ACCENT DELIGHT INTERNATIONAL LTD AND ANOTHER v. YVES BOUVIER AND ANOTHER

HCMP 573/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 573 OF 2015

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DECISION
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Background

1.  On 15 June 2015, I heard counsel for the parties in these proceedings on the continuation of an ex parte Mareva injunction.  On 19 June 2015, I handed down a decision holding that the plaintiffs had been guilty of material non‑disclosure in failing to draw the court’s attention to the fact that an argument was open that the governing law of the relationship between the parties may be Swiss law.  That was a matter which I held should have been put before the ex parte judge for consideration in the exercise of discretion under section 21M(4) of the High Court Ordinance (“HCO”).

2.  However I continued the injunction, and allowed time for the plaintiffs to seek a re‑grant.  By summons dated 30 June 2015, a re‑grant of the Mareva injunction was sought on substantially the same terms.

3.  The most recent statement of the principles to be applied in Hong Kong when considering the discretion to continue, discharge or re‑grant an injunction where there has been material non‑disclosure is that of the Court of Appeal in Excel Courage Holdings Ltd v Wong Sin Lai [2014] 3 HKLRD 642. The court adopted a summary of the main principles as set out by Deputy Judge Alan Boyle QC in Arena Corp Ltd v Schroeder [2003] EWHC 1089, in the following terms:

“(1) If the court finds that there have been breaches of the duty of full and fair disclosure on the ex parte application, the general rule is that it should discharge the order obtained in breach and refuse to renew the order until trial.

(2) Notwithstanding that general rule, the court has jurisdiction to continue or re-grant the order.

(3) That jurisdiction should be exercised sparingly, and should take account of the need to protect the administration of justice and uphold the public interest in requiring full and fair disclosure.

(4) The court should assess the degree and extent of the culpability with regard to the non-disclosure. It is relevant that the breach was innocent, but there is no general rule that an innocent breach will not attract the sanction of discharge of the order. Equally, there is no general rule that a deliberate breach will attract that sanction.

(5) The court should assess the importance and significance to the outcome of the application for an injunction of the matters which were not disclosed to the court. In making this assessment, the fact that the judge might have made the order anyway is of little importance.

(6) The court can weigh the merits of the plaintiff’s claim, but should not conduct a simple balancing exercise in which the strength of the plaintiff’s case is allowed to undermine the policy objective of the principle.

(7) The application of the principle should not be carried to extreme lengths or be allowed to become the instrument of injustice.

(8) The jurisdiction is penal in nature and the court should therefore have regard to the proportionality between the punishment and the offence.

(9) There are no hard and fast rules as to whether the discretion to continue or re-grant the order should be exercised, and the court should take into account all the relevant circumstances.”

4.  The Court of Appeal went on to say:

“57 There is a tension between two kinds of public interest in this situation (Sita UK Group Holdings Ltd v Serruys [2010] EWHC 698 (QB) at [15]). The first is that the court should take account of the need to protect the administration of justice and uphold the requirement of full and fair disclosure in an ex parte application. So if material non-disclosure is established, the court will be astute to ensure that a plaintiff who obtains ex parte injunction without full disclosure is deprived of any advantage he may have derived by that breach of duty, to bring home to litigants the serious consequences of non-disclosure. This is what was described as ‘the golden rule’ in some cases. The other public interest is the general duty to do justice so that the application of the golden rule must not be allowed to become the instrument of injustice in the particular case. So the court would have regard to the principle of proportionality in the exercise of its penal jurisdiction to impose sanctions for non-disclosure.

58. As Christopher Clark J said in Re OJSC Ank Yugraneft [2009] 1 BCLC 298 at [103], in exercising its discretion, court, like Janus, looks both backwards and forwards.  The overriding question for the court is what is in the interests of justice in the particular circumstances of the case.”

5.  Mr Manzoni took me extensively through the judgment in Arena, and I have carefully considered the extremely thorough review of the authorities undertaken by the deputy judge in that case.

6.  I understand the reference to the “penal” jurisdiction of the court in this context to be the punishment of the party guilty of material non-disclosure by either a denial of a remedy to which he would otherwise be entitled or costs or both.

7.  These are the principles that I apply.

What the ex parte judge was told

8.  In order to determine precisely what the ex parte judge was told about the involvement of Swiss law in the matter I have carefully read the information that was put before the judge, and the transcript of the hearing.  What follows is what the judge was told about the situation, first from the affidavit of Ms Dawson, the solicitor for the plaintiffs, second from Mr Beresford’s skeleton and third from the transcript.

9.  Ms Dawson’s affidavit said that the relief was sought in aid of the plaintiffs’ claims against Mr Bouvier in the Principality of Monaco, and against Mr Bouvier, MEI and a Ms Rappo in civil proceedings intended to be commenced in Singapore, immediately prior to the making of the application: see §5.  A description of the parties to the proceedings showed that the plaintiffs’ had Swiss counsel, and a beneficiary of the family trusts which owned the plaintiff companies was of Swiss nationality, that Mr Bouvier was a Swiss businessman and a Singapore permanent president and the majority shareholder and president of a Geneva Freeport: see §§9‑10.

10.  It said that Mr Sazonov, the plaintiffs’ representative, instructed Mr Bouvier to act as an agent to negotiate the sale and purchase of 38 valuable artworks: see §12.  It said the plaintiffs had only ever understood Mr Bouvier to receive a commission on sales, generally 2%, and they were not aware that he was allegedly inflating the purchase prices through MEI: see §§15‑16.

11.  It describes Mr Bouvier’s arrest in Monaco on 25 February 2015: see §20, and describes the progress of the Monaco proceedings: see §§21‑25. That description exhibited a Monaco legal opinion from Ms Gazo.  In §31 it is recorded that the payments for the purchase price of the artworks were all made to MEI’s bank account located in Switzerland.  Transcripts of Mr Bouvier’s interviews with the Monegasque police are exhibited.

12.  Under a heading: “FULL AND FRANK DISCLOSURE” in §46, the following statement is made, in respect of the content of an interview given to a Swiss publication in which Mr Bouvier sought to set out the basis of his defence to the Monaco criminal proceedings:

“Mr Bouvier argues therein that:

…

(c) (Mr Bouvier) has never acted as the broker or agent of the plaintiffs - rather than acting as an intermediary, ‘his company’ was the seller of the Art Works to and thus entitled to make a profit on such sales;” (sic)

13.  The skeleton makes it plain that the Singapore proceedings, in aid of which the Mareva injunction was sought, were principally based upon fiduciary duties arising from a contract of agency, and the assertion that by interposing a “seller” owned by Mr Bouvier, a secret profit had been made in breach of the obligations of the agency contract.  It referred to the Monaco criminal proceedings, and the intention of the plaintiffs to commence civil proceedings in Monaco.

14.  The fact that the jurisdiction sought to be exercised arose under section 21M, HCO was dealt with comprehensively including a reference to Refco Inc v Eastern Trading Co [1999] 1 Lloyd’s Rep 159, 170‑171, and MotorolaCredit Corpn v Uzan [2004] 1 WLR 113 at 115.  The particular passages referred to in those decisions dealt specifically with the English equivalent to section 21M(4), that is the question in United Kingdom, of whether it is inexpedient, and in Hong Kong, unjust or inconvenient, to make an order.

15.  When dealing with the assets in Hong Kong, the skeleton referred to the fact that Mr Bouvier’s “broker’s fees” for the early transactions were paid to an account with a Geneva bank, but later to HSBC in Hong Kong.

16.  The skeleton, like the affidavit contained a heading: “Full and frank disclosure”.  That contained the following paragraph:

“The main defence anticipated from (Mr Bouvier) is to the effect that he was entitled to make a secret profit, being a mere middleman rather than a fiduciary: see his statements to the police in Monaco and the reports of his statements to the press in Geneva. For the reasons stated in Mr Sazonov’s affidavit, the plaintiffs do not accept this analysis.”

A footnote referred the reader to the particular paragraphs of Mr Sazonov’s affidavit, which exhibited the trend of the interviews.

17.  The next paragraph in the skeleton referred to an October 2006 sale agreement as a potential expression substantiating that defence.  That defence was sought to be rebutted by Mr Beresford, by referring to Mr Sazonov’s evidence that he understood that MEI had been interposed to protect the confidentiality of the real, undisclosed, seller and that MEI was just a nominee controlled by Mr Bouvier.  It was pointed out that the interposition of MEI may also have been to protect the confidentiality of the buyer.

18.  A warranty in the October 2006 sale agreement was specifically referred to, but the Swiss law clause in the contract was not referred to.

19.  There was no reference in either the affidavit of Ms Dawson or the skeleton that Mr Bouvier had asserted in the course of his police interviews in Monaco that the relationship between the parties was governed by Swiss law.

20.  The transcript of the hearing makes it clear that in the course of the discussion the judge was reminded by counsel that in all but five of the transactions, MEI was the seller which issued an invoice and was paid in Switzerland: see p128F‑P.

21.  The following exchange took place shortly thereafter; at pp130P‑131Q:

“Mr Beresford: My Lady, I am of course under a duty to ensure that I’ve complied with my obligations of full and frank disclosure. I know that your Ladyship has read the documents very carefully. I was in the process of taking…

Court: As much as I can.

Mr Beresford: Yes, of course. I cannot expect you to -- I don’t expect you to have seen anything in the exhibits that is against me and, on that basis, my Lady, I wanted to draw your attention to one matter in particular, in bundle 2, because conveniently, (Mr Bouvier) has been interviewed by the press and this is reflected…

Court: We know how reliable press reports are.

Mr Beresford: My Lady, it doesn’t look like a bad cross-examination actually, but my Lady, it does give an idea of the essence of his defence.

Court: Well, as far as I understand, he says he’s not a middleman, he’s not your agent.

Mr Beresford: Yes, my Lady, that’s essentially it.

Court: I mean he’s a middleman, he’s not your agent.

Mr Beresford: He’s just a seller who can charge what he likes.

Court: Yes, absolutely.

Mr Beresford: And as your Ladyship appreciates, we say, in the light of all those e-mails, that’s unsustainable where he’s offered his expertise and connections and knowledge and he’s offered to secure the best price on our behalf. So he’s undertaken to act for us and in our interests, and in those circumstances, he can’t possibly be treated as an arm’s-length seller.

Court: Is there a contract at all?

Mr Beresford: Yes, my Lady, there were contracts on each transaction. And in the early days, there were…

Court: So the contract would say he would be paid a commission.

Mr Beresford: My Lady, at the beginning, they entered into written agreements for sale of these….

Court: The beginning being in 2003 or something?

Mr Beresford:    Yes my Lady.  There are very few written agreements and they don’t represent the ordinary course of practice.  There are, as far as I’m aware, no written agreements relating to his commission.  And then after that, he explains himself in his police interview, it was all done on the basis of an invoice.”

Mr Bouvier’s assertions to the Monaco police

22.  The plaintiffs’ knowledge that Mr Bouvier took the view that the governing law of contracts was Swiss law came from statements made by Mr Bouvier to the Monaco police.  In his second interview in Monaco, on 26 February 2015, Mr Bouvier said:

“As a preliminary, I would like to specify the following:

I am certain that Mr Rybolonlev (sic) and his lawyer, Ms Bercheda, set a trap for me in Monaco. They knew very well that all the transactions relating to the artworks were done in Switzerland. The invoices were issued by my company, Mei Invest, and sent to Mr Sazonov in Geneva, who is Mr Rybolovlev’s financial business manager and right-hand man.

The works were made available in Geneva, the status reports were made in Geneva, on a de facto basis, the legal venue was in Switzerland and for all documents made, Swiss law is applicable.

I would point out that Mr Rybolovlev was on vacation in Switzerland in February 2015 at his chalet; he had every opportunity with his lawyer to file a complaint if he so wanted in Switzerland.

They set a trap for me for the following reasons:

- They removed all the works stored in Switzerland and Singapore and transferred them to Cyprus.

- They took all measures so that the meeting of 25 February be held in Monaco and not in London or Geneva.

- They manoeuvred to bring the conflict and my arrest in Monaco and not Geneva, which would have been logical in relation to what I have previously stated.  Moreover, I am Swiss and Geneva is my centre of operations.”

In his third statement to the Monaco police, again on 26 February 2015, Mr Bouvier said:

“I think that Mr Rybolovlev should have brought his complaints in a civil court, and above all he could have brought this case in Geneva, but I think he wants to avoid the application of Swiss law to this case.”

23.  Mr Beresford accepts, as he must, that the ex parte judge was not told, either in the affidavit in support, in the skeleton, or orally at the hearing, that Mr Bouvier asserted that Swiss law was applicable to the arrangements between the parties. 

24.  It is right that the passages from the interviews that I have set out were exhibited to Ms Dawson’s affidavit.  It is well established that the fact that a fact which may later be found to be material is contained in the exhibits is not an answer to material non‑disclosure: Standard Chartered Securities Ltd v Lai Arthur & Ors [1993] 1 HKC 375 at 380; Rever (AMA) Salon Ltd v For Danny & Ors [2001] 1 HKC 241 at 246E‑F.

Swiss law on agency

25.  By the time the matter reached me on 15 June 2015, both sides had put in expert Swiss law opinions on a number of issues of Swiss law. Although Mr Manzoni’s skeleton appeared to assert that at Swiss law the conduct of Mr Bouvier, assessed on the assumption that plaintiffs view of the facts was correct, was not actionable he did not present the matter in that way.  Instead, he submitted that by failing to disclose that Swiss law may be the governing law of the relationship, a potential defence available to Mr Bouvier was not disclosed to the court.  It was, Mr Manzoni said, material non-disclosure not to put that defence to the court.

26.  The opinion put in for Mr Bouvier came from Prof Dr Lüchinger. As to agency, this was said:

“11. Under Swiss law, the plaintiffs would have to prove that they had concluded a contract with (Mr Bouvier) whereby he agreed to act as the plaintiffs’ agent in the purchase of artwork. The Swiss court will determine whether the parties had exchanged mutual declarations of intent on the term and scope of the contractual relationship.

12. Assuming a contract can be established, the Swiss Court will have to determine the type of contract in order to establish the parties’ rights and duties. There is no single type of “agency contract”. The classifications include a commission contract (Article 425 CO[1]), a contract of mandate (Article 394 CO) or a commercial agency contract (Article 418a CO). Duties owed by an agent to his principle do not flow from the CO’s provisions on agency (Articles 32 et seq), which are concerned with the external effects of agency in relation to third parties, but from the underlying legal relationship between agent and principal, which is usually contract. Depending on the type of contract, different rules will apply.”

27.  The opinion for the plaintiffs came from Mr Marc Joory. In relation to agency he said:

“16. As for his breach of his duties owed as an agent, as stated in paragraph 12 of the Lüchinger Opinion, there are various categories of ‘agency’ contracts under Swiss law including the general mandate (Articles 394 SCO[2]), the commission contract (Article 425 SCO), the brokerage contract (Article 412 SCO), and the agency contract (Article 418a SCO).17.

17. The rules on the general mandate are applicable if the contract does not fall within the above-mentioned categories (Article 394.2 SCO). They are also applicable, by analogy, to the commission contract (Article 452.2 SCO), to the brokerage contract (Article 412 para. 2 SCO) and to the agency contract (Article 418b SCO).

18. I understand plaintiffs’ claim (as pleaded) to be one based on an agency relationship built up over the years between the plaintiffs and Mr Bouvier (particularly from 2007 onwards). Assuming this gave rise to a contract, the applicable category in this case would be the agency contract (Article 418a SCO), as commission brokerage contracts are usually short term agreements, where is the agency contract is usually a long-term agreement. Indeed, Article 418a. of the SCO provides that: ‘An agent is a person who undertakes to act on a continuous basis as an intermediary for one or more principals in facilitating or concluding transactions on their behalf and for their account without entering into an employment relationship with them’. (original emphasis[3])

19. Such an agency contract is not required to be in any particular legal form and can be concluded orally. It is concluded, according to the ordinary principles of contract law, when both parties mutually express their intent (either express or implied) on the conclusion of the contract as well as on its scope (Article 1 SCO).

20. Under Swiss law an agent must respect his duties of diligence and care and must ‘safeguard the principal’s interests with the diligence of a prudent businessman’ (Article 418c para. 1 SCO). According to the leading scholars and case law, those duties of diligence and care include:

(a) the duty to act in the interest of the principal exclusively and to avoid any conflict of interest;

(b) the prohibition for the agent to conclude contracts with himself without express authorisation from the principal;

(c) the duty to respect the instructions the principal; and

(d) the duty to disclose all necessary information within his knowledge.

21. If the agent has acted in breach of those duties, the principal may claim damages from the agent, including for the losses incurred as a result of such breach (Article 398 SCO).”

28.  Prof Dr Lüchinger responded to Mr Joory in the following terms:

“I understand there to be a factual dispute between the parties as to the nature of their business relationship, which will of course impact on the legal characterisation of the relationship. I limit myself to the following comments.

(1) Mr Joory and I agree that there are various types of agency relationship.

(2) At this stage where the plaintiffs have not presented their claims under Swiss law I simply comment that I would not agree with Mr Joory’s analysis of the agency contract (Art. 418a SCO) as the most likely agency relationship on the plaintiffs’ version of the facts.

(3) I agree that if the relationship were such an agency contract (Art 418a SCO), it would bear the contractual duties set out in paragraph 20 of Mr Joory’s Report, including avoiding a conflict of interests.

(4) Rather than any type of agency, there is of course the possibility that there was a sales transaction.”

29.  Mr Manzoni emphasised the requirement noted by both experts that the existence of a contract, (of whatever form of agency), will depend upon whether the parties had exchanged mutual declarations of intent; see Lüchinger §11; Joory §19.

Was the non-disclosure deliberate

30.  Mr Manzoni argued that the non-disclosure was both deliberate and not innocent.  He said that the plaintiffs knew the significance of Swiss law and had made a deliberate and conscious decision not to draw it to the court’s attention. 

31.  He pointed out that there had been no explanation from the plaintiffs of the non‑disclosure, and said that the onus was on the plaintiffs to give a proper explanation.  He says that in the absence of an affidavit, there is no evidential basis to suggest that the non‑disclosure was innocent.  In that respect he relied upon the following passage from the judgment of Anthony Chan J in UES International (HK) Ltd v Maritime Maruba SA (unreported, 19 November 2013, HCA 632/2011) at §54, where the judge, rejecting a re‑grant of an injunction following material non‑disclosure said:

“The non-disclosure has not been properly explained at all. Hence, there is no evidential basis to suggest that it was innocent. Where an injunction has been discharged by reason of material non-disclosure and the non-disclosure has neither been shown to be innocent nor properly explained, it would be rare indeed for the court to exercise its residual discretion to re-grant an injunction.”

32.  That statement is undoubtedly correct, but it does not follow that it is necessary that there should be an affidavit explaining the non‑disclosure, or that in the absence of an affidavit it should be found that there is no explanation.

33.  First, I had made an order that there be no further affidavits.  It may well be that on occasions it will be necessary to file an affidavit explaining non‑disclosure.  Had it been necessary in this case I have no doubt at all that Mr Beresford would have sought leave to file an appropriate affidavit, and Mr Manzoni was obliged to acknowledge that he could not oppose such an affidavit.

34.  Second, the passage cited does not place an “onus” on a party accused of non‑disclosure to blame any non‑disclosure by way of affidavit.  To do so would, as Mr Beresford submitted, reverse the burden of proof and would be prima facie objectionable as being inconsistent with the presumption of innocence in the exercise of the penal jurisdiction. 

35.  There is no reason why innocence in the non‑disclosure should be found in the general circumstances disclosed by the case.  In so saying, I accept that the element of gravity is a fact that will weigh in the balance, together with all the circumstances when deciding, on the balance of probabilities, whether the non‑disclosure was deliberate or innocent.

36.  First, other than that of the orders, Mr Manzoni was unable to point to any advantage, substantive or tactical, that the plaintiffs might have obtained in not referring the ex parte judged to the possibility that Swiss law might be the governing law of the contract.  He submitted that a significant advantage has been obtained as a consequence of the inappropriate non‑disclosure in that disclosure orders and affidavits had been secured, a step that could not now be undone. 

37.  However, the information obtained by way of the disclosure orders had been sealed and have not yet been seen by those advising the plaintiffs. So if the disclosure orders are found to have been wrongfully obtained, those orders can be discharged and the disclosed material is protected.  In simple terms, the step can be undone.

38.  Deliberate material non-disclosure is a charge of the utmost gravity to level at lawyers, particularly when, as Mr Manzoni acknowledged in his skeleton, the lawyers were well respected.  I accept Mr Beresford’s submission that it is common sense to start with the assumption that reputable lawyers do not deliberately mislead the court.  To find otherwise requires a cogent evidential basis.  It is entirely different of course, if a party were to conceal relevant information from his solicitors or counsel.  In those circumstances, deliberate non-disclosure will be more likely to be found from the mere fact of the non-disclosure, and an affidavit is more likely to be required.

39.  It is beyond argument that the plaintiffs’ lawyers are highly reputable, as are the defendants’ lawyers.  In the absence of any particular advantage being demonstrable that might arise from the concealment of the possible involvement of Swiss law there is simply no evidential basis upon which it can be said that the non‑disclosure, although subsequently revealed as material, might be said to be deliberate.

40.  Mr Beresford was perfectly able to argue, on the basis of the information before the court, that the proper conclusion is that the plaintiffs and their advisers simply did not appreciate the significance of Mr Bouvier’s assertion to be Monaco police that the contract might be governed by Swiss law.  It is quite understandable that the consequences of Mr Bouvier’s assertions in respect of Swiss law might not be fully appreciated, when even by 13 March 2015, when the orders were obtained, Mr Bouvier had not commenced proceedings in Switzerland for the recovery of the money he believed was due to him on the final purchase.  Despite having time to commence proceedings in Switzerland, (one might have thought, bearing in mind the assertion of Swiss law governing the contracts, an immediate logical response to the action in Monaco), Mr Bouvier had done nothing to substantiate his assertion that Switzerland was the appropriate jurisdiction.

41.  It is useful to remember too, that it is a common occurrence in Hong Kong courts, and I have no doubt in Singapore courts, that where an action proceeds on a contract, the governing law of which is another country, that law is duly proved, and the local court makes its decision.  At the time the injunctions were sought, those advising the plaintiffs had no reason, other than the assertion in the interviews, which assertion had not been pursued, to think that the Swiss courts might become involved in the matter.  Even if Swiss law governing the contracts, there is no reason why the proceedings should not continue in Singapore, where Mr Bouvier lived, with the Singapore courts appropriately applying Swiss law.

42.  I accept Mr Beresford’s submission that in the circumstances of this case the failure to inform the ex parte judge Mr Bouvier asserted the proceedings were governed by Swiss law was not a deliberate, but an innocent non-disclosure. As Mr Beresford eloquently put it, from the circumstances, the non‑disclosure can be seen to be venial not venal. 

The significance of Swiss law

43.  Mr Manzoni argued that Swiss law was significant, first because of the circumstances in which agency might arise, and second because, he said, Swiss law provided a defence to the assertions made by the plaintiffs.

44.  The contention that Swiss law was significant because of the circumstances in which agency might arise arose from the statements of both Prof Dr Lüchinger and Mr Joory that the existence of a contract of agency will depend upon whether or not the parties had “exchanged mutual declarations of intent”.  The opinions were plainly based on the Swiss Code of Obligations, Article 1 (referred to by Mr Joory as the basis for a contract) which provides:

“Art 1.

1. The conclusion of the contract requires a mutual expression of intent by the parties.

2. The expression of intent may be express or implied.”

45.  I accept Mr Beresford’s submission that the expression “a mutual expression of intent” is likely to mean nothing more than the concept of a consensus ad idem, a concept well known to our law.  It is significant in my view that in her second opinion Prof Dr Lüchinger did not in any way challenge Mr Joory’s opinion that the mutual expression of intent may be express or implied.  That is clear from Art 1. SCO, and shows that there is no particular magic to the expression “mutual expression of intent”.

46.  Thus, whether at Swiss law, Hong Kong law, or Singaporean law, in order to establish the contractual agency arrangement alleged by the plaintiffs, it will be necessary to establish that there had been a meeting of minds between Mr Rybolovlev, through Mr Sazonov, and Mr Bouvier, that an agency was established.  It is plain from the exchange between Mr Beresford and the ex parte judge that she was aware that a contract of agency must be established.

47.  I am satisfied that even if the judge had been shown the situation of agency law in Switzerland that information would not have affected the outcome of the application for the injunction.

48.  The ex parte judge was well aware of the contention of Mr Bouvier that he was a vendor of artworks in his own right, and not an agent.  Plainly, at Hong Kong law, at Singaporean law and as is revealed by the Swiss law opinions, it is an answer to a claim based on a contract of agency that the putative agent was not in fact an agent but a dealer in his own right.

49.  Those defences, whether the requirement to have a meeting of minds for a contract, or that Mr Bouvier would assert to be a seller in his own right, were not concealed from the judge.  It is not necessary to say to a High Court judge that for there to be a contract there requires proof of a meeting of minds between the parties to the contract.  The matter is so fundamental as to not require discussion.  The “seller in his own right” defence was specifically discussed in an exchange with counsel.  It matters not that there was an additional jurisdiction open to consideration, because there is no suggestion that the position would be any different in Switzerland.  The non‑disclosure in this respect might be material if there were significant differences between Hong Kong law and Swiss law.  But there are not.  And, in any event there were no Swiss proceedings either on foot or threatened by a letter before action.

50.  In the circumstances, I am satisfied that the ex parte judge was not in any way misled by the non-disclosure of the possible involvement of Swiss law.

Significance of Swiss law under section 21M(4)

51.  The Court of First Instance in Hong Kong is empowered by  section 21M, HCO to grant relief in respect of foreign proceedings which are capable of giving rise to a judgment which may be enforced in Hong Kong.  The court may refuse to exercise that jurisdiction in the circumstances set out in section 21M(4), which provides:

“The Court of First Instance may refuse an application for appointment of a receiver or interim relief under subsection (1) if, in the opinion of the Court, the fact that the Court has no jurisdiction apart from the section makes it unjust or inconvenient for the Court to grant the application.”

52.  The equivalent United Kingdom legislation[4] is in these terms:

“On an application for any interim relief under subsection (1) the court may refuse to grant relief if, in the opinion of the court, the fact that the court has no jurisdiction apart from this section in relation to the subject matter of the proceedings in question makes it inexpedient for the court to grant (the relief).”

53.  It was not suggested that there is any significant difference between the expression “inexpedient”, or the expression “unjust or inconvenient”.

54.  The principal authorities on the interpretation of this provision are Refco and Motorola (see §14 above) and Credit Suisse Fides Trust SA v Cuoghi (CA) [1998] QB 818.  In each of those decisions the merits of the matter were before one single jurisdiction overseas, and there was no suggestion that another jurisdiction might become involved in the merits. In Refco, the primary proceedings were before the courts of Northern Illinois; in Motorola, the primary proceedings were in New York.  In both cases, the defendants were resident in the primary jurisdiction, but had assets in the jurisdiction in which relief was sought, the United Kingdom.  In Credit Suisse, the primary proceedings were in Switzerland, but the defendant, against whom relief was sought, was resident, and had assets, in England.

55.  In both Refco and Motorola the following passage from the decision of Lord Bingham CJ in Credit Suisse, at 882D was cited[5]:

“It would be unwise to attempt to list all the considerations which might be held to make the grant of relief under section 25 inexpedient or expedient, whether on a municipal or worldwide basis. But it would obviously weigh heavily, probably conclusively, against the grant of interim relief if such grant would obstruct or hamper the management of the case by the court seised of the substantive proceedings (‘the primary court’), or give rise to a risk of conflicting, inconsistent or overlapping orders in other courts. It may weigh against the grant of relief by this court that the primary court could have granted such relief and has not done so, particularly if the primary court has been asked to grant such relief and declined.”

56.  An example of a circumstance where it was found to be unjust or inconvenient to grant section 21M relief is found in the decision of the Court of Appeal in Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd, (unreported, 11 March 2015, CACV 243/2014). There, Compania Sud Americana, a South American shipping company was suing Hin-Pro, a Hong Kong company in England on bills of lading relating to the delivery of goods between South America and the PRC.  The contracts contained exclusive jurisdiction clauses in favour of litigation in England.  Hin-Pro ignored the exclusive jurisdiction provisions and sued in Wuhan. 

57.  The English courts issued anti-suit injunctions prohibiting Hin-Pro from taking further steps in the proceedings in Wuhan.  The orders were ignored by Hin-Pro which had not taken part in the English anti-suit action.  As Hin-Pro was a Hong Kong company, Compania Sud Americana came to Hong Kong and sought an injunction in Hong Kong under section 21M, in support of the English anti-suit injunctions.

58.  The injunctions were granted ex parte and continued, but later set aside by the Court of First Instance.  The setting aside was upheld by the Court of Appeal on an appeal by Compania Sud Americana.

59.  The anti-suit injunctions issued by the English courts were directed to the activities of Hin-Pro in the courts in Wuhan.  Whilst it was right that there was a dispute in respect of the exclusive jurisdiction clause, there was no doubt that the Wuhan courts were seized of the proceedings.  To make orders in Hong Kong, in the assistance of the anti-suit injunctions issued by the English courts, directed at the conduct of the Wuhan proceedings, was to obstruct or hamper the management of the case by the Wuhan courts.  Plainly, it is not appropriate for the Hong Kong court to become involved in a dispute between two other countries as to where jurisdiction in respect of a contract was to be found.

60.  The case is a clear demonstration of circumstances in which it may be unjust or inconvenient for the Hong Kong court to become involved in granting relief. 

61.  Compania Sud Americana is also a good example of why it is necessary, on an ex parte application, to disclose whether or not any other jurisdictions might be involved in proceedings.  Plainly, where proceedings are on foot in two different jurisdictions, both based on the same subject matter, there is a risk of conflicting, inconsistent or overlapping orders in other courts.  Disclosure is essential to enable the court to carry out the exercise required under section 21M(4), and determine whether or not it is unjust or inconvenient to make the grant of relief.  Each case must be dealt with on its own facts and merits.

62.  In the present case, Switzerland was potentially a jurisdiction which could be involved in proceedings.  It was accordingly a material non‑disclosure that the ex parte judge was not informed of Mr Bouvier’s assertion that the Swiss courts were the proper courts in which to bring the proceedings.

63.  If, for example, after his arrest, Mr Bouvier had gone to the Swiss courts and sued for the money he said was due on the most recent purchase, (a discussion about which had taken him to Monaco), it would have been vital to inform the ex parte judge of those proceedings.  With the plaintiffs bringing their proceedings in Singapore, and Mr Bouvier bringing proceedings in Switzerland, a potential conflict of the Hin-Pro nature arose and under section 21M(4) the Hong Kong court would need to decide if it was unjust or inconvenient to become involved in the dispute between the parties by granting relief in Hong Kong.

64.  It is not without significance in my view that even now, Mr Bouvier has not sought, in Singapore, to move the proceedings to Switzerland.  Nor has he commenced proceedings in Switzerland.  His application to stay in Singapore based on forum non conveniens argues that the proceedings ought to be in Monaco. 

A good arguable case

65.  In §§47‑52 of my decision of 19 June 2015, I dealt with the factual circumstances of the dealings between the parties, and the terms of the e‑mails in which Mr Bouvier apparently sought to reduce the price at which he was selling the artworks should be reduced.  It had been argued for Mr Bouvier that the e-mails were mere “negotiation tactics”.  The discussion led me to the conclusion that the factual circumstances raised a very strong case of breach of fiduciary duty or deceit.

66.  Mr Manzoni sought to explain the negotiation tactics in the e‑mails in this way.  Mr Bouvier was, he said, the purchaser in his own right of the artworks, and was endeavouring to sell them to Mr Rybolovlev at a price which exceeded the price that Mr Bouvier had paid.  This sale at a higher price, was, Mr Manzoni said, an action Mr Bouvier, as the owner of the artwork, was perfectly entitled to take.  Mr Manzoni said that Mr Rybolovlev acquired precisely what he wanted to acquire, at a price with which he was happy.

67.  The “negotiation tactics” on the part of Mr Bouvier, as I understood Mr Manzoni’s submission, involved offering the artworks to Mr Rybolovlev at what might be considered a greatly inflated price, certainly more than the market price which might be said to have been established on the sale from the original owner.  In order to ensure that a sale was obtained at a higher price than Mr Bouvier had paid, (thereby ensuring a profit to Mr Bouvier), the e-mails were sent to encourage Mr Rybolovlev to accept the higher than market price, although lower than the opening price suggested by Mr Bouvier.

68.  In an application for summary judgment under Order 14 the argument could not be characterised as moonshine, but, as I indicated during the hearing, the highest I would put it is that I can see how the argument may be made.  I remain of the view that there is a very strong case of breach of fiduciary duty or deceit.

Discussion

69.  In applying the principles set out at §3 above, I take into account the foregoing findings of fact and the conclusions I have reached.

70.  I recognise that the general rule is that where there has been a breach of the duty of full and fair disclosure the order should be discharged and not renewed, however I have jurisdiction, to be sparingly exercised, to continue or re‑grant the order.

71.  In §§30‑42 above I have examined whether or not the non-disclosure was deliberate, and have come to the conclusion that it was innocent.  The primary relevance of the possibility that Swiss law may be the proper law of the contracts lies in the consideration of the issue under section 21M(4) as to whether or not it would be unjust or inconvenient to grant the application. In Compania Sud Americana there was a conflict between two jurisdictions and the Court of Appeal agreed with the lower court’s conclusion that that conflict rendered it unjust or inconvenient to Hong Kong courts to become involved in the dispute.

72.  In the present case, in the absence of proceedings in Switzerland, that conflict issue did not arise, although it was a future possibility.  The ex parte judge was well aware of the existence of the Monaco proceedings, but they are principally criminal in nature, although they will be able to proceed to a civil conclusion in respect of a limited number of the artworks, if criminal liability is found in due course.

73.  Mr Manzoni did not suggest that there was any risk of conflicting, inconsistent or overlapping orders between the Singaporean and Monegasque courts.  The relief sought in Hong Kong does not in any way obstruct or hamper the management of the civil proceedings in Singapore or the criminal or civil proceedings in Monaco.  It was not suggested that making the orders sought would obstruct or hamper any proceedings that might be issued in Switzerland

74.  The inevitable conclusion that the ex parte judge would have come to, had the potential involvement of the Swiss courts been disclosed, would have been that it was neither unjust nor inconvenient to grant the relief sought.  Consequently, the matter not disclosed, although material, was neither particularly important nor significant to the outcome of the application.

75.  Weighing all of these matters I have come to the conclusion that the non‑disclosure in this case, although material, may properly be described as innocent.  It was a non‑disclosure that did not impact at all on the decision that was ultimately made.

76.  In Arena, the deputy judge cited[6] the following passage from Slade LJ in Brink’s-MAT Ltd v Elcombe [1988] 1 WLR 1350 at 1359:

“The principle is, I think, a thoroughly healthy one. It serves the important purposes of encouraging persons who are making ex parte applications to the court diligently to observe their duty to make full disclosure of all material facts and to deter them from any failure to observe this duty, whether through deliberate lack of candour or innocent lack of due care.

Nevertheless, the nature of the principle, as I see it, is essentially penal and in its application the practical realities of any case before the court cannot be overlooked. By their very nature, ex parte applications usually necessitate giving and taking instructions and the preparation of the requisite drafts in some haste. Particularly, in heavy commercial cases, the borderline between material facts and non-material facts may be a somewhat uncertain. While in no way discounting the heavy duty of candour and care which falls on persons making ex parte applications, I do not think that the application of the principle should be carried to extreme lengths. In one or two other recent cases coming before this Court, I have suspected signs of a growing tendency on the part of some litigants against him ex parte injunctions have been granted, or their legal advisers, to rush to the Rex v Kensington Income Tax Commissioners [1917] 1 KB 486 principle as a tabular in naufragio, alleging material non-disclosure on sometimes rather slender grounds, as representing substantially the only hope of obtaining the discharge of the injunctions in cases where there is little hope of doing so on the substantial merits of the case or on the balance of convenience.

Though in the present case I agree that there was some material, albeit innocent, non-disclosure on the application to Roch J, I am quite satisfied that the punishment would be out of all proportion to the offence, and indeed would cause a serious potential injustice if this Court work, on account of such norm-disclosure, to refuse to continue the injunction granted by Roch J on 9 December 1986.”

77.  In §§47‑52 of my decision of 19 June 2015, and in §§65-68 above I have considered the issue of a good arguable case and have come to the conclusion that there is a very strong case of breach of fiduciary duty or deceit against Mr Bouvier.  Great care must be taken in the decision to discharge and not re‑grant an injunction for material non-disclosure where the non‑disclosure is innocent, does not have an impact on the final decision, and the plaintiff establishes a very strong case.  It is here that the tension between the two kinds of public interest referred to by Court of Appeal in Excel Courage Holdings arises.

78.  On the one hand, the administration of justice must be protected and if an injunction was granted without full disclosure and a significant advantage thereby obtained, the courts will not hesitate to take away the injunction.  But if the non‑disclosure, although material, is innocent and not important, the application of the golden rule may become an instrument of injustice in the deprivation of a protection that would otherwise be given to an innocent party.

79.  Here, other than the grant of the Mareva injunction and disclosure orders, the plaintiffs have had no significant substantive or tactical advantage that cannot be remedied.  If the non‑disclosure had been deliberate, or had a significant impact on the ultimate decision, it would be right to take away the injunction, and with it the disclosure orders.  But where there is a very strong case of breach of fiduciary duty and, and the non‑disclosure, although material, it is innocent and has no impact on the ultimate decision, it would in my view result in an injustice to the plaintiffs if they were deprived of the Mareva and disclosure orders.

80.  In the present case, having regard to the nature of the non‑disclosure, and the strength of the plaintiffs’ case, it would be quite out of proportion to the offence to punish the plaintiffs by depriving them of the orders they have obtained.

Disposal

81.  For the foregoing reasons I am satisfied that this is a proper case in which, notwithstanding that material non-disclosure has been found, I should exercise my discretion in favour of the plaintiffs and order that the relief granted should not be set aside but continued.

82.  In so holding I have weighed in the balance whether or not the injunction should be discharged but immediately re-granted, with the consequence that the defendants would be entitled to a costs order.  The material non‑disclosure in this case was not, in my view, so serious as to warrant that penalty.

83.  I understand from Mr Manzoni that if the injunctions were to be continued or re-granted the defendants would wish to be heard further on the specific terms of the injunctions.  Leave is accordingly reserved to apply.

Costs

84.  There will be an order nisi that the costs of the proceedings be to the plaintiffs, to be taxed on the party and party basis if not agreed.

HCMP 573/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 573 OF 2015

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D E C I S I O N

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The factual background:

1. The plaintiff companies are incorporated in the British Virgin Islands and are held by a family trust governed by Cypriot law.  There is no dispute that they are vehicles by which a wealthy Russian businessman, domiciled in Monaco, Mr Dmitri Rybolovlev (Mr Rybolovlev) acquires artworks.  Although strictly the artworks were acquired by one or other of the plaintiff companies it is convenient to refer to them as having been acquired by Mr Rybolovlev.  The artworks are of the very highest quality by artists such as da Vinci, Matisse, Picasso, Monet, Renoir, Modigliani, Degas, Gauguin, Toulouse-Lautrec, Klimt, Rodin, El Greco and Rothko. 

2. The prices paid for these artworks range from a Picasso for US$12.5 million to a Klimt for US$183 million.  The papers demonstrate that between August 2003 and August 2014, the plaintiffs purchased artworks of a total value in the order of US$577 million, €720 million, CHF45 million, and £30 million, (in total, on present exchange rates some US$1,490 million).

3. Mr Bouvier is a businessman and the majority shareholder in President of Nature Le Coultre SA, a Swiss company which carries on business of the storage, packing and shipping internationally of artworks. Through that company Mr Bouvier operates “Freeport” facilities, (essentially bonded warehouses), in Geneva, Singapore and Luxembourg.  Mr Bouvier is a Swiss national and has been resident in Singapore since 2009.  Prior to that Mr Bouvier was a resident of Switzerland.

4. It is not in dispute that Mr Bouvier engages in the business of private purchase and sale of valuable works of art and has a very strong network of connections with international auction houses, curators, galleries, art dealers and private collectors of high quality art.

5. MEI Invest Limited (MEI Invest) is a company incorporated in Hong Kong which has corporate shareholders.  Mr Bouvier accepts that this company was at all material times wholly owned and controlled by him, and is his alter ego.

6. Mr Rybolovlev first met Mr Bouvier in 2003, when Mr Bouvier acted on Mr Rybolovlev’s behalf in obtaining a missing certificate of authenticity for a painting by Chagall.  A business relationship is thereafter came into existence between them.  At the centre of the proceedings between Mr Rybolovlev and Mr Bouvier is now a dispute as to the true nature of that relationship. 

7. The case for Mr Rybolovlev is that Mr Bouvier became his agent sourcing and negotiating with vendors for the acquisition of major works of art on Mr Rybolovlev’s behalf.  There is no dispute that the great majority of the communications with Mr Bouvier in respect of the purchase of the artworks are undertaken through a Mr Mikhail Sazonov (Mr Sazonov) who was the principal representative for Mr Rybolovlev and the plaintiff companies in that respect. 

8. The case for Mr Rybolovlev is that Mr Bouvier was paid a 2% commission in respect of the artworks purchased. There were occasions when this sum was adjusted, but broadly the assertion is that Mr Bouvier was paid a commission that was a percentage of the price of the artwork.  Mr Sazonov says[1] in respect of the involvement of MEI Invest:

“I also understood from Mr Bouvier that the invoice was issued by MEI Invest and the purchase price paid to MEI Invest, rather than the third-party seller(s) of the artwork: (1) so as to ensure complete confidentiality of the transaction, which was highly valued in the art world, including the identity of the seller(s); and (2) as MEI Invest was holding the artwork as a de facto “escrow agent” for the third-party seller in Freeport, and would release the same to the Plaintiff(s) once it receives the purchase price.  I further understood that Mr Bouvier would then arrange for the purchase price to be transferred from MEI Invest to the third-party seller(s) of the artwork;”

9. Mr Bouvier denies that he was an agent and says that he was simply the vendor of the artworks, through his company, MEI Invest, to Mr Rybolovlev.  Mr Bouvier says that as the true vendor of the artworks he was entitled to agree any price he wished with Mr Rybolovlev.  Mr Bouvier says further that the payment of the 2% sum was a payment to cover administrative expenses involved in the transaction.

Mr Rybolovlev’s New Year discovery:

10. In 2012, Mr Rybolovlev had acquired from MEI Invest, through the negotiation of Mr Bouvier, a Modigliani painting entitled “Nu Couche au Coussin Bleu” for US$118 million.  On New Year’s Eve 2014/New Year Day 2015, Mr Rybolovlev learned that the seller of the painting had received only US$93.5 million, US$24.5 million less than he had paid for it.  As a result of further enquiries Mr Rybolovlev learned that a da Vinci “Christ” for which, in 2013, he had paid MEI Invest, through the negotiation of Mr Bouvier, US$127.5 million had been sold, apparently to MEI Invest, for between US$75-80 million, US$52.5-47.5 million less than he had paid for it.

11. As a result of these discoveries Mr Rybolovlev came to the view that Mr Bouvier had defrauded him by purporting to act as an agent acquiring artworks on his behalf, and concealing from him the true price at which they had been acquired.  By interposing MEI Invest as the vendor at a higher price Mr Rybolovlev believed that Mr Bouvier had made a secret profit.  Mr Sazonov says that Mr Rybolovlev believes that the secret profit may amount to as much as US$1 billion.

Arrest in Monaco:

12. On 9 January 2015 Mr Rybolovlev caused a criminal complaint to be made to the General Prosecutor of the Principality of Monaco in respect of the circumstances of the sale of the artworks to his companies by Mr Bouvier.  On 12 January 2015 the Chief Public Prosecutor of Monaco requested the Chief of the Monaco police to commence investigations.  An Examining Magistrate was appointed in Monaco and on 25 February 2015, Mr Bouvier was arrested and interviewed in Monaco. 

13. On 27 February 2015, the plaintiff companies and Ms Ekaterina Rybolovleva, a beneficiary of the Cyprus family trusts which hold the plaintiff companies applied to join in the Monaco proceedings as civil parties.  This procedure in Monegasque law enables the victim of a criminal offence to seek compensation after the determination of the criminal proceedings.

14. On 28 February 2015, in the Monaco criminal proceedings, at the direction of the Examining Magistrate, the status of Mr Bouvier in the investigation became that of “inculpé”, an expression used in Monegasque criminal law. 

15. There is a dispute between the parties as to the precise nature of this status.  Mr Beresford contends that it amounts to having been charged with offences.  In the normal course of events, under a common law system, a person who is charged with an offence will in due course face trial. Ms Ismail says that that characterisation overstates the position of the person who is inculpé as it does not necessarily follow that that person will be sent to trial. 

Proceedings are commenced in Singapore:

16. Since 2009, Mr Bouvier has been resident in Singapore.  Prior to that, he was a resident of Geneva.  On 12 March 2015, the plaintiffs commenced proceedings against the defendants in Singapore.  The writ identifies three causes of action against Mr Bouvier: a breach of fiduciary duty, fraudulent misrepresentation/deceit and wrongful interference with goods.  The cause of action against MEI Invest is dishonest assistance and/or knowing receipt.

17. There is a third defendant in the Singapore proceedings, a Ms Rappo.  She resides in Monaco and was a close friend of Mr Rybolovlev and his family.  Mr Bouvier considers that she has been instrumental in maintaining the relationship between himself and Mr Rybolovlev and that reason has been paying to her commissions, apparently related to the acquisition of the paintings.  The proceedings in Singapore allege a conspiracy to injure by unlawful means against all three defendants. 

18. Ms Rappo is also the subject of investigation in the Monaco criminal proceedings.

The Hong Kong proceedings:

19. On 12 March 2015, the same day as the issue of the Singapore proceedings, on an ex parte application, Deputy High Court Judge D’Almada Remedios granted a Mareva injunction in aid of foreign proceedings, with orders for disclosure in aid of the Mareva Order.  In particular, the injunction restrains both defendants from removing from Hong Kong any of their assets which are within Hong Kong, whether in their own name or not, and whether solely or jointly owned, up to the value of US$500 million. 

20. The next day an Originating Summons was issued seeking the continuation of the injunction and other orders.

21. On 19 March 2015, the defendants issued a summons seeking the discharge of the ex parte Mareva order, and other orders.  It is not necessary to trace the procedural history of the matter since then as it is agreed that the only matter that I am concerned with is the discharge of the Mareva injunction.

The relevant law:

22. There is little dispute between the parties as to the relevant law.  The jurisdiction to grant interim relief in the absence of substantive proceedings arises from s 21M, High Court Ordinance Cap 4 (HCO).  The jurisdiction involves a two-stage process.  I adopt Ms Ismail’s description of that process in the following terms:

(a)    The first question is whether the conditions for Mareva injunction would have been satisfied if the substantive proceedings were pending before the Hong Kong Court.  This would involve the consideration of the usual requirements such as a good arguable case, risk of dissipation and balance of convenience.

(b)   The second question is whether the fact that the Court has no jurisdiction apart from s 21M in relation to the subject matter of the proceedings concerned makes it “unjust or inconvenient” for the Court to grant the application.  In considering the question of convenience, there are five main considerations:

(i)   whether the making of the order would interfere with the management of the case in the primary court, eg whether the Hong Kong order would be inconsistent/overlap with the primary court’s order;

(ii)   whether it is the policy of the primary court not to make worldwide freezing/disclosure orders;

(iii)  whether there was any danger that the orders made would give rise to disharmony or confusion and/or risks of conflicting, inconsistent or overlapping orders;

(iv)  whether at the time the order was sort there was likely to be a potential conflict is to jurisdiction making it inappropriate and inexpedient to make the order;

(v)   whether, in a case where jurisdiction was resisted and disobedience was to be expected, the court would be making an order which it could not enforce.

23. The Court, in deciding whether to grant relief under s 21M should make a separate exercise of judgment rather than simply accepting the decision of the foreign court.

The duty to make full material disclosure:

24. It is a fundamental proposition that plaintiffs have a duty to make full and fair disclosure of all material facts at an ex parte application.  I adopt Ms Ismail’s description of the requirements of full and fair material disclosure:

(a)    Materiality is an objective issue to be decided by the Court, and not by the assessment of the plaintiff or his legal advisers.  A fact is material if it is relevant to the weighing operation when the Court decides whether to make the order.  It is no answer to a complaint of non-disclosure that if the relevant matters had been placed before the Court, the decision would have been the same.

(b)   The duty of full and frank disclosure applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made proper inquiries.

(c)    The extent of the inquiries required depends on all the circumstances including the nature of the case made by the applicant, the order sought and the probable effect of the order on the defendant and the time available to the applicant for making inquiries.

(d)   The disclosure should be made in the affidavit and/or skeleton submissions and not in the exhibits.

The grounds for discharge of the Mareva injunction:

25. Ms Ismail relies upon the following matters to say that the Mareva injunction ought to be discharged:

(a)    the plaintiffs have failed to discharge their duty to give full and frank disclosure by failing to disclose the following material facts:

(i)   the plaintiffs failed to inform the Hong Kong Court that the transactions which are the subject of the claim may (to put it at its lowest) be governed by Swiss law, and that the claims made by the plaintiffs are not available under Swiss law;

(ii)   the plaintiffs incorrectly informed the Hong Kong Court that Mr Bouvier had been charged with and would be standing trial for fraud in Monaco; and

(iii)  the plaintiffs failed to inform the Hong Kong Court of the extensive, established and valuable nature of Mr Bouvier and his business empire.

(b)   Consequently, by virtue of (a)(iii) above, there was insufficient evidence to demonstrate that there is a real risk of dissipation of the defendants’ assets.

Swiss law:

26. It cannot be argued by Mr Beresford that the plaintiffs did not know that Mr Bouvier claimed that the relationship between himself, Mr Rybolovlev and the plaintiffs was governed by Swiss law.  In his second statement to the Monaco police made on 26 February 2015, (which was in the plaintiffs’ possession prior to the issue of the proceedings and Singapore), Mr Bouvier said:

“The works were made available in Geneva, the status reports were made in Geneva, on a de facto basis, the legal venue was in Switzerland and for all the documents made, Swiss law is applicable. … They manoeuvred to bring the conflict and my arrest to Monaco and not Geneva, which would have been logical in relation to what I have previously stated”

In his third statement to the Monaco police, also made on 26 February 2015, (also in the plaintiffs’ possession), Mr Bouvier said:

“I think that Mr Rybolovlev should have brought his complaints in a civil court, and above all he could have brought his case in Geneva, but I think he wants to avoid the application of Swiss law to this case.”

27. There are further factors in the factual circumstances disclosed in the exhibits from which it may be seen that an argument is available at the appropriate law required to resolve the dispute between the parties is Swiss law.  Although for quite a long period of time no formal written contracts had been used between the parties, two earlier written agreements, dated 25 October 2004 and 10 April 2006, albeit not between precisely the same parties as the litigation, but between parties representing Mr Rybolovlev and Mr Bouvier, had contained formal statements that the contracts were to be governed by Swiss law.

28. One of the transactions which is the subject matter of the Singapore proceedings between the 2^nd plaintiff and the 2^nd defendant was the subject of a written agreement dated 16 October 2006.  That document was contained in the exhibits.

29. Even without the assertions made by Mr Bouvier in his Monaco police interviews it must be obvious to those advising Mr Rybolovlev that an argument was open that a course of conduct had been established from which it might be contented that the transactions, which were the subject of invoice only and no written agreements, may be argued to be governed by Swiss law.

30. It is right that at the ex parte hearing the Court was informed that the defendants might seek to rely on the written agreement of 16 October 2006, but the attention of the Court was not drawn to the fact that the agreement contained a Swiss governing law clause.  Instead, the court was referred only to a warranty provision in that contract.

31. Ms Ismail relies upon the following factual circumstances to assert further that the parties transactions have the closest and most real connection with Swiss law:

(a)    the intended performance of the contract is was to be in Switzerland in the following respects:

(i)   save for 3 transactions, payments for all the artworks were to be made to MEI Invest in Switzerland;

(ii)   almost all payments of administrative expenses, (claimed by the plaintiffs to be commissions, were made to Mr Bouvier’s bank account in Switzerland;

(iii)  delivery of the artworks were, in almost all cases, by way of issue of the storage certificate into the name of the plaintiffs, where the artworks were generally stored in Switzerland at the time of the sale;

(iv)  all of the key documents in respect of the artworks were transferred to Mr Rybolovlev’s office in Geneva.

(b)   before purchase the parties conducted meetings, (usually Mr Sazonov and Mr Bouvier) and viewed most of the artworks in Geneva;

(c)    Mr Sazonov was based in Geneva on all e-mails were sent to and from Geneva for or by him.

32. The expert legal evidence establishes that Swiss law does not have a tort of fraudulent misrepresentation, nor a tort of deceit; the concept of a constructive trust does not exist; the plaintiffs could only ever make a monetary claim against the defendants; if the defendants did keep any unauthorised profits, there could be no proprietary claims; the equitable process of tracing is not available and concepts of dishonest assistance and knowing receipt are not available.

33. Ms Ismail says that consequently, in the weighing process, the ex parte judge would need to know those facts in order to properly assess the requirement to determine under s 21M(4) whether it would be unjust or inconvenient for the Court to grant the application.

34. Mr Beresford is right when he says that I may assume that Singapore law is the same as Hong Kong law.  There is no suggestion to the contrary.  But I do not accept the submission that the difference between Singapore or Hong Kong law and Swiss law renders immaterial a failure to disclose, at the ex parte stage, the fact that the causes of action brought in Singapore do not have parallel causes of action in Switzerland, or that of the governing law of the relationship between the parties may be Swiss law. 

35. To a limited extent, I accept Mr Beresford’s submission that it is not a material fact that a plaintiff may have a right to sue in another jurisdiction, or that a contract may be governed by the law of another jurisdiction.  That is the case when the primary proceedings are brought in Hong Kong.  It is a common event in Hong Kong litigation that foreign law is proved, as the proper law of contract in respect of proceedings in Hong Kong.  But the situation is different when the primary proceedings are in a foreign jurisdiction and injunctive relief sought under s 21M HCO.  It is all the more so, when the primary proceedings are in one jurisdiction, and proper law of contract or the relationship between the parties may be in another jurisdiction other than Hong Kong or the primary jurisdiction.

36. Significantly, I do not understand Ms Ismail to be able to assert that the issues raised by the conduct of Mr Bouvier do not give rise to causes of action in Switzerland.  None of the Swiss law evidence put in by Mr Bouvier suggests that the issues raised by his conduct are not actionable in Switzerland.  All that is suggested is that the causes of action known to Singapore, Hong Kong (and English) law are not paralleled by causes of action in Switzerland.  But that is a long way from saying that the conduct is not actionable.

37. As Mr Beresford puts it, the evidence of Swiss law adduced by Mr Bouvier does not suggest that the duties or conduct on the part of Mr Bouvier of which complaint is made, are not actionable at Swiss law.  When the issues raised by the conduct are examined in the light of the expert Swiss law evidence, is clear that the conduct is actionable in Switzerland.

38. Once it is established that the conduct complained of is actionable in Switzerland, under whatever description, and actionable in Hong Kong, the jurisdiction exists to grant s 21M relief in Hong Kong.  As it is necessary to consider whether or not the conduct is actionable in the foreign jurisdiction as part of the weighing process under s 21M(4), it follows that it is a material non-disclosure to fail to put before the court the circumstances of Swiss law. 

39. I accept Ms Ismail’s submission that the possibility that Swiss law may be involved is a material matter in the weighing process under s 21M(4) HCO. 

40. I accordingly find that there has been material nondisclosure in the failure of the plaintiffs to inform the ex parte Court that arguments were open that Swiss law may be the governing law of the transactions and that consequently Switzerland may be the appropriate forum to resolve the disputes.

Characterisation in the Monaco proceedings:

41. It is not necessary for me to determine the precise status of the Monegasque concept of inculpé in Hong Kong law. The evidence shows that it is a status given to a person during the course of an investigation.  It appears that a person who is inculpé will have been informed of the charges that are under investigation and will have been notified of their right to silence.  A person who is inculpé may not necessarily face trial as during the investigation period the investigators will consider both inculpatory and exculpatory evidence in the process of determining whether or not there will be a trial.

42. The expert evidence from Monaco is that when a decision is made to put a person to trial on a criminal matter they then become “prévenu” and will face a trial at which guilt or innocence is determined.  It appears to me that the status of being inculpé may be similar to that of a person in Hong Kong who has been granted police bail before being charged.

43. It may well have been overstating the position in the course of the ex parte hearing to have described Mr Bouvier as having been “charged” and a person who “will face trial in Monaco”.  But just as in Hong Kong, under Monegasque law, the presumption of innocence applies to a person under investigation or charged with an offence.  Thus, I have no doubt at all that the ex parte Judge, being a very experienced criminal Judge, would not have been adversely influenced at all against Mr Bouvier by having been told that he had been charged and would face a trial, instead of merely that he was under investigation in Monaco and had been released on an equivalent of police bail.  She would have been fully aware that no inference of guilt could be drawn from the assertion that a charge had been laid.  Like any defendant charged, Mr Bouvier would be assumed innocent until found guilty.

44. There is nothing in the point and it is not a matter of material non-disclosure or a basis upon which I should discharge the injunction.

Mr Bouvier’s background and business:

45. Ms Ismail is right to say that where a defendant is a long established, well-known foreign corporation or individual, or is known to have substantial assets in countries where a judgment can easily be enforced, there is less likely to be a risk of dissipation of assets or default on a judgment.  In those circumstances, those facts, if not brought to the attention of the ex parte judge might well justify a discharge of the injunction.  That is particularly so if the litigation arises from a pure commercial dispute where different positions might justifiably be taken by parties who need to go to litigation to resolve the commercial dispute.

46. But I am satisfied that this is not a case where, if a good cause of action is established, (and that is not in dispute), a Mareva injunction would be refused upon the basis that dissipation of assets or default is not a real risk. 

47. This is a case in which a breach of fiduciary duty and deceit is alleged.  Mr Bouvier does not dispute the fact of the e-mails that have been presented through Mr Sazonov’s affidavits.  From the terms of those e-mails it is said against Mr Bouvier that he was an agent negotiating with a buyer for a commission from Mr Rybolovlev.  Mr Bouvier does not deny the terms of the e-mails, but seeks to explain them by saying that the apparent references to negotiation with third parties are mere “negotiation tactics”.

48. I understand Mr Bouvier to be saying that they were tactics he adopted in his negotiation with Mr Sazonov on behalf of Mr Rybolovlev in respect of his, Mr Bouvier’s, own sale of artworks to Mr Rybolovlev.

49. It is not necessary for me to reach any conclusion on this dispute.  That is a matter for the trial.  But I can make an assessment of the position when having regard to the risk of dissipation. 

50. First, it may be strongly argued that the e-mails demonstrate that Mr Bouvier is in negotiation with an independent willing seller and is attempting to reduce the sale price sought by that seller to the best advantage of Mr Rybolovlev.  That is completely contrary to Mr Bouvier’s assertion that he was negotiating for himself.  As Reyes J put it in plain terms in Ngo Tai Hong v Endenne Development Ltd (unreported, 19 December 2005, HCA 7988 and 7929 of 2000):

“It is a fraud knowingly to state that something is the case, when it is not, for the purpose of inducing someone to enter into an agreement.”

51. The e-mails consistently reflect a process whereby Mr Bouvier is endeavouring to reduce the price that Mr Rybolovlev will have to pay the artwork in question.  It is a truly remarkable circumstance if a man, wishing to sell his own artwork, will negotiate with the prospective buyer in terms which seek to reduce the price the buyer will have to pay to him for the artwork.

52. The factual circumstances raise a very strong case of breach of fiduciary duty or deceit.  That is a factor that the court is entitled to take into account in determining the risk of dissipation. 

53. Were the dispute between the parties an ordinary commercial dispute with no suggestion of either commercial sharp practice or no suggestion of conduct in which there is a strong case that the conduct may constitute breach of fiduciary duty is likely to be material non-disclosure to fail to put before the ex parte judge appropriate information concerning the worth of the defendant to enable a proper assessment of the risk of dissipation.  However, where there is alleged a strong case for a breach of fiduciary duty or deceit on the part of the defendant, the plaintiff is entitled to say that the risk of dissipation plainly arises from conduct of which he complains.

54. In these circumstances I do not accept that there has been any material non-disclosure in the extent to which the ex parte Court has been informed of Mr Bouvier’s background.

Disposal:

55. The usual rule is that an ex parte injunction will be discharged if it was obtained without full disclosure.  The rule has a twofold purpose; it deprives a wrongdoer of an advantage improperly obtained, and it serves as a deterrent to ensure that applicants realise that they have a duty to disclose and of the consequences, which may include a liability in costs, if they fail in their duty: see Hong Kong Civil Procedure 2015 29/1/15; Brink’s Mat Ltd v Elcombe [1988] 3 All ER 188.

56. But where there has been non-disclosure of material facts at the ex parte application, and full disclosure is made at a hearing inter partes, the court has a discretion to continue the ex parte injunction or to discharge it and immediately re-grant substantially the same injunction: see Cheung Kam Wah v Cheung Hon Wah [2005] 1 HKC 136.

57. In the course of his oral submissions Mr Beresford raised with me that this was an appropriate case for such a re-grant. Ms Ismail, understandably, had not expected such an application to be made, as it had not been signalled in any way in Mr Beresford’s skeleton.

58. Although I am satisfied that there has been material non‑disclosure I do not, at this stage, make any order arising from that finding.  I indicated at the hearing that if the question of a re-grant arose I would give the parties an opportunity to be heard.  The matters set out in §§45-55 are sufficient to justify the consideration of a re-grant.

59. The solicitors for the parties are to attend me in Chambers at 9:45 am on Monday, 22 June 2015, with Counsel’s diaries in order that I may fix a day for further argument, which, as the parties appreciate must be well prior to Friday, 31 July 2015.  When I fix a date to continue the matter I shall also fix a timetable the exchange of skeleton arguments.  There is to be no further evidence.

60. All questions of costs are reserved.

HCMP 573/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 573 OF 2015

____________

____________

_________________________________

REASONS FOR DECISION

_________________________________

1. Following the decision dated 20 March 2015 (and the reasons for decision handed down on 26 March 2015), the defendants took out applications:

(a)  for leave to appeal against the said decision (dismissing their application to stay the ex parte disclosure order, and granting the bankers’ disclosure order (collectively “the above disclosure orders”));

(b)  for an interim stay of execution of the above disclosure orders pending their intended appeal against the same.

2. Further, by the 27 March 2015 hearing, the Singapore court has (earlier on 23 March) ordered the Singapore disclosure orders to be stayed pending the determination of the defendants’ application to discharge the worldwide freezing and related disclosure orders made there (“the Singapore orders”) (scheduled to be heard on 6 and 7 April 2015 (“the Singapore hearing”)).  This change of circumstance was relied on heavily by the defendants in support of their stay application before me.

3. Further to the applications mentioned in para 1 above, the defendants also took out an application to stay the above disclosure orders pending the determination of their application to discharge the ex parte injunction (“the discharge application”).

4. It cannot be (and was not) disputed that the Hong Kong proceedings were commenced (and the orders obtained) in aid of the Singapore proceedings (which were described as the “lead” jurisdiction).

5. In such circumstances, there is no valid reason to refuse the defendants’ application to stay the above disclosure orders until the determination of the Singapore hearing.  Accordingly, I made an order staying the same up to and including 4:00pm on 10 April 2015 or until further order (whichever is the earlier).

6. As regards the application for leave to appeal (para 1(a) above), leading counsel indicated at the 27 March 2015 hearing the grounds of the intended appeal would be along the lines of the defendants’ skeleton argument dated 26 March 2015 (she also indicated that, if the ex parte disclosure order was stayed pending the discharge application, leave to appeal against that order would not be sought).

7. In gist, the principal grounds in support of the leave application were that:

(1)  it was wrong not to adjourn the 20 March 2015 hearing (instead of granting the above disclosure orders) because there was no urgency for the above disclosure orders;

(2)  difficult points of mixed law and fact were involved (for example, whether the plaintiffs’ claim is proprietary or personal; whether the privilege against self-incrimination is absolute and can only be abrogated by statute);

(3)  there was a failure to differentiate the legal principles governing the bankers’ disclosure order (as opposed to those governing the ex parte disclosure order);

(4)  there was insufficient evidential basis for seeking or granting the bankers’ disclosure order;

(5)  the ex parte injunction itself was already sufficient to preserve the assets covered by it;

(6)  disclosure once made is irreversible.

8. By the 27 March 2015 hearing, reasons for decision relating to the above disclosure orders have already been handed down (2:30 pm on 26 March 2015).  The reasons should thus have been known to the defendants (their skeleton argument was fax transmitted at about 6:30 pm on 26 March 2015).  Despite this, they have not identified (whether in writing or verbally) where the said reasons for decision have failed to address the points raised by their former counsel (set out in the skeleton submissions for the 20 March 2015 hearing).

9. As regards para 7(1) above, the adjournment sought at the 20 March 2015 hearing (which appears at para 9 of the defendants’ said skeleton submissions) have been considered, and in effect been rejected.  The reasons for the same again already appear in the reasons for decision of 26 March 2015 and will not be repeated.

10. As regards the part of para 7(2) above concerning the privilege against self-incrimination, I further agree with the plaintiffs such claim for the privilege has not been made by the defendants (bearing in mind they are legally represented in the Monaco investigation, to which the privilege allegedly should attach).

HCMP 573/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 573 OF 2015

____________

____________

_________________________________

REASONS FOR DECISION

_________________________________

Introduction

1. The plaintiffs commenced this action on 13 March 2015.  The originating summons herein seeks an injunction in the nature of a Mareva injunction.  The supporting affidavit deposes that the said injunction is in aid of foreign proceedings (a) already commenced in Monaco, and (b) intended to be commenced in Singapore.

2. Further to the above, on 12 March 2015 the plaintiffs also sought, and was granted, on an ex parte application an interim injunction in terms similar to that sought in the originating summons herein.

3. The application for the ex parte injunction to be continued came before me.  The defendants instructed their legal representatives to oppose the same (and also to discharge the ex parte injunction) shortly before the hearing before me.

4. Because of the short time available to them before this hearing, the legal representatives of the defendants indicated that:

(a) the plaintiffs’ application to continue the ex parte injunction (and the defendants’ corresponding application to discharge the same) (and the originating summons hearing itself) should be adjourned to enable them to proper prepare the defence case;

(b) there is no objection for an interim order to be made in terms similar to the ex parte injunction until the determination of the said applications or further order.

5. The main disagreement between the parties related to:

(1) the ex parte order for the defendants to disclose their assets within Hong Kong, together with an inter partes application for disclosure of additional information (especially relating to assets);

(2) the application for an order for the bankers to disclose the defendants’ assets (“the bankers’ disclosure order”),

before the determination of the said inter partes hearing.  The plaintiffs argued that (i) the ex parte order should be complied with (the latter part of sub-para (1) above was also adjourned for full argument (see para 4(a) above)), and (ii) the bankers’ disclosure order should be granted, while the defendants contended otherwise.

6. At the end of the hearing before me, I agreed with the plaintiffs and disagreed with the defendants (and made the corresponding orders accordingly).  Below are the brief reasons for the said conclusion.

7. In relation to para 5(1) above, the main thrust of the defendants was that any disclosure now made pursuant to the ex parte order would effectively render part of their discharge application to be practically meaningless.  This is because, once the information sought has been provided by them to the plaintiffs, the disclosure cannot be “reversed” even if the defendants should succeed in having the ex parte injunction (including the disclosure obligations) discharged.

8. Such an effect is almost inherent in any disclosure obligations imposed at the ex parte stage; it is a risk which the court in making such kind of order has to grapple with: see, for example, Raja v van Hoogstraten [2004] EWCA Civ 968, para 104.

9. Whereas there can be no doubt whether to make a disclosure order is a matter of discretion, the general guidance is summarized in the following passages.  In the Raja decision, the court observed:

“The need to strike a balance between the prejudice to the defendant if he is required to disclose assets which it is later held he should not have been required to disclose and the prejudice to the claimant if the defendant is not required to disclose assets which it is later held he should have been required to disclose was recognized by this court in the [Motorola Credit Corp v Uzan [2002] EWCA Civ 989]. The decision in that case illustrates that there is no general rule that a party against whom a freezing order has been made is entitled to a stay of the disclosure obligations ancillary to that order until after it has been finally determined whether the freezing order should stand. Indeed, it provides support for the proposition that, in a normal case, a stay of the disclosure obligations is likely to be refused … ” (emphasis supplied) (para 105 thereof).

Further, Hong Kong Civil Procedure 2015, Vol 1, para 29/1/74 (p 673) says:

“For the purpose of rendering a Mareva injunction effective … the court may make [disclosure] orders …

[Having set out the purpose of such an order] … The defendant has no general entitlement to a stay of a disclosure obligation ancillary to a Mareva order pending the determination of the defendant’s application to discharge that order … While in the ordinary course, the application for a stay would be refused, the Court ultimately needs to strike a balance between depriving a plaintiff of the ‘teeth’ of an injunction, and the potential prejudice to the defendant in making the disclosure … ” (emphasis supplied).

10. The critical question in this case is how the balance should be stuck.  The plaintiffs’ allegations herein are serious: breach of fiduciary duty (and breach of an agent’s contractual duty), and fraudulent misrepresentation (dishonesty, or at least a lack of commercial morality, is implicit in the last-mentioned cause of action).  While the agency relationship is denied by the defendants, there are contemporaneous documents emanating from the defence which can provide support for such a relationship. On the other hand, as stated earlier, the defence complained of insufficient time available to present a proper case; consequently, none has been put forth by their legal representatives.

11. Further, that the plaintiffs’ claim can also have a proprietary nature (other than a pure personal monetary claim) means that they may be entitled to the equitable relief of tracing: Snell’s Equity (2010) 32^nd Ed, para 30-054 (similar to (2015) 33^rd Ed, para 30-054).

12. Besides the above, the other factor which tipped the balance in the plaintiffs’ favour is the usual undertaking which they were prepared to give not to put the disclosed information to use without the leave of the court.  The “usual undertaking” refers to an undertaking having the same effect as that set out at para 8, Schedule 2, Practice Direction 11.2.  In particular, this should provide adequate safeguard for the “self-incrimination” concern of the defendants in relation to the on-going criminal proceedings in Monaco.

13. There is no need to elaborate on the disagreement relating to para 5(2) above (the bankers’ disclosure order) suffice it to say similar arguments have been raised by the defendants: para 38 to 40, defendants’ skeleton submissions. Considerations similar to those set out in para 7 to 12 above are applicable here.

Other matters

14. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the need for brevity and the comprehension of the reasons for the decision.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.