THE JOINT AND SEVERAL TRUSTEES OF THE PROPERTY OF CHAU CHAM WONG PATRICK, A BANKRUPT v. CHAU KAR HON QUINTON AND OTHERS

HCB 549/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 549 OF 2012

___________

RE:  CHAU CHAM WONG PATRICK, a Bankrupt

____________

BETWEEN
	THE JOINT AND SEVERAL TRUSTEES OF THE PROPERTY OF CHAU CHAM WONG PATRICK, A BANKRUPT	Applicants
	and
	CHAU KAR HON QUINTON (周嘉康)	1st Respondent
	CHAU WING YEE VANESSA (周穎夷)	2nd Respondent
	HSU MARY (徐六瑩) (also known as YOLANDA CHAU)	3rd Respondent

____________

Before: Hon Ng J in Chambers

Dates of Hearing: 19 December 2013 and 25 March 2014

Date of Judgment: 20 June 2014

_________________________

J U D G M E N T

_________________________

 

Introduction

1.  The application before this court was an oddity in that it was an inter partes application for mareva injunction, the parties have been engaged in extensive correspondence on the subject of the Applicants’ substantive claims for a year or so and, months before the application, one of the Respondents had even been invited to give an undertaking in lieu of injunction in order to save time and costs.

2.  By summons dated 25 November 2013 (“Summons”), the Joint and Several Trustees (“Trustees”) of the Property of Chau Cham Wong Patrick (“Chau”) applied for a worldwide mareva injunction against the 1^st Respondent (“Quinton”), the 2^nd Respondent (“Vanessa”) and the 3^rd Respondent (“Mary”) (collectively “Respondents”) up to the sums of HK$12,264,129, HK$4,608,700 and HK$5,501,842 respectively and ancillary disclosure order against them.

3.  The underlying substantive claims of the Trustees were also set out in the Summons in which the Trustees sought:

(1) A declaration that the Respondents are holding various funds and assets as trustees of Chau; alternatively, a declaration that the following transfers made by Chau to the Respondents are void under section 49 of the Bankruptcy Ordinance, Cap 6 (“BO”) as transactions at an undervalue:

(a) 10 cash and cheque transfers in the sum of HK$9,337,953 from Chau to Quinton (“Quinton Transfers”) before 29 September 2008 when a worldwide mareva injunction against Chau and Leung Yung (“Leung”), both directors of A-One Investments Limited (“A‑One”), in HCA 1868 of 2008[1] was granted by Madam Justice Kwan (as she then was) (“Injunction”); these transfers were said to have taken place between 27 March and 25 September 2008;

(b) A 5.05 carat diamond purchased by Chau at HK$1,005,030 in August 2008 and given to Quinton as a gift (“Quinton Diamond”);

(c) 26 cash and cheque transfers in the sum of HK$1,494,202 from Chau to Quinton (“Quinton Withdrawals”); these transfers were said to have taken place between 17 October 2008 and 10 December 2011;

(d) a refund of HK$426,944 from New House Construction Co. Ltd. to Chau and received by Quinton in September 2010 (“Quinton Refund”);

(e) 8 cash and cheque transfers in the sum of HK$3,360,000 from Chau to Vanessa (“Vanessa Transfers”); these  transfers were said to have taken place between 6 and 25 September 2008;

(f) 25 cash and cheque transfers in the sum of HK$1,248,700 from Chau to Vanessa (“Vanessa Withdrawals”); these transfers were said to have taken place between 13 December 2008 and 10 December 2011;

(g) 1 transfer from Chau and Mary’s joint account to Mary’s sole account on 9 October 2008 in the sum of HK$2,279,073 (“Mary Transfer”); and

(h) 65 cash and cheque withdrawals from Chau to Mary in the sum of HK$3,322,769 (“Mary Withdrawals”); these transfers were said to have taken place between 3 December 2008 and 6 September 2010;

(collectively “Impugned Transactions”).

4.  The matter first came before this court on 19 December 2013 at 9:30 am.

5.  Ms Chan SC for the Trustees explained to this court why the application was made inter partes: first, there had been extensive correspondence between the Trustees and the Respondents prior to the issuance of the Summons and it could therefore not be said that there was a need for secrecy; in fact, in one of the demand letters from the Trustees in May 2013, Quinton was asked to provide an undertaking not to dissipate his assets; second, the Trustees considered a last opportunity should be given to the Respondents to adduce evidence to show they had an arguable claim to the funds referred to in the Summons.

6.  Mr Scott SC submitted the Respondents did not have an opportunity to reply to the very substantial affidavit in support of the Summons. He, as expected, sought directions for the filing of evidence and an adjournment of the mareva application for argument. He also resisted the Trustees’ application for an interim injunction.

7.  In the end, this court acceded to Mr Scott SC’s request and adjourned the mareva application without granting any interim relief.

8.  The mareva application came back to this court on 25 March 2014. This is the court’s decision on the application.

Background

9.  Chau was a man of substantial wealth and son of a wealthy family in Hong Kong owning a number of companies and valuable properties at 1 Robinson Road, Hong Kong. He left Hong Kong for the UK in late 2008.

10.  Quinton and Vanessa are the children of Chau and Mary. Quinton is now in his early thirties and the President of Asia Pacific Consalve AG, a Swiss financial advisory firm, in Hong Kong. He is married and lives with his wife in Hong Kong. Until October 2013, he lived at Suite X, 27^th Floor, 1 Robinson Road, Hong Kong (“Suite X”).

11.  Vanessa is now also in her early thirties and is Vice President for Business Development Asia at Gerson Lehrman Group. She lives in Hong Kong at Suite Y, 28^th Floor, 1 Robinson Road, Hong Kong (“Suite Y”).

12.  Mary is the former wife of Chau. They were married in 1977 and divorced on 13 February 2009. Since her marriage, Mary has been living in Hong Kong. Her family is also in Hong Kong. She now also lives in Suite Y.

13.  According to the Trustees, since early 2008, Chau has been in financial difficulty and begun to use the assets of A-One and its subsidiary A‑1 Business Limited (“A-1 Business”) to repay his personal loan to DBS Bank (“DBS”) and to provide security in favour of DBS. 

14.  Chau was the Chairman and Executive Director of Peace Mark Holdings Ltd (“PMH”), a company listed on the Stock Exchange of Hong Kong Limited and in which A-One held controlling shareholding. On 18 August 2008, PMH shares were suspended from trading. On 10 September 2008, Kwan J (as she then was) appointed provisional liquidators over PMH. It was delisted from the Stock Exchange on 29 July 2011.

15.  On 23 September 2008, Kwan J (as she then was) appointed the Trustees as provisional liquidators of A-One.

16.  On 29 September 2008, the Trustees, as provisional liquidators of A-One, obtained the Injunction against inter alia Chau and Leung. 

17.  The Injunction was in the following terms:

“The Defendants must not –

(a) remove from Hong Kong any of his assets which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned, up to the value of CHF 20,000,000 (equivalent to HK$140,000,000); or

(b)    in any way dispose of or deal with or diminish the value of any of his assets which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned, to  the same value of CHF 20,000,000 (equivalent to HK$140,000,000).” 

18.  The Injunction also contained an exception which “does not prohibit [Leung] and [Chau] from spending HK$50,000 per week towards their ordinary living expenses and also a reasonable sum on legal advice and representation”.

19.  On 13 November 2008, after a contested hearing, DHCJ Mayo continued the Injunction against Chau. The Injunction remains in force.

20.  On 3 January 2012, A-One and A-1 Business (under the control of the Trustees as liquidators) obtained judgment by consent against Chau for HK$132 million in HCCL 28 & 32 of 2009.

21.  Upon investigation of the affairs of Chau, the Trustees discovered that, on 28 August 2008, Chau assigned 3 valuable properties at 1 Robinson Road, Hong Kong (collectively “Robinson Road Properties”) to 3 BVI companies whose directors were Quinton and Vanessa viz. Highmax Overseas Limited (“Highmax”), Marista Group Limited (“Marista”) and Goldwick International Limited (“Goldwick”):

Transferee	Property	Consideration
Highmax	Suite O on 17th and 18th Floors with Car Parking Space No.9 at No.1 Robinson Road (“Suite O”)	HK$27,900,000
Marista	Suite X with Car Parking Space No.8 at No.1 Robinson Road	HK$16,000,000
Goldwick	Suite Y with Car Parking Spaces No.8 and No.8A at No.1 Robinson Road	HK$16,290,000

22.  On 27 January 2012, in order to safeguard the Robinson Road Properties, A-1 Business (under the control of the Trustees as liquidators) obtained an order from Reyes J in HCCL 32 of 2009 to vary the Injunction against Chau by including the Robinson Road Properties as Chau’s assets and restraining Highmax, Marista and Goldwick from disposing of them, on the basis that Chau remained their beneficial owner. On 9 February 2012, the Injunction against Chau was continued by consent until payment of the judgment in the action and remains in force. 

23.  On 16 May 2012, a bankruptcy order was made against Chau pursuant to a petition presented by DBS on 2 February 2012. On 21 June 2012, the Trustees were appointed in these proceedings.

24.  Sometime in August 2012, the Trustees also discovered that on 19 September 2008, Chau assigned a property at 17^th Floor, Aberdeen Industrial Building, No.236 Aberdeen Main Road (“Aberdeen Property”) to another BVI company whose directors were Quinton and Vanessa viz Richburg Group Limited (“Richburg”) for HK$4 million. On 8 May 2012, Richburg sold the Aberdeen Property for $9.8 million.

25.  By summons dated 22 October 2012 and issued in these proceedings, the Trustees applied for declarations that the Robinson Road Properties and the Aberdeen Property have been held by the respective BVI companies as trustees for Chau, alternatively, orders to avoid the assignments of those properties by Chau to the BVI companies as transactions at an undervalue pursuant to section 49 of the BO: [A/4/57§ 44] (“1st Avoidance Application”).

26.  On 6 February 2013, the Trustees issued a summons in these proceedings seeking a worldwide mareva injunction against Richburg up to the value of HK$9.8 million. The matter was listed before M Chan J on 22 February 2013 when the learned Judge adjourned the application for argument without granting any interim relief as sought by the Trustees. On 10 May 2013, the matter went before Recorder P  Shieh  SC who granted the injunction against Richburg.

27.  On 25 November 2013, the Trustees issued the Summons against the Respondents.

Legal Principles

28.  I shall first remind myself of some of the applicable principles.

29.  Where a plaintiff applies for a worldwide Mareva injunction, it has to satisfy the Court that:

(1) it has a good arguable case;

(2) there are no or insufficient assets within the jurisdiction to satisfy its claim;

(3) there are assets outside the jurisdiction; and

(4) there is a real risk of dissipation of those assets so as to render nugatory any judgment which a plaintiff may eventually obtain.

Hong Kong Civil Procedure 2014 Vol. 1 para. 29/1/83.

30.  A Mareva injunction should not be granted lightly. The  consequences of granting the injunction are such as to put the defendant at a very real disadvantageous and in a position from which it may never adequately recover: Hsin Chong Construction (Asia) Limited v. Henble Limited [2005] 3 HKC 27 para. 20; Dieulemar Shipping SpA v. Transfield ER Futures Ltd [2011] 1 HKLRD 75 para. 55 - 56.

31.  Given the serious consequences, the standard of proving inter alia a real risk of dissipation is “relatively high”. The plaintiff must establish that risk by reference to “solid evidence” or “cogent evidence”: Laemthong v. Artis [2005] 1 Lloyd’s Rep 100 [60]-[61]; Hsin Chong Construction (Asia) Limited v. Henble Limited supra para. 20.

32.  In order to establish a real risk of dissipation of assets, the plaintiff must prove at least objectively the effect of the defendant’s conduct would be to frustrate the enforcement of any judgment – the conduct in question must be unjustifiable and there must be a real risk that the defendant’s assets will be used otherwise than for normal and proper commercial purpose: Mobil Cerro Negro Ltd v Petroleos de Venezuela SA [2008] 1 Lloyd’s Rep 684; Eastman Chemical Ltd. v Heyro Chemical Co Ltd. (No.2) [2012] 3 HKLRD 307 para. 26.

33.  While the mere fact of delay in bringing an application for mareva injunction or that the application is first made interpartes does not, without more, negate a risk of dissipation, delay, and the lack of proper explanation for it, is always a relevant consideration when assessing whether there is a real risk of dissipation: Enercon v Enercon (India) [2012] EWHC 689 (Comm). As Eder J put it at [78] :

“[I]t is not simply the fact of delay that is so important but what it tells the court about the risk of dissipation. Absent some proper explanation, the fact that the claimants here waited for almost two and a half years before seeking a freezing injunction raises, at the very least, a large question mark as to whether there is indeed a real risk of dissipation”.

34.  Equity does not act in vain - a court does not usually grant injunctions where significant time has elapsed and an injunction would in effect be locking the stable door after the horse has bolted: Hsin Chong Construction (Asia) Limited v. Henble Limited supra para. 29.

Risk of dissipation

35.  I shall deal with the risk of dissipation first as it seems to me the Trustees’ application will stand or fall with it.

36.  On this subject, a recurrent theme of the Trustees’ case was that the Respondents were aware of the terms of the Injunction and all monies and assets received by them after 29 September 2008 ie the Quinton Withdrawals, Quinton Refund, Vanessa Withdrawals, Mary Withdrawals and possibly Mary Transfer[2] were received in breach of the Injunction.

37.  The Respondents themselves denied having knowledge of the grant of the Injunction or its terms. Quinton said he merely acted on Chau’s instructions to withdraw HK$50,000 weekly to cater for the family’s living expenses during Chau’s absence from Hong Kong, while Vanessa and Mary said they merely acted upon what Quinton had been asked of by Chau.

38.  In my view, if the Trustees considered that the Respondents had acted in breach of the Injunction, they could have applied to commit the Respondents for contempt. It is well-established that a non-party to a mareva injunction can be guilty of contempt if he knowingly aids and abets a breach of the order or if he intentionally frustrates the purpose of the order. Their decision not to do so demonstrates a lack of faith in establishing this theme. Further, since the Trustees were not making an application for contempt, this was not the occasion to resolve the question whether the Respondents were or were not aware of the Injunction and had acted in breach of it.

39.  More importantly, there were over 100 post-Injunction withdrawals from October 2008 to December 2011 and, by and large, the amount of each withdrawal was relatively small ie HK$50,000 or slightly below. If the Respondents really intended to assist Chau in breaching the terms of the Injunction or to frustrate its purpose, or if the Respondents seriously intended to assist Chau to hide his assets from his creditors, it is extraordinary that the Respondents would have withdrawn a small amount of Chau’s monies over and over again for a long period of time – that does not appear to this court to be the modus operandi of someone who was minded to hide his assets or that of someone who was aiding and abetting him.

40.  For these reasons, in assessing the risk of dissipation of assets, this court is not prepared to infer dishonesty on the part of the Respondents from the mere fact that many of the Impugned Transactions took place after the Injunction had been granted and were said to be made in breach of it.

41.  Mr Lui, for the Trustees, made four main points in his skeleton submissions on the risk of dissipation.

42.  First, given the Respondents have not voluntarily disclosed their assets, there is no way for the Trustees or this Court to tell whether they have or have not already dissipated their assets.

43.  This, with respect, is a non point. As stated above, the burden is on the Trustees to prove a real risk of dissipation of assets. There is no burden on the Respondents, whether by voluntarily disclosing their assets or otherwise, to disprove it. If and in so far as this is said in Madoff Securities International Ltd v Raven [2012] All ER 634 (Comm) at [170]-[173] to be a relevant factor in deciding whether a real risk of dissipation exists, this court is unable to follow it.  It is contrary to principle and authorities: LG International Corp. v J & J Chemtrading Co Ltd. unrep. HCA 2557 of 2008; 30 December 2008; Sakhrani J.; Eastman Chemical Ltd. v Heyro Chemical Co Ltd. (No.2) [2012] 3 HKLRD 307 at para. 26.

44.  Secondly, the Respondents’ conduct demonstrates a dishonesty that is both relevant and crucial in inferring a real risk of dissipation. This court’s attention was drawn to what was described as the Respondents’ history of assisting Chau to put his identifiable assets beyond the reach of his creditors and facilitating the transfer of Chau’s assets to themselves or for their own benefit including:

(1) transfers of the Robinson Road Properties and Aberdeen Property to the four BVI companies;

(2) backdating deeds of licences permitting Quinton and Vanessa to occupy Suite X and Suite Y (both part of the Robinson Road Properties) and a consent letter permitting Mary to occupy Suite Y rent free during their life times; these documents were all dated 5 September 2008 but according to “evidence made available to the Trustees”, as of 6 October 2008, they had not been finalised and signed;

(3) taking steps, as directors of Shing Cheong, to dissipate its assets.

45.  The Respondents’ conduct was said to be indicative of what they would be prepared to do so as to defeat genuine creditors claims.

46.  In my view, this may be a valid point if the Trustees could demonstrate with cogent evidence that Quinton and Vanessa knew or had reasons to believe that Chau was in financial difficulty at the times of the transfers ie August and September 2008 and backdating (which the Trustees have not pinpointed a date) if that was indeed the case.

47.  In less than ten paragraphs in the 8^th affidavit of Borrelli ie paras 207 to 215, the Trustees set out what they regarded as Chau’s major assets and liabilities in 2007 and 2008 and concluded that Chau was “insolvent at least as at the date of the Purported Assignments or became insolvent as a result of the Purported Assignments”.

48.  As far as major liabilities were concerned, the Trustees mentioned a HK$200 million loan from ABN Amro Bank NV, a HK$300 million loan from DBS and Chau’s liabilities to PMH and its subsidiary Peace Mark Limited as a result of his fraudulent breaches of fiduciary duties to the two.

49.  There was however no evidence that any of the Respondents were in fact aware of Chau’s alleged liabilities or insolvency. There was not even evidence that any of the Respondents should have been aware of Chau’s alleged liabilities or insolvency. The fact that the Respondents are closest family members of Chau can cut both ways – it may permit an inference that more likely than not Chau would have revealed his financial difficulties to the Respondents, but it may also permit the opposite inference if Chau was minded to protect his closest family members.

50.  The objective evidence before this court was that Chau was only made bankrupt in May 2012, pursuant to a petition presented in February 2012. If Chau was hopelessly insolvent in 2008, as the Trustees were at pains to emphasise, it would be most surprising that he was not made bankrupt much earlier, given the adverse publicity which the suspension of trading of PMH shares, the liquidation of PMH and A-One and the legal proceedings instituted by A-One and A-1 Business against Chau must have attracted.

51.  The explanation from Quinton and Vanessa for the transfers was that they were nominated by their father to act as directors of the four BVI companies as part of their family trust arrangement, pursuant to advice by TMF Trust (HK) Limited (“TMF”), a company providing various trust and fiduciary services.  Under the said arrangement and advice by TMF, the Robinson Road Properties and Aberdeen Property were transferred from Chau to the four BVI companies in the Trust. Quinton and Vanessa executed documentation for the said transfers for the purpose of injecting the properties into the Trust and resigned as directors of the four BVI companies immediately afterwards.

52.  Regarding the allegation of backdating documents, it was no more than a bare allegation by the Trustees: the so-called “evidence made available to the Trustees” was not before this court – it was wholly unclear in what ways the Respondents were said to have been involved in backdating the documents.

53.  Regarding Shing Cheong, it was incorporated in 1970. Chau was its director and majority (97%) shareholder as at 5 January 2010. It became dormant on 1 January 2009 and was dissolved on 7 September 2012 upon an application by Quinton for its deregistration as a defunct private company.

54.  Prior to its dissolution, the Respondents were its directors and Shing Cheong had assets which were shown in its audited financial statements from 1 April 2009 to 31 December 2011 to have been sold to a director “at pre-determined basis” viz (a) Aberdeen Marina Club Membership for HK$1.8 million – this was admitted in open correspondence dated 25 April 2013 to have been purchased by Quinton and paid for by two instalments in September/ October 2011 and (b) a 18‑year‑old vehicle sold in 2009 and a 6-7 year-old vehicle sold in 2011 for HK$180,000 in total.

55.  The Trustees also prayed in aid the fact that on 17 October 2011, (1) a cheque of Shing Cheong for HK$1.6 million was paid into Chau’s bank account - other than HK$500,000 paid to Chau’s solicitors, Leung & Lien, the remaining HK$1.1 million were withdrawn by Quinton and Vanessa within 17 days from 23 November to 10 December 2011 which formed part of the Quinton and Vanessa Withdrawals; (2) a cheque of Shing Cheong for HK$200,000 was paid into Chau’s bank account and the funds were withdrawn by Quinton on 8 December 2011 which formed part of the Quinton Withdrawals. These were admitted in open correspondence dated 25 April 2013 to be repayment by Shing Cheong of shareholder’s loan due to Chau. The subsequent withdrawals from Chau’s bank accounts were also admitted.

56.  In the view of this court, the sale of Shing Cheong’s assets for valuable consideration by its directors at a time when the company had been dormant for a number of years cannot be regarded as a dissipation of its assets, let alone dissipation of Chau’s assets in fraud of his creditors. Further, the fact that (1) the disposition was documented in Shing Cheong’s audited financial statements and admitted in open correspondence with the Trustees and (2) money received by Shing Cheong out of the sale of its assets was paid into Chau’s bank account militates against the probability that what the Respondents had done was to perpetrate a dishonest scheme to put Chau’s assets beyond the reach of his creditors. If there were such a scheme, the last thing that one would do was to put money back into Chau’s (empty) bank account.

57.  Thirdly, even if this Court is disinclined to find that the Respondents are outright dishonest people who have willingly participated in a scheme to transfer Chau’s assets beyond the reach of creditors, the timing of the Impugned Transactions and the way in which they occurred should leave one with the distinct impression that they were instigated by Chau himself.

58.  This may or may not be so. But unless the Trustees could demonstrate by cogent evidence the Respondents knew or should have known of Chau’s dishonest intention when he instigated the Respondents, there was no justification to infer the existence of a real risk that the Respondents themselves would dissipate assets to frustrate any judgment which the Trustees might eventually obtain against them. 

59.  In the present case, the objective facts speak for themselves – the Trustees were obviously not concerned that the Respondents would dissipate assets to frustrate any judgment which they might eventually obtain. The Trustees found out about the cash transfers from Chau to Quinton in early 2013 at the latest: see, for instance, Trustees’ letters dated 14 February and 7 March 2013 to Michael Li & Co. Instead of immediately invoking the mareva jurisdiction of the court, the Trustees continued to engage into correspondence with his solicitors, cumulating in a demand on 6 May 2013 that Quinton paid back over HK$12.9 million to the Trustees and an invitation that Quinton gave an undertaking not to remove from Hong Kong or dispose of his assets up to HK$12.9 million. Similarly, the Trustees had engaged in extensive correspondence with solicitors for Vanessa and Mary after they had found out about the Impugned Transactions but did not apply for mareva relief until the issue of the Summons.

60.  Fourthly, weight must be given to the fact that cash arising from the Impugned Transactions is readily transferable out of the Respondents’ bank accounts or can readily be dissipated.

61.  The short answer to this point is that if the Respondents were inclined to dissipate the cash arising from the Impugned Transactions, they would have done so long ago, say, when the Trustees first made inquiries in correspondence with Quinton and Vanessa about Chau’s affairs in September 2012. There was also ample opportunity for the Respondents to do so in November 2013 after the Summons was issued.

62.  The fact that the Trustees spent 1 year corresponding with (two out of the three) Respondents and did not apply ex parte for mareva relief shows  the suggestion that there is a real risk of dissipation of the cash arising from the Impugned Transactions cannot be taken seriously.

Conclusion and Disposition

63.  For the above reasons, this court is not satisfied that the Trustees have shown a real risk of dissipation of assets. The application for mareva injunction must be dismissed.

64.  As for the ancillary order for disclosure, its purpose is to identify and preserve assets of a defendant which might otherwise be dissipated notwithstanding the grant of an injunction: GeeCommercial Injunctions 5^th Ed. para. 22.003. It seems to this court contrary to principle to make a disclosure order in circumstances where an applicant has failed to show real risk of dissipation of assets and the mareva application is dismissed. For this reason, this part of the application also fails. 

65.  There shall be an order nisi that costs of the application be to the Respondents.

(Peter Ng) Judge of the Court of First Instance High Court

Ms Linda Chan SC (on 19 December 2013) and Mr Mike Lui (on 25 March 2014), instructed by King & Wood Mallesons, for the applicants

Mr John Scott SC and Mr Jose Maurellet, instructed by Michael Li & Co, for the 1^st, 2^nd and 3^rd respondents

HCB 549/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

IN BANKRUPTCY PROCEEDINGS

NO. 549 OF 2012

____________

RE: CHAU CHAM WONG PATRICK, a bankrupt

BETWEEN

	THE JOINT AND SEVERAL TRUSTEES OF THE PROPERTY OF CHAU CHAM WONG PATRICK, A BANKRUPT	Applicants
	and
	HIGHMAX OVERSEAS LIMITED	1st Respondent
	MARISTA GROUP LIMITED	2nd Respondent
	GOLDWICK INTERNATIONAL LIMITED	3rd Respondent
	RICHBURG GROUP LIMITED	4th Respondent

____________

Before: Mr Recorder Shieh, SC, in Chambers

Dates of Hearing: 8 and 10 May 2013

Date of Decision: 10 May 2013

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D E C I S I O N

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1.  On 16 May 2012, Patrick Chau, whom I shall call “the bankrupt”, was adjudged bankrupt. Prior to his bankruptcy he used to be the chairman and executive director of a listed company called Peace Mark (Holdings) Limited (which I shall call “Peace Mark”). Trading in shares in Peace Mark was suspended on 18 August 2008. Provisional liquidators were appointed on 10 September 2008.

2.  Provisional liquidators were appointed over A-One Investment (which I shall call “A‑One”), a controlling shareholder of Peace Mark (Holdings), on 23 September 2008.  On 29 September 2008, A-One Business, a subsidiary of A‑One, obtained a worldwide Mareva injunction against the bankrupt in High Court Action 1868/2008 (later HCCL 32/2009), based on misappropriation of assets.  Eventually judgment was entered by consent against the bankrupt for the sum of $132 million on 3 January 2012.

3.  The long and short of the matter is that in or around August and September 2008 things were not looking too well for the bankrupt financially; things were not looking too well for the bankrupt and Peace Mark (Holdings).  It is against this background that the following events are to be assessed.

4.  On 28 August 2008 three properties on Robinson Road were assigned by the bankrupt in favour of three companies, namely, the 1st to 3rd respondents respectively.

5.  On 4 September 2008 it is said that the bankrupt, as settlor, set up a discretionary trust called the Level and Square Trust (which I shall call “the Trust”) with TMF as trustee.  The 1st to 3rd respondents (the assignees of the Robinson Road properties) and the 4th respondent (the assignee of a property in Aberdeen, which I shall deal with below) are said to be companies indirectly wholly-owned and controlled by the Trust.

6.  On 19 September 2008, the bankrupt assigned a property in Aberdeen to the 4th respondent.  The total consideration stated on the face of the assignments added up to about $60 million but the trustee in bankruptcy of the bankrupt says that no evidence of payment could be located.  Neither the trustee nor the respondents had produced any evidence to the contrary.  Also, there is no evidence that the transfers were preceded by any sale and purchase agreement.

7.  All four assignments were signed by the bankrupt’s children as directors of the relevant respondents.  However, according to the third affirmation of Zelinda Ng at paragraph 5, the children ceased to be directors of the respondents on the very day when the various assignments were signed.

8.  The only way in which this can happen on the basis of the present evidence is that immediately after signing the assignments the children ceased to be directors.  This, prima facie, gives rise to the impression that this was a planned state of affairs where cessation to be directors is linked to signing of the assignments, but no explanation has been placed before me as to why this is so.

9.  Coming back to the narrative, after judgment was entered against the bankrupt on 3 January 2012, the Mareva injunction was extended by Reyes J to prevent the 1st to 3rd respondents from disposing of the Robinson Road properties.  The injunction, as sought at that time, did not catch the 4th respondent or the Aberdeen property because, according to the liquidators, they were not yet aware of the existence of the Aberdeen property until 31 August 2012.  There was no provision for using any corporate fund or trust fund for legal expenses or maintenance of properties in that extended Mareva.  The Mareva injunction, so extended, was continued until judgment or further order on 9 February 2012.

10.  Before the trustee in bankruptcy had discovered the Aberdeen property and before any injunction could be sought, the 4th respondent sold the Aberdeen property on 8 May 2012 for a sum of $9.8 million.  Following the sale, the bankrupt was made bankrupt on 16 May 2012.

11.  On 22 October, an application was made by the trustee in bankruptcy to seek declarations that the respondents were holding various properties on trust for the bankrupt; and further, or in the alternative, to avoid various transfers under the relevant legislation (which I shall call the “avoidance application”).

12.  On 22 November 2012, a Beddoe application was made by the trustee and the respondents joining the children of the bankrupt as parties.  The originating summons for the Beddoe application had been exhibited by Zelinda Ng as NKYZ-5 to her first affirmation.  The avoidance application went before Barma JA, on 30 November 2012 and his Lordship adjourned the application until after the determination of the Beddoe application, but with liberty to apply (to cater for the eventuality that there was some undue delay in the prosecution of the Beddoe application.  See the transcript at bundle C, page 648, letters C to U.)

13.  The initial hearing of the Beddoe order was fixed for 15 minutes on 5 February, some two and half months after its issuance.  After Mimmie Chan J’s callover for the injunction application on 22 February, the respondents proceeded to obtain an early date for hearing the Beddoe application.  In due course, the hearing date was fixed for 10 April 2013 and a decision on the Beddoe application was handed down on 6 May 2013.

14.  Although the decision and of course the argument in the Beddoe application is not open to the public, Mr Smith, within what is permitted, has informed me that, in gist, the Beddoe judge directed that the companies should remain neutral and confine their stance to the filing of affidavit evidence or defence, stating material facts within their knowledge and submitting to the court’s direction as well as making discovery in the bankruptcy and related proceedings; and the children should apply to be joined in the avoidance application, failing which the trustee should be at liberty to apply for those persons to be joined as defendants in the bankruptcy proceedings.  Also, the 4th respondent and the trustee were authorised to utilise the sale proceeds of the Aberdeen property or any balance thereof, towards payment of all trustee’s reasonable fees and properly incurred general administration costs, expenses and all reasonable costs and expenses properly incurred in maintaining the Robinson Road properties.

15.  The stance of the respondents in this application is that they would undertake not to dispose of assets save that reasonable amounts may be spent on legal advice and representation including the Beddoe application, maintaining the properties and discharging duties as trustee.  This was offered in a letter dated 13 December 2012 and at one time the trustee in bankruptcy had accepted it although they have since changed their mind.  The argument before me turned largely on whether or not the respondent should be allowed to use the sale proceeds of the Aberdeen property towards legal costs, maintaining the properties and discharging duties as trustee.

16.  By way of figures, I have been given the following:

(i) The sale proceeds of the Aberdeen property amounted to $9.8 million.

(ii) The sale took place in May 2012.

(iii) As of 13 December 2012 the net proceeds left were $8,236,723.68 (meaning a depletion of about $1.5 million).

(iv) The same was the case as of 20 February 2013, the date when Zelinda made her first affirmation (see paragraph 23(a) thereof).

(v) At the hearing before me the balance of the sale proceeds was said to be about $7.5 million.  If one were to take into account accrued and unpaid liabilities, this was said to be further reduced to about $7 million.  This morning Mr Smith kindly updated me and informed me that the figure should be revised to $6,423,157.64, which amounted to a depletion of more than $3 million since its sale about a year ago.

(vi) At the hearing before me a sum of about $15,000 was said to be needed per month in relation to the maintenance and upkeep of the three properties (such as management fees, Government rent and rates, etc).  I note that the properties were all “clean” in the sense that they were not subject to any mortgage.  This morning the sum has been revised to $33,000 per month.

17.  Ms Linda Chan, SC, submitted before me as follows:

(i) The Beddoe order is a red herring because the trustee in bankruptcy is not a party and is not bound.  It would be wrong to characterise the trustee in bankruptcy’s case as one which impugned any trust of which TMF was the trustee.

(ii) The transfers were made in favour of the respondents and the trustee in bankruptcy’s case is that in the absence of any consideration paid by the transferee, the transfers would give rise to a trust under general trust law principles.  It does not matter who the beneficial owners of the shares of the respondent companies were.  It would therefore be wrong to characterise the case as involving a fight between one camp of beneficiaries (namely, the trustee in bankruptcy) and another camp of beneficiaries (namely, the beneficiaries under the discretionary trust), with the trustee being entitled to sit in the middle and recoup its costs from the trust fund.

(iii) The correct analysis is that the trustee in bankruptcy is suing the respondents for what the trustee in bankruptcy says to be its property in equity which was held by the respondents on trust for the trustee in bankruptcy. 

18.  Relying on what Millett J had said in the decision of Ostrich Farming Corporation Ltd v Ketchell and another [1997] EWCA 2953 and what Au J said in the decision in Wharf Ltd v Lau Yuen How [2010] 1 HKLR 783 at paragraph 13, Ms Chan submitted that:

(i) the respondents were not entitled to use what was not their funds to finance their legal costs; and

(ii) that the respondents had, in any event, not made full and frank disclosure that there were no alternative funds or assets available.

(iii) For the sake of completeness, I set out below the passage relied upon by Ms Chan from the Ostrich case in paragraph 24 of her skeleton argument:

“If he cannot show an arguable claim in his part to the funds, he has no right to use the money. A trustee has no right to have recourse to trust money to defend himself against a claim for breach of trust unless he has an arguable case for saying that he has a beneficial interest in the funds in question. No man has a right to use somebody else’s money, for the purpose of defending himself against legal proceedings. Just as the court’s jurisdiction to grant the injunction in the first place depended on the plaintiff’s establishing an arguable case that the money belongs to it, so its willingness to permit the defendant to have recourse to the money depends upon his establishing an arguable claim to the money.”

I further set out, again for the sake of completeness, the passage relied upon by Ms Chan from the Wharf case, as per paragraph 25 of her skeleton argument:

“The principles applicable to the release of funds to pay legal costs from an injunction involving proprietary claims are well settled. It is an exercise of discretion which involves a two-stage process:

(a) First, the defendant applying for the release of funds has to demonstrate with full and frank evidence that there are no alternative funds or assets available to him which can be used to pay his legal expenses other than the assets in respect of which the plaintiff brings the proprietary claim. If the defendant fails in the first hurdle, the court need not consider the second stage and the application should be dismissed.

(b)  Secondly, once the first hurdle is cleared, the Court in the exercise of its discretion will engage in a balancing exercise to weigh the potential injustice to the plaintiff if releasing the funds against the possible injustice to the defendant of depriving him of the opportunity to have legal assistance in advancing what may eventually turn out to be a successful defence.  This process is a ‘careful and anxious judgment’, and the court is entitled to look at all relevant circumstances, and in particular, to weigh the relative strengths of the plaintiff’s proprietary claim in the funds and the defendant’s defence to that claim.  In relation to this, it is not sufficient for a defendant to merely establish that he has no other funds, for even so, he must also show that there is an arguable case for his having recourse to the funds in question, failing which, he has no right to use the money.  As Millet LJ (as he then was) said in Ostrich, infra, ‘[n]o man has a right to use somebody else’s money, for the purpose of defending himself against legal proceedings’.”

(iv) In any event, she submitted that the respondents’ conduct demonstrated that there is a risk of dissipation.

19.  Mr Smith, SC, submitted that Ms Chan’s analysis as to why the trustee in bankruptcy’s claim is not one including a trust was raised only for the first time at the hearing.  He accepted that the Beddoe order did not bind the trustee in bankruptcy but he submitted that this really is a case where, realistically, there were two competing sets of beneficiaries and the trustee should be able to look to the trust fund to defray trust expenses and legal expenses.  In any event, Mr Smith submitted that the respondents’ hands were tied because prior to the Beddoe order the respondents did not feel able to put forward fuller evidence to explain the position and it was not clear what stance the respondents should take. 

20.  He lastly submitted that, apart from the undertaking, the case for risk of dissipation was weak because if the money was to be gone, the money would have been gone long ago given the time gap between the sale and the application and also the hearing.

21.  In my view, there is great force in Ms Chan’s analysis of the situation.  As the evidence now stands (and I emphasise “as the evidence now stands”) the arguments about the Trust are a red herring. The trustee is not even a party to these proceedings.  The existence of the Trust may go to who owned the shares, which are legally vested in the name of the legal owners.  (I remind myself that Zelinda Ng actually says that the respondents were “indirectly” owned and controlled by TMF and therefore it may be that TMF was not even the registered legal owner of the shares of the respondents.)

22.  But that has nothing to do with a proprietary fight over the properties which are legally vested in the companies’ names.  It may be that if cash is available with the companies and if they were paid up the corporate chain by way of dividends, the cash may one day find its way into the hands of the trustee in which case the money may well be characterised as trust money.  But until that happens, the funds vested in the name of one or more of the companies could not be the subject of any “trust property” held by the trustee.

23.  In common parlance, or layman’s language, trustees or trust officers may well wish to refer to assets owned by companies within the corporate chain in a trust structure as being “trust property” but lawyers will know that is not correct legally.  That being so, this is not even a trust dispute within the meaning of Alsop Wilkinson v Neary [1995] 1 All ER 431 where Lightman J at page 434 D to F said this:

“Trustees may be involved in three kinds of dispute. The first, which I shall call a trust dispute, is a dispute as to the trusts on which they hold the subject matter of the settlement. This may be friendly litigation involving, for example, the true construction of the trust instrument or some other question arising in the course of the administration of the trust, or hostile litigation, for example, a challenge in whole or in part to the validity of a settlement by the settlor on grounds of undue influence or by a trustee in bankruptcy or a defrauded creditor of the settlor in which case the claim is that the trustees hold the trust funds as trustees for the settlor, the trustee in bankruptcy or creditor in place of or in addition to the beneficiary specified in the settlement. The line between friendly and hostile litigation which is relevant to the incidence of costs is not always easy to follow. (See Buckton [1907] 2 Ch 406.”

24.  The Beddoe order is irrelevant because the trustee in bankruptcy was not a party to the Beddoe application and also the Beddoe order proceeded on the basis of this being a trust dispute which, as I have analysed above, would not be a correct analysis of what was actually happening. 

25.  Mr Smith complained that the trustee in bankruptcy could have intervened in the Beddoe application but I see no reason why they should because, according to the view taken by the trustee in bankruptcy, the Beddoe order simply did not concern them.  They were perfectly entitled to take the view that if the trustees wanted to go ahead to argue a Beddoe order on the basis of an inaccurate footing, then they were perfectly entitled to go ahead and do something which was futile.

26.  This also brings me to the reason why it is said the trustee in bankruptcy has not been joined.  I have already held that this is not a case of a trust dispute within the meaning of Alsop Wilkinson where the dispute is between rival beneficiaries.  But let us assume for the sake of argument that I am wrong and Mr Smith is right and this is really a case of competing beneficiaries and therefore a trust dispute according to what Lightman J has said in Alsop Wilkinson.  Then, further, in accordance with what Lightman J had said in the same case at 436 F to G:

“The justification for the protection afforded to trustees by a Beddoe order is that the beneficiaries are given the opportunity to make representations to the court before the order is made. (I emphasise that in the case where there are unresolved disputes as to the identity of the beneficiaries, for example, because of a trust dispute, then all possible claimants should be joined.)”

27.  Mr Smith explained that the trustee in bankruptcy was not joined because they were amenable to the trustee in bankruptcy remaining neutral anyway.  But the trustee in bankruptcy was not amenable to the proposed treatment as to costs coming out of the proceeds of sale.  That was extremely contentious.  That being the case, they ought to have been joined if this was really to be analysed as a trust dispute.  I stress that this is on the alternative basis if I were wrong in my analysis that this is not a trust dispute.

28.  I am also not satisfied that the trustees and/or the respondents have made full and frank disclosure as to the means and resources apart from the proceeds.  In Zelinda Ng’s first affidavit, at paragraph 23 the deponent said:

“As at the date of this affidavit, the trust fund consists of the following:

(a) the balance of the sale proceeds of the Aberdeen property in the sum of HK$8,236,723.68;

(b) a cash balance of HK$3,595.20; and

(c) the Robinson properties.”

and at paragraph 24 of her first affidavit she said:

“As the 1st to 4th respondents are asset holding vehicles, the only funds available to them and the trustee to meet the costs of maintaining the trust assets, legal advice and representation are effectively the sale proceeds of the Aberdeen property. This was made clear to the solicitors of the applicants in a letter from our solicitors to them dated 30 January 2013.”

29.  First of all, paragraph 23 of the affidavit reviewed a misapprehension as to the significance and relevance of the Trust in the sense that the deponent mixed up the concept of a trust fund and referred to the Robinson properties and the sale proceeds as being trust money.  But, more importantly, without impugning the deponent’s credibility in any way, there are many questions that have remained unanswered.  For example, in connection with the sale of the Aberdeen property, Zelinda Ng had said in paragraph 17(c) of the first affidavit that:

“The Mareva injunction did not extend to the 4th respondent or the Aberdeen property and there was a legitimate need for the trustee to raise cash for the maintenance of the trust assets and to pay legal costs.”

30.  The impression created was that the Trust or the respondent had no cash and this was why the property had to be sold.  The question then immediately arose as to how the legal fees and maintenance of the property had been funded prior to such sale.  Either there had been some cash within the respondents or within the Trust which had somehow all been used up, or someone else outside the Trust had been paying for such expenses all along. I am entitled to know this because it goes to the exercise of my discretion in accordance with the principles laid down by Ostrich and Wharf.  I have received no such information.

31.  Another area causing me concern is the fact that the properties have not been tenanted.  The situation, I am told, is this:

(1)  Of the three Robinson Road properties one is now vacant and two are occupied.

(2)  The vacant one used to be tenanted but because of the Mareva injunction it was left vacant since the expiry of the tenancy because of a fear that it might be regarded as an encumbrance if it were to be let out.  But as Ms Chan has shown by reference to correspondence and also the transcript of the hearing before Chan J, the trustee in bankruptcy consistently asked for properties to be rented and called for a dialogue with the respondents to explore ways in which it could be done. Even if, purely as a matter of language, renting the property out might be feared to be called an encumbrance on the Robinson  Road properties, practically speaking the trustee in bankruptcy wanted them to be rented out.  I am sure that “if there was a will, there must be a way”, but no steps had been taken at all, at least on the basis of the papers that I have seen, which casts doubt (I put it at the mildest) on whether there was any “will” on the part of the respondent or the trustee in the first place.  It was not an answer to say that rental income would fall within the trust assets and therefore be captured by the injunction because, I stress, it was the trustee in bankruptcy’s position that means should be explored to rent it out and rental proceeds be used to finance whatever financing needs were faced by respondents and the trustee.

(3) As to the other two properties, they are now occupied by the bankrupt’s wife and one of the bankrupt’s children on a rent‑free basis.  I am told that this had been going on even before any Mareva injunction and therefore the non‑charging of rent could not have been due to any fear or concern over possibly encumbering the asset in breach of the injunction.  I have had no explanation whatsoever as to why these people have been allowed to stay there rent‑free.

32.  These concerns are relevant to, first of all, whether the respondents have fulfilled the burden in Wharf as well as to concerns as to risk of dissipation.  In the absence of any explanation or evidence I find that the respondents have not surmounted the burden imposed by the authorities especially in Wharf and I also find that there is a legitimate fear of a risk of dissipation of the proceeds not in the sense of an outright disappearance but by way of a gradual frittering away of the proceeds through payments of legal fees here and there and maintenance costs here and there.

33.  I am fortified in my finding of a risk of dissipation by the coincidence of timing.  Every time there was an event concerning the properties, something happened to the bankrupt or his children.  I have already referred to the timing of the various transfers above.  Shortly after the sale of the Aberdeen property, the bankrupt himself went bankrupt and on the same day as the assignment was signed the children who signed the assignment ceased to be directors.  One is left with a distinct impression that the various transfers and manoeuvres were instigated or motivated by the bankrupt or those associated with him in one way or another.

34.  I take on board the point that the absence of evidence from the respondents was said to be because, pending the Beddoe order, the trustee would not know and the respondents would not know what stance to adopt.  To use the language of Zelinda Ng in paragraph 21 of her affidavit the respondents were “heavily constrained” in their ability to defend these proceedings and can only take very limited steps until directions are made by the court in the Beddoe application.

35.  Also, in the same affidavit at paragraph 7 Zelinda Ng alluded to issues as to “client confidentiality”.  I note what was said, but I also note that these matters have not precluded the respondents from asserting matters concerning the Trust (and thereby adducing evidence on incurring costs) which were perceived to be of use to the respondents’ position such as, for example, (i) the bankrupt was a settlor of the Trust, (ii) the Trust was discretionary, (iii) it was established in the Caymans, (iv) that the respondents were companies under the Trust structure, and also (v) who were not beneficiaries.  I therefore have slight reservations as to how “constrained” the respondents really were.

36.  As things now stand, I think there is a very strong case that an interlocutory injunction should be granted with no allowance whatsoever for legal costs and expenses, and that is irrespective of the undertaking that had been offered by the respondents.  In other words, even without the undertaking, I think there is a very strong case that an interlocutory injunction would have been granted anyway without allowance.  However, in view of the respondents’ express position about the constraints they faced, and notwithstanding my reservations about it, I am prepared, in the exercise of my discretion to give the respondents, put bluntly, one more chance for them to place evidence before the court and then seek to persuade it in an unconstrained manner that there should be a liberty to resort to the proceeds of the Aberdeen property to defray legal and other expenses. 

37.  Put in other words, usually a litigant has one bite at the cherry and if it does not put forward whatever evidence that it perceived to be in his favour, and suffers a court order, that is it.  But in the present case I am, in the exercise of my discretion, prepared to give the respondents a second bite at the cherry and that is it.

38.  Mr Smith had informed me that the respondents estimated that a sum of around $300,000 would be needed for the respondents to prepare and finalise evidence for the purpose of the avoidance application. Given this estimate and given the figures that I have been given during the hearing and this morning which I have set out above, and in the exercise of my discretion, I am going to grant an interlocutory injunction in terms set out in the trustee in bankruptcy summons, subject to a liberty to spend up to $360,000 for reasonable costs of legal advice and representation, as well as costs in the maintenance of the Robinson Road properties.

39.  I also give liberty to apply for the respondents to address the court upon filing of evidence by the respondents as to whether the provision for expenses should be extended and, if so, on what terms. 

40.  There is no scientific position as to the sum I have fixed above, although I have taken into account the various estimates given to me by Mr Smith; for example, the $300,000 estimate and also the $33,000 per month estimate.  I know that the estimate for costs has not taken into account matters such as the need for reply evidence and also any brief fee required when the parties come back and it may well be that if one takes a strictly arithmetical approach, if one adds monthly maintenance of $33,000 per month to the $300,000 costs estimate, the $360,000 may appear to be a very tight budget which may either entail a risk that work may have to be toned down or the trustee may have to dip into its own pocket, but it is all a matter of a broad brush discretion.  There is no legal entitlement that the trustee must have what it says to be its estimate or even the “buffer”.

41.  I have taken the predicament that the trustee might have to face in the exercise of my discretion into account.  But I also take into account the fact that the $300,000 is an estimate.  It could be an over‑estimate or it could be an under‑estimate.  I have to balance the interests of the respondents against the interests of the trustee in bankruptcy. If it shall eventually turn out that the respondents were, after all, unable to persuade the court of the criterion laid down in the cases, in a case like this, then any allowance given now could be counted, bluntly, as a prejudice to the trustee in bankruptcy.  On the other hand, if eventually the trustees were able to persuade the court, then they will surely be able to recoup any shortfall from the proceeds and there is not much prejudice to them.

42.  In fixing the figure, I have not factored in any allowance for the trustees own administration costs of “the Trust” because, as I said, I have yet to be persuaded of the Trust’s and the trustee’s benefits in this case and, as I have said, the trustee is not even a party.  I so order.

43.  I now move on to the directions that I shall give for the avoidance application.

44.  The trustee in bankruptcy’s application for directions was taken out by summons dated 16 April 2013 at a time when the Beddoe judgment had not yet been handed down.  But it has now been handed down and therefore the adjournment by Barma J has expired by its own terms and so the trustee in bankruptcy need not carry the burden of persuading me in a way, to uplift the adjournment because of some undue delay in the Beddoe application.

45.  As a result of the discussion that took place before me during the hearing, there is a good deal of consensus between the parties and I shall make the following order:

(1) Any application for joinder of the children should be taken out within 14 days. 

(2) The respondents do inform the children forthwith in writing of the terms of my order and the respondents do copy such notification to the trustee in bankruptcy.

46.  By way of explaining this order, I am not forcing anyone to apply but the last date for any application for joinder would be within 14 days.  The children can apply.  The respondents can apply.  But the notification provision that I have included is because the children were not before me and the last thing that one wants is that if, and I say if, an order is eventually made in the avoidance application in the absence of the children, I do not want there to be any complaint by the children that somehow they had not been informed as to what had happened and they had had no chance to be heard.  So I will perhaps impose the burden on the respondents to notify the children so that at least they would know that they have a chance to apply in these proceedings.  They should know by way of their participation in the Beddoe application anyway, but there is no harm in being safe. 

47.  My next order is that the respondents do file affidavit evidence within 28 days stating the material facts within their knowledge and disclosing all documents within their possession, custody or power relating to the establishment and administration of the Trust and of the respondents including but not limited to:

(i) the transfer of assets into the respondents;

(ii) any transfer of assets into the Trust;

(iii) any transfer of assets out of the respondents;

(iv) any transfer of assets out of the Trust;

(v) payments made on behalf of the respondents and the Trust (including but not limited to payments in respect of legal fees and maintenance expenses in respect of the Robinson Road and Aberdeen properties);

(vi) change of directorship of any of the respondents and the reasons therefore.

48.  I have framed the order widely and also with some specificity with reference to such matters that, as things now stand, I can already see to be potentially the areas of scrutiny.  I am well aware of the sentiment about disclosing “trust information” without a court order, and to allay any such concerns, the order is mandatory and so there is no misunderstanding that there is a duty.

49.  No suggestion or submission has been made to me that there are any complications arising from the fact that the Trust is a Cayman trust or that the respondents may not be in possession, etc, of any documents concerning the trust.

50.  I also make an order in terms of the trustee in bankruptcy’s summons date 16 April, from paragraphs 3 up to 6 but I am not minded to make any directions about CMC or a trial as yet because obviously the matter may well develop and it is safer simply to leave the matter by way of giving liberty to apply.

(Discussion re costs)

51.  In the exercise of my discretion on costs I would go for what some may call the “soft option”.  I will reserve the costs for the interlocutory injunction summons and I will also reserve the costs for the avoidance application directions summons.  I hope people know what I mean by the avoidance application directions summons.  It is the 16 April summons.

(Paul Shieh, SC) Recorder of the Court of First Instance High Court

Ms Linda Chan, SC, instructed by King & Wood Mallesons, for the applicants

Mr Clifford Smith, SC, instructed by K & L Gates, for the 4^th respondent