BANK OF CREDIT AND COMMERCE HONG KONG LTD. (IN LIQUIDATION) v. ADRIAN ZECHA

HCA011729A/1993

1993 No. A11729

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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BETWEEN
BANK OF CREDIT AND COMMERCE HONG KONG LIMITED (IN LIQUIDATION) Plaintiff
AND
ADRIAN ZECHA Defendant

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Coram: The Hon. Mr. Justice Keith in Chambers

Dates of Hearing: 22 July 1998 and 1 September 1998

Date of Delivery of Judgment: 1 September 1998

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J U D G M E N T

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Introduction

1. On 28th May, I gave the Defendant leave to defend this action on condition that he paid the sum of $23m. into court by 23rd July.There was no evidence before me that the Defendant would be unable to comply with that condition. However, in case the Defendantwished to allege that he could not comply with it, I gave him liberty to apply to vary the order I had made. It transpired that theDefendant does indeed contend that he is unable to pay the sum of $23m. into court, and accordingly he now applies for the orderto be varied.

The relevant principles

2. The relevant principles are not in doubt. They were established in M. V. Yorke Motors v. Edwards [1982] 1 WLR 444, and they have been applied by the Court of Appeal in Hong Kong in Hwang Yiou Kwa Victor v. Morgan Guaranty Trust Co. of New York [1985] 1 HKC 294 and Wu Cho Mei v. Wang Siau Yu [1994] 1 HKC 188. It would be a wrongful exercise of discretion to order the payment into court of a sum which the defendant would never be able topay as a condition of granting leave to defend, because that would be tantamount to giving judgment for the plaintiff, notwithstandingthe court’s opinion that there are issues or questions in dispute which ought to be tried. However, the defendant cannot complainon the ground that a financial condition is difficult for him to fulfil. He can only complain if a financial condition is imposed which it is impossible for him to fulfil, and if that impossibility was known (or should have been known) to the court by reason of the evidence placedbefore it. The onus is on the defendant to put sufficient and proper evidence before the court, and he should make full and frankdisclosure of his assets. The fact that the defendant has no capital of his own does not mean that he cannot raise any capital; hemay have business associates, friends or relatives who may be prepared to help.

The original evidence

3. The Defendant originally filed a considerable amount of evidence as to his assets. There were a few differences between (a) his evidenceas to his current assets and (b) his assets as at 30th September 1992 according to a report on his financial affairs dated 8th February1993 prepared by Coopers and Lybrand for the Defendant’s largest creditor, the Hong Kong Bank (“the Bank”). However, given the lengthof time which had elapsed since that report, it was not surprising that the Defendant’s assets and liabilities had changed, and whenthe differences were pointed out by the Plaintiff in the evidence which it filed in reply, the Defendant filed further evidence givingdetailed explanations for those differences. There was at that stage nothing to suggest that the Defendant had not been candid abouthis financial affairs, or that he had made anything other than a frank and full disclosure of his assets.

4. Apart from referring to Coopers and Lybrand’s report, the Plaintiff did not initially challenge the evidence filed by the Defendant.That evidence showed that he had assets in the region of US$12.71m. However, the bulk of those assets was represented by his sharesin Silverlink Holdings Ltd. They had an estimated value of US$7.18m. Those shares had been charged to the Bank as security for hisindebtedness to the Bank which had recently been as much as US$19.81m. The majority of his other assets, which took the form of sharesin other companies, were the subject of “custodian agreements” in favour of the Bank. Coopers and Lybrand regarded them as amountingto pledges to the Bank, and the Bank has today described them as charges. Either way, they are not available for his other creditors.On the other hand, the evidence was that the Defendant had liabilities in the region of US$28.59m. His net worth was, therefore,an estimated deficit of US$15.88m.

5. That was the state of the evidence when the Defendant’s application to vary the order of 28th May came before me on 22nd July. However,at that hearing, Mr. Daniel Wan for the Plaintiff pointed to a number of features in the evidence which he claimed showed that theDefendant had been less than frank about his available assets. Those features had not been mentioned in correspondence prior to thehearing, and there was therefore no evidence from the Defendant to rebut the allegations. I did not think that I could decide whetherthe Defendant’s disclosure of his assets had been less than candid and comprehensive without hearing what the Defendant had to sayon the topics raised by Mr. Wan. In the circumstances, the hearing was adjourned to enable the Defendant to file further evidenceif he wished, limited to those topics. The Defendant has now done so.

The new evidence

6. Today, Mr. Wan has made a number of further points about the evidence as it now is. He claims that there are features about the Defendant’sfinancial affairs which remain unexplained. However, it has to be remembered that the Defendant has in his time been a very richman, and his financial affairs are complex. It is inevitable in those circumstances that in proceedings of this kind there are goingto be a few areas which remain unexplored. Although there are, therefore, still one or two gaps in the evidence, I remain of theview that there is no reason to suppose that the Defendant has not been sufficiently candid about his financial affairs, or thathe has made anything less than such a frank and full disclosure of his available assets, as the circumstances warrant. I have noreason to doubt his assertion that the bulk of his assets are simply not available for paying the sum of $23m. into court. And withsuch a large sum involved, this is not a case in which I can say that the Defendant has business associates, friends and relativeswho are able to help in any meaningful way. That may well be why some of the Defendant’s other creditors have not brought proceedingsagainst him.

7. It is common ground, however, that the Defendant has a number of unencumbered assets. Mr. Wan has argued that, on a fair analysisof the evidence, those assets amount to about US$2.1m. The Defendant’s case is that they amount to about US$1.1m. But whatever theunencumbered assets are worth, I see no reason why they should not stand in place of the $23m. which the Defendant has been orderedto pay into court as a condition of defending the action. Indeed, the Defendant is prepared to undertake that he will not disposeof or pledge a flat in Courchevel, France, and is also prepared to lodge in court the share certificates of his unencumbered sharesand the title deeds to his other unencumbered assets. There is, it is true, a question as to whether some of the Defendant’s assetsare indeed unencumbered, namely his shareholding in North Curtis Island Pty. Ltd. and PT Nusa Pacific International. Mr. Wan pointsout that the Defendant’s case that they are encumbered is based on assertion only. However, I have no reason to doubt that assertion.Again, it may be that the court cannot order the sale of shares in a private company, but what the court can do is to make a chargingorder in respect of them.

8. The Defendant is also prepared to undertake that he will not dispose of his personal effects, household goods and antiques untilthe trial of the action. It is true that there is a dispute as to what the value of those assets are. But the fact remains that theDefendant is prepared to give an undertaking which has the effect of ensuring that they will be available for execution against inthe event of the Plaintiff obtaining judgment in the action.

Conclusion

9. In all these circumstances, the course which I propose to take is to vary the condition on which I granted the Defendant leave todefend the action. The Defendant’s leave to defend the action will no longer be subject to the payment of the sum of $23m. into court.Instead, it will be subject to two conditions. They are that the Defendant (a) lodges in court, by such date as counsel will addressme on, the title deeds and share certificates of the assets referred to in para.14(b)(ii) of his affirmation of 15th August 1998,and (b) does not, save with the leave of the court, dispose of or pledge the flat in Courchevel or any of those personal effects,household goods and antiques in which the Defendant has a beneficial or legal interest until the trial of the action or further order.

(Brian Keith)
Judge of the Court of First Instance

Representation:

Mr. Daniel Wan, instructed by Messrs. Tang & So, for the Plaintiff.

Ms. Susan Kwan, instructed by Messrs. Wilkinson & Grist, for the Defendant.