MOTOROLA SOLUTIONS CREDIT COMPANY LLC v. KEMAL UZAN AND OTHERS

HCA 2232/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2232 OF 2013

______________________

________________________

D E C I S I O N

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The application

1. On 3 June 2016, I made a declaration that Motorola is entitled to enforce a US judgment in Hong Kong, and entered judgment against the 1^st to 7^th defendants in the sum of US$1,290,580,663.34. Further orders enabling the enforcement of that judgment were made.  On 17 June 2016, I handed down the reasons for that judgment.

2. As part of that judgment, the usual costs order, namely that the 1^st to 12^th defendants should pay the costs of the action on a party and party basis to be taxed if not agreed was made.  An order in those terms is a joint and several order against all defendants.  Consequently the plaintiff is entitled to enforce the order against any one or all of the defendants. 

3. The 10^th defendant (Ms Kwong) was given leave to apply to vary the costs order in so far as it relates to her.  I heard that argument on 13 July 2016.  This is my decision.

Background

4. The Uzan’s (1^st – 4^th defendants) are international fraudsters on a grand scale.  The remaining defendants, with the exception of the Ms Kwong, are an individual and corporate vehicles who act in accordance with the instructions of the Uzan’s to assist in the concealment of the proceeds of the fraud.  A fraud was perpetrated on Motorola by the Uzan’s which yielded a massive amount, resulting in a judgment for compensatory damages and interest in the United States for a sum in excess of US$2.1 billion in July 2003.  Subsequently the judgment was registered in the United Kingdom.

5. Some recovery has been made in respect of that judgment, and in these proceedings, an action based upon the US judgment, I entered judgment against the 1^st to 7^th and 8^th to 12^th defendants for the sum of US$1,290,580,663.54.

6. Following the discovery by Motorola of the involvement of the 8^th to 12^th defendants as part of a scheme to conceal assets acquired as a result of the fraud, on 15 November 2013, on an ex parte basis, a Mareva injunction was obtained by Motorola against all defendants to protect assets they were alleged to be holding on behalf of the Uzans.

7. By way of a writ with statement of claim attached, substantive proceedings were commenced in Hong Kong on 18 November 2013, to enable recovery of the assets held through the Hong Kong entities and corporate vehicles, and secured by the Mareva injunction.

8. The injunction was continued on 22 November 2013, and again on 24 January 2014, save that on that occasion the injunction was discharged against Ms Kwong upon her undertaking to comply with its terms.

9. On 20 January 2014, Ms Kwong filed a defence to the statement of claim.  That defence asserted that she was a nominee owner of 55% of the shares of the 10^th defendant, and was a director of the 10^th defendant until she resigned on 6 November 2013, with notice of the resignation being filed in the Companies Registry on 20 November 2013.  The defence asserted that she did not personally know any of the 1^st to 7^th defendant’s either individually or collectively and had had no dealings with them.  Importantly, the defence did not state for whom Ms Kwong held the shares or acted as a director.  In that respect it was completely silent.

10. The defence did not admit that Motorola was entitled to enforce the US judgment in Hong Kong under common law and put Motorola to strict proof in respect of the relief sought against Ms Kwong.  The defence did not admit that the United Kingdom judgement could be registered in Hong Kong.

11. It is now accepted by Motorola that Ms Kwong was an innocent nominee in respect of her involvement in the corporate defendant, the 9^th defendant.  It is now accepted that she had been instructed in her capacity as a solicitor for the 8^th, 9^th, 11^th and 12^th defendants, and that she had acted in her personal capacity as a nominee shareholder and director of the 9^th defendant.  The 8^th defendant was also a nominee shareholder and director of the 9^th defendant. 

12. Whilst it is now accepted by Motorola that Ms Kwong was an innocent nominee, the 8^th defendant was complicit in the Uzan’s scheme to conceal their assets.  There is no suggestion that Ms Kwong was aware, at any time, that the 8^th defendant, or the corporate vehicles for whom she acted, were being used by the Uzan’s to conceal assets.  It appears that on the face of the transactions undertaken they could be seen as normal commercial transactions.

13. Subsequently, Ms Kwong unsuccessfully opposed, both on her own behalf and on behalf of the defendants she was instructed to represent, a number of interlocutory applications by Motorola, including applications for discovery, and a request for Further & Better Particulars of her defence.

14. In her dual capacity as a defendant, and as a solicitor for the 8^th, 9^th, 11^th and 12^th defendants, Ms Kwong filed a total of 16 affidavits, 3 at least, of which were in support of her own applications as well as the applications of the 8^th, 9^th, 11^th and 12^th defendants for a stay and leave to appeal against a discovery order made on 24 January 2014.

Discussion

15. Mr Nunn was entitled to say that Ms Kwong was in breach of the discovery order by making only piecemeal and partial discovery.  That is plain from the terms of a decision of Deputy High Court Judge Seagroatt, dated 9 May 2014 in which an order was made that the 8^th defendant should be cross examined on his affidavits in relation to a hearing to continue a Receivership Order that had been made on 18 February 2014.  Ultimately, it was necessary for Ms Kwong herself to be cross-examined on the discovery issue.  The terms of that cross examination provided further justification for the submission.

16. That cross examination was necessitated by Ms Kwong’s actions prior to 4 June 2014, on which date she had issued an interpleader summons in relation to the shares she held.  It is clear from the cross-examination that, as a party in her personal capacity, and as a person who was acting for fellow defendants in her capacity as a solicitor, she had failed to properly discharge her duties, in both capacities, to comply with the discovery order. 

17. The cross-examination did not proceed to a conclusion despite the matters that were disclosed, as arrangements were made for independent parties to go to Ms Kwong’s office to obtain the relevant documents and computer records.

18. I accept that following the issue of the interpleader summons, and the completion of the discovery, Ms Kwong ceased to be personally involved in the matter and Mr Nunn sensibly does not seek costs after the interpleader application, other than those of and occasioned by the cross examination, including the costs of discovery resulting therefrom.

19. All of the costs sought against Ms Kwong now could have been avoided had she immediately, upon receipt of the writ and statement of claim, filed an interpleader summons and taken appropriate steps to secure her files in relation to the defendants for whom she acted as a solicitor.  Instead she elected to engage in the battle by filing a defence in her own right which, while it asserted that she was merely a nominee, put the plaintiff to strict proof of matters pleaded and relief sought.

20. Once she had engaged herself as a defendant, she became a party to the action in her own right, arguing her own case, and resisting the plaintiff’s procedures, in her own capacity as well as that of the clients for whom she continued to act.  That is particularly so in circumstances where the defence failed to explain the details of the party for whom she held the nomination.  Such information was not subject to legal professional privilege and should have been immediately disclosed.

21. By failing to comply with orders, and giving unsatisfactory explanations of for the failure to comply with orders, those advising the plaintiff were entitled to draw the inference that she was doing so to protect not only the position of those she represented, but also her own position.  Unfortunately, having adopted that position she is not entitled, like a nominee bank, who stands aside the proceedings, not becoming involved, to be indemnified for her costs or to be held not liable for any costs.

22. Costs are a matter that is in the discretion of the court.

23. Plainly, in the present circumstances, there is no basis for Ms Kwong to be liable, as are the other defendants, for the costs of the whole matter through to trial.  It would be a harsh and unjust exercise of discretion in the circumstances to impose upon Ms Kwong a joint and several liability for the whole cost of these proceedings.

24. But by engaging in the proceedings in her own capacity, by filing a defence, and by resisting discovery, both initially and by way of appeal, until the interpleader proceedings were filed, Ms Kwong has exposed herself to the risk of costs which, although substantive judgment has not been given against her in the trial, properly fall on her.

25. I am satisfied from having read the cross-examination that that the cross examination was necessitated by Ms Kwong’s actions prior to the interpleader.  The discovery was required in her personal capacity, because of the terms of her defence has filed, as well as that of the clients for whom she acted. 

26. The cross-examination demonstrates that Ms Kwong had made only piecemeal and partial discovery, and failed to discharge her duty in respect of her clients, which in the circumstances include herself, in complying with the orders of discovery.  She must accordingly, at least, share a responsibility for those costs with the defendants for whom she acted.  I note from the documents put before me that she has an indemnity from the 9th defendant.  It will be open to her o pursue that indemnity as she wishes.

27. In reaching my decision in respect of this matter I have borne in mind that, notwithstanding the matters mentioned in §26 above, Motorola has not made an application under the provisions of O 62 r 8for a wasted costs order against a legal representative.

Disposal

28. Recognising that Ms Kwong was throughout a mere nominee, and that no O 62 r 8 application has been made, in the exercise of my discretion I am satisfied that justice will be done if Ms Kwong is ordered to pay the following costs:

(i) The costs of and occasioned by her defence,

(ii) 25% of the costs of occasioned by the application for discovery, including the appeal and the cross-examination following therefrom, the costs of discovery resulting therefrom, and the costs reserved by the order of Deputy High Court judge Seagroatt on 3 July 2014. 

(iii) I direct that the costs arising from the affidavits filed by Ms Kwong shall be limited to the 5^th, 6^th and 7^th affidavits which were filed in support of her own applications as well as those of the 8^th- 9^th, 11 -12^th defendants.

Costs

29. Ms Kwong has been partially successful only in her application to vary the order for costs.  I make an order that each party will bear their own costs of the variation hearing.

The proper course

30. This case provides a salutary lesson to any solicitor, accountant, banker, or any person who agrees to hold shares in a company, or take a directorship in the company as a nominee.  It is for precisely that type of situation that the interpleader procedure exists.  That is plain from the opening words of the Editorial Introduction to the commentary on RHC O 17 in Hong Kong Civil Procedure:

“Interpleader is a proceeding by which a person, from whom two or more persons claim the same property or debt, and who does not himself claim the property or dispute the debt, can protect himself from legal proceedings by calling upon the two claimants to interplead, that is to say, claim against one another, so that the title to the property or debt may be decided by the court.”

31. Where a defendant to an action seeks interpleader relief a Court may stay all further proceedings in the action against that defendant.  It would be unusual for a stay to be refused in the circumstances raised by this case.  Once the stay is granted, the solicitor nominee can stand aside and avoid all further costs.

32. It was not at all surprising that Motorola should have joined Ms Kwong into the proceedings as a defendant.  On the face of the public documents she was a shareholder in, and a director of, the 9^th defendant. 

33. The proper course for a solicitor, acting as nominee shareholder or trustee, to take when faced with proceeding such as these is clear.  The solicitor should immediately file an interpleader summons, and seek to stay the proceedings in so far as they are concerned.  At the same time they should secure all documents held on behalf of the entity for whom they are a nominee or trustee, and secure all computer records that might in any way related to the client. 

34. The plaintiff and client for whom the solicitor acts as nominee should be informed that the documents and computer records will be held, preferably by an independent person, pending further orders of the court, and subject to such arguments as may properly be made in respect of legal professional privilege.  Other solicitors should be instructed to act for the client in the proceedings in future.

35. Had Ms Kwong taken those steps, she would have faced no liability for costs at all.  It was, without any need for hindsight, remarkably foolish for her, in the circumstances, to have accepted instructions to act for the 8^th, 9^th 10^th and 11^th defendants.  Those clients should have been immediately referred to another law firm to act.  The explanation given for not taking that course, that they did not know any other law firms in Hong Kong, is quite unacceptable.  It is a simple matter to refer client to the “Find Legal Service” page of the website of the Law Society of Hong Kong which contains the names and addresses of solicitors, and enables the client to identify the area of practice where assistance is required.  Alternatively, the solicitor should simply refer the client to the Law Society for assistance in finding another solicitor.

HCA 2232/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2232 OF 2013

______________________

______________________

__________________________________________

REASONS FOR JUDGMENT

__________________________________________

Introduction

1.  On 3 June 2016, I made a declaration that Motorola is entitled to enforce a US judgment, and entered judgment against the 1^st to 7^th defendants in the sum of US$1,290,580,663.54. Further orders enabling the enforcement of that judgment were made.  These are the reasons for that judgment.

2.  Mr Westbrook relied upon affidavits from Jules B Kroll and George Reid Calhoun V both of which exhibited numerous documents confirming the assertions in the affidavits.  Both Mr Kroll and Mr Calhoun swore to the truth of those affidavits before me, Mr Kroll by video link from New York, and Mr Calhoun in court in person.

3.  I adopt the following description of the background of the circumstances from the judgment of Zervos J delivered on 11 March 2014:

“3. (Motorola) is a company incorporated in the United States of America (US). The 1^st to 5^th defendants are all members of the Uzan family of Turkey. It is claimed by (Motorola) that the 6^th and 7^th defendants are close associates of the Uzan family and that the 8^th to 12^th defendants hold property or assets as nominees for the 1^st to 7^th defendants.

4. The Uzans are a wealthy family who have been heavily involved in litigation with (Motorola) and others over the last 10 years. They include the father (the 1^st defendant), his two sons (the 2^nd and 3^rd defendants) and daughter (the 4^th defendant).

5. In litigation in the US it was found that members of the Uzan family and others had perpetrated a large scale fraud on (Motorola) by misappropriating advanced payments in the sum of $1.7 billion made by it to the Turkish telecom company, Telsim, and as part of their scheme they also ensured that the security provided for the advance payments by way of a share pledge was devoid of any value.

6. On 29 January 2002, (Motorola) filed a complaint against a number of defendants, including the 1^st to 6^th defendants, in the US District Court for the Southern District of New York which included allegations of misappropriation and fraud. On 3 July 2003, the court gave judgment against the defendants, including the 1^st to 6^th defendants, ordering them to pay (Motorola) compensatory damages and interest of US$2,132,896,9055.66. This is referred to as the July 2003 judgment.

7. On 20 June 2006, the US District Court entered a judgment against members of the Uzan family for punitive damages in the sum of US$1 billion, in addition to the compensatory damages. This is referred to as the June 2006 judgment.

8. In another set of proceedings, the US District Court on 25 October 2010 entered judgment against the 7^th defendant in the total sum of US$4,359,619,155.74 inclusive of interest having found that it was the alter ego of the 1^st to 6^th defendants. This is referred to as the October 2010 judgment.

9. The US judgments are final and conclusive, and not subject to further appeal.”

4.  Having heard the evidence, I was satisfied that the 8^th to 12^th defendants held property and assets as nominees for the 1^st to 7^th defendants, as alleged by Motorola.

An action on a foreign judgment:

5.  At common law, a plaintiff can sue on a money judgment obtained outside Hong Kong on the basis of an implied contract to pay.  The requirements to be established in order to succeed in action on a judgment obtained outside Hong Kong are set out in Hong Kong Civil Procedure, 2016, Vol. 2 at E3/0/5:

(i) The judgment is for a debt or a definite sum of money;

(ii) The proceedings in which the judgment was obtained were not opposed to natural justice;

(iii) The foreign judgment was not obtained by fraud;

(iv) The foreign judgment was rendered by a court of competent jurisdiction;

(v) The foreign judgment is final and conclusive;

(vi) The enforcement in recognition of the foreign judgment is not concrete public policy; and

(vii) The foreign proceedings were not brought in contravention of an agreement under which the dispute in question was to be settled otherwise than by proceedings in the courts of that country

6.  The evidence before me establishes that all of those criteria are met.

The defences:

7.  Numerous issues were raised in their defences by the defendants by way of defence to the proceedings.  Despite the fact that the defendants elected not to appear at the trial I have considered each defence that has been raised on the pleadings, in the light of the evidence before me and Mr Westbrook’s submissions.

Defendants not nominees:

8.  First, it was neither admitted nor denied in the defence that the 6^th-12^th defendants where nominees of the Uzan family.  The evidence however clearly established that they were in fact nominees and, apart from bare denials by the defendants, no person has come forward to suggest or try to establish any positive case that the assets are in fact owned by anyone else.  The defence is not established.

Dismissal of RICO complaints:

9.  Next, it was asserted that a complaint filed by Motorola in the USA under the Racketeer Influenced and Corrupt Organisations Act (RICO) had been dismissed in the USA.  That is correct, but that dismissal has no impact upon the fact that Motorola proceeded with the balance of its claims in fraud and obtained the judgment now sought to be enforced in Hong Kong.  The RICO proceedings were found to be premature and consequently dismissed without prejudice.  The dismissal does not create a defence to these proceedings.

No jurisdiction in USA over 7^th defendant:

10.  Next it was argued that the US District Court had no basis to assume jurisdiction over the 7^th defendant. Separate proceedings were commenced against that defendant to enforce the US judgment against that defendant.  The 2^nd defendant has formally admitted in his Defence that he is the beneficial owner of the 7^th defendant.  On 25 October 2010, with the7th defendant electing not to appear in the proceedings, the US District Court entered judgment against the 7^th defendant for the same amount as the July 2003 judgment, but now including a later additional award of US$1 billion in punitive damages.

11.  In any event, there is no substance to the assertion that the US District Court had no jurisdiction over of the 7^th defendant.  Personal jurisdiction over alter egos is a well recognised concept under US law: see S Tel New England Co v Global NAPs Inc 624 F 3d 123, 138 (2d Cir 2010), where the court held that it was well established that the exercise of personal jurisdiction over an alter ego corporation does not offend due process; and Impulse Mktg Grp Inc v Nat’l Small Bus Alliance Inc 2007 WL 170813 at *9, when the court held that when a court finds that personal jurisdiction exists over an individual or corporation, personal jurisdiction exists also over the individual’s or corporation’s alter ego.

Not a judgment on the merits:

12.  It was asserted in the defence that the judgment, the subject of the action, was not a judgment on the merits.  There is no requirement in this respect.  In any event, this is an argument which is applicable only to the enforcement of the UK judgment. 

13.  Here, Motorola does not seek to enforce the UK judgment, but brings an action on the US judgment.  Consequently it is not necessary for me to consider the academic criticism of Morgan Stanley & Co Intl Ltd v Pilots Lead Investments [2002] 2 HKLRD 731, in which Deputy Judge J Poon, as he then was, had to deal with a Singapore order enforcing an English judgment, with the Singapore order then being sought to be enforced in Hong Kong.

14.  I accept Mr Westbrook’s submission that this defence simply falls away with Motorola confining itself to the US judgment.

Motorola has no locus standi:

15.  Next it was asserted in the defence that by an assignment agreement made in September 2005, Motorola irrevocably sold and assigned to Bayinderbank AS a final award which represented the entire underlying cause of action for the US judgment.  Consequently, it was contended that Motorola had no locus standi to enforce the US judgment. 

16.  The argument disregards the fact that the agreement referred to expressly preserved Motorola’s rights to enforce the judgment against the Uzans in every jurisdiction except four “Restricted Territories”, namely Turkey, Kazakhstan, North Cyprus and Poland.  The evidence further establishes that this argument has been raised unsuccessfully before both the US District Court and the US Court of Appeals for the Second Circuit, and dismissed by both courts.

Punitive damages unenforceable in Hong Kong:

17.  It was next argued that a foreign judgment for punitive damages could not be enforced by an action in Hong Kong. That is right, but in its Reply, Motorola has formally waived it rights (if any) to enforce in Hong Kong any part of the judgment sums which relate to punitive damages.  The issue simply does not arise.

Breaches of the rules of evidence or natural justice:

18.  This allegation was not the subject of any particulars, and I accept Mr Westbrook’s submission that on that basis alone it stands liable to be dismissed for vagueness.

19.  Mr Westbrook recognise that the defence as pleaded might be a reference to the (apparently strategic) decision taken by the Uzan defendants not to participate in the U.S. trial itself, despite appearing in those proceedings variously by five prominent US law firms, in at least 29 other related court hearings.  In fact the US District Court proceeded to hold a trial and produced a detailed judgment of its facts findings and conclusions.  Nothing in the proceedings suggests any way that rules of evidence were breached or that the US proceedings were in any way contrary to natural justice.

Motorola put to strict proof of the judgment sum:

20.  Mr Westbrook properly acknowledged that prior collections of approximately US$1.04 billion had been made.  The evidence of Mr Calhoun included an up-to-date account of the sum due, as at the date of the hearing on 3 June 2016.

21.  I am satisfied that proper credit has been given to private collections, and that there has been no double counting. I am satisfied that the sum for which Mr Westbrook sought judgment is the correct amount now outstanding, and that the sum for which I have given judgment has been strictly proved.

The UK judgment may not be enforced under the Foreign Judgments (Reciprocal Enforcement) Order, (FJREO):

22.  That is correct, but the argument falls away completely, as Motorola seeks judgment only based upon the US judgment, and brings the matter before the court as an action on a foreign judgment rather than seeking enforcement under FJREO.

Nokia as a co-plaintiff:

23.  It is right that Nokia was a co-plaintiff in part of the proceedings.  But the evidence satisfies me that Nokia was not a party to the full judgment obtained by Motorola, and it has no right to any benefits that might arise from Motorola’s judgment.  The point is simply irrelevant.

The limitation arguments:

24.  The usual rule in respect of a domestic judgment is that an action shall not be brought on a judgment after the expiration of 12 years from the date on which the judgment became enforceable: see Limitation Ordnance Cap 347, s 4(4).  However, in an action to enforce a foreign judgment the limitation period is six years, as a foreign judgment is treated as an implied contract to pay the amount of the judgment: see Halsbury’s Laws of Hong Kong (2^nd Ed.) Vol. 37 §§245.038, 245.066 and 245.067; and Shenzhen Tian He Jian Sang Teletype Holdings Co Ltd v HK Jian Sang Electronics (Group) Ltd [2008] 4 HKLRD 314.

25.  Where there has been a deliberate concealment of relevant facts the commencement of a limitation period is postponed: see LO, s 26(1):

“Subject to subsection (4), wherein the case of any action for which a period of limitations prescribed by this Ordinance, either-

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”

Here it is submitted that there has been deliberate and fraudulent concealment of assets in Hong Kong, against which the U.S. judgment may be enforced.  Consequently, Mr Westbrook says the limitation period does not begin to run until Motorola has discovered the concealment, or could with reasonable diligence have discovered it.  In this case Motorola relies upon the deliberate concealment of facts relevant to the right of action.

26.  A fact relevant to a plaintiff’s right of action is a fact without which the cause of action would be incomplete, but not a fact which would merely strengthen or otherwise complete a claim: see Johnson v Chief Constable of Surrey, The Times Law Reports 23 November 1992, which was confirmed by AIC Ltd v ITS Testing Services Ltd (The Kriti Palm) (2007) 1 Lloyd’s Rep 555 at §§452-453.

27.  Mr Westbrook’s submission is that the critical fact relevant to Motorola’s cause of action, the enforcement of a foreign judgment in Hong Kong, is the existence of assets within the jurisdiction which assets form the basis for a cause of action to seek enforcement of the foreign judgment.  There is no authority for this proposition.

28.  In Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1996] 1 AC 102 HL.  The House of Lords held that the words of s 32(1)(b) Limitation Act 1980, (identical to LO s 26(1)(b)), were wide enough to apply both where the concealment of relevant facts was contemporaneous with the accrual of the cause of action and where it occurred subsequently and there was no reason to restrict their generality to a contemporaneous concealment; and that, in accordance with section 1(2), the ordinary time limits had been excluded and time had not begun to run until the discovery or imputed discovery of the facts by the plaintiffs.

29.  Thus, the fact that the creation of a Hong Kong companies as a device to conceal assets occurred subsequent to the U.S. judgment does not prevent the operation of s 26(1)(b) from delaying the commencement of the limitation period.

30.  It is right that in Lowsley v Forbes [1999] 1 AC 329 at 343G, in the speech of Lloyd of Berwick, in dealing with the UK Limitation Act, the following passage, obiter dicta, appears:

“The recovery of interest by way of execution on a judgment is not a ‘right of action’ within the meaning of s 32(1)(b). Even if it were, I doubt whether the defendant’s concealment of himself or his assets would be the concealment of a fact relevant to such a right of action.”

On the face of it, this passage may be argued to be a basis upon which the defendants can say that Motorola’s action in Hong Kong is statute barred the limitation.

31.  It is not clear from Lowsley whether the defendant in that case did anything deliberate to conceal his assets, but it is clear that the subsequent concealment in relation to limitation point did not arise.  I note also that although Sheldon was cited[1] in Lowsley, it does not appear to be have been taken into account on this point, as it is not referred to at the passage set out above.  

32.  It seems clear that the court was not dealing with a situation where a foreign judgment was being sought to be enforced in England by way of an action on the judgment, but rather enforcement steps on a local judgment given over 11 years earlier.

33.  The decision, whilst persuasive, must be noted to be only obiter, and in any event not binding on the courts of Hong Kong.  I do not find this House of Lords statement to be a bar to the present action.

34.  Mr Westbrook mounted an alternative argument, based upon a breach of duty.  In Beaman v ARTS Ltd [1949] 1 KB 550 the Court of Appeal held that where a defendant acted in breach of the duty, a right of action would not accrue until the discovery of the breach.  In that case the defendant had acted in breach of the duties of a bailee for reward and failed to notify the plaintiff of the steps they had taken.  Their failure to inform the plaintiff of what they had done was held to constitute a reckless concealment by fraud falling within the then English equivalent of s 26(1)(b), and consequently the action was not barred by limitation.

35.  In the present case the defendants have been under a clear, continuing, legal duty to disclose their worldwide assets under Mareva and Disclosure orders made in the High Court in England and later upheld by the Court of Appeal there.  It is clear that the failure by defendants to disclose the whereabouts of assets and the subsequent concealment of those assets constitutes a breach of the duty on the defendants pursuant to those orders.

36.  There is no dispute that the discovery by Motorola of assets belonging to the Uzan family, and held by the defendant nominees in Hong Kong, occurred well within a period of six years prior to the issue of the writ.  It is equally clear that the concealment of those assets was part of a deliberate and long-standing practice on the part of the Uzans to frustrate courts and plaintiffs internationally.

37.  I am satisfied that the failure by the defendants to disclose the whereabouts of their assets and their subsequent concealment of the assets in Hong Kong, being in breach of their duties under both the Mareva and Disclosure orders, constitutes the fraudulent concealment of facts relevant to Motorola’s right of action in Hong Kong. 

38.  Quite simply, without assets owned by the defendants in Hong Kong there is no basis upon which Motorola could bring proceedings to enforce a foreign judgment in Hong Kong.  A Hong Kong court should not permit an action based upon a foreign judgment could be brought in a vacuum.  The only sensible reason for bringing an action based upon a foreign judgment in Hong Kong is to enforce that judgment.  When there are no assets upon which enforcement might be undertaken there can be no basis to bring the action in Hong Kong.

39.  I am accordingly satisfied that there is no basis for the limitation defence.

Interest:

40.  Mr Westbrook accepts that interest can only be claimed up to 6 years prior to the issue of the writ.  On that basis, the sum due, calculated having due regard to collections that have been made subsequent to the original judgment, and interest running back six years from 3 June 2016, is the sum of US$1,290,580,663.54, the sum for which the judgment shall be entered. 

41.  Mr Westbrook put before me a draft judgment for sealing, which I have duly approved.

HCA 2232/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2232 OF 2013

________________

__________________________________

REASONS FOR DECISION

__________________________________

Introduction

1. This was the hearing of the application by Colin Alan Cook, HPF Private Investment Fund Company Ltd, AA Capital Investments Ltd and Hijaz Investments Hong Kong Ltd, respectively the 8^th, 9^th, 11^th and 12^th defendants (“D8”, “D9”, D11” and “D12” and collectively “the defendants”) by summons dated 20 January 2014 (“the discharge summons”) to discharge an ex parte Mareva injunction granted by DHCJ Lok on 15 November 2013 and continued on 22 November 2013 by DHCJ Seagroatt.

2. Under the terms of the order of 22 November 2013, the defendants were to file reply affidavits by 20 December 2013 which they failed to do.  Instead, the defendants took out the present summons on 21 January 2014, 3 days before the return date for the inter partes hearing.  On the return date, L Chan J continued the injunction order “for want of evidence in opposition” until trial or further order and gave directions for the filing of evidence for the hearing of the discharge summons.

3. At the conclusion of this hearing, the defendants’ discharge summons was dismissed with costs on a party and party basis to be taxed and payable forthwith to the plaintiff.  My reasons appear below. 

Background

4. In 2003, the plaintiff obtained a judgment in the US against D1 to D6 (“the Uzans”) who had been found by the US courts to have defrauded the plaintiff amongst others of approximately US$2 billion.  In 2010, the plaintiff obtained a US judgment against the D7, the alter ego of the Uzans.  The UK courts domesticated the US judgments in 2004 against D2 and D4 and in 2010 against the D1 and D3.

5. The Uzans have strenuously resisted enforcement in every possible way (as they had vowed to do through counsel in the US proceedings) and the plaintiff has so far only recovered part the judgment sums.

6. In 2011 and 2012, the plaintiff discovered that D9, D11 and D12 (companies incorporated in Hong Kong) are part of the complex web of nominee companies established by the Uzans to hold and/or launder the downstream assets located in the Middle East. It was in those circumstances that the plaintiff obtained the injunction order.

The application for an adjournment

7. On 15 May 2014 the defendants’ then solicitors Angela Ho & Associates delivered the hearing bundles (consisting of 19 box files) together with defendants’ counsel’s written skeleton and two box files of authorities.  Senior and junior counsel for the defendants on that date had prepared the written skeleton submitted.

8. On 16 May 2014, Tanner DeWitt wrote to the court to the effect that they had “recently been appointed” to act for the defendants in place of Angela Ho & Associates.  Upon inquiry being made, the court was advised that there would not be a change of counsel.

9. At the hearing, it transpired that the defendants were not represented by counsel although out of courtesy to the court and very properly, senior and junior counsel who had previously been instructed appeared in court to provide an explanation.  At senior counsel’s request, the chambers hearing became a hearing that was “not open to the public”.

10. The court was informed that senior and junior counsel were retained approximately two weeks earlier and briefs had been delivered by Angela Ho & Associates for them to appear, apparently not only at this hearing but also at another hearing before another judge scheduled for the last week of May.  Due to the change of solicitors, counsel’s understanding was that the briefs previously delivered were no longer valid or effective and new briefs from Tanner DeWitt were necessary if they were to represent the defendants at the hearing before this court. The court was also informed that the Hong Kong Bar Association from whom they had taken advice had confirmed their understanding of the situation. 

11. Despite having been told by Tanner DeWitt that they would be briefed, such briefs had not been forthcoming right up to that moment.  In those circumstances, there was little the court could do but to excuse counsel from attendance.

12. Mr Mark Side, a partner of Tanner DeWitt who was in court advised the court that his firm was not in a position to deliver the briefs because it had not yet been put in funds which be believed “to be on the way”.  The circumstances in which briefs had previously been sent out are not known.  

13. My understanding of the explanation proffered by Mr Side was that the funds emanate from the Middle East and because the weekend is observed on different days in the Middle East (Friday and Saturday which are nonbanking days) and the banks in the West do not operate on Sundays, there was a mismatch resulting in the delay.  Mr Side’s understanding was that the “monies were initiated to be paid on Sunday”.  He asked that the summons not be dismissed and that the hearing be adjourned, presumably, sine die.

14. When pressed as to the basis of that understanding, Mr Side informed the court that he was told on the telephone after banking hours on Monday 19 May by a solicitor (whom he did not identify) in another jurisdiction (which turns out to be Singapore) who acts for Mr Cook (D8) and that he had spoken to that solicitor on various occasions since being instructed.

The court’s discretion

15. Whether an adjournment should be granted in the events that have occurred engaged the exercise of the court’s discretion.  In this regard, a number of matters are material.

16. The first matter to note is that both the hearing and hearing date could not have taken the defendants by surprise since it was the defendants’ application and the date was fixed about three months ago in consultation with counsel’s diaries.  Accordingly, I do not accept that the present difficulties were caused by the change of solicitors on the Thursday before the hearing assuming that to be the case. 

17. Second, the present hearing is not the first occasion that the defendants have appeared in court in this matter.  The defendants have been legally represented at the several hearings that have taken place since November 2013.  They have been legally represented in court on all those occasions, making or resisting applications of one kind or another.  Therefore, the defendants must know that their solicitors must be put in funds if they are to be legally represented at a hearing.

18. Third, D8 is an ex-Royal Marine.  He is also the director of D9 and D11 and holds shares in both those companies as a nominee for the real owner whom he has not identified as such.  D8’s evidence (filed on behalf of D9 and D11 as well) suggest that the defendants are investors in large investment projects, this notwithstanding the fact that it is their evidence that they do not own any asset worth HK$10,000 or more in Hong Kong. 

19. Fourth, it is also their evidence that as of 20 January 2014, the amount of legal costs incurred in this case had already exceeded US $100,000.  It is clear from D8’s second affirmation (at § 35) filed in support of the summons before this court, that at that time (January 2014) it was already contemplated that senior counsel would be instructed to represent the defendants and that legal costs would easily add up to “millions of Hong Kong dollars”.  One would expect that arrangements for adequate and timely funding for this exercise would have been put in place in good time.

20. Fifth, quite why the former firm was replaced is not known.  In any event, I do not consider the identity of the firm to be of relevance nor the fact that there has been a change of firm.  Whichever firm was to represent the defendants, it had to be put in funds so that counsel could be briefed and represent the defendants at the hearing.

21. Sixth, one day has been set aside to hear the application the defendants’ summons to discharge. If the hearing cannot take place as scheduled and is adjourned, a new date would have to be fixed in consultation with counsel’s diaries.  This, coupled with the state of the court’s diary, necessarily means that any adjourned hearing would not be happening any time soon.

22. In my view, a last-minute application for an adjournment should not be entertained absent exceptional circumstances supported by credible evidence.  Mr Side’s explanation is at best speculative, based on hearsay from a third party.  That third party may or may not have authority to represent the defendants.  In this matter alone, according to the court’s record, the defendants are onto their third set of counsel and, as we have seen, Angela Ho & Associates were replaced on the eve of the substantive hearing. 

23. More surprising is the fact that Mr Side does not appear to have had any direct communication with the defendants.  I find that state of affairs wholly inexplicable.

24. In exercising my discretion, regard must be had to the underlying objectives of the CJR.  The fact that the hearing could not proceed has resulted in a complete waste of judicial time and resources which could have been devoted to other cases.  It has also deprived other litigants of a valuable court day.   

25. The defendants have chosen to conduct themselves in a way that is in total disregard of their obligations to further the underlying objectives of the CJR stated in O 1A, r 1. Parties and their legal representatives need to be mindful of the duty imposed on them by O 1A, r 3 and take heed that court dates are not to be trifled with in the absence of good cause.

26. While much of the hearing took place in chambers (not open to the public), I consider it in the public interest that the reasons for not granting an adjournment and dismissing the defendants’ discharge summons be made public.

HCA 2232/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2232 OF 2013

________________

__________________________________

REASONS FOR DECISION

__________________________________

1.  Plaintiff seeks an order to have 8^th defendant cross-examined on his affirmations on the hearing to continue the Receivership Order made on 18 February 2014 by Godfrey Lam, J and continued by him on 21 and 28 February 2014.

2.  That Receivership Order related to all the assets of the 9^th, 11^th and 12^th defendants.

3.  The 8^th to the 12^th defendants were ordered to file affidavits giving full details regarding the disposal/disposition of certain “downstream” assets of certain companies under the control, it is contended of the 8^th to 12^th defendants.

4.  These assets were subject to a Mareva injunction order initially obtained on 15 November 2013 and extended since.

5.  If these assets have been removed, there has been a breach of the Mareva injunction which is a serious matter.  Although the defendants have taken out a summons to be heard on 20 May before Deputy High Court Judge Madam Le Pichon, to discharge the Mareva injunction, I am not concerned with that.

6.  Much of the content of the defendants’ affirmations is taken up with seeking to deny or refute the contentions advanced in support of the Mareva injunction and challenging the validity of the judgments and even the jurisdiction of the American courts.  That is a wasteful, repetitive and inappropriate exercise and a misuse of affirmations. The Mareva injunction stands unless and until it is cancelled or discharged.

7.  In his 11^th affirmation sworn in Manila on 18 March 2014 but for some reason not filed in Hong Kong until 10 April 2014, over three weeks later, the 8^th defendant, Mr Cook accepts that he is the director of the 9^th defendant (HPF) and of the 11^th defendant (AA Capital).  But he says he is such as a mere nominee.  He is deposing in his personal capacity as a director of the two companies.  When one strips away the irrelevant material, the content is reduced to a denial of any involvement in the destruction of any documents, saying initially that all the relevant documents (without saying what he means by relevant) are in existence and kept by the landlord of HPF (see Vol C page 510).

8.  The “downstream” assets owned by JDC (Jordan Dubai Capital) have been dissipated or disposed of.  Mr Cook says that they do not belong to him or HPF or AA Capital and neither he, nor any of the companies of which he is a director had any power or control over them. 

What are these “downstream” assets?

9.  They are the interests of JDC in a number of other companies.  The 10^th defendant MME Kwong Ka Yin, who also happens to be the solicitor who has been acting for Mr Cook is likewise involved with the 9^th and 11^th defendants, and, somewhat bizarrely, is the solicitor responsible for the drafting of the affidavits of the 8^th defendant and some of his co‑defendants.  This fact and its potential implications will not have been lost on anyone.  Mr Wilson Leung appearing for the 8^th defendant today, informs me that she is no longer representing the 8^th defendant.

10.  There are two letter from the 9^th defendant (HPF) to the Central Bank of Jordan, of significance[1].  The first is dated 11 September 2012.  The signatory is not entirely clear but it is obviously a precursor to the second letter in the following year.  It concerns the investment of HPF in JDC- “HPF is a dedicated vehicle for investment in the MENA(Middle East and North Africa(?)) and Levant regions.  The investment in JDC was carried out by HPF’s affiliated companies, HAJ Capital Pte Ltd, Levant One Investment Pte and AA Capital investments (the 11^th defendant.)”

11.  The first two are Singaporean companies owned by the 8^th defendant who also is a director of AA Capital Investments.  So those three companies, apparently under the 8^th defendant’s control, own JDP (Jordan Decapolis Capital) which is or was a substantial asset of JDC.

12.  The second letter is dated 27 March 2013 and appears to be signed by the 8^th defendant. It relates to the acquisition of JDC by HPF which is itself described as a “private investment fund” in Hong Kong which has two sources of funding ‑ shareholders equity and investment unites by unit holders ‑

“Special purpose vehicles (SPVs) were created and the shares placed under nominee arrangements with a licensed nominee company in Hong Kong.

No change has occurred at the ownership of JDIB.”

13.  It then identifies the various financial investments.  These were substantial sums all paid in June 2012 –

Euros 35,709,771

Euros 54,564,507 and AED 18,357,000

and Euros 2,233,500.

JDC was placed in voluntary liquidation on or about 9 February 2014.  The directors and/or shareholders of HPF and/or JDC would have had to agree to this disposal.  JDC’s largest asset was JDP alleged to hold USD 100m worth of properties through 22 subsidiaries.  JDC held 77% of JDP through those subsidiaries.  Its disposal in January 2014 is alleged to be in breach of the Mareva injunction.  Mr Cook says in an affidavit in Singaporean proceedings that JDC was sold in effect for payment of its debt and $23 million (I assume USD) in cash to repay the debt of HAJ, Levant and AA Capital, all companies under the control or management of Mr Cook.

14.  One of the planks of the plaintiff’s case embracing the 8^th defendant, is that he has links with the Uzan clan and is effectively yet another of their proxies.

15.  It emerges from the 8^th defendant’s Further and Better Particulars of his Defence dated 20 February 2014 that he was asked to be a nominee of HPF (9^th defendant) by Al-Haddadein who has already been designated a proxy of the Uzans by the US courts.  He is the sole director also of the 12^th defendant.

16.  Cook (the 8^th defendant) says he discussed this proposal with Jalal Nabulsi, also designated a Uzan proxy by the US courts.  There is a record of e‑mail contacts showing Nabulsi in regular contact with Hakan Uzan (3^rd defendant) and other designated Ukan proxies.

17.  The 8^th defendant also says that the 12^th defendant is 100% owned by Hijaz Jordan whose owner, “nominal” or otherwise, is Zafer Perksu, yet another proxy of the Uzan clan according to the findings of the US courts, and that HPF (9^th defendant) of which he is the “nominal” director/owner or otherwise, is owned beneficially by the 12^th defendant (Hijaz HK).  Zafer Perksu and Al-Haddadein are also directors (since May 2009) of Hijaz Jordan (the owner of Hijaz HK).

18.  Cook says that he was also asked to be the nominal shareholder of the 11^th defendant by Polkaco Holding Company Cyprus.  Polkaco is another proxy of the Uzan clan, as found by the US courts.

19.  Polkaco is linked with Solamico, Tasselco and Standaco – more Uzan proxy companies in the Levant – and has the same initial shareholders and directors as Libananco (7^th defendant) and the three companies who were also incorporated in Cyprus.  These are, on the plaintiff’s case, all tentacles of the Uzan clan.

20.  I have read the affirmations relied upon in support of and in opposition to this application.

Conclusion

21.  There are clearly inconsistent statements or averments in the affirmations of the 8^th defendant, Colin Alan Cook, which are highly relevant to the issues in this case, in particular whether there has been a breach of the Mareva injunction order initially made on 15 November 2013 and continued by me on 22 November 2013, and subsequently in my absence.  The sale of JDC (Jordan Dubai Capital) and/or its asset Jordan Decapolis Capital took place some time after the Mareva injunction was imposed.  If the defendant had any hand in that disposal it is a very serious breach of a court order with serious penalties.

22.  Some of the contents of his affirmations are arguably deliberately evasive.  Other material contents indicate obfuscation, deliberate or otherwise, in an attempt to deal with matters, or at least in a failure to deal with such.

23.  There is much repetitive and irrelevant content which has no place in affirmations of this nature, or perhaps in any affirmations, since they concern argument not facts.

24.  Although the defence has relied on an argument to the effect that in interlocutory matters the court should lean against ordering cross‑examination because great delay and expense might be caused, referring to the late Fuad JA’s judgment in Wendy Wenta Seng Yuen [1984] HKLR 431 at page 436 E-4.  It is important to note the following:

“The true rule must be that the court has an unfettered discretion to permit cross‑examination on an affidavit but the applicant is not entitled to this right as of course. He has to establish that in all the circumstances of the case there is good and sufficient reason for the application.

… it seems to me that what is essential for the applicant to show is that the proposed cross‑examination might be productive of a useful result at the stage that the application is made.”

That case, now over 30 years ago, was concerned with the financial dispute between husband and wife.  In the interim so much change has taken place that I cannot imagine the husband being asked to advance his argument these days.  It would be untenable.  Furthermore, the emphasis upon case‑management in litigation has rightly placed much importance, on resolving areas of dispute or issues as early and as economically as possible.  This also enables parties to see the strengths or weaknesses of their case at an early stage and act accordingly.  As Fuad JA said there will be cases where the interests of justice dictate that a deponent should be subject to cross-examination.

25.  I have also been referred to the decision of Ma J, (as he then was), in Yau Chiu Wah which sets out comprehensively the criteria to be followed and the considerations to be applied.  The learned judge there expressed the same concerns about that defendant’s conduct as I have formed in relation to this defendant’s.  He also adopted a particular paragraph in the judgment of Cumming-Bruce LJ in House of Spring Gardens Limited v Waite which I find particularly apposite:

“It may be that there are situations in which the circumstances demonstrate that it is more sensible, if only for reasons of speed and urgency, not to order further affidavits in order to fill that vacuum alleged to exist in the affidavits filed pursuant to the original order, but to proceed at once to order that the defendants attend for cross‑examination upon their affidavits. The purpose of the cross‑examination would be to elicit with greater particularity the extent and the whereabouts of the defendants’ assets.”

26.  In my view, this is a case where a breach of a Mareva injunction is alleged with some force, with significant consequences for the intended beneficiary of the injunction in the nature of the loss or potential loss of a significant asset which the injunction was designed to protect.  I consider that the interests of justice favour the course which the plaintiff wishes to take.  Order 38 rule Z gives the court an unfettered discretion to be exercised judicially.  Of course each case will have different facts.

27.  It may be possible, though that of course may only be in pious hope, that an identified asset can be traced and brought back under the court’s control as a consequence of evidence in cross‑examination.

28.  The matter of disclosure and preservation of documents should be dealt with at an early stage and there are, as I have indicated, some documents which call for explanation or clarification before any more time is lost.  The defendant’s averments on this score may reasonably be termed somewhat cavalier in style and ought to be examined promptly to establish whatever degree of certainty is possible.

29.  If breach of the Mareva order is shown to have been committed, how it was done, what was the defendant’s involvement if any, and what steps, if any, can be taken to minimize the effect are material matters calling for early assessment.  That will also save time, cost and effort.  If there are channels to facilitate breaches they need to be stopped up as soon as possible.  It may be that there will be a severe test of credibility but that must not be allowed to inhibit earlier exercises to determine what is in the interests of justice.

30.  I make the order accordingly.  I have been asked to order that the plaintiff formulates a list of questions so that the defendant can apply his mind to the matters on which he will be asked.  I decline to require such a formalised exercise.  The defendant will be well aware of the topics on which he will have to concentrate from the affidavits/affirmations on both sides.

31.  Secondly I have been asked to order the plaintiff lawyers to formalise a list of the topics for cross‑examination.  I reject that for the same reason.  Whilst cross‑examination will have to be confined to matters already identified, there may be other avenues opened and it would be inappropriate at this stage to impose any restriction.

32.  The defence have asked that the plaintiff discloses all documents on which they intend to rely.  I anticipate that these have already been identified within their affidavits.  In any event the defendant has already had ample opportunity to call for the production of any documents referred to, which he does not already have.  His lawyers should now promptly ask for copies of such documents which they do not already have.

33.  The plaintiff’s counsel has agreed to supply a schedule of the e‑mail contacts on which he will seek to rely and of course if the defendant wants a copy of the contacts as supplied to the plaintiffs by the recording authorities he should have them.  Once again of course, he could have obtained these earlier and checked with his own e‑mail records.

34.  The plaintiffs are entitled to the costs of this application with certificate for Senior Counsel.  I have however indicated to Mr Wilson Leung that if following the receivership hearing, he feels he has any justification for asking me to re‑open this matter of costs, I would not bar him from so doing.

HCA 2232/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2232 OF 2013

______________________

BETWEEN

______________________

________________________

________________________

Introduction

1.  The two summonses in relation to this case first came on before me on 27 February 2014, and in a decision on 11 March 2014 I adjourned the hearing to 1 April 2014 in order for the 2^nd to 5^th and 7^th defendants to put evidence before me as to the grounds on which they wished to contest the proceedings.  One summons is an application by the plaintiff seeking judgment in default against the 1^st to 7^th defendants for failing to file a defence,[1] and the other is an application by the 2^nd to 5^th and 7^th defendants seeking an extension of time to file a defence and to make application to dispute the jurisdiction and to stay the proceedings.[2]

2.  In the course of this decision, I will describe the 2^nd to 5^th and 7^th defendants as the defendants, unless I make specific reference to any one of them in particular.

3.  Prior to the hearing of these applications, the defendants took out a summons to apply for leave to file further evidence.  The application seeks to put before me for the purpose of these proceedings a 2^nd affidavit from the 2^nd defendant and a legal opinion on French law. I granted leave to the defendants to file the further evidence.

Background facts

4.  The plaintiff is a large US multinational company involved in the sale of cellular telephone equipment.  The first five defendants are members of the Uzan family, a well known Turkish family, who owned among other business interests a telecommunications company, Telsim Mobil Telekomunikayson Hizmetleri AS (“Telsim”).  On 28 January 2002, the plaintiff commenced an action in the US District Court for the Southern District of New York before District Judge Rakoff against members of the Uzan family and others alleging that the defendants fraudulently induced it to enter into various financing agreements with Telsim without any intention to repay the monies advanced.  The court found that the defendants had perpetrated a large scale fraud on the plaintiff by misappropriating advanced payments in the sum of US$1.7 billion it made to Telsim and that as part of their scheme they ensured that the security provided for the advance payments by way of a share pledge were devoid of any value.

5.  There were three judgments by the US District Court.  The first was on 31 July 2003 when the court entered judgment against the defendants, including the 1^st to 6^th defendants, and ordered them to pay the plaintiff compensatory damages and interest of US$2,132,896,905.66.[3]  The second was on 20 June 2006 when the court entered judgment against members of the Uzan family for punitive damages in the sum of US$1 billion, which was in addition to the compensatory damages.[4] The third was on 25 October 2010 when the court entered judgment against the 7^th defendant in the total sum of US$4,359,619,155.74 inclusive of interest having found that it was the alter ego of the 1^st to 6^th defendants.[5]

6.  The US judgment of 31 July 2003 was domesticated in the United Kingdom.  The English High Court entered judgment in the amount of US$2,132,896,905.66 together with pre-judgment interest, continuing post-judgment interest at 8% per annum and costs against the 2^nd and 4^th defendants on 6 December 2004 and against the 1^st and 3^rd defendants on 16 April 2010.  The US and UK judgments have been upheld on appeal and are final and conclusive.

7.  As I have previously noted no voluntary recovery had been made under the various judgments obtained in the US and the UK, although the plaintiff has been able to collect funds in part settlement of the judgments through ancillary proceedings in various jurisdictions, including an arbitral settlement with Telsim and the Government of Turkey in relation to this matter where it received US$910 million. Several members of the Uzan family have been dealt with for contempt of court in the US and UK for failure to comply with court orders and have had imposed on them in absentia terms of imprisonment.  Also, various members of the Uzan family are either wanted or have been dealt with in absentia in relation to criminal matters in Turkey.  

8.  In the writ of summons, the plaintiff claims that as at 8 November 2013, after allowing for monies collected so far, it is owed:

(a) US$2,607,798,489.65 on the UK judgments, with interest continuing to accrue thereon at 8% per annum; and

(b) US$2,653,286,596.23 on the US judgments, with interest continuing to accrue thereon at the statutory rate.

The Hong Kong proceedings

9.  The basis of the plaintiff’s present proceedings is to enforce the outstanding amounts due under the US and UK judgments against associates of the Uzan family who hold assets for them in Hong Kong.

10.  The plaintiff claims that it is entitled to enforce the US judgments and UK judgments in Hong Kong at common law, and in the alternative, that the UK judgments be registered against the 1^st to 7^th defendants pursuant to the provisions of the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap 319.

11.  On 15 November 2013, the plaintiff obtained from Deputy High Court Judge Lok an ex parte order for a freezing injunction and leave to serve the intended writ out of jurisdiction by way of e-mail on the 1^st to 7^th defendants.  The plaintiff submitted evidence explaining the difficulties that it had had in locating and contacting members of the Uzan family and why substituted service out of the jurisdiction by e-mail was justified in the circumstances.  Ms Anita Fong Man Ieng in an affirmation dated 21 November 2013, confirmed that service had been effected on the 1^st to 7^th defendants as ordered.

12.  On 18 November 2013, the plaintiff issued a writ against the 12 defendants, claiming the outstanding balance of US$2,607,798,489.65 on the UK judgments as a debt payable by the 1^st to 4^th defendants, or the outstanding balance of US$2,653,286,596.23 on the US judgments as a debt payable by the 1^st to 7^th defendants.

13.  On 19 November 2013, the 2^nd defendant received by e-mail the writ.  He appears to be the representative of the Uzan family and that has been confirmed by him in his affidavit that he has filed in these proceedings, insofar in relation to the 3^rd, 4^th and 5^th defendants.  On 2 December 2013, he responded by e-mail, returning the acknowledgement of service and stating that he objected to the service of the writ and that it had not been served in accordance with international requirements.  He also stated that he objected to the enforcement and domestication of the US judgments in Hong Kong and that he would contest the proceedings. 

14.  On 16 December 2013, the 7^th defendant by its director, Mr Andreas Partellas of Cyprus, in similar terms as stated by the 2^nd defendant, objected to service of the writ and that it would contest the proceedings. 

15.  The defendants have instructed Hong Kong lawyers who have filed an acknowledgment of service for the 2^nd to 5^th defendants on 30 January 2014 and the 7^th defendant on 5 February 2014. There has been no response by the 1^st and 6^th defendants.

16.  The freezing injunction granted by Deputy High Court Judge Lok was ordered to remain in force until trial or further order by the court.  On 18 February 2014, G Lam J appointed receivers over all the assets of the 9^th, 11^th and 12^th defendants.

Present proceedings

17.  As I mentioned in my decision of 11 March 2014, the principles applicable to extension of time applications were addressed in The Decurion [2012] 1 HKLRD 1063.  The Court of Appeal held that in the exercise of the discretion to extend time, a court was obliged to look at all relevant matters and consider the overall justice of the case, and not apply a rigidly mechanistic approach, in order to strike a balance between the two principles: that a party should observe procedural rules with judgment entered against him in default; and that a party should not be deprived of an adjudication of the case on its merits unless there had been prejudice to the other party that could not be compensated by costs.

18.  Where a defendant has failed to file a defence, the court has discretion to grant an extension of time for the defendant to plead his case when it is just to do so, and in light of the principles stated in The Decurion, a court in the exercise of this discretion is obliged to look at all relevant matters and consider the overall justice of the case.  This may involve taking into account the nature and merits of the defendant’s case, together with all other relevant matters in considering whether to grant an extension of time in order for him to defend the proceedings.  I was of the view, that given the nature and history of this case and the plaintiff’s claim, the defendants needed to show a good arguable case supported by evidence on the grounds that they wish to challenge the proceedings, which together with other relevant matters, would be taken into account in considering the overall justice of the case. I adjourned the proceedings for that purpose.

19.  The defendants by their summons seek an order in the following terms:

“(1)The time for the 2^nd to 5^th defendants and the 7^th defendant to file and serve a Defence and Counterclaim (if any) be extended to 28 days after this Order to be made herein;

(2)The time for the 2^nd to 5^th defendants and the 7^th defendant to file and serve an application to dispute the jurisdiction (if any) be extended to 28 days after this Order to be made herein;

(3)The time for the 2^nd to 5^th defendants and the 7^th defendant to file and serve an application to stay the proceedings (if any) be extended to 28 days after this Order to be made herein;

…”

20.  The basis on which the defendants wish to contest these proceedings is as follows:

(1) To challenge the court’s jurisdiction over the defendants in that they have no assets or presence in or any connection to Hong Kong.

(2) To challenge the leave granted to serve the writ of summons out of the jurisdiction and to set aside the order permitting substituted service by e-mail.

(3) To defend the substantive proceedings by filing a defence in order to raise arguable and triable issues in that,

(a) the enforcement of the US and UK judgments are time barred under the Limitation Ordinance, Cap 347,

(b) the US judgment includes punitive damages which are not enforceable in Hong Kong,

(c) the plaintiff is not entitled to rely on the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap 319, to enforce the UK judgments,

(d)the UK judgments are unenforceable as they are a judgment on a judgment; and

(e) the plaintiff in settlement agreements has denied itself of the right to claim any outstanding balance under the judgments against the defendants.

21.  The 2^nd defendant has filed an affidavit in these proceedings. He does so in his personal capacity and also on behalf of his family members, the 3^rd, 4^th and 5^th defendants.  He states on behalf of the Uzan defendants that they do not have any presence or assets in Hong Kong.[6]  He also states that the 8^th to 12^th defendants are neither nominees of the Uzan defendants or the 7^th defendant, nor do they hold any property directly or indirectly which is beneficially owned by the Uzan defendants or the 7^th defendant.[7]  Ms Antonia Kyriakou, a director of the 7^th defendant has also filed an affidavit in these proceedings in which she also confirmed that the 7^th defendant does not have any presence or assets in Hong Kong.[8]

Jurisdiction over the defendants

22.  The plaintiff obtained leave to serve the defendants out of the jurisdiction, by relying on O 11 r 1(1) (b) and (1) (m) of the Rules of the High Court (RHC).  Ms Roxanne Ismail, SC, leading counsel for the defendants, correctly points out that a court has jurisdiction to entertain a claim in personam if, and only if, the defendant is served with process inside the jurisdiction or abroad in circumstances authorised by, and in the manner prescribed by, statute or statutory order. On the basis of this well established principle, Ms Ismail argues that in order to establish jurisdiction over overseas defendants by service out of the jurisdiction, the plaintiff must show that the case falls clearly within one or more of the subparagraphs under O 11 r 1(1).  She argues that the plaintiff has failed to do so, or at least it is reasonably arguable that Hong Kong courts do not have jurisdiction, in that as a matter of law it may be necessary for the plaintiff to prove that the defendants have assets in Hong Kong in order to invoke O 11 r 1(1) (b) or (m), and that the evidence adduced by the plaintiff as to the link between the defendants and the 8^th to 12^th defendants is speculative.  On what I have before me, I do not agree with this submission.

23.  Under O 11 r 1(1), service of a writ out of the jurisdiction is permissible with the leave of the court if in the action begun by the writ the case falls within one or more of the subparagraphs.  Subparagraph (1) (b) operates where an injunction is sought ordering a defendant to “do or refrain from doing anything within the jurisdiction”.  Ms Ismail argues that this subparagraph concerns injunctive relief within the jurisdiction and that as the defendants have no assets in or no connection to Hong Kong, the claim falls outside the scope of this subparagraph. She relies on SFC v C [2009] 4 HKLRD 315 and SFC v Lee Sung Ho & Ors [2012] 5 HKC 20. Those two cases are set in an entirely different factual situation where the defendants had no apparent presence or assets in Hong Kong.  In this case, the plaintiff is alleging that the defendants hold assets in Hong Kong through nominees or associates and seeking injunctive relief within the jurisdiction.

24.  Subparagraph (1) (m) operates where the claim is brought to enforce any judgment or arbitral award.  Ms Ismail points out that it is not yet settled whether there is a requirement for there to be assets within the jurisdiction, although it is likely, in order to make a claim for the enforcement of a judgment or arbitral award.  I do not think the issue really arises in this case, as the plaintiff’s claim is that the defendants have assets in the jurisdiction through their nominees or associates. Ms Ismail seeks to rely on Linsen International v Humpuss Transportasi Kimia [2011] EWCA Civ 1042 [9] to argue that Fonu v Demirel [2007] 1 WLR 2508 is not authoritative on this topic.  On this issue, the case of Fonu was specifically on point, whereas Linsen was not, in that the comments of the court were not lying down any rule of principle but simply making a conclusion that the rule did not apply to the case in question.  In Fonu a foreign claimant obtained an order to serve upon the 1^st defendant outside the jurisdiction of a claim to enforce a Turkish judgment.  The 1^st defendant, a foreign national living outside the United Kingdom, applied to set aside the order on the grounds that he had no assets within England and Wales against which a judgment could be executed and that the court therefore lacked jurisdiction under the rule to permit service out.  It was held by the judge and confirmed by the Court of Appeal that the rule did not require the claimant to establish the presence of assets within the jurisdiction.  Sir Anthony Clarke MR gave the judgment of the court and stated that the rule was to be given its ordinary and natural meaning and there was no reason to imply into it a requirement that there must be assets in the jurisdiction in order to permit service out of the jurisdiction of an action to enforce a foreign judgment.  He said:

“… we accept that the court should not automatically exercise its discretion in favour of permitting service out of the jurisdiction unless it is just to do so, and that it will ordinarily not be just to do so unless there is a real prospect of a legitimate benefit to the claimant from the English proceedings. We see no reason why that benefit should not be indirect or prospective.” [10]

25.  He went on to say:

“Thus a claimant seeking to enforce a foreign judgment by action does not have to show that there are assets in the jurisdiction. To require him to do so would be tantamount to construing the rule as if it were limited in that way. The claimant must show that he has a good arguable case in the action, that is that he has a good arguable case that judgment should be given based upon the foreign judgment. He must in our opinion ordinarily show further that he can reasonably expect a benefit from such a judgment. Otherwise there would be no useful purpose in the proceedings.”[11]

26.  There is no reference to Fonu’s case in Linsen, and it appears it was not cited.  On a careful reading of the judgments in Linsen, it is clear in my view, that the court was not laying down any rule of principle contrary to Fonu but simply stating that the rule did not apply in the circumstances of that case because enforcement could not be done in England due to the fact that the assets the plaintiff were pursuing were in another country.[12]

27.  Mr Westbrook SC, for the plaintiff, makes the point, which I accept, that there is no express or implied requirement of local assets in the Order 11 protocol.  This view was also expressed in Hong Kong Civil Procedure2014 [13] where in the commentary it is stated that there is no express requirement of local assets in the wording of O 11 and there is no reason to imply one generally.  Under subparagraph (1) (m) there is no determination of issues to take place in Hong Kong and the very purpose of service out of the jurisdiction is for enforcement in the jurisdiction, but that decision will rest on whether the case is a proper one for service out of the jurisdiction.[14]  I can envisage that it would be proper for service out of the jurisdiction where there is a real prospect of a legitimate benefit, whether indirect or prospective, to the claimant from the proceedings in Hong Kong.  Accordingly, in my view, the correct test is whether there is a real prospect of a legitimate benefit to the plaintiff’s proceedings if leave to serve out of the jurisdiction is granted.

28.  Ms Ismail argues that the evidence filed by the plaintiff to support its allegation that the 8^th to 12^th defendants are nominees or holding companies of assets belonging to the defendants is speculative. Without going into the specifics, she criticises some of the assertions in the affidavit of Mr Jules B Kroll for the lack of supporting material or logic. I do not agree. Both Mr Kroll and Mr George Reid Calhoun, V have provided very comprehensive and detailed statements.[15]

Service on the defendants

29.  The defendants challenged the service of these proceedings on them.  On this issue, Ms Ismail makes the following points on behalf of the defendants.  First, it is complained that in the affirmation in support of the application for leave to serve outside the jurisdiction, there was no mention of where the defendants were or likely to be found or what efforts had been made to locate them.  Ms Ismail argues that because of this there has been noncompliance with O 11 r 4 (1) (c). The plaintiff argues that evidence was filed with the court of the difficulties that had been experienced in the past in locating or dealing with the defendants.  Mr Calhoun stated that various Uzan defendants were fugitives and subject to arrest in the US, UK and Turkey and their addresses for service were unknown and that the plaintiff had previously corresponded with the Uzans using the cited e-mail addresses.[16]  There were also contempt proceedings against the defendants in the US and UK for their failure to comply with court orders. In addition to Mr Calhoun’s evidence, there was also evidence from Mr Kroll on these matters.[17] Secondly, the claim by the plaintiff that he did not know of the whereabouts of the defendants is contrary to information that is well known and public. Mr Westbrook in submission referred to the evidence of both Mr Calhoun and Mr Kroll and the uncertainty of the defendants’ whereabouts.  Thirdly, there was no reason given why service could not be effected on the 7^th defendant, which is a company incorporated in Cyprus.  It appears that the plaintiff’s evidence on the issue of service was mainly in relation to the members of the Uzan family. I note that the 7^th defendant is a company with a registered office in Cyprus.  Fourthly, there was no disclosure to the court that service by e-mail was not a permitted method under French law and likely to be in contravention of the Hague Convention. It is argued by Ms Ismail that this is contrary to O 11 r 5(3) (a).  The defendants have submitted evidence that under French law e-mail service is not permitted.  Mr Westbrook makes the point that this only relates to the 2^nd defendant who claims to reside in France and in any event as service was effected by e-mail it is unknown in which country or place it was received.  Fifthly, it is complained that the failure by Mr Calhoun to mention that the present claim includes a claim for enforcement of a judgment awarding punitive damages may amount to material nondisclosure. It was apparent from the papers that punitive damages were included in the judgments but the compensatory damages were substantial. 

30.  The prohibition under O 11 r 5(2) is that no order or direction for service out of the jurisdiction “shall authorise or require the doing of anything in a country or place in which service is to be effected which is contrary to the law of that country or place.”  I read this to mean that in effecting service elsewhere nothing in the order or direction shall authorise or require the doing of anything that is contrary to the law of that country or place.  However, O 11 r 5(1)(3) provides that:

“a writ which is to be served out of the jurisdiction (a) need not be served personally on the person required to be served so long as it is served on him in accordance with the law of the country or place in which service is effected; …”

31.  The foregoing matters are issues in dispute between the parties and some aspects of which do provide a basis for argument.  I note, however, that service of process by e-mail has been effective and, as required, gave the necessary notice to the parties of the claim against them.  It is also clear in the circumstances of this case that the 2^nd defendant is the representative of the family and on his own admission he has appropriately notified the other Uzan defendants.

The defendants’ case

(a) Judgments time barred

32.  The defendants argue that the US July 2003 judgment and the UK December 2004 judgment are time barred.  It is submitted that a foreign judgment is regarded as an implied debt and hence the statutory limitation period applicable to simple contract applies, in contrast to the statutory limitation period applicable to local judgments.  See Berliner v Jost [1971] 1 QB 278 at 279 and 285 F-H and Shenzhen Tian He Jian Sang Electronic Holdings Co Ltd v Hong Kong Jian Sang Electronics (Group) Ltd [2008] 4 HKLRD 314 at 319-320.  In the alternative it is argued, that even if the 12 years limitation period applies and enforcement is not time barred, under s 4 (4) no arrears of interest shall be recoverable after the expiration of 6 years from the date on which the interest became due.  The plaintiff relies on s 26 (1) (b) of the Limitation Ordinance which provides that if any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake or could with reasonable diligence have discovered it.  The plaintiff also argues that the limitation period does not begin to run until late 2012 or early 2013 when the plaintiff discovered that the Uzan family had assets in Hong Kong. Ms Ismail argues that it would be wholly inappropriate to accept the plaintiff’s claim without full and proper argument. She submits that as a matter of law it is unlikely that s 26 (1) (b) applies where the existence of assets is concealed with respect to the enforcement of a foreign judgment debt.  She relies on the House of Lords decision of Lowsley v Forbes [1999] 1 AC 329 at 343E-G which she argued expressed doubt as to whether the fact that a defendant had deliberately concealed his whereabouts or the whereabouts of his assets would amount to concealment of a fact relevant to a right of action.  She further argues that fraud or deliberate concealment is a serious allegation which must be fully particularised and dealt with at trial.  There is an issue as to the application of the statute of limitations.

(b) Punitive damages not enforceable

33.  As a matter of public policy, Hong Kong courts will not enforce foreign judgments awarding damages which are not compensatory but are designed to punish the defendant and deter others from acting in the same way.  See Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679.[18] The US judgment of 20 June 2006 was in the sum of US$1 billion for punitive damages.  The defendants complain that no allowance or recognition was given in the damages and interest sought in the judgments to be enforced and hence the plaintiff is not entitled to the full sum claimed under the US judgments.  There is an issue as to the inclusion of punitive damages in the US judgments, and whilst it may be true, as Mr Westbrook suggests, that the outstanding compensatory damages exceeds the value of the assets sought in Hong Kong, that is a matter more appropriately dealt with at the substantive hearing of this case. 

(c) Enforcement of foreign judgments

34.  The defendants submit that the claim made by the plaintiffs for registration of the UK judgments under the Foreign Judgments (Reciprocal Enforcement) Ordinance is fundamentally misconceived.  It is argued that the Ordinance no longer applies to UK judgments after 1 July 1997 by virtue of s 2A(2) (b) of the Interpretation of General Clauses Ordinance which provides that statutory provisions conferring privileges on the UK and Commonwealth countries shall have no further effect unless there are reciprocal arrangements.  See Robbie Ilana Tenzer v Dr Vincent C Goh HCPI 718/2011, unreported, 19 April 2013.[19]

35.  This aspect of the plaintiff’s claim, even though in the alternative, is flawed and the Ordinance cannot be relied on to register the UK judgments.

(d) Enforcing a judgment on a judgment

36.  It is common ground that the enforcement of a foreign judgment under the common law includes the requirement that the judgment be a final and conclusive decision on the merits. Ms Ismail raises the issue as to whether a court can enforce an order of an intermediary foreign court which had itself registered a judgment of the original foreign court.  Mr Westbrook in response relies on Morgan Stanley & Co International Ltd v Pilot Lead Investments Ltd [2006] 2 HKLRD 731 where it was held that a judgment creditor could enforce a foreign judgment for payment of a monetary sum in Hong Kong by either registering it under the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap 319, or having it enforced at common law by commencing an action.  Ms Ismail argues that the case of Morgan Stanley concerned enforcement under the Ordinance and not the common law.  In the course of argument before me, the issue was raised as to the correctness of this decision.[20] It seems that where the merits of a case have been decided by a foreign court and the judgment of that court is then enforced in another jurisdiction, it is done so in recognition that the foreign judgment is a final and conclusive decision on the merits and therefore not impeachable or examinable as to its merits.  It therefore means that if another jurisdiction is asked to enforce the order of the intermediary foreign court it is doing so in relation to an order that simply met the requirements of registration of a foreign judgment.  Ms Ismail argues that the case of Morgan Stanley is probably wrong. She makes the point that the practical problem which would arise from enforcing a judgment on a judgment is demonstrated in this case.  I have to agree that confusion may arise when the plaintiff seeks to enforce both the original US judgments and the enforcement UK judgments of the US judgments. As is illustrated by this case the two judgments are for different amounts because different interest rates apply.

37.  There is an issue as to the enforcement of the UK judgments.

(e) Settlement agreements

38.  The 2^nd defendant stated in his affidavit that by virtue of settlement agreements with the plaintiff, it has lost its right to pursue the outstanding balance of the claims. The settlement agreements referred to are the Assignment Agreement and the Corporate Defendants Agreement.[21] As pointed out by Mr Calhoun, this argument has been mounted before and has been rejected by trial and appellate courts in the US and Switzerland.  Ms Ismail argues that the point has not been specifically considered by the courts in question but it is apparent that it has been raised and unsuccessfully. The defendants have produced an affidavit from a Swiss lawyer giving an opinion that the plaintiff no longer has any legal standing to pursue the receivables which were the subject of the Assignment Agreement against any party. [22] Mr Westbrook notes that the Assignment Agreement does not preclude the plaintiff from pursuing the outstanding balance of the judgments against the defendants. It should be noted that the defendants were not a party to this agreement which was a separate settlement agreement in relation to Telsim.

E-mail as evidence

39.  There was a complaint made by the defendants in relation to access to their e-mails but it was pointed out this was a potential line of defence which had not been fully investigated.  I have not addressed the matter as it was unclear as to its relevance with respect to this application.

Conclusion

40.  As I stated from the outset of my decision, where a defendant has failed to file a defence, the court has discretion to grant an extension of time for the defendant plead his case when it is just to do so.  This requires the court to look at all relevant matters and consider the overall justice of the case.  I adjourned this case to allow the defendants to put before me the grounds on which they would defend the proceedings. I considered that in the circumstances of this case this was a relevant matter to take into account when considering the overall justice of the case.  I am satisfied for the foregoing reasons, in particular the number of points that have been raised that warrant adjudication, that this is an appropriate case for me to exercise my discretion and grant an extension of time for the defendants to plead their case.  They have advanced a number of points on which to challenge the claim against them.  This was done for the purpose of this application, and as to how they plead their case and on what basis, now that an extension has been granted, are matters for them. The defendants by their summons seek an extension of time to file and serve a defence and counterclaim (if any), an application to dispute the jurisdiction (if any) and an application to stay the proceedings (if any) within 28 days of the date of this order.  I make an order in those terms.  It follows that the plaintiff’s summons against the defendants seeking judgment in default for failing to file a defence is refused.  On the question of costs, I order that costs be reserved.

41.  This however does not include the 1^st and 6^th defendants who have failed to file a defence, and have not joined the other defendants in seeking an extension of time to do so.  Had they done so, I would have granted them an extension of time as well.  The court has been made aware of a number of matters that would make it inappropriate to enter default judgment against them until these matters have been appropriately resolved on their merits.  I therefore do not consider it just to enter default judgment at this stage.  It is for this reason that I order that the plaintiff’s application in relation to the 1^st and 6^th defendants be adjourned to the conclusion of the trial of the substantive proceedings or such earlier date by order of the court.  

42.  It remains for me to thank both counsel for their comprehensive and well researched submissions.

HCA 2232/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2232 OF 2013

______________________

______________________

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Introduction

1. This is my decision in respect of two related applications.  The first is from the plaintiff seeking judgment in default against the 1^st to 7^th defendants for failing to file a defence.[1] The second is from the 2^nd, 3^rd, 4^th, 5^th and 7^th defendants for an extension of time to file a defence and to make application to dispute the jurisdiction and to stay the proceedings.[2]

2. The plaintiff is a company incorporated in the United States of America (US).  The 1^st to 5^th defendants are all members of the Uzan family of Turkey.  It is claimed by the plaintiff that the 6^th and 7^th defendants are close associates of the Uzan family and that the 8^th to 12^th defendants hold property or assets as nominees for the 1^st to 7^th defendants.

3. The Uzans are a wealthy family who have been heavily involved in litigation with the plaintiff and others over the last 10 years. They include the father (the 1^st defendant), his two sons (the 2^nd and 3^rd defendants) and daughter (the 4^th defendant).

4. In litigation in the US it was found that members of the Uzan family and others had perpetrated a large scale fraud on the plaintiff by misappropriating advanced payments in the sum of $1.7 billion made by it to the Turkish telecom company, Telsim, and as part of their scheme they also ensured that the security provided for the advance payments by way of a share pledge was devoid of any value.

5. On 29 January 2002, the plaintiff filed a complaint against a number of defendants, including the 1^st to 6^th defendants, in the US District Court for the Southern District of New York which included allegations of misappropriation and fraud. On 3 July 2003, the court gave judgment against the defendants, including the 1^st to 6^th defendants, ordering them to pay the plaintiff compensatory damages and interest of US$2,132,896,9055.66.  This is referred to as the July 2003 judgment.

6. On 20 June 2006, the US District Court entered a judgment against members of the Uzan family for punitive damages in the sum of US$1 billion, in addition to the compensatory damages. This is referred to as the June 2006 judgment.

7. In another set of proceedings, the US District Court on 25 October 2010 entered judgment against the 7^th defendant in the total sum of US$4,359,619,155.74 inclusive of interest having found that it was the alter ego of the 1^st to 6^th defendants.  This is referred to as the October 2010 judgment.

8. The US judgments are final and conclusive, and not subject to further appeal.

9. The US judgments were domesticated in the United Kingdom (UK).  On 6 December 2004, the English High Court entered judgment against the 2^nd to 4^th defendants in relation to the July 2003 judgment in the amount of US$2,132,896,905.66 plus pre-judgment interest of US$124,561,360.45 and continuing post-judgment interest at 8% per annum and costs of GBP120, 000.  This is referred to as the December 2004 judgment.  On 16 April 2010, the English High Court entered judgment against the 1^st and 3^rd defendants in relation to the July 2003 judgment in the amount of US$2,132,896,905.66 plus pre-judgment interest of US$701,401,686.54 and continuing post-judgment interest at 8% per annum and costs of GBP54,192.56.  This is referred to as the April 2010 judgment.

10. The UK judgments are final and conclusive, and not subject to further appeal.

11. No voluntary recovery has been made under the various judgments obtained in the US and the UK, although the plaintiff has been able to collect funds in part settlement of the judgments through ancillary proceedings in various jurisdictions, including an arbitral settlement with Telsim and the Government of Turkey in relation to this matter where it received US$910 million. The details of the enforcement action taken so far are extensively set out in the affidavit of Mr George Reid Calhoun V dated 14 November 2013. 

12. In his statement, Mr Calhoun notes that several members of the Uzan family have been dealt with for contempt of court in the US and UK for failure to comply with court orders and have had imposed on them in absentia terms of imprisonment. He also notes that various members of the family are either wanted or have been dealt with in absentia in relation to criminal matters in Turkey.  

13. As at 8 November 2013, after allowing for monies collected so far, the plaintiff is owed:

(a) US$2,607,798,489.65 on the UK judgments, with interest continuing to accrue thereon at 8% per annum; and

(b) US$2,653,286,596.23 on the US judgments, with interest continuing to accrue thereon at the statutory rate.

The Hong Kong proceedings

14. Mr Calhoun together with Mr Jules B Kroll, who has also filed an affidavit dated 14 November 2013, provide details of the corporate empire of the Uzans which operates through a web of companies and associates and with particular reference to their associates and assets in Hong Kong.

15. The plaintiff claims that it is entitled to enforce the US judgments and UK judgments in Hong Kong at common law, and as an alternative, it will apply to register the UK judgments under section 4 of the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap 319.

16. On 15 November 2013, the plaintiff obtained from Deputy High Court Judge Lok an ex parte order for a freezing injunction and leave to serve the intended writ out of jurisdiction by way of email on the 1^st to 7^th defendants. Mr Calhoun in his affidavit explains the difficulties that the plaintiff has had in locating and contacting members of the Uzan family and why substituted service out of the jurisdiction by email is justified in the circumstances. Ms Anita Fong Man Ieng in her affirmation dated 21 November 2013, confirmed that service had been effected on the 1^st to 7^th defendants as ordered.

17. On 18 November 2013, the plaintiff issued a writ against the 12 defendants, claiming the outstanding balance of US$2,607,798,489.65 on the UK judgments as a debt payable by the 1^st to 4^th defendants, or the outstanding balance of US$2,653,286,596.23 on the US judgments as a debt payable by the 1^st to 7^th defendants.

18. On 19 November 2013, the 2^nd defendant received by email the writ.  He appears to be the representative of the Uzan family.  On 2 December 2013, he responded by email, returning the acknowledgement of service and stating that he objected to the service of the writ and that it had not been served in accordance with international requirements.  He also stated that he objected to the enforcement and domestication of the US judgments in Hong Kong and he would contest the proceedings. 

19. In a document dated 30 November 2013, with reference to the Hong Kong court proceedings, the 2^nd defendant in the form of a statement objected to the service of the writ and to the jurisdiction of the court.  I assume this was submitted in the email of 2 December 2013.  He submitted that the US judgments and the UK judgments were in violation of Hong Kong law and unenforceable.  He also submitted that the US judgments included $1 billion in punitive damages which was contrary to public policy in Hong Kong. He claimed that the statements submitted by the plaintiff to the court were untrue and omitted significant evidence and agreements which would lead to a rejection of the judgments and the enforcement of them.  The agreements were a reference to the settlement agreements which were fully disclosed in the affidavit of Mr Calhoun.  The settlements were in part satisfaction of the judgments and did not preclude further recovery action. He also claimed that the plaintiff’s statements contained references to emails which revealed that his private communications had been illegally intercepted. 

20. The 2^nd defendant made a further statement dated 6 December 2013 in which he stated he had lodged a criminal complaint against Mr Kroll, Mr Calhoun, Mr Howard H Stahl and Ms Georgia Vlamis for violating Articles 28 and 30 of the Basic Law and provisions of the Interception of Communications and Surveillance Ordinance, Cap 589, in that, they intercepted communications of HPF Private Investment Fund Company Ltd (the 9^th defendant).  He gives details of the company, submitting it is a corporate citizen of Hong Kong that has had its rights violated by the plaintiff.  The 2^nd defendant submitted the two statements to the court by facsimile transmission and in a response from the court dated 9 December 2013, he was told that if he intended to dispute the action, he should make his application by proper formal inter parte application and that a fax copy was not acceptable.  He was also advised that he should consider seeking legal advice and assistance from a Hong Kong lawyer.  From the contents of the two statements, and the reference to Hong Kong statutory provisions, it would appear he had legal advice or assistance.

21. On 16 December 2013, the 7^th defendant by its director, Mr Andreas Partellas of Cyprus, in similar terms as stated by the 2^nd defendant, objected to service of the writ and that it would contest the proceedings. 

22. At this time, the 2^nd to 5^th and 7^th defendants instructed Hong Kong lawyers who filed an acknowledgment of service for the 2^nd to 5^th defendants on 30 January 2014 and the 7^th defendant on 5 February 2014.

23. The freezing injunction granted by Deputy High Court Judge Lok was ordered to remain in force until trial or further order by the court.  On 18 February 2014, G Lam J appointed receivers over all the assets of the 9^th, 11^th and 12^th defendants.

Default judgment or extension of time?

24. I will describe the 2^nd to 5^th and 7^th defendants as the defendants, unless I make specific reference to a particular defendant. 

25. Mr Simon Westbrook, SC, counsel for the plaintiff, submits that the Uzans have vigorously contested proceedings throughout the world and have a history of seeking to delay and obfuscate the enforcement of judgments against them.

26. Mr Westbrook also makes the point that the Uzans are no strangers to litigation in common law jurisdictions and are familiar with the time limits and procedures set by the courts.  He submits that no proper explanation has been advanced for the delay in filing an acknowledgment of service and the failure to file a defence due on 13 January 2014.  He notes that the application for an extension of time by the defendants was filed on 6 February 2014 and only after the plaintiff applied for default judgment on 4 February 2014.

27. Mr Westbrook argues that it is pointless for the defendants to contest these proceedings as the US judgment has been recognized in various jurisdictions and that no good defence on the merits has been shown either on affidavit or in argument. 

28. Ms Roxanne Ismail, SC, counsel for the defendants, argues that the defendants should not be deprived of the opportunity of contesting these proceedings, given the initial response from the 2^nd defendant that he wished to defend them and that the delay in not filing a defence is not significant.  I should point out that the due date for filing a defence was 13 January 2014 and no defence has been filed in the meantime.  In any event, Ms Ismail argues that if a defence is filed by the defendants, they would be submitting to the jurisdiction which they wish to challenge.  She argues that any step taken in the jurisdiction would mean the defendants are submitting to it and they would lose the right to dispute jurisdiction.[3]

29. Ms Ismail argues that the defendants wish to challenge the jurisdiction on the basis that there is no connection between them and the assets that have been frozen.  She submits that the defendants wish to particularly contest the service, the jurisdiction and the merits of the action.  It is not clear whether the defendants will take further action in relation to these grounds given the qualified remarks that have been made about doing so.  In the summons for an extension of time, it is stated that the defendants apply to file and serve (1) a defence and counterclaim (if any); (2) an application to dispute the jurisdiction (if any); and (3) an application to stay the proceedings (if any).  In the affirmation of Mr Nathan Bradley Simmons, solicitor for the defendants, he states that the extension of time is required to consider and advise on whether to contest the proceedings.  He also notes that the defendants are not in a position to finalise their application as they are awaiting advice from French lawyers as to the legality of service by email and consideration by their solicitors of the relevant papers.

30. Ms Ismail relies on the case of The Decurion [2012] 1 HKLRD 1063 where the Court of Appeal set aside the orders of the court below refusing an extension of time and granting the plaintiff judgment in default.  It was held that in the exercise of the discretion, a court was obliged to look at all relevant matters and consider the overall justice of the case, and not apply a rigidly mechanistic approach, in order to strike a balance between the two principles: that a party should observe procedural rules with judgment entered against him in default; and that a party should not be deprived of an adjudication of the case on its merits unless there had been prejudice to the other party that could not be compensated by costs.  The Court of Appeal noted in that case that the defendants had a substantial defence.  This was a factor that was taken into account.

31. It was argued by Ms Ismail that this was not a case where the 2^nd defendant had done nothing. He had sought to file an acknowledgment of service which was delayed because communications from the court may have misled him. I do not accept that. The 2^nd defendant made it abundantly clear that he was not acknowledging service and was generally challenging the proceedings against him. It was also clear that he was fully conversant with the procedures and legal issues involved.  In any event, the delay in acknowledging service is not the main issue.  It is his failure and that of the other defendants of filing a defence that the plaintiff now seeks judgment in default. 

32. The 2^nd defendant has filed two affirmations in these proceedings.  They contain strong objection to the proceedings and vitriolic condemnation of the US judgment in broad and general terms.  He also affirmed that he did not have any assets of an individual value of HK$10,000 or more in Hong Kong.  I note that the tone and nature of his comments are reflected in affirmations filed by other defendants.

Conclusion

33. Where a defendant has failed to file a defence, the court has discretion to grant an extension of time for the defendant to plead his case when it is just to do so.  As stated by the Court of Appeal in The Decurion, a court in the exercise of this discretion is obliged to look at all relevant matters and consider the overall justice of the case.  This may involve taking into account the nature and merits of the defendant’s case, together with all other relevant matters in considering whether to grant an extension of time in order for him to defend the proceedings.  Given the nature and history of this case, and the plaintiff’s claim, the defendants need to show a good arguable case supported by evidence on the grounds that they wish to challenge the proceedings, which together with other relevant matters, will be taken into account in considering the overall justice of the case.  I propose to adjourn the two summonses to 1 April 2014 and order for the purposes of these applications, that the defendants file and serve by 25 March 2014 the grounds upon which they wish to contest the proceedings and produce evidence by affidavit supporting those grounds, and that the plaintiff file and serve a response to those grounds by 31 March 2014.  On the return date, I will also deal with the plaintiff’s summons with respect to the 1^st and 6^th defendants.

HCA 2232/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2232 OF 2013

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_____________

D E C I S I O N

_____________

1.  This is my decision on the plaintiff’s application for discovery by the 8th to 12th defendants.

2.  I deal with items 1, 2 and 3 together.  The plaintiff asks for documents concerning or relating to the formation of the 9th, 11th and 12th defendants.  The objection by the defendants is that these are confidential documents and the defendants are not in a position to produce them. 

3.  Any document under these three items and other items for which the claim of confidentiality is being made should be put in a sealed envelope for disposal at another hearing.  The defendants shall state the nature of the confidentiality claimed for each and every document alleged to be confidential. 

4.  Confidentiality is therefore not accepted as a ground of opposition.  These documents are discoverable for the purpose of enforcement of the Mareva injunction and to find out the true ownership of these companies.  I make an order in terms of items 1, 2 and 3. 

5.  I deal with items 4, 5 and 6 together.  Item 4 asks for the agreements pursuant to which the 8th and 10th defendants or any other person have agreed to act as nominal owners of HPF, AA Capital or Hijaz. Item 5 asks for documents evidencing the terms of any nominal ownership of these three companies.  Item 6 asks for documents concerning the beneficial ownership or control of these three companies. 

6.  Obviously they are discoverable for the same reason that it is necessary to look into the true ownership of these three companies so as to effectively implement the Mareva injunction.  I therefore order in terms of these three items.

7.  For items 7 and 8, I would effect the amendments that I have intimated for both of them; that is to limit the generality of all documents and all board minutes to the issue of beneficial interest and the issue of movement of funding.  Again, it is for the obvious reason of enforcing the Mareva injunction.

8.  I deal with items 9, 10 and 11 together.  Item 9 asks for all communications between Mr Cook, the 8th defendant, or Miss Kwong, the 10th defendant, on the one hand, and any director, officer or employee of HPF, AA Capital or Hijaz on the other concerning the beneficial ownership, management or control of the three companies.  Item 10 asks for all documents concerning or relating to communications with any other defendant directly or indirectly concerning the beneficial ownership, management or control of the same three companies.  Item 11 asks for all documents concerning or relating to the 1st to 7th defendants, including all electronic and written communications with the 1st to 7th defendants, for example, emails to/or from the addresses named in the item.

9.  For these three items, apart from confidentiality, the defendants also say that they are wide and vague.  However, I do not think that they are really wide or vague because they all say that the documents to be disclosed are documents that concern the beneficial ownership, management, or control of the three companies.  I therefore order discovery in terms of the requests.

10.  Item 12 asks for the corporate records showing the capital deposited by HPF, AA Capital and Hijaz investors and all dividends or other payments paid out by those companies.  This request is obviously on the beneficial ownership and the objection of irrelevancy cannot stand.  I would therefore make an order in terms of it, but I would also amend it by adding after the word “investors” in the second line the following words, namely “and/or beneficial owners” and I order in terms of this item as amended.

11.  Item 13 asks for all documents evidencing or relating to communications with Mahesh Harrilela, Roger Yip, Tobias Hallin or Alan Siu concerning the beneficial ownership, management or control of the three companies.  This request is really for investigation of matters outside the scope of this action and I would decline the request.  Item 13 is not accepted. 

12.  I deal with items 14 and 15 together.  Item 14 asks for all documents, evidencing or relating to the transfer of property with a value in excess of HK$10,000 on behalf of the three companies from 1 January 2012 to the present.  Item 15 asks for all banks, wire transfer and account statements for the three companies, also from 1 January 2012 to the present.  Again, they deal with movement of funds and it is to verify whether the defendants’ claim of lack of any assets worth HK$10,000 in Hong Kong is true.  There is evidence which tends to suggest that the defendants’ claims are not correct, hence I allow items 14 and 15 in terms.

13.  I deal with items 16 and 17 together.  Item 16 asks for all documents in the possession, custody or control of HPF, concerning or relating to Jordan Dubai Islamic Bank.  Item 17 asks for all documents concerning or relating to communications with any governmental or regulatory authority in the Kingdom of Jordon concerning the ownership or control of HPF or AA Capital.

14.  These two requests are for documents that are not for the enforcement of the Mareva injunction and appear to go outside the scope of this action.  I therefore do not accept them.

15.  I deal with items 18, 19, 20 and 21 together.  Item 18 asks for all documents concerning or relating to Miss Kwong’s communication with representatives of HPF, AA Capital and/or Hijaz, as set forth in her third affidavit dated 19 December 2013, who reside overseas, including but not limited to Amman, Jordon, including all emails, phone logs, or any other correspondence of any kind.  Item 19 deals with documents sufficient to identify all income, wages, bonuses, dividends, gifts or other transfers to Miss Kwong in connection with or related to HPF, AA Capital, Hijaz or the 1st to 7th defendants, including but not limited to any employment contract, ownership documentation and bank statements.  Item 20 asks for documents sufficient to identify all income, wages, bonuses, dividends, gifts or other transfers to Mr Cook in connection with or related to HPF, AA Capital, Hijaz or the 1st to 7th defendants, including but not limited to any employment contract, ownership documentation and bank statements.  Item 21 asks for all documents, including all emails, phone logs, or any other correspondence of any kind evidencing or relating to communications between Mr Cook and Stuart Salter concerning the ownership or control of HPF, AA Capital, Hijaz or directly or indirectly related to the 1st to 7th defendants. 

16.  For items 19 and 20, instead of ordering for discovery, I would revise these two items by requiring the 8th and 10th defendants to go on affidavit to disclose to the best of their belief, with the grounds of belief, who paid them for all the services they rendered as a nominee holder for the interests in the 9th, 11th and 12th defendants.  The disclosure shall be in the same affidavit for verification of the discovery that I am now dealing with.

17.  For items 18 and 21, they are obviously relevant to the beneficial interest.  I order in terms of them.  I grant the defendants liberty to apply for an amendment for revocation or exclusion of the phone logs from discovery if they do not wish to disclose them pursuant to this order. 

18.  For item 22, it does not appear to be relevant for enforcing the Mareva injunction and I do not accept it for the purpose of this application.

19.  Each of the 8th to 12th defendants do, within 21 days from the date of this order, serve an affidavit stating whether he or she has at any time in his/her possession, custody or power of the documents that I have ordered and serve a copy of the documents which are in their possession, custody or power. 

20.  I order that the costs of this application be in the cause.

(Discussion between court and counsel)

21.  For further and better particulars, I make an order in terms of the request (a), (b) and (c) and the new (d). 

22.  I make no order as to costs for the application for particulars, because it is not preceded by a letter of request.

(L. Chan) Judge of the Court of First Instance   High Court

HCA 2232/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2232 OF 2013

____________

_____________

D E C I S I O N

_____________

1. This is an appeal by the plaintiff against an order made by Master K Lo on 23 December 2013. Master Lo extended the time for the 8th to 12th defendants to file their defence from 30 December 2013 to 10 February 2014. The plaintiff wishes to have that order set aside and replaced by an order requiring these defendants to file their defence by 28th January 2014.

2. This appeal, in relation to the 10th defendant, is academic, because she has already filed a defence.  Regarding the other defendants, they oppose this application. 

3. The main ground of the appeal by the plaintiff is that the 8th to 12th defendants are merely nominees holding assets for the main defendants, who are the 1st to the 7th defendants and judgments have been given in the UK and the United States against these defendants.  These defendants are known criminals and fugitives and, hence, the defence of the 8th to 12th defendants should be a simple one for the fact that they are merely nominees of the main defendants.

4. However, Mr Wu, counsel for the 8th to 12th defendants, submits that these defendants, save the 10th, need time to consider whether the accusation made by the plaintiff against the main defendants are true, whether the proceedings in the United Kingdom and in the United States were properly and validly constituted and conducted, whether the United Kingdom and United States judgments were properly obtained, whether the plaintiff is entitled to institute the present proceedings in Hong Kong, and whether the United Kingdom and United States judgments are registrable and enforceable in Hong Kong.  Mr Wu submits that the defendants are therefore entitled to the time as allowed by Master Lo and this court should not cut it short by reducing it to 28 January, which is just about two weeks from the time as extended.

5. I must also mention that the plaintiff has already obtained a Mareva injunction against the 8th to 12th defendants.

6. Mr Westbrook, senior counsel for the plaintiff, also submitted that these defendants should have had more than enough time to consider their position because all the evidence and the foreign judgments and their appeals have been served on these defendants about two months ago.

7. Having considered the matter in the round, I think I would not accede to the appeal, because the result is only a difference of two weeks and, in the light of the existence of the Mareva injunction, I do not think the extra two weeks would really put the plaintiff to any prejudice. I also think there are merits in Mr Wu’s submissions that despite judgments having been given in the United Kingdom and the United States, these so-called nominee defendants are still entitled to scrutinise how these judgments were obtained and to consider whether these judgments are enforceable in Hong Kong or whether there is any reason that these proceedings can be defeated.

8. I therefore dismiss the appeal with costs to the 8th to 12th defendants and I also order that these costs be summarily assessed by me. 

9. I therefore direct the 8th to 12th defendants to file a draft bill of costs within the next 14 days and the plaintiff to file and serve its list of objections, if any, within the next 14 days.  I will then proceed to assess the costs on paper without any further hearing unless I ask for one.