Petrocraft S.A. v. Chan Chun Fung Vincent and Others

HCA69/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 69OF 2012

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BETWEEN

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J U D G M E N T

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Introduction

1.This is an application issued by the Plaintiff (“Pl”) for a mandatory injunction under O.29 r.1 of the Rules of High Court and inherent jurisdiction against D1 in relation to funds kept by him in 2 bank accounts with Citibank in the United States (“the Funds”).  Pl sought an order for the Funds to be transferred from US to Hong Kong.

Brief Background

2.Pl commenced this action on 13 January 2012 against the 3 defendants herein claiming the sum of US$6,605,722.63 (“3^rd Lot Price”), being the price paid by Pl for the 3^rd lot of goods purchased from a Hong Kong company called Sharp Cheer.

3.D1 and D2 are/were at all material times directors of Sharp Cheer.  D2 is the wife of D1 and D3 is his mother. After Pl remitted the 3^rd Lot Price to the bank account of Sharp Cheer, the goods were never delivered to Pl.  Pl’s claim against the defendants was essentially on the ground that the defendants allegedly conspired together to defraud the Pl and misappropriated the 3^rd Lot Price.

4.Upon commencement of these proceedings, Pl on the same day obtained a mareva injunction against the 3 defendants from DHCJ Lok, (“Injunction Order”) and in aid of the Injunction Order, DHCJ Lok also ordered disclosure of the world-wide assets of the 3 defendants by affidavits.  The defendants filed their affirmations on about 7 February 2012 to comply with disclosure order on about 7 February 2012.  

5.Pl also made a report to the Commercial Crime Bureau of the Hong Kong Police Force.  The 3 defendants were arrested and charged with criminal offences involving fraud.  In respect of D1, he was charged with the offence of Fraud under the Theft Ordinance Cap 210 for the misappropriation of the 3^rd Lot Price. The trial took place in the District Court recently and the verdict date will be some time later this month. 

6.In March last year, Pl and D3 reached a settlement, and pursuant to the settlement, D3 had paid a sum of aboutHK$9.36m. The Statement of Claim was subsequently amended to take this into account, and to include a claim for damages claim against D1 and D2 in addition to the claim for the 3^rd Lot Price.  By the amendment, D3 is no longer subject to any claims in this action.  The total sum now claimed by Pl against D1 and D2 is about US $5.4m.

7.Since the Writ was served on D1 and D2, they had sought extensions of time to file their Defences.

8.Then in April 2012, D1 and D2 suddenly took out an application to strike out the Writ on the ground of forum non conveniens.  This was not successful and the defendants were ordered to file and serve a Defence and Counterclaim. D1 and D2 subsequently lodged an appeal in June 2012, but the appeal was eventually dismissed by DHCJ Seagroatt (as he then was).

9.On 20 July 2012, D1 and D2 filed their respective Defences.  As the Defences of D1 and D2 did not disclose any reasonable defence, Pl took out an application in August 2012 to strike them out under O.18 r.19 of the Rules of High Court.  The application was heard by Master Levy on 17 January 2013.  P1’s application was not allowed as Master Levy took the view D1 and D2 should be given a further chance to further amend the Amended Defences to cure the defects therein.  She gave leave to P1 to withdraw its Summons but awarded the costs of the application against the defendants.

10.It was not denied by D1 that the Funds kept in US were a part of 3^rd Lot Price.  Pl has through its solicitors written to request D1 to return the Funds to Hong Kong.  D1 replied by asking Pl the basis for this request.  So far, D1 has not acceded to Pl’s request.  This resulted in the Pl taking out the present application.

11.Mr Yeung, for Pl, has submitted that the basis for Pl’s present application is to facilitate the execution of any judgment in Pl’s favour and Pl relies on:

(i)  There being a shortfall in that the total assets disclosed by D1 and D2 fall short of the amount of about US5.4m now being claimed by Pl;

(ii)  The defendants may receive a custodial sentence and Pl may have potential difficulty in recovering the Funds.

Legal Principles

12.The approach on interlocutory mandatory injunctions has been set out by Ma J (as he then was) in his judgment in Music Advance Limited & Anor and The Incorporated Owners of Argyle Centre Phase I[1], namely:

“(1) In the case of interlocutory mandatory injunctions, it is often said or assumed that a court will not grant one unless it feels a high degree of assurance that at the trial of the action, it will be shown that the injunction was rightly granted: see Shepherd Homes Ltd v. Sandham [1971] Ch 340 at 351. This has been explained and sometimes understood as meaning that in the case of an interlocutory mandatory injunction, the applicant's case on the merits has to be made out to a higher standard of proof than in the case of prohibitory injunction: see the Court of Appeal's observations in TKI Limited v. New Happy Limited [1995] 1 HKC 551 at 554 B-D.

(2) Broad statements such as the above must, however, be properly put in context.

(3) The basic approach to interlocutory injunctions, whether mandatory or prohibitory, is the same. Section 21L of the High Court Ordinance, Chapter 4 makes no distinction between these two types of injunctions and simply states that interlocutory injunctions may be granted if it appears to be just or convenient to do so.

(4) At the interlocutory injunction stage, the principal concern of the court is that it might make a wrong decision in the sense that after trial, the party to whom an interlocutory injunction has been granted may lose or the party who has been refused one, may win. The court will therefore take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong. This ‘fundamental’ principle is the source of the guidelines that have evolved for the determination of interlocutory injunctions (included are, of course, the American Cyanamid guidelines) and therefore, in the application of any guidelines, sight must not be lost of this principle. See here: Films Rover International Ltd v. Cannon Films Sales Ltd [1987] 1 WLR 670 at 680 D-G, in a passage from the judgment of Hoffman J which was approved by the House of Lords in R v. Secretary of State for Transport ex parte Factortame Limited (No.2) [1991] 1 AC 603 and recently reiterated in the English Court of Appeal decision of Zockoll Group Ltd v. Mercury Communications Ltd [1998] FSR 354 (which Mr Au was kind enough to place before me).

(5) Two common guidelines are of course the consideration of the merits of the plaintiffs' claim and the balance of convenience. Here, it is of course easy to see at once how they are linked to the fundamental principle: there must be a risk of injustice if the plaintiff cannot even establish a serious question to be tried or that one or the other party will be put to substantial inconvenience or prejudice if an interlocutory injunction were or were not granted.

(6) In the case of interlocutory mandatory injunctions, the risk of injustice (being wrong in the sense referred to above) can be quite acute. In Films Rover International Limited, it was put thus by Hoffman J at 681 B-E:

‘In Shepherd Homes Ltd. v. Sandham, Megarry J. spelled out some of the reasons why mandatory injunctions generally carry a higher risk of injustice if granted at the interlocutory stage: they usually go further than the preservation of the status quo by requiring a party to take some new positive step or undo what he has done in the past; an order requiring a party to take positive steps usually causes more waste of time and money if it turns out to have been wrongly granted than an order which merely causes delay by restraining him from doing something which it appears at the trial he was entitled to do; a mandatory order usually gives a party the whole of the relief which he claims in the writ and makes it unlikely that there will be a trial. One could add other reasons, such as that mandatory injunctions (whether interlocutory or final) are often difficult to formulate with sufficient precision to be enforceable. In addition to all these practical considerations, there is also what might be loosely called a ‘due process’ question. An order requiring someone to do something is usually perceived as a more intrusive exercise of the coercive power of the state than an order requiring him temporarily to refrain from action. The court is therefore more reluctant to make such an order against a party who has not had the protection of a full hearing at trial.’

(7) This passage in my view explains just why it is that generally a court will have to feel a high degree of assurance that at the trial of an action it will be shown that the interlocutory injunction was rightly granted before an interlocutory mandatory injunction will be given; all this being an exercise in assessing the strength of the plaintiffs’ case: see sub-paragraph(1) above. However, I emphasize that this is only generally the court’s approach. Where it is shown, as an exception to this general approach, that the case is one in which the withholding of on interlocutory mandatory injunction would in fact carry a greater risk of injustice than granting it even though the court does not feel the ‘high degree of assurance’ as aforesaid, it would be right to grant an interlocutory mandatory injunction: see Films Rover International Limited at 681 A-B.

(8) This of course brings into focus the balance of convenience. Thus, if a plaintiff in seeking an interlocutory mandatory injunction cannot demonstrate more than a serious question to be tried, it will have to show that the balance of convenience tilts so much in its favour that justice requires such an injunction to be granted, even taking into account those aspects of an interlocutory mandatory injunction expressed by Hoffman J in Films Rover International Limited.

(9)  At no stage, however, in the consideration of the matter does the court lose sight of the practical realities of the situation to which the injunction will apply: see NWL Limited v. Woods [1979] 1 WLR 1294 at 1306C per Lord Diplock.”

13.In the case of Wu Wei and Liu Yi Ping[2], DHCJ Lisa Wong (as as she then was) has referred to what was set out above, and she has further summarized as follows:

“(1) The difference between the grant of a mandatory interlocutory injunction and a negative interlocutory injunction is not one of principle.

(2) The ultimate question is: what is the course to adopt which involves the least injustice in case the grant or refusal of interlocutory relief, as the case may be, turns out to be wrong.

(3) The balance of convenience test is in reality a balance of the risk of doing an injustice. See also Leisure Data v Bell [1988] FSR 367 (CA) at 375-376; Newport Association Football Club Ltd [1995] 2 All ER 87 at 97a-b and Re Chime Corporation Ltd [2003] 2 HKLRD 905, §13.

(4) The more ‘assured’ the court is on the merits of the applicant’s case, the less will be the risk of injustice.

(5) However, if the circumstances are that justice requires the grant of the mandatory injunction at an interlocutory stage, then such an injunction should be granted irrespective of whether the court has a “high degree of assurance” as to the merits of the applicant’s case.

(6) Nor does the court lose sight of the practical realities of the situation to which the injunction will apply.”

14.The above legal principles were not in dispute, although Mr Liu, Counsel for D1 and D2, sought to distinguish the facts in the present case from the case of Wu Wei.

DISCUSSION

15.Mr Liu, Counsel for D1 and D2, accepts that this court has jurisdiction to order a defendant to transfer sums from a jurisdiction which does not recognize an order of the Hong Kong court to a jurisdiction that does, and he has referred the Court to the case of Derby & Co Limited and others v Weldon [3]. In this connection, D1 and D2 have produced an opinion from a US lawyer as to the recognition of any Hong Kong judgment by the US courts.

16.Mr Yeung, for the Pl, has, however, submitted that the point is not whether any Hong Kong judgment will be recognized by the US courts, and the basis for his application, as set out earlier, is to facilitate the execution of any judgment in Pl’s favour.

17.So far is the shortfall is concerned, Mr Liu accepts that there is a shortfall of approximately US$74,000 in terms of disclosed combined cash assets of both D1 and D2.  The combined non-cash assets of D1 and D2 came to approximately HK$865,000, excluding D1’s shareholding in a company which was the registered owner of a property.  Thus, if one takes into account the disclosed non-cash assets, there will be no shortfall.  However, as Mr Yeung has pointed out, the non-cash assets of HK$865,000 consisted of mainly cars and a “wine collection”.  The cars were D2’s Mini Cooper, D1’s Porsche and his BMW.  There is no evidence whether the cars and the wine collection have gone up or down in value since the defendants’ disclosure about a year ago.  There is no proper valuation of the non-cash assets.  Thus it appears that the disclosed assets only barely cover the claim of the liquidated sum of US$5.4 million.  P1 has also claimed unliquidated damages.

18.As pointed out by Mr Liu, the facts of the case of Wu Wei are different.  The defendant in that case had been in breach of an earlier injunction order of the Hong Kong court relating to certain funds by withdrawing part of those funds subject to the injunction order.  It was on that basis that the DHCJ Wong had ordered a mandatory injunction that the defendant had to make a payment into court.  On the other hand, in the present case, D1 and D2 have complied with the Injunction Order and have further earlier voluntarily transferred back a sum of money held in an escrow account in the US to D1’s USD account with Bank of China Hong Kong. There was no evidence of the defendants dissipating their assets.

19.I accept in the case of Wu Wei there had been unexplained breaches of an earlier injunction order by the defendant which gave the plaintiff cause for concern and that their application was premised upon a need to “buttress up” the earlier injunction order[4].  However, I do not think it is not only in such a circumstance that an interlocutory mandatory injunction order will be granted or an earlier injunction order will be buttressed up.

20.In the present case, Pl’s claim was based on fraud, and as pointed out by Mr Yeung, D1 was charged with Fraud under the Theft Ordinance Cap 210 for the misappropriation of the 3^rd Lot Price, and was tried and is now awaiting verdict.  The Funds were a part of the 3^rd Lot Price.  Mr Yeung has further submitted that although D1 and D2 were given a chance by Master Levy to further amend their defences to cure the defects but they had only paid “lip service” to the order of Master Levy and he will be making an application to strike out the re-amended defences.  Pl is only asking for the Funds to be transferred to the USD account at BOC held by D1 himself in Hong Kong.  No reasons had been given by D1 for not acceding to the Pl’s request, and there was no evidence of any prejudice which is likely to be suffered by D1.

21.As DHCJ Wong has said in the case of Wu Wei:

“Much depends on what mandatory injunction is sought. Where the injunction sought is not expensive to comply with, or is not irreversible or would not effectively pre-empt the trial, the court may well grant the injunction without requiring a high degree of assurance even if the injunction is mandatory in effect.”[5]

22.In the present case all D1 is required to do is to transfer back the Funds, which are in USD, to Hong Kong, and to be held in his own USD account in Hong Kong.  It is not expensive to comply with this transfer and it is not irreversible.  It would not pre-empt the trial.  Having considered all the circumstances and upon weighing up the balance of risk of injustice in this case, I will grant an order in terms of Pl’s application.

Mr Leslie Yeung of CL Chow & Macksion Chan, for the plaintiff

Mr Kelvin Liu, instructed by Lam and Lai, for the 1^st defendant