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Contentious Commentary Hong Kong Defendant left holding the baby ................................................................................... 3 Assets frozen in fishy scheme ...................................................................................... 3 s We can work it out ......................................................................................................... 4 t You win some, you lose some… ................................................................................... 4 n From Hong Kong to Japan ............................................................................................. 4 They think it’s all over… ................................................................................................. 5 e Sushi solution .................................................................................................................. 5 t “Thought crimes” and “favourable dispositions” ........................................................ 6 Disclose? Or not disclose? That is the question ........................................................ 6 n If you’re not with us, you’re against us ........................................................................ 6 The means, not the merits ............................................................................................. 7 o Contacts ........................................................................................................................... 8 c Contentious Commentary 3 Hong Kong September 2016 struck off the Register does not prevent In January 2016, Pedro was alerted to Defendant left any creditor making a claim against the apparent irregularities in the way Maria holding the baby company and pursuing the claim through was conducting the business, including to judgment or execution. allegations of fictitious transactions. When Plaintiff prevails in confronted, Maria denied any wrongdoing distributor dispute and immediately resigned. Following her The defendant in Hin Sang Hong Co Ltd v Assets frozen in resignation, Pedro uncovered a scheme in Kingdom Overseas Ltd [2016] 2 HKLRD which the second defendant would place 1321, a BVI distributor of infant formula, fishy scheme orders with the plaintiff which would then became the exclusive distributor for Court continues injunction as place the same orders with the first defendant. The plaintiff described this Hong Kong and Macau for five years from fictitious transactions alleged July 2011. The plaintiff was to order a as a clear case of fraud with no goods certain number of tins of the formula at the In Link Fish Import & Export SL v Multiply having being delivered and leading to supplier’s price which could be unilaterally Import & Export HK Ltd [2016] HKEC a loss of US$11.7 million. adjusted by the defendant with written 1464, Recorder Madam Linda Chan SC notice to the plaintiff. Although the gave judgment in an application for The Court found there were strong grounds distribution agreement referred to a continuation of a Mareva injunction in to believe the scheme was fraudulent. “recommended uniform retail price” favour of the plaintiff Spanish company It was well established that a risk of (the RURP), the plaintiff also had a engaged in the sale and purchase of dissipation of assets may be inferred where discretion to determine the wholesale price promotional items for the alcohol industry. the defendant demonstrates an at which to supply the products to retailers. “unacceptably low standard of commercial The company was formed by The defendant could terminate the morality” . The Court may more readily infer Pedro Manual Lopez Moreno and agreement only if the plaintiff supplied the a real risk of dissipation if a good arguable Ms Maria -Teresa Aguado Mateos. Maria products at low wholesale prices which case is established on a claim for fraud and was a director of the plaintiff and ran its caused the defendant to suffer losses. dishonesty. The Court ordered the Mareva business operations. She introduced the injunction be continued against the first The defendant failed to deliver all of the plaintiff to the first and second defendants defendant and granted costs to the plaintiff. formula as ordered and in February 2012, and the companies commenced trading. issued a notice terminating the agreement which the plaintiff accepted. The plaintiff brought proceedings against the defendant for breach of contract. Godfrey Lam J sitting in the Court of First Instance gave judgment for the plaintiff. On a proper construction of the agreement, the plaintiff had not agreed to a condition that the retail price would always be the RURP. The defendant was in breach by purporting to terminate the agreement without justification. The judgment is notable as the defendant played no part in the proceedings and enquiries revealed it had been struck off the BVI register of companies on 1 November 2014 for non-payment of annual fees. A company whose name has been struck off the BVI register is not dissolved immediately, but continues to exist for another 7 years before being automatically dissolved. BVI company law states that the fact that a company is © Clifford Chance, September 2016 4 Contentious Commentary Hong Kong September 2016 concerned since the March decision, understand and that were completely We can work it out thereby “purging….the contempt at an unsuitable for them. Defendants spared jail in exceptional speed”. In circumstances in dispute with liquidator which both defendants had apologised to Although the language of the contracts in the Court unreservedly, there was no Chang Pui Yin v Bank of Singapore Ltd In March 2016, the Court of First point in sending “two truly remorseful [2016] HKEC 1721 was not clear cut, Instance in Bruno Arboit v Koo Siu Ying persons to prison”. the Court found the bank had a HCMP [2016] HKEC 556 found two contractual duty to advise and that the defendants guilty of contempt of court in The decision reinforces the view that the relationship was not execution only. breaching court orders requiring the threat of committal proceedings can be The Court distinguished this case from disclosure of documents required by a an extremely useful weapon in the hands previous cases such as DBS Bank liquidator. In May, the Court passed of a liquidator when faced with (Hong Kong) v San-Hot HK Industrial Co sentence for the contempt, sparing the uncooperative respondents. Ltd [2013] HKEC 352 and Kwok Wai Hing defendants a term of imprisonment but Selina v HSBC Private Bank (Suisse) SA ordering that each of them be fined [2012] HKEC 903, which had resulted in HK$200,000. You win some, you wins for the banks. The Court said the starting-point was to lose some… With the SFC requiring a new clause to be acknowledge that contempt of civil court inserted into client agreements ensuring orders is a serious matter and that they Courts reach different that any financial product solicited for sale are meant to be obeyed. Here, there conclusions in misselling cases or recommended to a client is reasonably had been a “wholesale failure” to The Court of Appeal in DBS Bank suitable for the client, regardless of what produce books and records of the (Hong Kong) Ltd v Sit Pan Jit 2016 HKEC is stated elsewhere, it will be important for company and the defendants had been 1307 unanimously upheld the decision by banks to observe and carefully document “steadfastly uncooperative” with the the trial judge handed down in April 2015. their suitability obligations as a defence liquidator. Despite this, the actual effect against future mis-selling claims. of the breach on the liquidator’s work The appellant, Mr Sit, had entered into had not been substantial. a number of contracts with DBS and had suffered significant losses on those The defendants had also made concerted From Hong Kong products during the 2008 financial crisis. efforts to locate the documents He alleged that DBS had breached its to Japan fiduciary, tortious and contractual duties Applicants challenge SFC’s to him. DBS denied the allegations and relied on its standard non-reliance right to give documents to clauses in the underlying contracts, foreign regulators the effect of which was that DBS had no The applicants in AA & EA v Securities and duty to give investment advice to the Futures Commission [2016] HKCU 1057 customer and, even if it did give any won leave from Zervos J sitting in the Court investment advice, it was on an of First Instance to bring judicial review “execution only” basis on which the proceedings against the SFC in relation to customer was not entitled to rely. information the SFC had obtained during the course of an investigation and then In rejecting every ground of appeal raised disclosed to Japanese regulators. by the appellant, the Court found that the approach adopted by the judge at first The applicants claimed they had provided instance was “impeccable” and there was information and materials to the SFC nothing to indicate the trial judge’s under compulsion purportedly pursuant to decision should be overturned. its statutory powers. They said the SFC had then transmitted the information and A few weeks later, however, the Court of materials to the Japanese regulators First Instance found in favour of two which had led to “wanton leaking and elderly customers who claimed they had breaches of secrecy”. been sold complex products they did not © Clifford Chance, September 2016 Contentious Commentary 5 Hong Kong September 2016 At the heart of the issue is section 181 Securities