a full indemnity basis forthwith. The amount of loss shall be ascertained by Party A, which unless with manifest error, shall be conclusive and binding on Party B and Party C.”

15.The agreement also made provision for Chiu and Fong to locate the missing steel from the 2011 importation of 5,000 MT.  Chiu and Fong complain that no weight should be attached to this agreement because it was signed in oppressive circumstances.  Such an issue can only be resolved by the trial judge. 

16.The fact that the agreement has not been complied with is what has prompted the plaintiff to commence these proceedings.

(ii) The 2004 transactions have two separate contracts for a single consignment of goods, at different prices. It is alleged that Chiu and Fong kept the difference between the price actually paid and the price which VAIT were led to believe had been paid.

(iii) VAIT’s investigations revealed evidence that old customers, who VAIT believed had still been trading with the plaintiff, had in fact done no business with it since before \ 2009. Further evidence from end customers revealed that they did not recognize contracts purportedly entered into by them; neither did they recognise the company chops on those contracts. The company seals, it is alleged, are not authentic and are false.

(iv) Of the 5,000 MT of steel bars delivered to Hong Kong on 2011 which are unaccounted for, 1,500 MT have been traced to a contract whereby the 4^th defendant sold them to a company called Full Success Limited. The plaintiff’s case is that it has received no payment for this consignment and has no knowledge of the 4^th defendant’s dealings in this regard. Chiu and Fong claim the goods have been paid for to the plaintiff’s account and point to 10 cheques in support. The plaintiff will rely on documentary evidence that the cheques in question are for varying amounts which do not add up to the contract price of the steel and specifically relate to quite different consignments. There is no evidence linking these cheques to the consignment in question.

(v) The remaining 3,500 MT has simply disappeared. Chiu and Fong have provided no useful information as to its whereabouts. The defendants suggest that the steel must be in a warehouse in Tuen Mun and that it is difficult to identify the exact consignment. The defendants have provided no further information. The plaintiff remains in the dark and will rely, inter alia, on inferences to be drawn from these facts. No money has been received and no claim of payment has been made.

(vi) In 1995 Fong was sentenced to two years imprisonment on forgery related charges.

(b) Assets within the jurisdiction and risk of dissipation

17.Chiu and Fong have interests in three residential properties in Hong Kong.  In round terms they have an approximate total value of $13 million.  A few days before the ex parte hearing Chiu had taken out two mortgages on one of the properties in the sum of $6.5 million.

18.There is moreover evidence of financial difficulties being experienced by Chiu and Fong.  For example in September 2011 a short term loan was taken out by the 4^th defendant. Cheques tendered in payment of the instalment under that loan have been dishonoured.

19.Thus, there is clear evidence that the defendants have assets within the jurisdiction and it is equally clear that there is a risk of dissipation.  The defendants’ reason for resisting the continuation of the injunction is that they want to use the properties to raise further capital to invest in another business.  This is, in effect, an admission that the assets, would be utilized for the defendants’ own purposes if the injunction is not granted.

(c) Balance of hardship

20.The defendants’ submission that the balance of hardship falls in their favour is premised on their wish to invest in a business, which, they say will earn them profit.  With the injunction in place they are unable to have access to their assets which they wish to invest in this business.  For reasons of confidentiality they are not willing to provide any information about this proposed business venture.  No details are given about the name of the company, the identity of the “friend” with whom they wish to invest, the nature of the project under consideration or the amount of money required.

21.The defendants’ affirmation which refers to this business investment is dated 17 November 2011. Approaching three months has now passed since that affirmation and no further details or updating has been revealed.

22.In short, the claimed hardship is a bare assertion which is vague, dubious and dated.  On the other hand, the plaintiff’s hardship in suing potentially bankrupt defendants should the injunction be lifted is real.  The balance is clearly in the plaintiff’s favour.

MATERIAL LACK OF DISCLOSURE AT EX PARTE APPLICATION

23.As an alternative ground for lifting the injunction the defendants submit that there was material non-disclosure by the plaintiff when applying ex parte.

24.By way of example the defendants complain that:

(i) it wasn’t made clear that when the plaintiff first received an anonymous letter alleging fraud by Chiu and Fong in 2009 - they, initially, accepted their explanation that it must have come from a jealous competitor. It is complained that this may have “created a false impression in the eyes of the court”. The plaintiff’s reaction to the anonymous letters (three in total) has, it is said, been inconsistent;

(ii) the court wasn’t informed that some of the plaintiff’s or VAIT’s officers must have known about the existence of the 3^rd defendant and 4th defendant;

(iii) it wasn’t disclosed that the registered office address of the plaintiff and the 3^rd and 4^th defendants was, at one time, the same;

(iv) it wasn’t said that the plaintiff had “no evidence” that the 3,500 MT of steel had been stolen;

(v) the highwater mark of the plaintiff’s case with regard to the 2004 transaction was that the company chops “appeared to be forged” and that without further enquires having been made this allegation should not have been put before the court; and

(vi) at the ex parte application the plaintiff produced letters concerning the defendants financial difficulties which, with one exception, were concerned with the financial difficulties of the 4^th defendant rather than Chiu and Fong.

25.In my judgment none of these complaints amount to material non-disclosure which would cause a court to discharge the ex parte injunction.

26.With regard to the anonymous letters ((i) above) the plaintiff’s position has been consistent.  It simply came to the view, after making further enquires, that their acceptance of the defendants’ explanation had been ill-judged.

27.Similarly their position with regard to their knowledge of the 3^rd defendant and 4^th defendant ((ii) above) remains the same.  It has always been their case that those officers who may have been aware of the existence of the 3^rd defendant and the 4^th defendant believed they were connected with a cement business in China.  The commonality of the registered address ((iii)) if known, is of no consequence.  The complaints at (iv), (v) and (vi) above relate to matters of evidence and submissions at trial.  They are complaints about the strength of the plaintiff’s case, not the materiality of matters withheld from the court in the ex parte application.

28.In short, I am satisfied that the court would not have been either confused or misled by evidence adduced in support of granting the order.

UNDERTAKINGS

29.At the ex parte stage the plaintiff gave the usual undertaking in damages.  At this hearing the defendants submit that, if the injunction is to continue, the undertaking should be fortified by a payment into court.  Whilst it is true that the plaintiff’s liquid assets in Hong Kong are minimal, it is however in business here, there is good evidence of it being owed $15 million in receivables, it is owned by a substantial Austrian corporation and I am satisfied that the undertaking was given in good faith.  In the exercise of my discretion, I do not consider it requires fortification in this case.

ORDER

30.The ex parte order granted by Sakhrani J dated 9 October 2011 and continued by DHCJ Carlson on 28 October 2011 shall continue on the same terms until the conclusion of the trial of this action or until further order and the costs of this application shall be to the plaintiff in any event.

Mr Norman Nip, instructed by Keith Lam, Lau & Chan, for the plaintiff

Mr Michael Chai, instructed by Cham & Co., for the 1^st and 2^nd defendants