HERBERT SMITH FREEHILLS (a firm) v. CHRIS AU AND ANOTHER

HCA 3030/2015

[2019] HKCFI 1284

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3030 OF 2015

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JUDGMENT

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INTRODUCTION

1.  By a summons issued on 29 November 2018 (“Summons”), the plaintiff (“HSF”), a law firm, seek (1) discovery of certain documents against Chris Au (“D1”) and Retribution Limited (“D2”), (collectively “Defendants”), who were HSF’s former clients; (2) cross examination of D1 and one Elsa Ho (“Ho”), the sole director andshareholder of D2, on certain of their affirmations filed in these proceedings; (3) a writ of subpoena duces tecum (“Subpoena”) to be issued to DBS Bank (Hong Kong) Limited (“DBS Bank”) to produce certain documents held in the name of and/or controlled by D2 and more particularly set out in the Schedule of the draft Subpoena.

2.  HSF acted for the Defendants in HCA 183/2014 in which the Defendants were defendants, and plaintiffs by counter-claim (“UnderlyingLitigation”). 

3.  HSF successfully sued the Defendants for unpaid legal fees for services rendered in the Underlying Litigation and obtained summary judgment against D1 for HK$7,449,363.41 on 12 August 2016, and default judgment against D2 for HK$6,213,608.26 on 30 May 2016. 

4.  The judgment debt owed by D1 to HSF was reduced to HK$2,875,970.15 as at 27 November 2018.[1]

5.  D2 no longer owes any judgment debt to HSF after the execution of a Garnishee Order of 27 January 2017 directing DBS Bank to pay HSF the judgment debt and interests.[2]

6.  There is an extant Mareva Injunction (“Injunction”) in aid of HSF’s enforcement of the judgment against D1, restraining him from dissipating his assets up to HK$1,952,977.76.

7.  HSF claim that the disclosure and cross examination sought in the Summons are necessary for the disposal of two other summonses, namely a summons dated 19 October 2018 issued by D2 to vary the Injunction by removing two of D2’s accounts held with DBS Bank from Schedule 4 of the Injunction (the "Discharge Summons"); and a summons dated 29 November 2018 issued by HSF for a charging order over D1’s interest in (a) the funds standing to the credit of D2’s bank accounts held with DBS Bank; and (b) the shares in D2 held by Ho (the “Charging Order Summons”).  It is necessary because the question of whether, and if so the extent to which, D1 still has a beneficial interest in the shares and bank accounts of D2 is relevant to the final determination of the Discharge Summons and Charging Order Summons; and D1, Ho and D2 have given inconsistent evidence in the Underlying Litigation and these proceedings on these issues.

8.  On 14 January 2019, DHCJ Field ordered that the Discharge Summons and the Charging Order Summons be heard together (“Substantive Hearing”) after the determination of the Summons and the compliance with any ensuing orders.

9.  D1 was not represented at and did not attend the hearing of the Summons.

10.  Some of the facts and statements below are from HSF’s skeleton submissions which are adopted or cited from pleadings and evidence filed by the Defendants in the Underlying Litigation and these proceedings.  They should not, therefore, be controversial.  However, D2, through Ho in her 3^rdAffirmation, and Ms Ku appearing for D2 at the hearing, protest that HSF were cherry-picking different paragraphs of the statements out of context.[3] 

BACKGROUND

11.  HSF were solicitors for the Defendants in the Underlying Litigation which concerned a dispute over the beneficial ownership of, among other things, D2 and the funds in its bank accounts.

12.  Evidence was filed by the Defendants in the Underlying Litigation to the effect that all the shares in D2 were held on trust by Ho forD1, and all the funds paid into D2’s DBS Bank accounts were held on trust by D2 for D1.

13.  The relief sought in the pleadings of the Defendants in the Underlying Litigation included declarations that (1) D2 held the sum of SGD 11,984,933.50 in its account with DBS Bank on trust for D1, and an order for payment of the said sum by D2 to D1; and (2) D1, through D2, was still a beneficial shareholder in another company Kudeta BVI. 

14.  All the affirmations and pleadings filed by the Defendants were verified by statements of truth.

15.  HSF’s case is that despite their claim in the Underlying Litigation that D1 had a beneficial interest in the shares in D2 and the funds in D2’s account in the Underlying Litigation and having filed evidence to that effect, the Defendants have changed their position.  Their evidence in these proceedings regarding D1’s beneficial interest in D2 is inconsistent with the evidence in the Underlying Litigation, and in proceedings in Singapore. 

Evidence in respect of D2’s DBS Bank accounts in the Underlying Litigation

16.  In the Underlying Litigation, D1 filed an affirmation on 20 February 2014 pursuant to paragraph 2 of the order of Hon Zervos J (as he then was) dated 29 January 2014 (“Zervos J Injunction Order”) requiring him, D2 and Ho, among other things, to disclose “all their assets‌…of an individual value of HKD50,000 or more in Hong Kong, whetherin their own name or not and whether solely or jointly owned, givingvalue, location and details of such assets ….”.  The Defendants were also required to provide “… details of all bank accounts in their name or …have an interest or control…; in the name of all Hong Kong and/orforeigncompanies and/or trusts and/or vehicle over which they have an interest orcontrol….”.  D1 exhibited to his affirmation a list of his assets in Hong Kong, and bank accounts in Hong Kong with a balance of HK$50,000 or more.

17.  The list of assets exhibited to D1’s affirmation included two bank accounts of D2 with DBS Bank with account number 78-3193086 and 786020573 (and a slightly different number of 788520573 which is used onthe bank statement exhibited), with a positive balance of HK$96,998.83 and SGD 11,984,782.89 respectively.  Only the two accounts of 78-3193086 and 786020573, but not 788520573, are included in Schedule 4 of the Injunction.  The latter account is a matter of contention between HSF and D2 for the purposes of the Summons.

18.  By disclosing the two DBS Bank accounts, D1 specifically identified them as bank accounts in Hong Kong that “either belong to [him]or to a company, trust or vehicle which [he has] an interest or control, whether in [his] own name or not and whether solely or jointly owned.”

19.  In their Amended Defence and Counterclaim dated 20 June 2014 (“Amended Defence”) in the Underlying Litigation, which was verified not only by statements of truth signed by both D1 and Ho but also byD1’s 4^th Affirmation and Ho’s 2^nd Affirmation in the Underlying Litigationverifying the contents of their pleadings, it was pleaded that all of the SGD 11,984,782.89 in the DBS Bank accounts was entirely held on trust by D2 for D1:

“ … [D2] holds the full amounts of SGD11,984,933.50 … on trust for [D1]” (Amended Defence §106A)

“ … the SGD 11,984,782.89 received by [D1], the entirety of which is due to [D1]” (Defence and Amended Defence §107) and

“ … the sum of SGD11,984,782.89 received by [D2] … the entirety of which is due to [D1]” (Defence and Amended Defence §155(a)(ii).

Relief sought by the Defendants in the Underlying Litigation in respect of the money in D2’s DBS Bank account

20.  In their Amended Defence and Counterclaim, D1 counter­claimed, among other relief:

“ A declaration that [D2] holds the sum of SGD 11,984,933.50, paid to it by L Capital, on trust for [D1]” [4] and

“ An order for payment of the sum of SGD 11,984,933.50 by [D2] to [D1]”.[5]

Evidence in respect of the shares in D2 in the Underlying Litigation

21.  The Defendants’ Amended Defence also pleaded that the entirety of the shares in D2 was held in trust by Ho for D1:

“ [Ho] has been and is the sole director and the sole registered shareholder of [D2], and the sole signatory of [D2’s] bank accounts” (Amended Defence §11(b));

“ at all material times [Ho] held the entire issued shares in [D2] on trust for [D1]” (Amended Defence §60E);

“ It is specifically denied that the 1st to 3rd Plaintiffs [in the Underlying Litigation] are beneficial shareholders of [D2]” (Amended Defence §7(a)); and

“ At all material times, [D1] held, and still holds, a beneficial interest in [D2]” (Amended Defence §10(a)).

Relief sought by the Defendants in the Underlying Litigation in respect of the shares in D2

22.  Among other relief, D1 counterclaimed in the Amended Defence:

“ A declaration that the Declaration of Bare Trust [on which the plaintiff’s in the Underlying Litigation based their claim to own 2/3rd of the shares in [D2]] has not taken effect and is not binding” [6]

“ In the alternative …, declaration that such beneficial interests as the 1st to 3rd Plaintiffs (in the Underlying Litigation) acquired pursuant to the Declaration of Bare Trust were in turn held on trust for [D1]” [7] ; and

“ In the alternative …, a declaration that [D1], through [D2], is still a beneficial shareholder in Kudeta BVI …”.[8]

ANALYSIS

Evidence in these proceedings

23.  It is against the background above that HSF contend that the evidence of the Defendants in these proceedings is inconsistent with the evidence in the Underlying Litigation.

24.  To put matters in proper context, HSF sought and obtained the Injunction from Hon G Lam J on 18 November 2016 restraining D1 from dissipating his assets up to the value of HK$9,309,746.33 to secure payment of D1’s judgment debts, interest and costs orders. 

25.  D1 made two attempts to discharge the Injunction and filed evidence in support of his applications.  It was in his 4^th affirmation in support of his second failed attempt to discharge the Injunction that he began to shift his position. 

26.  D1 was represented by counsel in his first attempt to discharge the Injunction which was continued by DHCJ P Fung SC with minor amendment on 25 November 2016. 

27.  He made a second attempt to discharge the Injunction on 3 March 2017.  He was again represented by counsel.  DHCJ A Lee (as he then was) continued the Injunction but reduced the frozen sum to HK$1,952,977.76 as a consequence of the execution of the Garnishee OrderAbsolute against D2.  DHCJ A Lee also made a disclosure order requiring D1 to disclose, among other things, “all his assets of a consolidated valueof HKD100,000 or more, whether in or outside Hong Kong, whether in his own name or not and whether jointly owned …”; “all bank accounts in [D1’s] name or in or over which [D1] has an interest or control …”; “any payments of money, properties … and any benefits received or to be received by [D1], whether directly or indirectly, and any confirmation of D1’s ownership of assets, either directly or indirectly, contained in any settlement relating to [the Underlying Litigation]” (“DHCJ ALee’s Order”).  The disclosure ordered is relevant to the Summons and D2’s objection to HSF’s application for the disclosure of, among other documents, the Settlement Agreement in the Underlying Litigation which will be discussed below.

28.  In D1’s 4^thAffirmation in support of his second attempt to discharge the Injunction, he deposed to the following:

“ … I have some derivative interest in … the monies that I paid into [D2] …” [9]

“ My only interest is my beneficial interest in [D2]” [10] ;

“ … I claim a beneficial interest in [D2]” [11] ; and

“ Even though I did assert before a beneficial claim to [D2] I amnot the sole beneficial owner of [D2]. There are others who are and also claiming to have a beneficial stake in [D2].” [12]

29.  HSF contend that while D1 still acknowledged his beneficial interest in D2, he suddenly became vague and evasive about the extent of his interest.  He said in paragraph 24 of his 4^thAffirmation that:

“ HSF is only entitled to enforce the Judgement by applying for a charging order against the shares in [D2] so that I cannot dispose of the same without satisfying the Judgement”

thereby accepting that in the light of his interest in the shares in D2, HSF were entitled to seek a charging order over his shares in D2.  This is of course one of the relief sought in HSF’s Charging Order Summons.

30.  Further, in paragraph 25 of his 4^thAffirmation, he said:

“ the beneficial interest of Retribution is the main issue to be determined in [the Underlying Litigation]. In other words, the ownership of Retribution is in dispute. I am sure that the Plaintiffs in the [Underlying Litigation] would disagree that Retribution is liable to pay MY debt ….”

31.  HSF also contend that D1 is still relying and commenting on the dispute in the Underlying Litigation claiming that the extent of his beneficial ownership in D2 is uncertain and disputed.  This is despite the fact that the Underlying Litigation appears to have been settled before D1 made his 4^thAffirmation on 15 December 2016.  This is supported by his admission that the Underlying Litigation settled ‘in or around December 2016” and that the Zervos J Injunction Order was discharged by consent on 14 December 2016, ie the day before he made his 4^thAffirmation. This was disclosed in paragraph 10 of his 7^th Affirmation of 3 October 2018, where he said:

“ The [Underlying Litigation] was settled in or around December2016, and on 14 December 2016 the [Zervos J Injunction Order] obtained by the Plaintiff in the [Underlying Litigation] against (among other things) [D2’s Accounts] was discharged by consent.”

32.  The settlement was also disclosed in identical terms in paragraph 8 of the 2^ndAffirmation of Ho of 27 December 2018 where she said:

“ The [Underlying Litigation] was settled in or around December2016, and on 14 December 2016 the [Zervos J Injunction Order] obtained by the Plaintiff in the [Underlying Litigation] against (among other things) [D2’s Accounts] was discharged by consent.”

33.  HSF claim that D1’s reference in his 4^thAffirmation to the dispute in the Underlying Litigation, which had already been settled, is therefore deceptive and misleading.  His claim that despite his earlier assertion of a beneficial claim to D2, he was not the sole beneficial owner of D2 [13] as at 15 December 2016 when he made his 4^thAffirmation totally contradicts his evidence in the Underlying Litigation that he was the owner of the entirely of the DBS Bank Accounts and the shares of D2.

34.  In his 7^thAffirmation of 3 October 2018 in support of D2’s Discharge Summons, D1 asserted that:

“ I disclosed [D2’s two accounts covered by the Injunction] in my 2014 Affirmation as, at that time, I had partial control over [D2] since I represented the interest of various beneficial stakeholders who owned the stake legally held by Ho” [14] ;

“ Since [my resignation], I have no control over the operations of [D2]. I also do not have control over [D2’s two accounts covered by the Injunction] or the funds therein. I am not and have never been a signatory of [D2’s two accounts covered by the Injunction] and I am not and have never been in possession of the online banking passwords and security keys” [15] ;

“ None of the money that has been frozen in [D2’s two accounts covered by the Injunction] pursuant to the Injunction is my money—I have not personally paid any of the money into [D2’s two accounts covered by the Injunction], nor have I procured any third parties to do so on my behalf. None of the money frozen in [D2’s two accounts covered by the Injunction] is held by [D2] on trust for me” [16] .

35.  In Ho’s 2^nd Affirmation of 27 December 2018, she deposed that:

“ [D2’s two accounts covered by the Injunction] and the assets therein legally belong to [D2]. The money in the [D2’s two accounts covered by the Injunction] is not (and has never been) specifically owned by [D1].” [17]

36.  It can be seen from the above the inconsistency between the evidence in these proceedings and the Underlying Litigation. 

37.  Ms Ku submitted that this is purely due to the change in D1’sposition over time given that the evidence in the Underlying Litigation was filed in 2014 and 2016, and we are now in 2019.  She also submitted that D1 and D2 are separate legal entities.  D2 is no longer indebted to HSF and the dispute is really between HSF and D1.  HSF are however linking D1 and D2 together and cherry-picking extracts of statements made by D1, Ho and D2 at different times and occasions out of context. 

38.  I am unable to agree with her that the inconsistent evidence is due to the change of D1’s position over time.  Further, HSF are not pursuing D2 for anything other than cross-‌examination of Ho, and discovery of documents that are believed to be in its possession, custody or power.  It is a fact that D1 and D2 were parties to the Underlying Litigation and they were closely connected, as evidenced by the statements made in the affirmations in the Underlying Litigation in respect of D1’s beneficial interest in D2, and his relationship with Ho.

39.  Two of D2’s accounts in which D1 is believed to have, or have had interest, are covered by the Injunction, which D2 is seeking to remove from the Injunction.  The documents sought by HSF are relevant to the questions to be decided by the Court at the Substantive Hearing.

40.  I cannot see how the allegations of D1 having relinquished all his roles and interest in D2, which are contradicted by the inconsistent evidence referred to above, would exonerate D2 from all liability to the relief sought by HSF, if grounds for such relief are made out.

41.  I have reviewed and checked the above extracts from the various affirmations filed in the Underlying Litigation.  I can find no evidence that HSF cherry-picked the statements out of context as alleged by Ho in her 3^rdAffirmation and Ms Ku’s submissions.  No reasons have been given by the Defendants or Ms Ku to support their allegations.

42.  It is therefore understandable why HSF are concerned as the question of whether, and if so the extent to which, D1 still has a beneficial interest in the shares and bank accounts of D2 is directly relevant to their Charging Order Summons, and D2’s Discharge Summons.

43.  HSF’s attempts to clarify with the Defendants’ solicitors the position of D1’s beneficial interest in the shares and bank accounts of D2 and whether, in the light of the evidence filed in these proceedings, D1 has breached any orders was unsuccessful.  D2’s solicitors told HSF in their letter of 25 May 2018 that:

“ [D1] has never had any legal interest in [D2]” and “there is no such legal interest for him to dispose of” (HSF’s emphasis).

“ Other information about [D2] including the number of shares held by [Ho] in [D2] is not public information and we do not consider that there is any necessity for such disclosure.”

44.  HSF are concerned that by specifically referring to D1’s legal interest in D2, the question of D1’s beneficial interest in D2, if any, was not addressed.

45.  D1 has also failed to comply with DHCJ A Lee’s Order whichspecifically requires D1 to disclose, among other things, “any payments ofmoney, properties…and any benefits received or to be received by [D1], whether directly or indirectly, and any confirmation of [D1]’s ownership of assets, either directly or indirectly, contained in any settlement relating to [the Underlying Litigation]” [18]. He did not disclose anything.

46.  In the light of the conflicting evidence filed in the Underlying Litigation and in proceedings in Singapore, Zervos J decided to refer the matter to the Singaporean Attorney General for possible perjury by D1.

47.  It is for the above reasons that HSF are seeking the relief in the Summons.

Cross-‌examination of D1 and Ho

48.  HSF seek an order for the cross-‌examination at the Substantive Hearing of D1 on his 4^th, 5^th and 7^th Affirmations, and Ho on her 2^nd Affirmation, in default of which their affirmations shall not be used as evidence without leave of the Court.

49.  Order 38, rule 2 of the Rules of the High Court (“RHC”) gives the Court power to order the attendance of the deponent of an affidavit for cross-‌examination.  Where after such an order has been made and the person in question does not attend, his affidavit shall not be used as evidence without the leave of the Court.

50.  The principles for the exercise of the Court’s discretion in permitting cross-‌examination on an affidavit can be summarized as follows:

“ (1) the court has an unfettered discretion to permit cross-examination but an applicant is not entitled to this right as of course;

(2) the applicant has to establish that in all the circumstances there is ‘good and sufficient’ reason for the application;

(3) where the evidence on the affidavits will result in a ‘final order’, it may not be difficult to establish ‘good and sufficient’ reason for the application; where the evidence is for use in an interlocutory matter, it may be more difficult,in view of the expense and delay involved, for the court tobe satisfied that the discretion should be exercised in favour of permitting cross-examination;

(4)   what is essential is for the applicant to establish that the proposed cross-examination might be productive of a‘useful result’ at the stage that the application is made.”

(emphasis added)

(Waters v Malahon Credit Co Ltd [2004] 2 HKC 94, 97B–E, per Kwan J (as she then was); see also Wendy Wenta Seng Yuen v Philip Pak Yiu Yuen [1984] HKLR 431, 436E–I, per Fuad JA (as he then was).)

51.  HSF submitted that the evidence on which cross-examination is sought is directly relevant to the Discharge Summon and the Charging Order Summons as it will help the Court to determine whether a charging order should be granted over the bank accounts and shares of D2, or if the Injunction should be discharged.  The Substantive Hearing is effectively final and not interlocutory.  It will determine whether HSF or the Defendants are entitled to the shares in D2 and the funds in the accounts with DBS Bank which are covered by the Injunction.  Cross-examination of D1 and Ho might therefore produce a useful result.  The Court should therefore exercise its discretion to order cross-examination.

52.  D2 relied on the following passages from China Shanshui Cement Group Limited & Others v Zhang Caikui & Others (unreported, HCA 2880/2015, Au-Yeung J, 13 October 2016) at §§25 – 27:

“ 25. The court will not grant an order for cross-examination to gather information which will be used later to impugn the defendant’s credit, or to investigate possible dealings in assets that may lead to possible contempt proceedings, or to obtain material to be used in the trial itself: Yau Chiu Wahv Gold ChiefInvestment [2002] 2 HKLRD 832, at 838G–H, 839C–D.

26. An order made must be proportionate and just. It could not be undertaken for an ulterior purpose nor be oppressive: Jenington International Inc v Assaubayev [2010] EWHC 2351.

27. The court has to bear in mind the potential wastage of costs, court time, injustice to the defendant and invasion to his privacy in pre‑judgment cross-examination and that an order forcross-examination is an exceptional step to take: Yau Chiu Wah,at §14(2); Gee on Commercial Injunctions, 6^th ed, at §23‑026.”

and submitted that the power of the court in ordering cross-examination on an affidavit is rarely used, and HSF have to show that D1, who no longer has any relationship with D2, is still related to D2 and has proprietary interest in the funds in the DBS Bank accounts, before they could proceed with the cross-examination.

53.  The learned Judge in the China Shanshui case cited above granted an order for cross-examination and held that:

“ 37. The cross-examination is to ascertain further information to enable the Plaintiff to identify and recover as many of the Listed Items as possible, to acquire information concerning the missing Listed Items, to inquire into D3’s knowledge of thePlaintiffs’ operation so as to assist the new Board to conduct theaffairs of the Plaintiffs properly, to conduct the Cayman Islands proceedings properly and if possible to recover as many of the Plaintiffs’ assets now in the hands of D3 or strangers.

38. … I am satisfied that this application is made for proper purposes.

…

62. An order for cross-examination is necessary in the interests of justice.  It would involve time and costs but no issueof privacy as the cross-examination is about the Plaintiffs’, notD3’s, records and assets.  Even if D3 is unable to state the current whereabouts of the Listed Items, cross-examination would still be useful for him to say what the Listed Items comprised, how they might be reconstituted, what became of them and who(apart from himself) was responsible for keeping them.  It would make the Orders more effective.”

54.  The learned Judge also held in paragraph 24 that:

“ Leave to cross-examine will be granted where:

(a) There are significant or serious deficiencies in the disclosure given: Jenington International Inc v Assaubayev [2010] EWHC 2351, Vos J (in a Marevacontext); or

(b) There is a reasonable likelihood that the deponent has information which should have been disclosed pursuant to the order for disclosure and which would lead to the fulfillment of the purpose of such order or that assets can be located and preserved: CBS United Kingdom Ltd v Perry& ors [1985] FSR 421 at 426, Falconer J; Gee onCommercial Injunctions,6^th ed, at §23‑028.” 

55.  There is divergence between the evidence in these proceedings and in the Underlying Litigation. 

56.  The response from D2’s solicitors making reference to D1 having no ‘legal’ interest in D2 is evasive as what HSF want to establish is D1’s beneficial interest, if any, in D2 and the funds in its accounts.  This is directly relevant to the issues to be decided by the Court at the Substantive Hearing. 

57.  HSF rely on the evidence of Kathryn Sanger, a partner of the firm, who was told at a social function on 12 November 2016 by one Jason Cohen, one of the plaintiffs and a defendant to Counterclaim in the Underlying Litigation, that the Underlying Litigation was about to settle and D1 would receive a substantial payment as a result[19].

58.  There are different limbs of disclosure obligation in DHCJ A Lee’s Order.  D1’s failure to comply with DHCJ A Lee’s Order in so faras it relates to disclosure of the settlement of the Underlying Litigation is a deficiency in the disclosure given by D1 in these proceedings.  The only assets disclosed by D1 in his 5^th Affirmation of 16 March 2017 pursuant toDHCJ A Lee’s Order were a house in Singapore and a condominium under construction in Malaysia.  This is despite settlement of the Underlying Litigation in December 2016 and Jason Cohen’s representation to Kathryn Sanger referred to in the preceding paragraph. 

59.  It is likely that the Defendants have information which should have been disclosed, including whether he did receive any benefit in the settlement of the Underlying Litigation. Such disclosure would lead to fulfillment of the purpose of the DHCJ A Lee’s Order.

60.  Further, the paucity of the assets disclosed in D1’s 5^th Affirmation in purported compliance with DHCJ A Lee’s Order and his failure to disclose any information about the Underlying Litigation, let alone benefits he may have received, constitutes deficiencies in the disclosure given by D1 in his evidence[20].

61.  Cross-examination of D1 and Ho is to ascertain further information to enable the Court to determine if the charging order sought by HSF should be granted, or if the Injunction should be discharged.

62.  I agree with HSF’s submissions that the Substantive Hearing, which is for the final determination of whether D1 still has interest in D2 and the funds in its account for which a charging order can be made, is effectively final. Cross-examination of D1 and Ho will therefore be productive of a useful result.

63.  If an order for cross-examination is granted, D1 and D2 will only be cross-examined on D1’s beneficial interests, if any, in D2 and the funds in its account.  There will therefore be no issue of privacy.

Order for cross-examination

64.  For the reasons above, this Court is of the view that an order forcross-examination is necessary and should be made in the interest of justice.

65.  I therefore order that D1 do attend before the Judge at the Substantive Hearing for cross-examination on his 4^th, 5^th and 7^th Affirmations, and the same order is made for cross-examination of Ho on her 2^ndAffirmation.

Discovery of documents

66.  HSF seek disclosure of “any settlement agreement or agreement relating to the [Underlying Litigation] (‘Settlement Agreement’),and Payment Records”, as defined in the Summons, which include “any bank account statements and any instructions, confirmations, andother records of payments relating to all bank accounts held in the name of and/or controlled by [D2], including but not limited to account numbers 78-3193086, 78-6202573 and 78-8520573 with [DBS Bank] from the opening of the accounts to the date of the Order herein inclusive (‘Payment Records’)”.

67.  The disclosure is sought under RHC Order 24, rules 7(1), 10(1), 11(1) and 12(1). 

Order 24, rule 10(1)

Settlement Agreement

68.  Dealing first with Order 24, rule 10(1), this allows a party to require any party to the proceedings to produce any document which is referred to in that party’s pleadings, affidavits or witness statement by serving a notice on him. The Court may, on the application of the party entitled to inspection, make an order for production of the document if the party against whom the production of the document is sought objects to its production, subject to Order 24, rule 13(1) that the order is necessary either for disposing fairly of the cause of matter or for saving costs.  The principles for ordering disclosure under Order 24, rule 10(1) can be summarised as follows:

“ The court has jurisdiction under O 24, r 10(1) and 11(1) to order discovery and production of a document referred to in an affidavit, whether or not the document is in the possession, custody or power of the party in whose affidavit the reference is made.

An application is generally not allowed when the documents are not part of the evidence relied upon by the party, who makes reference to the same in his affidavit, in the claim in question.

The documents need not be identified particularly: it is sufficient that they are referred to generally.

A direct allusion to a document is sufficient, but not a reference that arises merely by inference.  (Hong Kong Civil Procedure 2019 24/10/1)”

69.  Applying the above principles to the order sought by HSF, reference was made to settlement of the Underlying Litigation in D1’s 7^thAffirmation[21].  While there is no direct reference to a Settlement Agreement, the fact that the settlement led to the discharge of the Zervos J Injunction Order by consent, and there being no finding by the Court of D1’s beneficial interest, if any, in D2 [22], does allude to the existence of a Settlement Agreement.  D1’s beneficial interest in D2 was an issue in the Underlying Litigation[23]. He is relying on the settlement in the Underlying Litigation as evidence of his interest, or the lack of it, in D2 in support of D2’s Discharge Summons.

70.  Ho made similar statements in her 2^nd Affirmation of 27 December 2018[24] as evidence of D1’s interest in D2 and the funds in its accounts on which it relies for D2’s Discharge Summons.

71.  Ms Ku argued that there is no reference to any Settlement Agreement in the Defendants’ affirmations.  They only refer to the Underlying Litigation having been settled.  She also submitted that the Settlement Agreement is privileged from production and is confidential. 

72.  With respect, her argument on the issue of confidentiality is flawed as any confidentiality clause would normally contain a proviso allowing the parties to produce the document for fiscal and other purposes including the seeking of legal advice, and if compelled by law. 

73.  Ms Ku produced at the hearing and relied on the case of Info Allied Limited v Leung Tze Ching & Others (unreported, HCA 774/2007, Hon Fok J (as he then was), 20 December 2010, at §§23 – 27) to support her argument that the Settlement Agreement is privileged, probably because she was cognizant of the fact that she could not rely on legal professional privilege.  The passages on which she relied are set out below:

“ 23. In Rush & Tomkins Ltd v Greater London Council & Anor [1989] 1 AC 1280, the issue arose as to whether without prejudice correspondence leading to a compromise agreement between the plaintiffs and one of the defendants in that case wasliable to be disclosed to the remaining defendant. Lord Griffiths, with whom the other Law Lords agreed, held (at p.1305):

‘ I have come to the conclusion that the wiser course is to protect ‘without prejudice’ communications between parties to litigation from production to other parties in the same litigation. In multi-party litigation it is not an infrequent experience that one party takes up an unreasonably intransigent attitude that makes it extremely difficult to settle with him.In such circumstances it would, I think, place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigant. What would in fact happen would be that nothing would be put on paper but this is in itself a recipe for disaster in difficult negotiations which are far better spelt out with precision in writing.

If the party who obtains discovery of the ‘without prejudice’ correspondence can make no use of it at trialit can be of only very limited value to him. It may give some insight into his opponent’s general approach to the issues in the case but in most cases this is likely to be of marginal significance and will probably be revealed to him in direct negotiations in any event. In my view this advantage does not outweigh the damage that would be done to the conduct of settlement negotiations if solicitors thought that what was said and written between them would become common currency available to all other parties to the litigation. In my view the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties.’ (Emphasisadded)

24. Rush & Tomkins was cited with approval by Ribeiro J (as he then was) in Gross Fortune International Limited v Set Win International Limited, unrep., CACV192/1999, 29.10.99.

25. It was submitted on behalf of the applicants that the rulein Rush & Tomkins only made admissions in the correspondence inadmissible but did not mean the documents themselves were not discloseable. This submission cannot, in my view, stand with the passage I have cited from Lord Griffiths’ speech above.

26. No basis has been put forward to justify lifting the without prejudice privilege rule so as to make the without prejudice correspondence and communications between the plaintiff and the 5^th defendant and the plaintiff’s own internal memoranda in respect of the settlement negotiations admissible in evidence. That being so, I can see no proper basis for allowing the applicants to have sight of that inadmissible evidence by way of discovery.

27. There is no doubt that the basis of the settlement between the plaintiff and the 5^th defendant is relevant to the issue of the entitlement of the plaintiff to continue to maintain its claim against the applicants.  The substance of the settlementagreement between the plaintiff and the 5^th defendant is set out in the schedule to the consent order dated 22 December 2009.  It will be a matter of submission in due course as to whether, given the terms of the settlement, it still remains open to the plaintiff to pursue its claims against the 1^st to 4^th defendants and the 6^th defendant.”

74.  The case relates to without prejudice correspondence leading to a compromise between the parties to the litigation.  That is not what HSF are seeking.

75.  HSF also rely on the reference to the Settlement Agreement inHo’s 3^rd Affirmation[25] in their application for production of the same.  It seems to me that the reference to the Settlement Agreementin this affirmation was in response to the Summons and Mr Gareth Thomas’ 9^thAffidavit in support of HSF’s application for the production of the Settlement Agreement.  She is not, in this affirmation, relying on the Settlement Agreement as evidence.  Mr Long of HSF argued that Ho referred to the Settlement Agreement with capital S and A, hence it was an express reference to a defined term. 

76.  I do not consider it necessary to rely on Ho’s 3^rdAffirmation for the production of the Settlement Agreement.  The reference to settlement of the Underlying Litigation and the allusion to a Settlement Agreement in D1’s 7^thAffirmation and Ho’s 2^ndAffirmation are sufficient for this Court to order its production.

77.  The response from D2’s solicitors of 31 October 2018 to HSF’s request on 29 October 2018 for, among other things, production of the Settlement Agreement was that HSF’s requests “were unwarranted andirrelevant to [D2’s Discharge Summons]. Accordingly, we are instructed to object to the same”.  Not only did D2’s objection to produce the document requested give this Court jurisdiction to order production under Order 24, rule 10(1) if the requirements are satisfied, but it also suggests that its objection to the production was not on the basis that the Settlement Agreement did not exist. 

78.  In her written submissions, Ms Ku said:

“ Further, as a matter of fact as well as common sense, there is nothing in the Settlement Agreement which touches upon beneficial ownership of D2.Ordering D2 to disclose such a document without any indication from the part of [HSF] as to the possible use and relevance of such document is highly oppressive.” [26]

79.  It is not clear if Ms Ku was trying to give evidence in her submissions about the content of the Settlement Agreement but her reference to the Settlement Agreement suggests that it does exist.

80.  The Settlement Agreement is relevant to the issue of D1’s interest in D2 and the funds in its accounts.  The disclosure and productionof this document would assist the Court in its adjudication of the DischargeSummons and Charging Order Summons.  It also satisfies the requirement of RHC Order 24, rule 13 that it is necessary for disposing fairly of the cause or matter or for saving costs.

Order for production of the Settlement Agreement

81.  I am satisfied that HSF have made out sufficient grounds for production of the Settlement Agreement.  I order that D1 and D2 do produce to HSF within 7 days the Settlement Agreement.

82.  Ms Ku submitted at the hearing that if a production order wasmade, D2 should be allowed to redact the parts of the Settlement Agreement which are confidential and irrelevant to the issues in question. 

83.  “It is well-established and has long been the practice that a partyis entitled to cover up parts of a disclosed document which he considers to be irrelevant.” (Jade’s Realm Ltd v Director of Lands, unreported, HCA 1509/2012, Hon Ng J, 10 June 2014, at §59), a case relied upon by HSF for their discovery application.

84.  I therefore further order that D2 be at liberty to cover up the parts of the Settlement Agreement which are irrelevant to D1’s beneficial interest in D2 and the funds in D2’s accounts, and “any payments ofmoney, properties … and any benefits received or to be received by [D1], whether directly or indirectly, and any confirmation of D1’s ownership of assets, either directly or indirectly, contained in any settlement relating to HCA 183 of 2014” which D1 is ordered to disclose by DHCJ A Lee’s Order. 

Payment Records

85.  As a starting point, the discovery of Payment Records as defined in the Summons sought by HSF is too wide and amounts to ‘fishing’.  The request is on the basis of the disclosure of bank statements in D1’s 1^stAffirmation in the Underlying Litigation, and Ho’s 2^ndAffirmation in these proceedings in which she made express reference to D2’s ‘latest bank accounts’ [27].

86.  There is no basis for HSF’s reliance on D1’s 1^stAffirmation in the Underlying Litigation, to which HSF were not a party, which has nothing to do with these proceedings.

87.  Ho did make express reference in her 2^ndAffirmation to D2’s bank accounts and exhibited bank statements dated 4 March 2017 and 5 February 2018 of account number 78-8520573.  This account is not covered by the Injunction.  Mr Long submitted that this might be a sub‑account of one of the accounts covered by the Injunction and it must have been an omission that they did not include it when they applied for the Injunction.  Ms Ku submitted that HSF had had two opportunities when D1 sought to discharge the Injunction to make good their omission but they did not.  They should not, therefore, be entitled to discovery of any records of this account.

88.  I do not consider it matters that this account is not covered bythe Injunction.  Ho made express reference in her 2^nd Affirmation to D2’s Accounts and exhibitedtwo bank statements of this particular account in support of D2’s Discharge Summons.  She is relying on the evidence to support D2’s contention that the assets in D2 do not belong to D1.[28]

Order for production of the Payment Records

89.  For the same reasons for production of the Settlement Agreement, I order D2, but not D1 for the reason in paragraph 86 above, to produce to HSF within 7 days the Payment Records but limited only to the three accounts at DBS Bank, namely 78-3193086 and 78-6020573 and 78-8520573 (“Payment RecordsDisclosure Order”).  D2 is no longer a judgment debtor of HSF and no freezing order or disclosure order have been made against it.  I can see no reason why D2 should be ordered to disclose Payment Records of more than the three accounts.

Order 24, rule 12(1)

90.  Having made an order for the production of the Settlement Agreement and the Payment Records Disclosure Order under Order 24, rule 10(1), it is not necessary for me to deal with Order 24, rule 12(1) on which HSF also rely for their discovery application.  For completeness, this provision allows the Court to order production of documents generally to the Court.

Affidavit under RHC Order 24, rule 7

91.  HSF also seek an order that the Defendants make affirmations stating whether the Settlement Agreement and Payment Records are, or have any time been, in their possession, custody or power, and if not, when they parted with them and what have become of them.

92.  The principles under Order 24, rule 7 are trite and summarised as follows which I do not believe are disputed by D2:

“ There is no jurisdiction to make an order for specific discovery under Order 24, rule 7, RHC unless there is sufficient evidence or prima facie case that: (a) the documents or classes of documents exist which the other party has not disclosed; (b) the documents relate to a matter in issue in the action; and (c) the documents are in the possession, custody or power of the other party.

Once it is established that those three prerequisites for jurisdiction do exist, the court has discretion whether or not to order discovery.

The court will not make an order unless the discovery sought is necessary either for disposing fairly of the cause or matter or for saving costs.

The order must identify with precision the documents or categories of documents which are required to be disclosed, for otherwise the person giving discovery may find himself in serious trouble for swearing to a false affidavit, even though doing his best to give an honest disclosure.

The Peruvian Guano test remains the test of relevance. A document is relevant if: (a) it is reasonable to suppose that it contains information which may, not must, either directly or indirectly enable the party requiring the same either to advancehis own case or to damage the case of his adversary; or (b) it isa document which may fairly lead the party to a train of inquiry which may have either of those two consequences.

Notwithstanding the Peruvian Guano test, ‘fishing’ is not allowed, and discovery should not be oppressive.  The court takes account of such considerations as the value of the discovery to the person seeking it and the burden imposed on the party giving it, with a view to restricting the volume of documents and the labour and expense involved to that which is necessaryfor fairly disposing of the issues in the case.  (Hong Kong CivilProcedure 2019 24/7/2; Jade’s Realm Ltd v Director of Lands [2014] HKEC 978 at [20]).”

Order for Affidavit

93.  Given my order for production of the Settlement Agreement and the Payment Records Disclosure Order, I also order that the Defendants do within 7 days make affirmations stating whether the Settlement Agreement and Payment Records relating to the three accounts in the Summons are, or have any time been, in their possession, custody or power, and if not, when they parted with them and what have become of them.

Subpoena

94.  In view of my orders for production of the Settlement Agreement and the Payment Records Disclosure Order, it is not necessary for this Court to determine HSF’s application for the issue of the Subpoena.  I shall defer such determination to after the expiry of the time for D2’s compliance with the Payment Records Disclosure Order (“Due Date”).

95.  I direct that HSF inform this Court as soon as practicable after the expiry of the Due Date whether D2 has complied with the Payment Records Disclosure Order.  If D2 fails to comply with the Payment Records Disclosure Order, HSF be at liberty to make a paper application to this Court for the issue of the Subpoena.  HSF’s written submissions and D2’s reply submissions should not be more than one page. 

96.  At the risk of stating the obvious, court orders are made to be complied with.  The Court will take a dim view of any non-compliance with court orders.  

CONCLUSION

97.  I make an order in terms of the Summons save the following:

 (i)   The Payment Records in the Summons be limited to the three accounts of D2, namely 78-3193086, 78-6020573,and 78-8520573.

 (ii)   Determination of HSF’s application for the issue of a writ of subpoena duces tecum be deferred.

 (iii)   HSF be at liberty to make a paper application for the issue of a writ of subpoena duces tecum should D2 fail to comply with the Payment Records Disclosure Order with written submissions limited to one page from both HSF and D2.

 (iv)   Costs of HSF’s application for a writ of subpoena duces tecumbe reserved.

 (v)   Liberty to apply.

98.  As for the costs of the rest of the Summons, HSF have not wholly succeeded in their application for the Payment Records.  I make a costs order nisi pursuant to Order 42, rule 5(B)(6) that the Defendants pay 80% of HSF’s costs, to be taxed if not agreed.

HCA 3030/2015

[2018] HKCFI 2297

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 3030 OF 2015

____________

____________

_________________

J U D G M E N T

_________________

Introduction

1.  This is an application to make absolute a charging order over funds in court.  It raises two issues.  The first, and the more general one, is whether a charging order may be imposed on money paid into court by the judgment debtor as security for the costs of a defendant in a different action.  The second issue is whether, on the facts of this case, the judgment debtor has any beneficial interest in the funds in court.

Background

2.  The relevant primary facts are not in dispute. The plaintiff is a firm of solicitors who had been retained by the defendants to conduct litigation on their behalf.  There were legal fees due to the plaintiff which the defendants failed to pay, and to recover them the plaintiff commenced the present action (HCA 3030/2015).  On 30 May 2016, the plaintiff obtained default judgement against the 2^nd defendant (Retribution Ltd).  On 12 August 2016, the plaintiff obtained summary judgment against the 1^st defendant (Chris Au).  Certain recovery has been made by the plaintiff through garnishee proceedings, as a result of which the total outstanding judgment debt of the 1^st defendant, including various costs orders and interest, stands at about $2.2 million. 

3.  Chris Au is himself the plaintiff in another action in the High Court, namely, HCA 1285/2014, which he brought against one Mr Steve Yoon Soo Kim (“Kim”).  On 22 April 2016, Registrar KW Lung ordered Chris Au to pay $2 million into court in that action as security for Kim’s costs pursuant to RHC O 23 r 1(1)(a) on the ground that Chris Au was ordinarily resident outside Hong Kong.  On 25 November 2016, Chris Au’s appeal against that order was dismissed.  The money was subsequently paid into court on 9 February 2017. On 4 October 2017, on the plaintiff’s application in the present action, Registrar Ho granted a charging order nisi over those funds in court. 

4.  It appears that pursuant to a consent order between Chris Au and Kim in HCA 1285/2014, a sum of $368,000 had been paid out to Kim in satisfaction of various costs orders in that action.  The plaintiff accepts that Kim has a first claim on the funds remaining in court to satisfy any further costs order in his favour in that action.  By the charging order sought, the plaintiff hopes to be able to obtain partial satisfaction of their judgment from the funds in court if there turns out to be a surplus, for example, because that action is concluded without any adverse costs order against Chris Au.  I have been informed that the trial of that action is scheduled to take place in 2019.

5.  The question now before me is whether the charging order nisi should be made absolute.  Two points have been raised both of which focus upon the jurisdictional question of whether Chris Au holds any beneficial interest in the funds in court capable of being charged.

Whether charging order may be made over funds paid into court as security for costs

6.  S 20A(1) and (2) of the High Court Ordinance (Cap 4) provides:

“(1) Subject to subsection (3), a charge may be imposed by a charging order only on—

(a) an interest held by the debtor beneficially—

(i) in any asset of a kind mentioned in subsection (2) or

(ii) under any trust; or

…

(2) The assets referred to in subsection (1) are—

(a) …

(b) …

(c)  funds in court.”

7.  S 20B(3) provides that the charge imposed by a charging order has the like effect as an equitable charge created by the debtor by writing under his hand.  RHC O 50 r 6 makes provision for service on the Registrar of the High Court of a charging order made in relation to funds in court.

8.  Ms Astina Au, who appeared for Chris Au, accepted that funds paid into court as security for costs fall within the description of “funds in court” in s 20A(2)(c) so that they are in principle assets of a kind on which a charging order may be imposed under s 20A(1)(a).  She argued, however, that a person who has deposited funds in court pursuant to an order for security for costs has no further beneficial interest in the money.  Since a charging order may only be imposed on “an interest held by the debtor beneficially” in the asset (see s 20A(1)(a)), no charging order may be imposed on funds paid as security for costs.

9.  RHC O 23 r 1(1) empowers the court to order a plaintiff to give such security for the defendant’s costs of the action as it thinks just.  A usual mode of giving security is payment into court of money in the required amount.  A successful plaintiff is generally entitled, at any rate where there is no pending appeal (see StabiladLtd v Stephens & Carter Ltd [1999] 1 WLR 1201), to have the money paid in by them as security for costs paid out to them.  In that sense at least, a plaintiff may be said to have some interest, albeit contingent, in the funds in court.  No previous reasoned decision has however been cited to me in which a charging order such as the one sought here has been made.

10.  Ms Elizabeth Cheung, who appeared for the plaintiff, referred to Shahina Paracha v Paracha Azhar Javed [2015] 3 HKLRD 283, where there was apparently a charging order made over money paid in as security for costs.  That, however, was a different case from the present.  There money had been paid into court by the wife as security for the husband’s costs.  It appears that a charging order over the funds was granted on the strength of costs orders made in favour of the husband (see paragraphs 15, 24, 26 to 27).  It was therefore not a case of a charging order over security given by the judgment debtor in a different action for the costs of a third party.  There was no discussion of the point in question.

11.  There are, however, authorities which shed light on the status of funds in court generally and the nature of the interest the respective parties have in such funds.  In Halvanon Insurance Co Ltd v Central Reinsurance Corporation [1988] 1 WLR 1122, as a condition for obtaining leave to defend the action, monies had been paid by the defendants into a bank account held in the names of the parties’ solicitors “to abide the event of the action”.  After a change of solicitors, an application was made to have the new solicitors for the plaintiffs to be substituted as joint custodians of the account.  One of the questions that arose was whether the plaintiffs’ former solicitors had a lien over the fund for unpaid fees.  Hobhouse J, referring to In re Ford [1900] 2 QB 211, a case in which a defendant became bankrupt after paying money into court as a condition for obtaining leave to defend an action, said (at p 1127G‑H) that

“ The money in court has not ceased to be the property of the bankrupt but the plaintiff in the action has acquired the right to treat it as security for his claim. The right of the plaintiff is thus analogous to having an equitable charge on the money.”

More generally, in relation to the facts of the case before him, his Lordship stated (at p 1128E):

“ Therefore if this money had been paid into court to the credit of the present actions the position in my judgment would be that the money remained the general property of the defendants but was charged with whatever may be found to be the liability of the defendants to the plaintiffs. When the money is in court it is not necessary or profitable to consider the relationship of the court or its officials to that fund. The fund can only be dealt with in accordance with orders or authorisations of the court.”

His Lordship went on to hold that the fact that the money in that case had not been paid into court but into a joint solicitors’ account was merely a ministerial difference which did not alter the substantive position.

12.  In Emmott v Michael Wilson & Partners Ltd (No 2) [2017] 1 WLR 4330, monies had been paid into court byMichael Wilson & Partners Ltd (“MWP”) as security for the costs of the Assaubayev parties with whom MWP was in litigation, and by the Assaubayev parties as a condition for a stay of execution of MWP’s judgment pending appeal.  On 2 December 2014, having dismissed the Assaubayev parties’ appeal, the Court of Appeal made orders for payment out of these monies, but the monies remained in court because of a freezing order against MWP.  In November 2015, Mr Emmott, a judgment creditor of MWP, applied for an order under CPR r 72.10 (broadly the equivalent of O 49 r 9 of the Rules of the High Court (Cap 4A)) that the monies be paid out to him in partial satisfaction of his judgment against MWP.  The English Court of Appeal held:

“ 32. Mr Samek submitted that where money has been paid into court it is still the defendant’s money although the claimant is entitled to treat it as security, see Halvanon Insurance Co. Lt v. Central Reinsurance Corporation [1988] 1 WLR 1122 at 1126H and 1127H, per Hobhouse J. Thus the sum of £150,000 paid into court by MWP was MWP’s property, subject to the Assaubayev parties’ security interest, and the sum of £166,000 representing the sum paid into court by the Assaubayev parties remained their property, subject to MWP’s security interest. Once the Court of Appeal made the order for payment out, MWP retained the interest in the fund it had paid in and acquired an interest in the sum paid in by the Assaubayevs.

33. We accept this submission. As at 2 December 2014 (the date of the Court of Appeal’s order for payment out to MWP of the money in court), MWP became entitled to that money. It became an asset of MWP or, to use the words of Part 72.10, it became money ‘standing to the credit of the judgment debtor in court.’ ” [1]

13.  In Re Peak Hotels and Resorts Ltd (in liquidation) [2017] EWHC 1511 (Ch), a company had, for the purposes of actions it brought, paid money into court (a) to fortify a cross-undertaking in damages for interim relief, and (b) to provide security for the defendants’ costs.  The company was subsequently placed into liquidation.  The liquidators did not continue the actions and settled them.  One of the terms of settlement was that the sums paid into court should be returned to the company.  The question that arose was whether a charge granted by the company to secure the fees due to its former solicitors extended to the money returned from the court.  The liquidators argued that it did not, because the company had no relevant interest in the monies until they were ordered to be paid out of court back to the company, and that at that stage the monies represented the fruits of the labours of the liquidators and as such not subject to the charge.  Judge Davis‑White QC held that the company did have an interest in the funds in court which fell into the scope of the charge and stated, after a detailed review of the relevant authorities:

“ 94. If a plaintiff pays money into court, as in this case, to secure the costs of the defendant or to fortify, and thus provide security for the defendant, as regards the plaintiff’s cross undertaking in damages, the court will at the very least treat the plaintiff as having an interest in the fund in court. That interest will entitle the plaintiff to apply for the proper administration of the fund. Further, when the question of payment out arises, subject to the deemed security interest of the defendant in the fund, the plaintiff will be treated as the owner of the fund in question and entitled to receive the same. …

95. That interest in administration, or deemed interest in the fund, is one that the courts recognise and that (in the example under consideration) the plaintiff can charge. … While it may be the case that the plaintiff does not have a property interest in the fund in specie, so that it cannot technically charge a property right in funds in court but only charge future property, that is what it ultimately receives if and when funds are ordered to be paid out of court to it, the entitlement to proper administration and to what it is treated by the court as owning is something that the court recognises. The court will also recognise a charge in relation to such rights and interest. …” (original underlining; italics added)

14.  These authorities suggest that a party who has paid money into court as security for costs, as a condition for defence or as fortification for an undertaking as to damages, may be treated as the “owner” of the funds subject to the other party’s security interest therein.  Applying that reasoning, after a plaintiff such as Chris Au has paid money into court as security for the defendant’s costs, while the funds become subject to the control of the court and may be paid out only in accordance with a court order, the plaintiff nevertheless in a limited sense retains a beneficial interest in the money.  It is not necessary to decide whether it amounts to ownership or a proprietory interest as opposed to a mere equity.  Nor is it profitable, as observed by Hobhouse J in Halvanon, to analyse whether the court or the Registrar stands in the position of trustee in relation to such funds.  It is sufficient to say, and in my view it does no violence to the language of s 20A to do so, that such a plaintiff holds an interest in the funds in court beneficially, albeit subject to the security interest of the defendant which it is the purpose of the order for security for costs to confer on him.  The word “beneficially” in this context simply means, in my view, that the interest is held for one’s own benefit, rather than for or on behalf of another.  There is nothing in the authorities, nor any reason in principle or policy, to mandate the view, which Ms Au urges upon me, that such a plaintiff has at most a future interest insufficient for the purposes of s 20A.  Indeed, in the case of funds paid by a defendant into court as an offer to settle under O 22, Ms Au accepts that the defendant retains a beneficial interest sufficient to found a charging order.

15.  In support of her submissions Ms Au referred to Nativivat v Nativivat (No 2) [2013] 5 HKLRD 145, in particular the following passage in §6 of Lam VP’s judgment:

“ … Order 49 Rule 9 refers to money standing to the credit of a judgment debtor. After a sum of money is paid into court as security for a particular purpose, it is no longer the payer’s money as such. It has already been designated as security for that particular purpose. It is doubtful if such a sum so encumbered can be regarded as money standing to the credit of the payer.”

16.  In my respectful opinion the passage does not assist Chris Au at all.  First, the application there was for payment out under O 49 r 9 which applies only where “money is standing to the credit of the judgment debtor in court”.  Generally speaking, pending determination of the parties’ entitlement, money paid into court is money standing to the credit of the action, rather than to the credit of one party or another.  It is readily understandable, if I may respectfully say so, that Lam VP doubted that the money in that case could be set to be standing to the credit of the payer.  As the English Court of Appeal held in Emmott, it was only when the order for payment out was made that the judgment debtor became entitled to the money and the funds became money “standing to the credit of the judgment debtor in court”.  Secondly, an order for payment out is quite different from a charging order: whereas a prior security interest of a third party should of course prevent payment out to a judgment creditor, it is not an impediment to the imposition of a lower ranking charge by way of a charging order in favour of the judgment creditor.  This is why Lam VP said in §9 of his judgment that if a judgment creditor could obtain payment out in his favour notwithstanding the uncertainty as to extent of liability under the designated security, it could defeat the purpose of ordering such security.  By contrast, as accepted by Ms Au, the imposition of the charging order sought here would not defeat the purpose for which security for costs was ordered in favour of Kim.  The plaintiff accepts that its charging order is subject to Kim’s security interest.  Indeed, Kim, who was notified of this application, has not opposed it.  Thirdly, in §9 of his judgment Lam VP expressly refrained from expressing a concluded view on whether a sum paid into court as security could be regarded as money standing to the credit of the payer when it was still uncertain whether there would be any balance after the security had been met. Fourthly, none of the decisions in In re Ford, Halvanon, Emmott and Peak Hotels (the last two of which were indeed decided subsequently) was apparently cited to his Lordship.  Fifthly, Lam VP’s observation that the money paid into court “is no longer the payer’s money as such” can readily be understood as meaning that it was not money free for the payer to dispose of.  In my respectful opinion, the comment was not intended to lay down a rule that the payer could hold no further interest beneficially in the funds whatsoever.  Sixthly, the application in that case was in any event procedurally defective as it did not fall within the jurisdiction of the Court of Appeal and should have been made instead to the Court of First Instance (see §11).

Whether on the facts Chris Au has any beneficial interest in the funds

17.  Secondly, Ms Au argued that a charging order cannot be imposed on the funds in this case because they are subject to a Quistclose trust between Chris Au and his brother, Casey Au.  This issue depends on the particular facts of the present case which it is necessary to describe in slightly greater detail.  According to the affirmations filed, the $2 million paid into court originated in these circumstances.  On 6 February 2017, Chris Au spoke to his brother, Casey Au, and told him that he required a sum of $2 million urgently in order to preserve his Hong Kong proceedings HCA 1285/2014. Chris Au requested that the money be transferred directly to Messrs Lo & Lo, his solicitors in HCA 1285/2014.  Casey Au agreed.  The arrangement was that the money was to be paid from RIOT Group Ltd (“RGL”), a company wholly beneficially owned by him.  He instructed Ms Elsa Ho, an employee who worked for the Au’s family, to prepare the relevant documents. Accordingly, on 8 February 2017, RGL entered into a loan agreement with Chris Au.  On the same day, the sum of $2 million was transferred from the bank account of RGL at HSBC to the bank account of Lo & Lo also at HSBC, via HSBC’s online banking system.

18.  The loan agreement, signed by Chris Au and Elsa Ho for RGL, was a very short one and stated:

“ Chris Au (borrower)

Riot Group Limited (lender)

Original Loan Date: February 8, 2017

Entire Repayment Due: February 8, 2019

Total Amount of Loan: HK$2,000,000.00

Interest Rate: 4% annually

TERMS OF LOAN AGREEMENT LETTER:

I, Chris Au, borrowed HK$2,000,000.00 from Riot Group Limited on February 8, 2017. The Riot Group Limited and I both agree that the loan will be repaid in one lump sum including interest on February 8, 2019.

Both parties agree to the terms surrounding the said loan.”

19.  The written resolution of the sole director of RGL, Elsa Ho, of the same date was to the same effect, whereby it was resolved:

“1. Chris Au borrowed HK$2,000,000.00 from Riot Group Limited on February 8, 2017.

2. The Riot Group Limited and I [sic] both agree that the loan will be repaid in one lump sum including interest (interest rate: 4% annually) on February 8 2019.”

20.  Since the money was lent to Chris Au, it was prime facie his to dispose of.  It is up to Chris Au who opposes the present application by asserting that the money is subject to a Quistclose trust to establish it.  On the facts, I do not think the assertion has been made out.

21.  First, the money came from RGL.  Although it is said that RGL was wholly owned by Casey Au, it is a separate legal person and the money in its bank account was its own money, there being no suggestion that it held the funds as nominee for Casey Au.  On that basis, the transaction was one between RGL and Chris Au and it is the objective intention of these parties that is material.  It follows that Casey Au’s and Chris Au’s protestations in their affirmations that the money paid into court does not “belong” to Chris Au but to Casey Au or that he is “the ultimate beneficial owner” of the money, are irrelevant as representing their submissions or at most their subjective states of mind at the time.

22.  Moreover, since the terms of the transaction here are contained in a written agreement, namely, the loan agreement letter, the intention of the parties is a matter of construction of that document, to which the usual principles apply: Lewin on Trusts (19^th ed), §8‑048.  There is in my view nothing in the agreement, construed in the light of the factual background, to suggest any intention that the money lent had to be applied exclusively for the purpose of payment of security for costs in HCA 1285/2014.

23.  There is no evidence at all that Elsa Ho, the sole director of RGL, had any notice of the purpose for which Chris Au had asked for the loan.  There is nothing to indicate that it was of significance to RGL that the money lent to Chris Au should be used by him to give security for costs in HCA 1285/2014.

24.  Secondly, and in any event, even if one takes into account, at face value, the communications between Chris Au and Casey Au that led to the loan, no Quistclose trust in my view arose.  The mere fact that money is borrowed with a certain object or motive as to its use on the part of the borrower does not impress upon it any trust.  Nor does a Quistclose trust necessarily arise merely because money is paid for a particular purpose in the mind of the payer or lender.  As Lord Millett said in Twinsectra Ltd v Yardley [2002] 2 AC 164 at §73:

“ A lender will often inquire into the purpose for which a loan is sought in order to decide whether he would be justified in making it. He may be said to lend the money for the purpose in question, but this is not enough to create a trust; once lent the money is at the free disposal of the borrower.”

The question in every case is whether the parties intended the money to be at the free disposal of the recipient: Twinsectra, §74.

25.  Although the money was arranged to be paid by RGL directly to Lo & Lo, this was not a requirement imposed by RGL or Casey Au, nor a term of the loan agreement.  Since there was a Mareva injunction on foot in this action against Chris Au at the time (granted ex parte on 18 November 2016 and continued inter partes on 25 November 2016), it was not surprising that he would not wish any money to pass through his own bank account.  In any event, there was nothing in the arrangement to prevent Chris Au from withdrawing the money from Lo & Lo, or directing the solicitors to apply the money for some other purpose.  Furthermore, the loan had a term of two years ending on 8 February 2019, prior to the trial of HCA 1285/2014.  The agreement makes no connection whatever between the repayment of the loan and the outcome of that action.

26.  Accordingly the second point raised by Chris Au is also rejected.

27.  Ms Cheung raised a further argument that even if a Quistclose trust did arise in the first place, once the funds were paid into court, the designated purpose of the payment was carried out and any remedy RGL and Casey Au had would be the ordinary one in debt: Twinsectra, §69.  Ms Au responded that where money is borrowed specifically and exclusively for the purpose of giving security for costs in legal proceedings, giving rise to a Quistclose trust, such a trust does not necessarily vanish when the money is paid into court.  In Common Professional Examination Board ex parte Mealing‑McCleod [2000] All ER (D) 588, money was borrowed by the applicant from a bank for the exclusive purpose of giving security for costs in her litigation against the Board.  After the applicant had won the litigation and obtained a favourable costs order, the Board applied for the money to be paid out to satisfy costs orders made in other proceedings against the applicant.  The English Court of Appeal held that it was impermissible, because on the facts the money was subject to a Quistclose trust when borrowed and, by necessary implication or as a matter of construction, it was a condition that if the applicant was successful in the litigation, the money would go back to the bank, and the applicant was therefore bound as trustee to return the money to the bank.  As it is unnecessary for my decision, however, I do not express any view on this argument.

Conclusion

28.  No submission has been made as to why the court should not make absolute the charging order if the two points raised are rejected.  For the above reasons, I am satisfied that a charging order can be imposed on the funds in court standing to the credit of the action HCA 1285/2014, for the payment of the judgment debts owed by Chris Au to the plaintiff herein, subject to the deemed security interest of Kim.  I am also satisfied that it is appropriate in all the circumstances to make absolute the charging order and there will therefore be an order in terms of the draft placed before me.

29.  There will be an order that Chris Au do pay the plaintiff’s costs of the application, to be assessed in a gross sum.  The plaintiff shall forthwith provide its statement of costs to Chris Au; a statement of objections, if any, shall be lodged by Chris Au within 14 days thereafter, and a reply by the plaintiff within 7 days thereafter.

HCA 3030/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3030 OF 2015

___________________

___________________

______________________________________

DECISION ON SUMMARY
ASSESSMENT OF COSTS

______________________________________

Introduction

1.  In my judgment handed down on 3 March 2017, I ordered that the worldwide Mareva injunction against D1 be varied and continued until further order and I also made a disclosure order auxiliary to and in aid of the Mareva injunction.  There was an order nisi that P has the costs of the application and the hearing.  Subsequently, the parties agree and ask that costs be dealt with by way of summary assessment.  P has since filed their Statement of Costs and D1 has filed their objections.  I have considered those and the following is my assessment on a summary basis.

The Proceedings

2.  My costs order covers the following:

(i) P’s application by summons dated 21 November 2016;

(ii) the ex parte hearing before Lam J on 18 November 2016;

(iii) the inter partes hearing before DHCJ Fung, SC on 25 November 2016; and

(iv) the substantive inter partes hearing before me on 21 February 2017.

A: Fee Earners’ Rates

3.  P claims fees for 5 fee earners as follows:

Fee Earner	Year of Admission	Hourly Rate
Partner (GHT)	1998 (HK)	$4,000
Senior Associate (ML)	2013 (HK), 2008(NSW)	$3,500
Associate (RH)	2012 (HK)	$3,000
Registered Foreign Lawyer (HE)	(NSW 2016)	$2,000
Litigation Clerk (P)	--	$1,000

4.  I note that there is no objection to the rate of GHT. 

5.  As regards ML and RH, in view of their respective year of admission in Hong Kong and the objection taken, I would allow an hourly rate of $2,500 for ML and $2,200 for RH respectively.

6.  As regards HE, I do not agree that his involvement is unreasonable.  Besides, I allow him $2,000 per hour.

7.  However, I take the point that it is exceptional for four solicitors to be involved in the same application like the present one. Therefore, I would take that into account when I assess the total number of hours claimed by the fee earners under each of the following heads and make adjustments accordingly.

B: Manual Work

8.  There is no objection to photocopying charges ($2,000).  However, objections were made to the total number of attendances by the litigation clerk for filing ($5,000) and serving ($2,000).

9.  Having considered the file, I allow a total of $5,000 under this head.

C: Communication including conferences, phone calls and letters

10.  The total amount claimed under this head is $20,500.  There is no objection in relation to the time spent by GHT, ML and RH. However, adjustments have to be made regarding the hourly rates of ML and RH respectively.  I note the objection in relation to the time spent by HE (0.5 hours with D’s solicitors and 1.5 hours with banks). 

11.  Taking into account the total time spent by the fee earners, I make a slight adjustment and allow a round figure of $18,000 under this head.

D: Professional work - ex parte hearing before Lam J

12.  P claimed a total of $150,250 for the professional work of GHT, RH, HE and P.  As I said, adjustments have to be made regarding the hourly rate of RH.  The bulk of the preparation work was undertaken by HE.  However, the latter alone claimed a total of 37 hours and that seems excessive to me for an application of the present nature and level of complexity.

13.  Having considered the matter, I allow a total of $110,000 under this head.

E: Professional work – inter partes hearing before DHCJ Fung, SC

14.  P claimed a total of $67,500 for the professional work of GHT, RH & HE.  As I said, there should be a downward adjustment for the hourly rate of RH.

15.  I note that a further affidavit and written submissions were filed for that hearing.  I allow a total of $45,000 under this head.

F: Professional work – inter partes hearing before me

16.  P claimed a total of $151,375 for the professional work of GHT, ML and P.  As aforesaid, the hourly rate for ML has to be adjusted downward.  Although it was a substantive hearing with further affidavit evidence, written submissions and hearing bundles filed, the total number of hours claimed, in particular those by ML alone (33.25 hours) seems excessive to me.  Also, some of the preparation should have been covered by the work done before.

17.  Having considered the case and the documents filed, I allow $100,000 under this head.

G: Counsel’s fees

18.  This was for the half day hearing before me. Counsel charged a total of $95,000 all inclusive.  That is on the high side for an application of this nature and given the ground work that had been done by the fee earners.

19.  I allow $75,000 under this head.

Conclusion

20.  Therefore, by way of summary assessment, the costs to P is assessed as follows:

	B	$5,000
	C	$18,000
	D	$110,000
	E	$45,000
	F	$100,000
	G	$75,000	Total: $353,000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3030 OF 2015

_________________________

_________________________

_________________________

JUDGMENT

_________________________

Introduction

1.  This is the hearing of the summons taken out by the plaintiff (P) on 21 November 2016.[1] It is about the post‑judgment worldwide Mareva Injunction which P has obtained against the first defendant (D1).  The first question before the court is whether the said injunction, which was first granted ex parte[2] and subsequently continued inter partes,[3] should be further continued and if so, whether and to what extent it should be varied.

2.  If P’s injunction was to continue, then the second question for the court would be about the scope of the disclosure order against D1 which is ancillary to and in aid of the said injunction.[4]

3.  As regards the first question, Ms Au, counsel for D1, opposes the continuation of the injunction and asks that it be discharged.  She relies on two main grounds: (i) there was no genuine urgency to justify the ex parte application and that any urgency was “self‑induced” by P as a result of their own delay in taking out enforcement action; and (ii) there was material non‑disclosure by P in their supporting affidavit used at the ex parte stage.[5]

4.  On the other hand, Ms Cheung, counsel for P, submits that there were genuine reasons why P had not sought to enforce the judgment debt they obtained against D2 (D1’s co‑defendant) earlier and that there was real urgency for the ex parte application against D1. Besides, it is her major contention that there was no material non‑disclosure. However, if the court was not with her on the latter point, her fallback position would be that any material non‑disclosure was innocent rather than deliberate and in which case she would ask for a re‑grant of the injunction.

5.  I note that the questions about lack of urgency and material non‑disclosure had in fact been raised inter parte on 25 November 2016.[6] As such, there may be an argument that the two points could and should have been dealt with at that hearing.  However, Ms Cheung, by referring to §18/19/10, Hong Kong Civil Procedure 2017 (HKCP), has reservation about the applicability of the boarder principle of res judicata in Henderson v Henderson[7]to interlocutory proceedings and she does not seek to rely on that principle.  Given the stance of counsel, I would not deal with the point in the discussion below.

BACKGROUND

6.  Briefly stated, P is a firm of solicitors who had acted for D1 and D2 in a High Court action.[8] One core issue in that action was the existence and extent of the beneficial interest of various parties in the shares of D2.  It was the claim of the plaintiffs in that action that they also had beneficial interests and that they were entitled to two‑thirds of the money in the DBS bank account of D2.  On the other hand, D1 claimed that the plaintiffs in that action did not have any interests in D2 and that the money in D2’s DBS bank account belonged wholly to him.

7.  P’s claim against D1 and D2 was for unpaid fees for the legal services which they had provided to them in the High Court action.  P obtained a default judgment against D2 for about $6.21 million plus interest and costs on 30 May 2016[9] and a summary judgment against D1 for about $7.45 million plus interest and costs on 12 August 2016.[10]  There had been no appeal from those judgments.  However, neither D1 nor D2 had paid any of the judgment debts they owed to P and meanwhile the interests kept on accruing.

8.  It is pertinent to note that whilst the liability of D2 to P was “joint and several” with that of D1, D1’s indebtedness to P was greater than that of D2 by about $1.24 million.  Without condescending to the details of calculation and set‑off, it suffices to say (and there is no dispute) that as at 18 November 2016 when P applied ex parte for the injunction against D1, the total indebtedness of the defendants to P had rolled up to about $9.31 million.  It was also up to that amount that D1’s assets were eventually frozen by the injunction P obtained.  P stated in their supporting affidavit that they were at that stage not seeking to enforce their judgment against D2.[11]

9.  Nevertheless, as the matter developed, on 27 January 2017 P obtained a garnishee order absolute relating to the aforesaid D2’s DBS bank account, as a result of which a total of about $7.46 million was paid to P.  After deducting that sum, as at 14 February 2017 the balance of D1’s indebtedness to P was reduced to $1,952,977.76, with a daily interest of $374.30.  Given this recent development, P agrees that their injunction against D1 should be “downsized” to $1,952,977.76.

CONSIDERATION

Urgency for ex parte application

10.  The relevant legal principles governing post‑judgment worldwide Mareva Injunction are well‑established: see, e g, HKCP 29/1/65‑71 & 83; also Spry on Equitable Remedies.[12]  I also bear in mind the ex parte nature of P’s application which carries with it the duty to make full and frank disclosure: see, e g, HKCP at §29/1/51.  The law is largely not in dispute.

11.  As aforesaid, P obtained judgments against D1 and D2 respectively in August and May 2016.  However, P had not applied for any injunction until mid‑November 2016.  In view of the fact that P was subsequently able to recover a large portion of their debts from D2, Ms Au contends that any perceived urgency for the ex parte application was in fact attributed to P’s delay in taking out enforcement action against the defendants. It is further submitted that had P taken out enforcement against D2 earlier, the value of D1’s assets that needed to be restrained would have been greatly reduced.

12.  In order to assess the validity of Ms Au’s contention above, it is necessary to examine the state of affairs as at mid‑November 2016 when the ex parte application was made.  The following facts taken from P’s supporting affidavit, which are either not in dispute or in my view not disputable, are pertinent:

(i) since 29 January 2014, D2’s DBS bank account had been frozen by an injunction granted by Zervos J. [13]  As such, P could not have enforced their judgment against that bank account unless and until that injunction was discharged;

(ii) there is no evidence before me as to when and how the injunction against D2’s DBS bank account was discharged. Nevertheless, it was something outside P’s control;

(iii) P received news that the High Court action had settled or was in the course of being settled which would involve a significant payment to D1.  At that time P was no longer D1’s solicitors and did not know about the terms of the settlement.  There were, however, reasons for P to believe that the settlement might lead to the discharge of injunction against D2’s DBS bank account, so that D1 could have access to some or all of those funds;[14]

(iv) P’s experience with D1 caused them to believe that there was a high risk of an immediate dissipation of any assets which D1 received by way of the settlement and that he would continue to make every effort to avoid paying his debts to P;[15] and

(v) P’s stated purpose for seeking the injunction against D1, which I accept was and is their genuine purpose in spite of the allegations of D1 to the otherwise,[16] was to allow them to secure and properly identify his assets so that they could determine the most effective course to encore the judgment against him.[17]

13.  In view of the above, I am satisfied that what prompted P to apply for the Mareva Injunction against D1 was the settlement which had been, or would be imminently reached in the High Court action with respect to the funds held by D2 in its DBS bank account and the real risk that those funds would be used by D1 and not used to pay his outstanding debts to them.  Therefore, I am also satisfied that there was genuine urgency for P’s application arising from the aforesaid settlement and that ground alone was sufficient to justify the application ex parte.

Non-disclosure

14.  Ms Au relies on the following matters which, she contends, constitute material non‑disclosure:

(i) P not giving reasons for not taking enforcement action against D2 in the supporting affidavit;

(ii) P not explaining the “practical effects” of the bankruptcy petition against D1 on his bank accounts;

(iii) P’s failure to disclose the possibility of them applying to be substituted as the petitioners in the bankruptcy proceedings against D1 in case of the withdrawal of the original petitioning creditors; and

(iv) P’s failure to disclose that they had acted in breach of their duty of confidentiality by making use of an affirmation of D1 which they had obtained in the capacity as his then legal adviser.

15.  As regards (i), P had already disclosed in their supporting affidavit that they had no present intention to seek enforcement against D2.[18] It was also stated that D2’s DBS bank account had already been subject to an injunction granted by Zervos J.[19]  Therefore, in my view it would be obvious to any court reading the supporting affidavit that it was simply not a viable option to take any enforcement action against D2 then.  Secondly, even if I were wrong to say that the point would be obvious, objectively speaking the existence of the injunction against D2’s DBS bank account would have rendered any enforcement action against that bank account not viable.  As such, I do not accept that there was a material non‑disclosure just because a plaintiff had omitted to mention an option which was objectively not open to him.  Thirdly, the liability of D1 and D2 to P being “joint and several”, it is a matter entirely for P which of them to go after or in what consequence.  I can see no valid cause of complaint on the part of D1, had P decided not to go after D2 at all.  There is simply no duty on P to give reasons for the course they had taken.

16.  As to (ii), P had stated in their supporting affidavit that in September 2016 there were bankruptcy petitions in Hong Kong as well as in Singapore against D1, that in both jurisdictions P had entered a Notice of Intention to Appear and that they supported the petitions.[20]  Ms Au accepts that a bankruptcy petition would not have the legal effect of preventing the subject of that petition from dissipating his assets if he wished to do so.  The present complaint of Ms Au is that P had not pointed out in their supporting affidavit that the “practical reality” of the bankruptcy petitions was that D1’s bank accounts would be frozen and this would have a bearing on the assessment of the risk of assets dissipation.  As such, it is submitted that there was a duty on P to inform the court in their supporting affidavit of that “practical reality”.

17.  I am unable to accept Ms Au’s above submission.  My reasons are as follows:

(a) I do not think that the court needs to be specifically informed of the “practical reality” of a bankruptcy petition with regard to the subject’s bank accounts.  That, in my view, is a matter of common sense and judicial notice.

(b) The evidence before the court was that D1 had the practice of controlling his assets through nominee companies. As such, unless the banks were aware of the relationship between D1 and his nominee companies; otherwise, the bankruptcy petitions would unlikely to have the practical effect of freezing the bank accounts of D1’s companies as Ms Au contends.

(c) There was evidence before the court that D1 had assets other than monies in bank accounts and the bankruptcy petition would not have prevented D1 from dissipating those assets.  Moreover, as Ms Cheung is quick to point out, the rights of a trustee in bankruptcy being territorial, it is conceivable that D1 could dissipate his assets situated outside of Hong Kong beyond the reach of any hypothetical future trustee in bankruptcy.

Based on the above, I am of the view that the utility of specifically informing the court of the practical effects of a bankruptcy petition would be minimal and the omission to do so in the supporting affidavit in an ex parte application like the one under consideration is not a material non‑disclosure.

18.  As to (iii), P stated in the supporting affidavit that they received news that the Hong Kong petition for bankruptcy would be withdrawn shortly as a result of a settlement.  P also stated that the Singaporean petition was being withdrawn because of a successful appeal by D1. The present complaint of Ms Au, however, is that P had failed to disclose that they could have applied to be substituted as the petitioners so that the bankruptcy proceedings might continue.  Reliance was placed by Ms Au on the fact that P is an international law firm with vast experience in litigation matters.  Ms Au further pointed out that P had in fact subsequently applied for substitution.  It is submitted therefore that P had painted a “highly misleading” picture in their supporting affidavit that the bankruptcy proceedings would shortly come to an end.

19.  When assessing Ms Au’s contention above, I take into account the following:

(a) from a natural reading of P’s supporting affidavit, they referred to their support of the bankruptcy petitions both in Hong Kong and in Singapore just to show that they had sought to enforce their judgment against D1;[21]

(b) it had never been P’s position that the bankruptcy petitions would have the effect of mitigating against the risk of D1 dissipating his assets;

(c) there was nothing to suggest that P had already formed the intention to apply for substitution at the time they made the ex parte application for Mareva Injunction;

(d) P had expressed in the supporting affidavit that they intended that the bankruptcy proceedings should continue. It was more than a month after P’s ex parte application that the Hong Kong bankruptcy petition was withdrawn by way of a consent summons.[22]  Upon being informed of the withdrawal, P immediately wrote to court to apply for substitution;[23] and

(e) the statutory demand upon which P was entitled to rely for the purpose of substitution in the Hong Kong bankruptcy proceedings was just a demand in respect of costs orders totalling $204,000 and interest thereon which represented only a small fraction of the judgment debt which D1 owes to P.

20.  Nevertheless, having regard to Brink’s Mat Ltd v Elcombe,[24] I am unable to say that any court reading about the imminent prospect of the bankruptcy proceedings being withdrawn would not regard it as material to the issue of urgency, even though P had not specifically relied on this as a ground for showing urgency.  Moreover, the withdrawal of the bankruptcy proceedings may bear on the risk of assets dissipation in that the administrative measures voluntarily imposed by the banks on the subject’s accounts would then be lifted.  The weight to be attached to these considerations should be a matter for the court to decide.  As such, I am inclined to the view that P’s omission to mention the possibility of them applying for a substitution so as to allow the Hong Kong bankruptcy proceedings to continue amounts to a material non‑disclosure.

21.  However, I note that the court has a discretion, notwithstanding proof of material non‑disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms.  In the present case, I find that there are ample grounds to justify the continuation or re‑grant of the injunction against D1.

22.  Firstly, there is nothing to suggest that the omission was deliberate rather than innocent.  On the other hand, I am satisfied that it had always been P’s intention to seek enforcement of its judgment against D1 and if necessary by declaring him bankrupt.  That has been made explicit in P’s supporting affidavit.  I am satisfied that the omission was innocent.

23.  Secondly, I am of the view that D1’s litigation conduct exhibited in the present proceedings has been reprehensible:

(i) At the hearing before DHCJ Fung, SC, D1 sought to oppose the continuation of P’s injunction by submitting that his assets were “effectively frozen” due to the bankruptcy petition without informing the court that he was at that time negotiating a withdrawal with the petitioning creditors.

(ii) In the affirmation D1 filed on 16 December 2016 in opposition to the continuation of P’s injunction, he still maintained that the bankruptcy petition would have the effect of freezing his assets. Again, nothing was said about the imminent withdrawal which was to take place a few days afterwards on 23 December 2016.

(iii) It lies ill in the mouth of D1 on the one hand to assert that P had failed to disclose the possibility of a substitution, whilst on the other hand opposed P’s application for substitution which eventually led to the dismissal of the bankruptcy petition.[25]

24.  Thirdly, as P’s application to be substituted as the petitioning creditors has been successful opposed by D1, the non‑disclosure is very much “water under the bridge” and any effect it may have on the present proceedings would be very limited.

25.  In the circumstances, having regard to the legal principles stated in Excel Courage Holdings Ltd v Wong Sin Lai,[26] I am of the clear view that this is a suitable case to exercise the court’s discretion to allow P’s injunction to continue.  As such, there is no need to order a re-grant. However, if need be, I will make such an order in spite of the aforesaid material non‑disclosure.

26.  As to (iv), which is about P’s use of the information contained in D1’s 2014 affirmation filed in the High Court action for the purpose of their application for injunction against D1, this point can be dealt with shortly.  D1’s affirmation had not only been filed with the court, served on the plaintiffs in the High Court action, but had also been referred to in written submissions for the hearing before Zervos J and the order subsequently made by the learned judge on 11 July 2014.[27]  As such, the contents of D1’s affirmation has already been in the public domain and clearly neither privileged nor confidential.  There is no substance in this point.

Variation of the Mareva Injunction

27.  Ms Au asks that, if P’s injunction is to continue, then it should be varied as to (1) the amount; (2) the geographical scope; and (3) the assets/ entities specified in Schedule 3 and Schedule 4.

28.  As regards (1), Ms Cheung has already agreed that P’s injunction should be “downsized” to $1,952,977.76.

29.  As regards (2), there is evidence contained in P’s supporting affidavit showing that D1 at least had a bank account in Singapore.[28]  Ms Au submits that P’s allegation is vague and that they have failed to satisfy their duty to make “due inquiries” about D1’s assets.  However, Ms Au has not specified what types of inquiry she has in mind.  There are also the added difficulties arising from a banker’s duty of confidentiality to its customers.  In the circumstances, I am unable to see why P’s injunction should be limited to D1’s assets in Hong Kong.

30.  As to (3), Schedule 3 (List of Properties and Assets in Hong Kong)[29] and Schedule 4 (List of Accounts in Hong Kong)[30] of the Mareva Injunction were based on the information contained in D1’s 2014 affirmation filed in the High Court action.  In the absence of any evidence to the contrary, I am unable to see why P should not be entitled to rely on what D1 had deposed to in that affirmation.  However, Ms Cheung has fairly indicated that, based on the information now available, Item 6 on Schedule 3 (Catalunya Limited) and Items 1 and 3 on Schedule 4 (Kudeta Limited and Catalunya Limited) should now be removed and I so order.

Scope of disclosure order

31.  The disclosure sought by P in paragraph 2 of their summons dated 21 November 2016[31] follows closely the standard form provided in Practice Direction 11.2, save and except that (i) it requires D1 to disclose his assets whether in or outside Hong Kong and (ii) in the case of bank accounts, D1 is required to provide the name and address of the branch, the name of the account holder, the amount of the balance and a list of all the authorised signatories to the account.

32.  Ms Au takes exception to (i) and (ii) above, submitting that strict compliance with the Practice Direction is generally expected, that any departures have to be explained and that P has failed so to do.

33.  I am unable to accept Ms Au’s above submissions.  As regards (i), in case of a worldwide Mareva Injunction, a disclosure order requiring the defendant to disclose his assets both in and outside Hong Kong is justified in so far as there is evidence that he has assets in and outside Hong Kong.  As regards (ii), the addition requirement is in my view reasonable and not objectionable as regards bank accounts.

34.  In paragraph 3 of P’s summons, they ask that D1’s disclosure should include, but not limited to, various forms of property including bank accounts in his personal names (3.1), bank accounts in company names (3.2), investments (3.3), shares (3.4), securities (3.5), properties (3.6), monies (3.7), cars (3.8), personal effects (3.9) and the items of any settlement in the High Court action insofar as relating to D1 (3.10).  Paragraph 4 of P’s summons is the standard requirement that D1 is to verify the information he disclosed by an affirmation. 

35.  Ms Au criticises that it is not clear whether paragraph 3 is merely an enumeration of paragraph 2 and that no specified amount was provided for the items listed out in paragraph 3.  Ms Au also criticises that Item 3.10 is vague and may involve D1 breaching his duty of confidentiality to other parties, although she accepts that confidentiality is not by itself a reason to oppose discovery/disclosure: PCCW-HKT International Ltd v New World Telephone Ltd[32] citing Science Research Council v Nassé.[33]

36.  In response, Ms Cheung clarified that:

(i) paragraph 3 of P’s summons is just an elaboration of paragraph 2;

(ii) it has always been P’s intention that the $100,000 lower limit specified in paragraph 2 also applies to paragraph 3 and she has no difficulty adding the $100,000 lower limit to paragraph 3 to make that explicit; and

(iii) as regards Item 3.10, all that P is interested to know is the payments or benefits, rather than their sources, which D1 has received or is to receive from the settlement.

37.  During exchange with counsel, I raised with Ms Cheung my concern about the wording of Item 3.2 which reads as follows:

“all bank accounts in the name of all Hong Kong private or foreign companies and/or trusts or other vehicles over which the 1^st Defendant has an interest;”

Upon reflection, Ms Cheung agrees that the item should be re‑phrased as follows:

“all bank accounts in the name of all Hong Kong private or foreign companies and/or trusts or other vehicles over which the 1^st Defendant has the power, directly or indirectly, to dispose of or deal with as if they were his own;”

38.  As regards Item 3.10, Ms Cheung agrees to amend it as follows:

“Any payments of money, properties, choses in action and any benefits received or to be received by the 1^st Defendant, whether directly or indirectly, and any confirmation of the 1^st Defendant’s ownership of assets, either directly or indirectly, contained in any settlement relating to HCA 183/2014.”

As regards the above proposal, Ms Au was unable to inform the court whether D1 has in fact reached any settlement with the other parties in the High Court action. 

39.  Having considered the submissions from both sides, I reject Ms Au’s submission that paragraph 3 of P’s summons is redundant.  I am of the view that although there is substantial overlap between the items covered in paragraph 2 and paragraph 3 of P’s summons, the specific items listed in paragraph 3 would provide further guidance to D1 as to what is required of him and would avoid any misunderstanding.  Furthermore, I am of the view that the above proposed amendments to paragraph 3 by Ms Cheung are fair and reasonable and I endorse them.

CONCLUSION

40.  Based on the above, I order that the worldwide Mareva Injunction against D1 granted on 18 November 2016 and continued on 25 November 2016 is to continue until further order save and except that:

(i) the value of the assets restrained is now reduced to “up to HK$1,952,977.76;

(ii) Item 6 on Schedule 3 is now removed; and

(iii) Items 1 and 3 on Schedule 4 are now removed.

41.  As regards disclosure of information, I make an order in terms of paragraphs 2, 3 and 4 of P’s summons dated 21 November 2016 save and except that:

(i) the words “of a consolidated value of HK$100,000 or more” is inserted at paragraph 3 after “the following assets”;

(ii) Item 3.2 is amended as stated above; and

(iii) Item 3.10 is amended as stated above.

COSTS

42.  It is trite that costs are at the discretion of the court.  I have regard to O 65 r 5 of the Rules of the High Court and the commentary at §29/1/55, HKCP.  I am also alive to the principles stated in Re Elgindata Ltd (No 2).[34]

43.  In my view, despite the slight amendments to the Mareva Injunction and the terms of the disclosure order, P is the real winner of the case.  In the circumstances, I make an order nisi that P has the costs of this application and the hearing.

Ms Elizabeth Cheung instructed by Herbert Smith Freehills, for the plaintiff

Ms Astina Au instructed by Boase, Cohen & Collins, for the defendants