Interlocutory injunction – Mareva injunction – Subsequent stay of proceedings in favour of another forum – Whether court had power to continue Mareva injunction during stay – Whether such power should be exercised – Arbitration Ordinance (Cap 341), s 2GC; High Court Ordinance (Cap 4), s 21M

HORNOR RESOURCES (INTERNATIONAL) CO LTD v SAVVY
RESOURCES LTD [2010] 4 HKC 50

Court of First Instance
Action No 335 of 2010
Chu J
19, 23 March 2010

Winnie Tam SC leading Douglas TY Lam and Sabrina Ho (Richards Butler) for the plaintiff.
John Yan SC leading Sara Tong (Alfred Lam, Keung & Ko) for the defendant.

In an action claiming damages for breach of contract, the plaintiff obtained an ex parte worldwide Mareva injunction up to the limit of US$6,435,000, with allowances for business expenses and legal representation. The defendant subsequently applied for a stay of proceedings on the ground of an arbitration clause in the parties’ contract and an exclusive jurisdiction clause in favour of the courts of England and Wales. The application for a stay was not opposed. The primary issue for determination was whether the Mareva injunction should be discharged or continued while the proceedings were stayed. The plaintiff relied on the conduct of the defendant in arguing for continuation of the injunction. The plaintiff had agreed to buy 150,000 WMT of iron ore products from the defendant for delivery before 10 February 2010. The plaintiff issued in favour of the defendant an irrevocable letter of credit in payment, but the defendant made no delivery under the contract. The evidence showed that the defendant contracted to sell the same products to a third party, described as its ‘Long Term Customer’. The defendant’s case was that it was not in a position to make delivery to both the plaintiff and the Long Term Customer, because of delay on the part of its supplier, so it had made a commercial decision of making delivery to the Long Term Customer. The defendant also relied on the fact that under the contract with the plaintiff, time was not of the essence; and argued that its business would be devastated if the Mareva injunction was continued.

Held, ordering a stay of proceedings and continuing the Mareva injunction, with costs nisi to the plaintiff:
The court had jurisdiction and power to make a Mareva injunction while the proceedings were stayed: s 2GC Arbitration Ordinance (Cap 341) and s 21M High Court Ordinance (Cap 4).

It could not be seriously argued that the plaintiff did not have a good arguable case. There was no doubt that a binding contract existed between the parties, and there was no real dispute that the defendant had not made delivery under the contract. In the court’s view, without deciding the point, whether time was of the essence of the contract would not preclude the plaintiff from pursuing a claim for damages for non-delivery.

The court should examine with care allegations that a defendant has acted dishonestly and should not too readily infer a real risk of dissipation from the conduct or commercial morality of a defendant. Ultimately, the question was whether on the evidence, a refusal of the injunction would involve a real risk that the judgment in favour of the plaintiff would remain unsatisfied.

The defendant had offered no cogent reason for preferring a subsequent buyer to the plaintiff. The plaintiff ’s contention that the subsequent sale was made to take advantage of the rising market was quite probable. The defendant’s conduct was commercially unacceptable. There were good arguable grounds for the plaintiff ’s saying that the defendant was dishonest in its dealings with the plaintiff, that it deliberately concealed from the plaintiff its breach of the contract and knowingly misled the plaintiff to believe that it was performing its contractual obligations. The plaintiff had made out a case of a real risk of dissipation.

The defendant had adduced no evidence of its assets. Its business turnover the previous year was said to be over US$150 million. On the strength of the available evidence and information, the court was not satisfied that it had been shown that the continuation of the Mareva injunction would bring the defendant’s business to a halt or bring about devastating effects such that the balance of convenience lay in favour of discharging or not continuing the injunction.

Obiter
The plaintiff was obliged to effect service of the injunction on the defendant as soon as practicable. It had not done so. It had delayed over the weekend following the ex parte hearing. The injunction should have been served or at least brought to the defendant’s notice by email or fax earlier. The delay had not caused significant prejudice to the defendant, though it might be relevant to the exercise of the court’s discretion.