TIGER RESORT ASIA LTD v. KAZUO OKADA AND OTHERS

HCA 3017/2017

[2022] HKCFI 3354

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

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2^nd  DECISION
ON  COSTS
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1.  I refer in relation to background to my Decision handed down on 29 July 2022[1] and the first Decision on Costs handed down on 7 October 2022[2].

Costs in respect of P’s Judgment Summons

2.  By Statement of Costs of 14 October 2022 filed by Haldanes on its behalf, P claims costs for P’s Judgment Summons and D1’s Relief Summons in the total sum of HK$986,794.

3.  Ince & Co (“Ince”) on 21 October 2022 filed a statement of objection on D1’s behalf.

4.  As their first of 2 main objections, Ince submit that given the amount of costs claimed, and that the costs of P’s Judgment Summons and D1’s Relief Summons intertwine, formal taxation is more appropriate.

5.  D1 has made no prior application to vary the costs order nisi directing summary assessment. The intertwining of costs is a common occurrence. The amount of costs claimed is by itself not a sufficient reason to justify taxation. The first main objection has no merits.

6.  As their second main objection, Ince claim that according to my first Decision on Costs, no certificate for 2 Counsel was granted.

7.  That objection, as Haldanes submit in their reply, is wrong – see §§2 and 18 of my first Decision on Costs. It was in relation to the application to vary which I granted certificate for one counsel only.

8.  The construction of the term “the indemnity basis” has been clearly set out in O.62 r.28(4A), as Haldanes have pointed out, which I apply.

9.  The vast majority of Ince’s objections are bare assertions, comprising only one word of “Unreasonable” with no elaborations.

10.  Their objection to Item D1 on “Preparation of Documents” is one of the exceptions which offers some elaborations, namely that P’s Judgment Summons contains only 3 pages and that the main contents of Asano/Aff7 only 15. That however is not the full picture. What Ince have not referred to are the PI Reports with more than 350 pages. I accept also what has been revealed in Haldanes’ reply, that the PI Reports originally comprised over 1,000 pages, and that a substantial amount of time has been spent on extracting from them the relevant pages.

11.  I agree that the costs for drafting the statement of costs should not be allowed. The reasons tendered by Haldanes (the amount claimed, the span of time over which the relevant events took place, and the basis of the assessment) in my view do not justify the inclusion of those costs.

12.  Given the overall nature of the 2 Summonses and the issues in dispute, I otherwise do not find any part of the costs claimed to be unreasonable.

13.  After taking into the discount (as explained in §17 of my first Decision on Costs), I summarily assess the costs for P’s Judgment Summons and D1’s Relief Summons at the total sum of HK$980,000.

Costs in respect of the application to vary

14.  For the application to vary, P claims costs in the total sum of HK$77,700, comprising counsel fee in the sum of HK$60,000, solicitors’ costs of 17,600 and HK$100 for manual work.

15.  D1 objects, suggesting that only HK$20,000 for counsel and HK$8,250 for solicitors should be allowed.

16.  Those suggested amounts are unreasonable, bearing in mind that D1 himself engaged Senior Counsel to resist the same.

17.  I however regard that counsel fee in the amount of HK$60,000 is on the high side. I allow HK$45,000.

18.  Taking a broad brush approach, I summarily assess the fee concerned at HK$62,000.

Conclusion

19.  I summarily assess the costs as above, and otherwise make no further order for costs.

Statement of Costs and Reply to List of Objections by Haldanes, for the Plaintiff
    

List of Objections by Ince & Co, for the 1^st Defendant

HCA 3017/2017

[2022] HKCFI 3118

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

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______________

____________________

DECISION ON COSTS

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1.  By my Decision handed down on 29 July 2022[1], I refused P’s application for leave to enter judgment against D1, and acceded to D1’s Relief Application.  Despite my conclusions, for the reasons set out in the Decision, I made a costs order nisi (the “Costs Order Nisi”) that:

(a)  there be no order as to costs in respect of P’s Judgement Summons (“Part 1 of the Costs Order Nisi”), and that

(b)  the costs of D1’s Relief Summons be paid by D1 to P on an indemnity basis, with certificate for 2 counsel, to be summarily assess and be paid forthwith (“Part 2 of the Costs Order Nisi”).

2.  By letter of 12 August 2022 from Haldanes for P, P seeks variation of Part 1 of the Costs Order Nisi from what it is to the following:

“D1 is to pay two-thirds of the costs of P’s Judgment Summons on an indemnity basis, with certificate for 2 counsel, to be summarily assessed together with the costs of D1’s Relief Summons and be paid forthwith.”

3.  There is no application for any variation of Part 2 of the Costs Order Nisi.

4.  The application is opposed by D1.

5.  Pursuant to directions by this Court, Mr Stephen Kwan and Ms Charlotte Chan have filed written submissions P.  Mr MC Law SC leading Ms Natalie So have filed their submissions in reply.

6.  As highlighted by Mr Kwan, I have found that D1’s non-compliance of the Disclosure Order and the Unless Order in relation to the 3^rd Sum has been intentional.  I have also observed that aspects of D1’s explanations tendered on oath are “incredible and unbelievable”, or are “inherently improbable, inconsistent and incredible.”  I have expressed my view that given the contents of the PI Reports, and the unsatisfactory manner in which the compliance of Unless Order has been approached by D1, P was justified in taking out P’s Judgment Summons.

7.  In support of the application for variation, Mr Kwan relies on Biguzzi v Rank Leisure Plc [1999] 1 WLR 1926 and Axa Insurance Co Ltd v Swire Fraser Ltd [2001] CP Rep 17.

8.  In Biguzzi:

(a)  Lord Woolf, in upholding the judge’s decision refusing to strike out a claim for breaches of the Civil Procedure Rules 1998, observed that under those Rules, the court had broad powers and, in many cases there would be alternatives, that:

“Under rule 3.4(2)(c) a judge has an unqualified discretion to strike out a case such as this where there has been a failure to comply with a rule. The fact that a judge has that power does not mean that in applying the overriding objectives the initial approach will be to strike out the statement of case. The advantage of the C.P.R. over the previous rules is that the court’s powers are much broader than they were. In many cases there will be alternatives which enable a case to be dealt with justly without taking the draconian step of striking the case out.

…

There are alternative powers which the courts have which they can exercise to make it clear that the courts will not tolerate delays other than striking out cases. In a great many situations those other powers will be the appropriate ones to adopt because they produce a more just result. In considering whether a result is just, the courts are not confined to considering the relative positions of the parties. They have to take into account the effect of what has happened on the administration of justice generally. That involves taking into account the effect of the court’s ability to hear other cases if such defaults are allowed to occur. It will also involve taking into account the need for the courts to show by their conduct that they will not tolerate the parties not complying with dates for the reasons I have indicated.

Some of the alternatives which are open to the courts to deal with these situations are to be found conveniently summarised in the Practice Direction - Protocols. Paragraph 2 of that practice direction deals with compliance with protocols. It says:

‘2.3 If, in the opinion of the court, non-compliance has led to the commencement of proceedings which might otherwise not have needed to be commenced, or has led to costs being incurred in the proceedings that might otherwise not have been incurred, the orders the court may make include: (1) an order that the party at fault pay the costs of the proceedings, or part of those costs, of the other party or parties; (2) an order that the party at fault pay those costs on an indemnity basis …’

            To that table can be added (in relation to a default such as that which has occurred in this case) the new power of the court to order money to be paid into court.  The ability of the court to make an indemnity order for costs is an important power. Under the old rules there was little or no difference between an indemnity order and a standard order for costs.  Under the new rules there is a significant difference.  For a court to order certain parts of the costs to be paid on an indemnity basis and to be paid forthwith is a valuable sanction since a solicitor has to explain to his client why he has to be put into funds to pay costs on that basis forthwith.  This is particularly valuable in bringing home to the solicitor and the party the consequences of default. It is more effective if the costs are assessed summarily than by a detailed assessment.”

9.  Mr Kwan hence submits that an order for costs is one of the alternatives to the more draconian order of striking out or entering judgment.

10.  Mr Law submits that Biguzzi has no relevance in the present application, as the regime in England and Wales is very different from that in Hong Kong.  He submits that §2.3 of the Practice Direction – Protocols referred by Lord Woolf has no counterpart in Hong Kong, and that we are dealing with costs, but not alternatives.

11.  I do not accept those submissions of Mr Law’s. The Practice Direction – Protocols, as described by Lord Woolf, only “conveniently summarised” “[s]ome of the alternatives which are open to the courts”.  Mr Law has not pointed to anything which suggests that the Practice Direction – Protocols are in fact jurisdiction or power conferring.

12.  In my view, this Court has wide powers when dealing with costs, which include at least the alternative costs order as explained by Lord Woolf.       

13.  In Axa Insurance, Lord Justice Tuckey, in reversing the judge’s decision to strike out the whole claim for delay, observed at §25 that:

“Nevertheless but for Axa’s delay their claim could and should have been heard at the October trial and the strike-out proceedings would not have happened. What can the court do to show its disapproval of the delay and protect Swire as far as possible from the consequences of the fact that they now face a further trial? First, it seems to me that Axa should pay the costs of the strike-out proceedings before the judge which they brought on their own head …”

14.  Mr Law submits that Axa Insurance is again irrelevant as it has referred to Biguzzi.  For the same reasons why I reject Mr Law’s submissions on the alleged irrelevance of Biguzzi, I reject also this submission of his.

15.  Mr Law refers me to my case of Glory Sky Finance Ltd v Chen Jianhua & Anor[2018] HKCFI 1358 at §3, where I in the context of costs considered the “overall fairness of the matter without going into details.”

16.  On the facts of the present case, I bear in mind D1’s conduct as I have stated in the Decision and highlighted above.  P was justified in issuing P’s Judgment Summons.  D1 brought it on his head.  In an attempt to resist it and despite the PI Reports, D1 came up with explanations which I have found to be incredible and unbelievable, gave replies which in my view verge on games of words, and made late challenge against the admissibility of the PI Reports which I have ruled against.  True that he has been ordered to bear the costs of D1’s Relief Summons on an indemnity basis.  But he was seeking the Court’s indulgence there.  It is only right that he should bear the costs of that summons, and on the facts, on an indemnity basis.  That does not mean that the Costs Order Nisi “has already penalised D1”, and that it has “already reflected the overall fairness of the matter”, as Mr Law is seeking to say. 

17.  In the light of the authorities which Mr Kwan has now placed before this Court, for the reasons set out above, to show this Court’s disapproval of D1’s conduct, and bearing in mind the overall fairness of the matter, I accede to P’s application for variation.  D1 should bear some costs of P’s Judgment Summons.  Two-thirds are overall fair to reflect my view that P could not establish non-compliance regarding the 4^th Sum.  Indemnity basis is perfectly justified on the facts of the present case. 

18.  I vary the Part 1 of the Costs Order Nisi to the order as sought (as set out above).

19.  I order that D1 should also bear the costs of this application, on a party-and-party basis, with certificate for one counsel.

20.  I direct that P should file its statement of costs within 7 days of the handing down of this Decision, D1 to file his list of objection within 7 days thereafter, and P to file its reply 7 days thereafter.  Summary assessment will be conduct on the papers.   

HCA 3017/2017

[2022] HKCFI 2289

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

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D E C I S I O N

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A. THE SUMMONSES

1.  There are four summonses before this court:

(a)  By the plaintiff (“P”), its Summons dated 5 August 2021 (“P’s Judgment Summons”) for an order that the 1^st defendant (“D1”) having failed to comply with an unless order dated 22 April 2021 made by this Court (the “Unless Order”)[1]and his Re-Amended Defence (the “Re-Amended Defence”) having consequently been struck out automatically on 20 May 2021, P be at liberty to enter judgment against D1 for HK$120 million and HK$16 million together with interest;

(b)  By D1:

(i)  his Summons dated 27 August 2021 (the “D1’s Relief Summons”)[2], seeking:

(1)  extension of time for applying for relief from sanction for non-compliance (if any) of the Unless Order (the “D1’s Extension Application”); and

(2)  relief from sanction for such non-compliance (the “D1’s Relief Application”);

(ii)  his Summons of 6 April 2021 (the “D1/Aff13 Summons”) seeking leave to file and serve his 13^th affirmation (“D1/Aff13”); and

(iii)  his Summons of 19 April 2021 (the “D1/Aff14 Summons”) seeking leave to file and serve his 14^th affirmation (“D1/Aff14”).

2.  Mr Robert Whitehead SC leading Mr Steven Kwan and Ms Charlotte Chan appear for P.  Mr MC Law SC leading Ms Natalie So appear for D1.

B.  THE D1/AFF13 AND D1/AFF14 FURTHER AFFIRMATION APPLICATION

3.  Mr Whitehead does not oppose the same.  I on 20 April 2022 made an order in terms of the two summonses, with costs to P.

C.  PREVIOUS DECISIONS OF THIS COURT

4.  Parties have previously come before this Court.  Arising from those appearances I have handed down a number of Decisions.  I refer to those Decisions, and unless otherwise specified, adopt the same terms and nomenclature which I used. 

5.  Amongst those various Decisions, of particular relevance to the present applications are:

(a)  My Decision of 31 May 2019[3] (the “Injunction Decision”), wherein I:

(i)  set out the nature of P’s claims against D1 and the basis of P’s application for a proprietary/Mareva injunction (with discovery in aid) against inter alios him[4];

(ii)  set out my reasons for making against D1:

(1)  a proprietary injunction restraining disposition of:

(a)  the sum of JPY¥ 1,002 million (referred to in the Injunction Decision as the “3^rd Sum”); and

(b)  the sum of HK$22,556,519.38 (referred to as the “4^th Sum (Part)”) out of the sum of US$18 million (which US$18 million was referred to as the “4^th Sum”);

(2)  a disclosure order (the “Disclosure Order”) requiring D1 to give disclosure on the whereabouts and what has become of the above two sums; and

(3)  an order that D1 be cross-examined on §§5.1 and 5.2 of his 2^nd affirmation of 8 May 2018[5];

(b)  My Decision of 22 April 2021[6] (the “Unless Order Decision”) wherein I:

(i)  summarized the contents of D1’s 5^th to 9^th affirmations (“D1/Aff5” to “D1/Aff9”) filed principally in purported compliance of the Disclosure Order[7];

(ii)  set out my reasons for concluding that D1 had failed to comply with the Disclosure Order; and

(iii)  explained why I made against D1 the Unless Order.

D.  THE DISCLOSURE ORDER AND THE UNLESS ORDER

6.  I set out here for ease of reference the terms of:

(a)  the Disclosure Order, that:

“[D1] shall disclose to [P] in writing within 14 days as to the whereabouts and what, if anything, has become the [3^rd Sum] and [4^th Sum (Part)]. The information to be disclosed to [P] shall be confirmed in an affidavit or affirmation with relevant documents identified and exhibited which must be served on [P’s] solicitors”;

(b)  the Unless Order, that:

“Unless by 4 pm on Thursday, 20^th May 2021 [D1] serve an affidavit or affirmation in full and proper compliance with [the Disclosure Order], the [Re-Amended Defence] be struck out and [P] be at liberty to enter judgment against [D1] with costs …”.

E.  THE 3^RD SUM AND THE 4^TH SUM (PART) – A RECAPITULATION

7.  The fund-flows of the 3^rd Sum and the 4^th Sum (Part) are important.  I have set them out in some details in the Injunction Decision and Unless Order Decision.  I refer to[8] and will not repeat them here.  In gist, and most relevantly:

(a)  In respect of the 3^rd Sum, it was transmitted via D2 to D1, then from D1 to D5, and then on around 15 June 2016 JPY¥1,000,000,000 out of it was remitted from D5 BComm Account to an account held by Teramoto Seiichiro (“Teramoto” or “Mr Teramoto”).  Teramoto was an art dealer residing in Tokyo; and

(b)  In respect of the 4^th Sum (Part)[9], the 4^th Sum was transmitted by D2 to D1, then by D1 to his BDO Peso Account with Unibank, out of which a number of sums were transferred out, as follows (the “5 Transfers-out”):

Date of Transaction	Payee	Sum in Peso (HKD at 1 to 6.5)
27.09.2016	Merlita R Montefalcon[10]	₱100,000 (HK$15,392)
30.09.2016	Laurence Hawke[11]	₱300,000 (HK$46,177)
11.10.2016	Ivarluski Aseron[12]	₱105,000 (HK$16,161)
25.10.2016	Transasia Construction Development Corporation[13]	₱450,000,000 (HK$69,265,553)
27.10.2016	Dindo A Espeleta[14]	₱300,000,000 (HK$46,177,035)

F.  SUBSEQUENT MATTERS LEADING TO THE PRESENT APPLICATIONS

8.  Subsequent to the Unless Order, and said to be for the purpose of complying the same, D filed his 10^th and 11^th affirmations dated respectively 20 May and 15 September 2021 (“D1/Aff10” and “D1/Aff11”).

9.  D1/Aff10 is intended to be the main affirmation.  On disclosure, and in gist:

(a)  In respect of the 3^rd Sum:

(i)  D1 describes the efforts he says he and his lawyer have made in tracking down Teramoto.  He says that after Teramoto left the Okada Museum of Art (the “Museum”), he (D1) had not reached out to him.  He therefore asked his solicitors to conduct a search of Teramoto on the internet.  He said that it was then discovered that Teramoto was the owner of a café in Saga, Japan.  A letter was sent to him.  That letter has been produced and is dated 8 May 2021.  D1 says that after the Unless Order Decision was handed down on 22 April 2021, he upon advice from his legal advisers also called Teramoto on his last known mobile number.  He managed to speak to him.  D1 says at §17 that:

“… I asked him to provide the information requested but he had not responded. He then came to visit me at my home respectively on around 7 and 10 May 2021 as I was very ill and had to rest at home. Despite the requests made during the meetings, Mr Teramoto did not provide me with any information. In view of this, on 19 May 2021, I further arranged to meet with Mr Teramoto as a follow up on this request.”

D1 then says that during that meeting, Teramoto “expressed strongly against me on this request and questioned why I instructed my lawyers to send him a legal letter”.  Despite further explanations, at the end of the meeting, Teramoto refused to provide any information on the artworks purchased or reasons for his refusal to disclose;

(ii)  D1 also says that the Museum possesses a list which contains information about the origin and provenance of the art pieces, with records such as the time when they were deposited into the Museum (the “Museum List”);

(b)  In respect of the 4^th Sum (Part) and the 5 Transfers-out, again in gist:

(i)     Despite efforts, he and his lawyers were not able to identify Montefalcon;

(ii)    After efforts, Hawke had been tracked down, who on 19 May 2021 talked to D1’s lawyers.  Hawke could not remember details of the payment, though he confirmed that he was an employee of Okada Manila, and so he might get regular payments;

(iii)   After efforts, Aseron was identified as a fashion designer in the Philippines.  Though D1 does not recall, his best conclusion is that the sum to Aseron was either designing fee or the price of some clothes Aseron made for him;

(iv)   Requests for information had been sent to Transasia, but no reply has been received.  But since Transasia was the construction company engaged for the building of the Okada Manila (resort and casino) project, D1 verily believes that the payment was made in connection with that project;

(v)    Despites efforts, Espeleta could neither be identified nor located;

(vi)   D1 has further asked his assistant to look for the records they had in the Philippines in relation to those 5 persons or entities.  There was no information of the payments to Montefalcon, Hawke and Aseron.  As regards Transasia and Espeleta, D1 says that “since there are ongoing disputes with these parties, my assistant cannot reach out to them”[15].

10.  In respect of D1/Aff11:

(a)  D1 provides therein some update to the information he has provided in D1/Aff10.  Notably, he says that Teramoto replied in writing in June 2021. Teramoto said that details of the artworks he has dealt with “must be kept as an extreme secret in our circle, which is also the professional duty of an art dealer”.  Further but unsuccessful efforts have been made to find Negishi.  He has given some further information on the Okada Manila Project;

(b)  D1/Aff11 was also filed in support of D1’s Relief Summons.  D1 states his belief that the Unless Order has been complied with, but that if this Court is of the view that he has not, he seeks relief from sanction.  He says that he had a busy schedule running a business corporation with worldwide presence.  He delegated his duties and work to assistants, one being Negishi, who handled all his financial transactions, of which there were numerous.  D1 trusted him, and did not keep records himself.  After he has been ousted from his business empire, he no longer has access to the information and records kept by the company, including those on the artworks.  He is of advanced age, and his health has been poor.  He says that the claim P makes against him involves very serious allegations of dishonesty and impropriety.  If his Re-Amended Defence were struck out, he would be deprived of the opportunity to defend the case.

11.  On 21^st December 2021, Mr Asano (“Asano”) filed his 7^th affirmation (“Asano/Aff7”) in support of P’s Judgment Summons.  Amongst other matters:

(a)  He produces a set of Private Investigation Reports (“PI Reports”), that:

“12.  [P] has obtained the [PI Reports] prepared by private investigators instructed by [Universal Entertainment Corporation (“UE”)].  The PI Reports concern [D1’s] daily activities for the period of surveillance from January 2021 to early November 2021.  I verily believe that the same to be true and accurate.

  …

16.  Further, I have been informed by UE that the private investigators have been following [D1] for an extensive period of time and are therefore familiar with Mr Teramoto and his vehicles.  For instance, as recorded in the PI Report dated 15 April 2021 …, the private investigators attended Mr Teramoto’s residence and was able to identify his Mercedes Benz there ...”[16]

(b)  The PI Reports come with photographs.  As summarized by Asano, the PI Reports show that between January and early November 2021, D1 and Teramoto had met at least 55 times.  Just between January and April 2021, there were some 22 meetings.  That is a stark contrast with D1’s version about him having had to instruct his lawyers to internet search Teramoto’s whereabouts, and that a letter had to be sent in May 2021 to him at the address of the café which D1 says they managed to discover;

(c)  Asano denies the existence of any Museum List which contains the sort of information and records claimed by D1;

(d)  Asano produces the printout of a softcopy of an invoice dated 6 June 2016 issued by Teramoto to D5 recording the sale of   9 sets of artwork (the “9 Sets of Artwork”) in the aggregate sum of JPY¥1,000,000,000 (the “Invoice”);

(e)  Asano says that as D1 has not made all genuine attempts to gather and provide information as required under the Unless Order, no relief from sanction should be granted.  P also seeks an order that D1’s Re-Amended Defence be struck out, and that P be at liberty to enter judgment against him.

12.  Subsequently, D1 further filed D1/Aff12 to D1/Aff14.

13.  D1/Aff12 was principally filed in reply to Asano/Aff7:

(a)  In respect of the PI Reports, he has the following to say:

“4. Regarding the purported PI Reports, whilst I confirmed that I had met with Mr Teramoto at my home on 7, 10 and 19 May 2021 respectively for the purpose of obtaining information concerning the art pieces purchased with the 3^rd Sum in or around June 2016 (the ‘Artwork’) …, I denied that I had kept in close contact and met Mr Teramoto prior to the said three meetings. It was my understanding that prior to May 2021, Mr Teramoto had been frequently hospitalised so it was simply impossible for Mr Teramoto and I to have met each other so frequently as alleged.”

He then in §5 says that “I consider it unnecessary and irrelevant to engage in a detailed investigative analysis of the contents of the PI Reports.”  He proceeds to criticize the accuracy and credibility of the PI Reports on the bases that:

“…most of the photos are not clear. This is not to mention that the persons therein all appeared to be wearing masks. It is simply impossible to identify who those persons were.”

“… there is also no explanation and/or indication whatsoever in the PI Reports as to how the investigator identify/conclude from the photos (a) the identifies of each of the person; (b) the vehicles and the ownership thereof; and (3) the locations at which the photos were alleged taken.”

(b)  D1 repeats that he has already “made the best effort to try to contact Mr Teramoto”[17]. He states his belief that with the records open to P, P has the capability of tracing the artworks purchased with the 3^rd Sum;

(c)  He says that he has exhausted all means to try to obtain information on the 5 Transfers-out.  He gives some further information on Transasia and Espeleta, the former he says being the principal contractor of the construction of the roof of the primary architecture of the Okada Manila Project, and the latter having been the chief executive advisor of Tiger Resort, Leisure and Entertainment, Inc. incorporated in the Philippines.  He says that the related payments to them must be related to payments of the construction of the Okada Manila Project.  He reiterates his belief that he has complied with the Unless Order.

14.  D1/Aff13 was filed to supplement D1/Aff11 and D1/Aff12, principally in relation to the Invoice, and the disputes with Espeleta which he has previously mentioned.

15.  D1/Aff14 was filed principally to explain why he did not in his earlier affirmations deal with the Invoice, which had been provided to his legal representatives prior to, and was further shown to D1 during, the Cross-examination.  

G.  PARTIES’ STANCES

16.  It is P’s case that D1 has failed to comply with the Disclosure Order despite D1/Aff10 to D1/Aff14.  Given the Unless Order, the Re-Amended Defence has automatically been struck out.  It therefore seeks judgment against D1. 

17.  D1 does not accept that he has been in breach, but to the extent that he has been, he seeks relief from sanction.  Mr Law stresses a number of times that D1 delegated his duties, could not be expected to remember the details of the financial transactions, that he has been ousted and no longer has access to the records, and that D1 has been of poor health.  He submits that in any event, given the draconian and disproportionate nature of the sanction being sought (entry of judgment for a very substantial sum), P’s application should be dismissed.   

H.  THE PI REPORTS, AND THEIR ADMISSIBILITY

18.  I have set out above the stark contrast between the PI Reports and D1’s evidence claiming that he had to instruct his lawyers to locate Teramoto, and that a letter had to be sent in May 2021 to him at the new-found address.

19.  I have studied the PI Reports.  Some of the photographs are not clear. But there are others which are more than clear enough for the subjects photographed to be identified.  That is so despite the masks that they were wearing because of the pandemic.  D1 would definitely be able to identify himself from those clear photographs if he is the subject (or to deny it if he is not).

20.  I have set out above D1’s reply at §§4 and 5 of D1/Aff12 in relation to the PI Reports.  Those replies are in my view verging on being games of words. He denies “that I had kept in close contact and met Mr Teramoto prior to the said three meetings”.  He does not however deny that he had been in contact with Teramoto between January and April 2021, close or not.  He claims that “it was simply impossible for Mr Teramoto and I to have met each other so frequently as alleged”.  He does not however deny that he has met Teramoto as photographed, frequently or not.  He has not denied that any of the photographs showing apparently he and Teramoto going out for meals together in fact depict him and Teramoto.  

21.  Up till the moment when Mr Whitehead had finished his opening submissions during the hearing and when Mr Law produced to this Court and Mr Whitehead his written speaking notes (the “Speaking Notes”), there had been no notice from D1’s side that they would seek to challenge in court the admissibility of the PI Reports.  It was only after Mr Whitehead had sat down when D1’s side indicated for the first time that the “investigation report is inadmissible.  The maker is not identified; and hence it is inadmissible hearsay.”[18] That sentence is not even in Mr Law’s written submissions filed only a couple of days earlier[19]. 

22.  That state of affairs was in my view highly unsatisfactory.  In the end, and before the conclusion of the hearing, I granted parties liberty to file further written submissions to deal with the point.  Mr Whitehead did so on 28 April 2022 (“P/Hearsay Sub#1”).  Mr Law filed his Further Submissions on 5 May 2022 (“D1/Hearsay Sub#1”).  Mr Whitehead then filed reply on 10 May 2022 (“P/Hearsay Sub#2”).  Mr Law filed his response on 16 May 2022 (“D1/Hearsay Sub#2”), which P objects as I have not given D1 liberty to do so.  I have nonetheless considered the same.

23.  For the following reasons, I rule the PI Reports admissible, and place weight upon their contents:

(a)  In D1/Hearsay Sub#1 at §6, Mr Law submits that the “starting point” is Order 41 rule 5.  He then cites 3 English authorities[20] and a number of Hong Kong authorities to illustrate what he submits are the effects of that rule;

(b)  I do not agree that Order 41 rule 5 is the starting point.  What Mr Law has unfortunately failed to point out in D1/Hearsay Sub#1, but are stressed by Mr Whitehead in P/Hearsay Sub#2, are that in England, section 1(1) of the Civil Evidence Act 1995 did away in 1997 (when it came into operation) with the exclusionary hearsay rule in civil proceedings as it used to operate, which reform was followed in Hong Kong by the implementation of Section 47 of the Evidence Ordinance, Cap 8 in 1999; 

(c)  In D1/Hearsay Sub#2 at §4, Mr Law submits that P’s reliance on the Evidence Ordinance is “completely misplaced”.  I do not agree.  The Rules of the High Court, being subsidiary legislation, have to be read subject to the Evidence Ordinance;

(d)  The 3 English authorities cited by Mr Law are all pre-1997, and should be understood in the above legislative context.  I agree with Mr Whitehead in this regard;

(e)  Mr Law at D1/Hearsay Sub#1 refers to Leung Kin Fook & Ors v Eastern Worldwide Co Ltd [1991] 1 HKC 55.  Similarly, he has not highlighted the fact that that case was decided before the amendment to the Evidence Ordinance.  Mr Law replies at §3 of D1/Hearsay Sub#2 that Leung Kin Fook has not been overruled.  Whilst that is so, its effects would still have to be understood in the light of the then legislative framework in Hong Kong;

(f)  But even in Leung Kin Fook, and prior to the amendment to the Evidence Ordinance, Power JA (as he then was) cited at 58H – 59B with approval the following passage from Wang King-fong v Chan Fook- hong [1961] HKLR 448, that:

“If it be the case that the parties do not choose to bring the attention of the Court to the defect of an affidavit made in [non-compliance with Order 41, rule 5(2)], and are content to take the judgment of the Court upon such an affidavit, that is one thing. It does not follow that the Court is always bound to take the objection, but where the objection is taken, and where it is an objection of substance, and not a mere technical and frivolous objection, it seems to me that the Court would be acting contrary to its plainest duty if it refused to observe the rule.” (Emphasis added)

(g)  So, the starting point is that as a matter of law, hearsay is no longer in civil proceedings inadmissible by virtue only of the previous common law exclusionary hearsay rule;

(h)  In respect of the legislative regime on the admissibility of hearsay evidence in civil proceedings, it should also be noted that whilst section 47A(2) of the Evidence Ordinance makes provisions for the filing of hearsay notice, section 47A(4) stipulates that a failure to comply with that subsection or any related rules of court shall not affect the admissibility of the evidence.  Weight may however be affected, the assessment of which is further regulated by section 49 of the Evidence Ordinance[21];

(i)  By analogy, and in my view, even non-compliance with Order 41 rule 5 shall not affect the admissibility of the evidence concerned;

(j)  I have also considered the effects of Order 41 rule 5 in Amadeaus Investment Ltd v Lin Kao Kun [2019] 2 HKLRD 647 at §§29 to 31, which discussions I repeat;

(k)  Further, and in any event, I agree with Mr Whitehead that Mr Law has not in §14 of his Speaking Notes identified the accurate requirements under Order 41 rule 5.  That rule does not in relation to any “statements of information or belief” require identification of the maker, but “the sources and grounds thereof;

(l)  There is a clear distinction between the identification of the maker and the provision of the source.  As explained by Ralph Gibson LJ in Zambia Steel v Clark & Eaton [1986] 2 Lloyd’s Rep 225 at page 233 observed:

“Circumstances may arise in which a deponent can sufficiently, for the purposes of [Order 41 rule 5], identify the source of the information without identifying a named person who gave it …”

(m)  I have set out above how Asano produces the PI Reports.  He has stated the source of the PI Reports to be private investigators instructed by UE;

(n)  I have set out above D1’s reply in D1/Aff12 to the PI Reports.  I have stated my view that there are some photographs which are more than clear enough for the subjects photographed to be identified, and that D1 would definitely be able to identify himself from those clear photographs if he is the subject (or to deny it if he is not);

(o)  Apart from criticizing the credibility and reliability of the PI Reports, and engaging in the games of words which I have described above, D1 had made no meaningful reply to the PI Reports;

(p)  In my view, the objection which Mr Law has belatedly taken on the admissibility of the PI Reports is at best technical in nature, and borrowing the words in Wang King-fong, I am not bound to take the objection;

(q)  On weight, I have taken into account the considerations set out at section 49 of the Evidence Ordinance, which Mr Whitehead deals with at §25 of P/Hearsay Sub #2.  I note and agree that the PI Reports are highly relevant, that it is reasonable for P not to disclose the exact identity of the private investigators concerned given the nature of their job, that the PI Reports were made contemporaneous to the events they record, that multiple hearsay is not involved, and that the professional private investigators have no motive to lie.  I place weight on their contents.

24.  For completeness sake I mention also this.  Mr Whitehead has in P/Hearsay Sub#1 dealt with the rules on the admissibility of photographs.  I note those submissions.  I note on the other hand Mr Law’s clarification that it is the admissibility of the entirety of the PI Reports which he is objecting to, and that the photographs without the illustrative contents and captions would mean very little.  I accept those submissions.  I have therefore not isolated the photographs for considerations, but have considered the admissibility and weight of the entire PI Reports as I have done above.

I.  WHETHER NON-COMPLIANCE OF THE UNLESS ORDER

I.1.    THE APPLICABLE LAW          

25.  Mr Law has cited Silver Universe Investments Limited v China Times Securities Ltd[2019] HKCFI 834 where I discussed a number of issues which are relevant to the present application.  Mr Whitehead does not dispute their application or accuracy.  I adopt them.

26.  Whether there is any non-compliance of an unless order is obviously dependent upon the wording of the order concerned, and the extent of the compliance (or non-compliance).

27.  When considering compliance, a distinction should be drawn between at least two types of unless orders.  The first type is one made to secure compliance of the Rules of the High Court by the undertaking of a particular procedural step, e.g. the filing of a witness statement by a specified time. In respect of such an order, the issue as to whether there has been non-compliance is straight-forward – whether the step has been undertaken within the specified time.  There is on the other hand another type, like the present Unless Order, the issue as to the compliance (or non-compliance) of which can involve a qualitative analysis of the adequacy of the purported compliance.  The issue is not as straightforward.

28.  In Silver Universe, at §§39 to 42, I have explained, with reference to Tarn Insurance Services Ltd v Kirby & Ors [2009] EWCA Civ 19 at §74 and The Republic of Angola v Perfectbit Ltd & Ors (unreported, CL-2017-000702, 5 March 2018, QBD (Comm)) at §8 and China Metal Recycling (Holdings) Ltd (in provisional liquidation) v Chun Chi Wai & Ors (HCA 1412/2013, 25 June 2014), why I applied the standard of “virtually complete compliance” when considering the issue of compliance in the context of an order for disclosure in aid of an injunction.  I have also explained, at §§43 to 48, with reference to the disclosure order in that case, why I observed that the defendant in that case was only compelled to disclose transactions and other specified matters which were within its knowledge (but not to the extent of information that could reasonably be expected to obtain or have knowledge of, and to take reasonable steps to investigate), but that any documents that were required to be disclosed would include documents that were within its possession, custody or power.

29.  When considering whether there has been non-compliance, whilst it is not appropriate to conduct a mini-trial on affirmations, the court is entitled to consider whether the disclosure or explanation given is on its face credible and consistent with contemporaneous documents or other previous statements[22].

I.2.    THE 3^RD SUM

30.  In respect of the 3^rd Sum, I have explained why I find the PI Reports admissible, and why I have decided to place weight on them.  I have also set out the stark contrast between D1’s version and the contents of the reports.  In my view, D1’s evidence and disclosure in respect his efforts in locating Teramoto, how he had to write to him in May 2021, and how Teramoto refused to assist, are incredible and unbelievable.  His explanations about him having delegated, not remembering details of all the financial transactions and him being of poor health also have little relevance to D1’s purported disclosure of the 3^rd Sum.  The 3^rd Sum concerns purchase of artworks, but not any intricate financial transactions. 

31.  There are more to what I have discussed above.  D1 has failed to deal with the Invoice in D1/Aff10 and D1/Aff11.  He failed to do so despite the invoiced sum being almost the same as the 3^rd Sum, that it was issued by Teramoto, and that the Invoice was issued less than 10 days before the transfer of the 3^rd Sum to Teramoto.  In D1/Aff13 at §8[23], D1 claims that the Invoice was “for the first time produced” in Asano/Aff7.  But that is not true.  D1 had been provided with the Invoice, both before (through his legal advisers) and during the Cross-examination.  He lays blame on his previous legal team[24]. He claims that despite having been shown the Invoice during the Cross-examination, he failed to “connect the dots” when he was preparing D1/Aff10[25]. But even with the Invoice, D1 in D1/Aff13 still fails to match up the 9 Sets of Artwork with any items on the Museum List.  His explanations are that “because the [9 Sets of Artwork] in the Invoice were written in shorthand/ abbreviation and the description of the antiques/artworks in the [Museum List] appears to be either incomplete or too generic for identification”.  But as pointed out by Mr Whitehead, during the Cross-examination when being asked with reference to the Invoice whether “the items of artwork that were purchased by you from Mr Teramoto are carefully listed in these invoices”, D1’s answer was “I think, yes, that is correct”.  Then D1 claims[26] that he had reached out to Teramoto for assistance, but that Teramoto had not reverted to him by the time he prepared D1/Aff13.  No particulars of such reaching out have been provided, and D1 has failed to update his efforts in D1/Aff14.  His explanations in relation to the Invoice and his alleged inability to match up the 9 Sets of Artwork with any on the Museum List are in my view also inherently improbable, inconsistent and incredible.  

32.  For the above reasons, I do not accept that D1 has disclosed what he knows as to the whereabouts of the 3^rd Sum, and what has become of the 3^rd Sum.  I am of the view that D1 has failed to comply with the Disclosure Order and the Unless Order in respect of the 3^rd Sum.

I.3.    THE 4^TH SUM (PART)

33.  I have set out the 5 Transfers-out above.

34.  D1 has provided further disclosure in relation to the payments to Hawke and Aseron.  In my view, the disclosure is now sufficient.

35.  D1 has said that he and his lawyers could not identify Montefalcon. Given the relevantly small amount involved, I do not find D1’s disclosure incredible. 

36.  In relation to the payments to Transaia and Espeleta, the manner of D1’s compliance has been dilatory.  The nature of the alleged disputes with Espeleta is also not at all clear.  Disclosure only dribbled in.  That has been highly unsatisfactory.  I disapprove such attitude.  But I am not here to pass sanction on D1’s manner of compliance.  The issue remains whether he has complied with the Unless Order according to the law discussed above.

37.  D1’s disclosure suggests that Transasia and Espeleta were involved with or in the Okada Manila Project and Tiger Resort, Leisure and Entertainment, Inc. The payments to them could have been so related.  D1 says that he had a busy schedule running a business corporation with worldwide presence, and that he delegated.  He could not, and cannot be expected to remember details of business-related payment.  He has been ousted from his empire.  He no long has access to business records.  I cannot dismiss such explanations as being incredible. 

38.  In the end, I conclude that P cannot establish any non-compliance of the Unless Order in relation to the 4^th Sum (Part).

J.  D1’S EXTENSION APPLICATION

39.  In the light of my conclusions above, D1’s Extension Application and D1’s Relief Application are both engaged.  I deal with the former first.

40.  I repeat my observations above about the nature of the Unless Order, and the fact that the issue as to whether it has been breached involves the undertaking of a qualitative analysis of the evidence and degree of compliance.  Despite Mr Whitehead’s objection, and irrespective of whether strictly and technically the non-compliance took place upon the expiry of the unless period, and despite Order 2 rule 4, I am of the view that there are understandable bases for D1 to take out D1’s Relief Summons and asked for time only after P had taken out P’s Judgment Summons.  I am prepared to grant D1 and extension to the extent of enabling him to seek relief. 

K.  D1’S RELIEF APPLICATION

41.  I have concluded that D1 has failed to comply with the Unless Order in relation to the 3^rd Sum.

42.  D1 seeks relief.  I have set out in gist his basis for his application.

43.  I have to consider all the circumstances of the case, including those set out in Order 2 rule 5.

44.  As observed by Fok JA (as he then was) in Daimler AG v Leiduck [2012] 3 HKLRD 119 at §57:

“… a weighty factor in the weighing exercise to be undertaken by the Court … is the question of proportionality of the sanction in the circumstances of this case.”

45.  The sanction which P is seeking may be described as the ultimate one, the most serious one that a plaintiff can seek against a defendant, namely to have the defence struck out, to deprive the defendant of the right to defend himself, and to have judgment entered against him.

46.  The nature of the allegations which P is making again D1 should also be noted.  They include breaches of trust and fiduciary duties said to be owed by D1 to P, and misappropriation of P’s funds by D1.  They are all serious allegations.  Such serious allegations, I borrow the words of Fok JA at §58 of Daimler AG v Leiduck, should be the subject of a trial.

47.  The amount of the claim is also very substantial.

48.  This weighty factor of proportionality favours the granting of relief.

49.  I proceed to consider the other specific matters set out in Order 2 rule 5.

50.  The interests of the administration of justice:

(a)  Mr Whitehead has in his written reply cited JSC BTA Bank v Ablyazov (No 8) [2013] 1 WLR 1331, wherein Rix LJ observed at §34 that:

“The authorities demonstrate that it is vital for the court, in the interests of justice, to have effective powers, and effective sanctions. Without these, it would be possible for a defendant (or, in a different situation, a claimant) to flout the orders of the court, which are the court’s considered means by which to keep the scales of justice for the parties even. If once it became known that the court was unable or unwilling to maintain the effectiveness of its orders, then it would lose all control over litigation of this kind, with terrible consequences for the administration of justice. Those wrongly accused of fraud would be relieved of a certain amount of inconvenience, but fraudsters would rejoice and hitch a free ride to interminable litigation on the back of ill-gotten gains.”

Mr Whitehead submits further that a court order should hence be honoured in the observance, and the court should not be astute to find excuses for non-compliance;

(b)  I have taken those factors into account.  On the other hand, the countervailing considerations are those observations of Fok JA in DaimlerAG v Leiduck which I have cited above, and His Lordship’s further observations at §58, that:

“It is not in the interests of the administration of justice that serious findings go by way of default against a party, especially since, pursuant to O.1 r.2(2), the court is enjoined to recognise that the primary aim in exercising its powers is to secure the just resolution of disputes in accordance with the substantive rights of the parties.”

(c)  It is also pertinent to heed the observation of Green J in Gupta v Olgun Halil-Shah[2022] EWHC 318 (Ch) at §13, that:

“Surely, if they do not believe the defendants, they should either ask to cross-examine them or should pursue committal proceedings.”

(d)  This Court is not trivializing D1’s conduct and manner of purported compliance.  Far from it, this Court takes such acts very seriously.  But this court should still at the same time weigh in the balance the weighty factor of proportionality.  P also has other options open to it should it want to pursue D1’s conduct and manner of purported compliance further. 

51.  Whether the application for relief been made promptly:

(a)  I have highlighted the nature of the Unless Order.  D1’s Relief Summons was taken out shortly after P’s Judgment Summons;

(b)  In my view, there is no inexcusable and inordinate delay in the application. 

52.  Whether the failure to comply was intentional:

In my view, and on the evidence, the non-compliance of the Disclosure Order and the Unless Order in relation to the 3^rd Sum has been intentional.  Given the contents of the PI Reports, the way D1’s version is contradicted thereby, and the incredibility of his explanations as I have analyzed above, that is the only inference I can draw.

53.  Whether there is a good explanation for the failure to comply:

I can see none.

54.  The extent to which D1 has complied with other rules and court orders:

Apart from the Disclosure Order and the Unless Order, there is no allegation that D has failed to comply with other rules and court orders.

55.  Whether caused by D1 or his legal representative:

Whilst D1 has on a number of previous occasions blamed his legal advisers on a number of matters, I am of the view given the nature of the non-compliances that the non-compliance has been caused by D1.

56.  Whether the trial date can still be met:

There is no suggestion that the non-compliance may cause any trial date or likely trial date to be missed.

57.  The effect of the failure to comply on each party:

(a)  I note the contents of the Invoice.  According to Asano, and doing the best P could, save one of the 9 Sets of Artwork, “UE has married up the [Invoice] with what would appear to be the corresponding piece of artwork in the Museum”;

(b)  Hence, whilst P has not been able to secure D1’s confirmation in that regard by way of disclosure, at least, the possibility is that 8 of 9 Sets of Artwork could independently be identified by P with the aid of the Invoice, and they are with the Museum.

58.  Effect of granting of relief on each party:

Following up from the consideration immediately above, the granting of relief is not likely to seriously prejudice P, but would allow D1 the opportunity to defend the serious allegations against him.

59.  Having considered all circumstances, I reach the conclusion, albeit with some reluctance, that I ought to accede to D1’s Relief Application.  I make an order in terms of §2 of D1’s Relief Summons.

L.  COSTS

60.  What’s left is the question of costs.

61.  P has not been able to obtain leave to enter judgement against D1.  But it is vindicated partly by my conclusion that there has been non-compliance by D1 of the Unless Order in respect of the 3^rd Sum.  In my view, given the contents of the PI Reports, and the unsatisfactory manner in which the compliance of Unless Order has been approached by D1, I am of the view that P was justified in taking out P’s Judgment Summons.  I make a costs order nisi that there be no order as to costs in respect of P’s Judgment Summons.

62.  In respect of D1’s Relief Summons, although he is successful in seeking relief, it is D1 who has to seek the Court’s indulgence.  I have set out also by view that the non-compliance of the Unless Order in respect of the 3^rd Sum has been intentional.  I have also stated my view on the unsatisfactory manner in which the compliance of Unless Order has been approached by D1.  In my view, all the above justify this Court making a costs order nisi that the costs of D1’s Relief Summons should be paid by D1 to P on an indemnity basis, with certificate for 2 counsel, to be summarily assess and be paid forthwith.

63.  Any party who seeks any variation of the costs orders nisi above may write in directly to my clerk within 14 days hereof, upon receipt of which this court will give further directions on paper.

HCA 3017/2017

[2021] HKCFI 2094

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

______________

______________

___________________

DECISION ON COSTS

___________________

1.  I refer to my Decision of 22 April 2021. In §51 thereof, I make a costs order nisi in terms of §2 of the Summons. P seeks a variation thereof, as follows:

“ Costs of this application (including the application for variation of costs order nisi) be paid by the 1^st Defendant to the Plaintiff, to be taxed forthwith on an indemnity basis if not agreed, with a certificate for two counsel.” (Proposed variations italicised)

2.  I have considered the cases cited to me, which include Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114.

3.  P relies on the following matters as constituting special or unusual features justifying indemnity costs:

 (a)  the claim and injunction granted being proprietary in nature;

 (b)  that they are instituted and sought to vindicate P’s proprietary rights;

 (c)  that D1 was a trustee of P;

 (d)  that D1 has described the quantum of P’s claim as being “pocket change”;

 (e)  that this Court has found that:

 (i)  D1’s non‑compliance of the Disclosure Order has been clear and flagrant;

 (ii)  the explanations given by D1 for the substantial delay of almost 2 years and 4 months in complying with the Disclosure Order as being plainly incredible and entirely unbelievable;

 (iii)  D1’s alleged poor health is nothing but an excuse;

 (iv)  D1 had made no effort to contact Teramoto Seiichiro to try to obtain the information; and

 (v)  D1’s conduct has given rise to risk of injustice by reason of the difficulty of enforcing a judgment.

4.  In opposition, Messrs Seyfarth Shaw highlights the discretionary nature of the matter, that P has failed to demonstrate unusual features, in that those features relied upon by P have formed the basis of the unless order, so that a fair result has been achieved, and D1 should therefore not be penalized further by indemnity costs.

5.  I accept the submissions made on behalf of P that those matters summarized above constitute special and unusual features.  D1 failed to comply with the Disclosure Order as ordered, necessitating P to make the application for an unless order.  When faced with that application which could have been avoided, D1 persisted in his non‑compliance and put forward excuses which this Court has all rejected.  I agree with P that indemnity costs are plainly appropriate.  The fact that those same features forms part of the basis for the making of the unless order in my view makes absolutely no difference.

6.  D1 himself has engaged a senior counsel with a junior.  That, together with the nature of the case and the amount involves, in my view justify a certificate for two counsel.

7.  In all, I grant P’s application.  The costs order nisi previously made is varied to one as reproduced in §1 above.

HCA 3017/2017

[2020] HKCFI 760

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

______________

______________

______________

DECISION

______________

1.  This is the plaintiff’s application by summons dated 18 March 2020 (the “Summons”) for what is sometimes called a banker’s book order pursuant to s 21 of the Evidence Ordinance in respect of a specific account (the “DB A/C”) which the 1^st defendant (“D1”) held with the Deutsche Bank AG, Hong Kong Branch (“DB”).

2.  The parties have been before me a number of times.  This application may be seen as a sequel to one of the orders I made in my decision handed down on 31 May 2019 (the “31 May Decision”).  I refer to the 31 May Decision.  In gist:

(a)    by the Writ hereof, the plaintiff claims against D1 the sum of HK$135 million (the “HK$135 million”) which the plaintiff claims D1 has misappropriated;

(b)    the plaintiff’s claim is proprietary in nature;

(c)    a tracing exercise ensued.  I have previously allowed the plaintiff’s applications for two banker’s book orders to facilitate that exercise (see my Reasons for Decision handed down on 16 March 2018);

(d)    the tracing exercise led the plaintiff to a sum of JPY 1,002 million (previously referred to as the “3^rd Sum”, which term I adopt) that was transferred into the DB A/C on 7 June 2016;

(e)    for the reasons set out in the 31 May Decision (and see in particular §33), I was satisfied that there was a clear link between the 3^rd Sum and the HK$135 million (in particular HK$130 million thereof);

(f)    for the reasons set out in the 31 May Decision, I acceded to the plaintiff’s application for inter alia a further proprietary injunction with ancillary disclosure order requiring D1 to preserve and restraining him from dealing with inter alia the 3^rd Sum or its fruits or proceeds.

3.  D1 has failed to provide the disclosure he has been ordered to make in respect of the 3^rd Sum.

4.  By the Summons, the plaintiff seeks a further banker’s book order against DB in respect of the DB A/C relevant to the 3^rd Sum.

5.  The Summons was originally set down to be heard on 17 April 2020. Before the hearing, I raised query with the plaintiff’s solicitors as to whether the Summons had been served upon D1, which in my view under normal circumstances and on the facts of this case should.  The Summons together with the affirmation in support were subsequently on 14 April 2020 served upon Messrs Tse Yuen Ting Wong, solicitors for D1 (“TYTW”)[1]. On 16 April 2020, TYTW wrote in and asked for an adjournment of “at least 3 weeks” to prepare for the hearing.  I adjourned the hearing to today (ie 8 May 2020).  This morning, neither TYTW nor D1 appears.

6.  I have considered the authorities cited to me, which include Arnott v Hayes (1887) 36 Ch D 731, Bankers Trust Company v Shapira [1980] 1 WLR 1274 and A Co v B Co [2002] 3 HKLRD 111.  I have considered the terms of the draft order, which scope is adequately defined.  In my view, a clear case for a banker’s book order has been established.  Save certain proposals clarifying the width of the draft order (which proposals the plaintiff has accepted), DB does not oppose the Summons.

7.  In all the circumstances, I grant the order in terms of the draft order at p 122‑5 of the hearing bundle (save that the word “reasonable” at §5 should also be deleted).

Ms Charlotte O T Chan, instructed by Haldanes, for the Plaintiff

Wong Wan & Partners, solicitors for the 1^st Defendant, did not appear

Deutsche Bank AG, Hong Kong Branch did not appear

HCA 3017/2017

[2019] HKCFI 2665

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

______________

BETWEEN

______________

________________

D E C I S I O N

________________

Background

1.  On 31 May 2019, I handed down my decision (the “31/5 Decision”). I refer to the same and adopt the same terms used therein.  For reasons set out in the 31/5 Decision, I:

(a) in respect of the 6/6 Summons:

(i) granted the Further Injunction in terms of §1.1 (concerning the 3^rd Sum) and §1.2 (concerning HK$22,556,519.38 out of the 4^th Sum) of the draft order annexed to Mr Whitehead’s written submissions;

(ii) granted the discovery in aid set out at §2 of the draft order;

(iii) adjourned the balance of the 6/6 Summons sine die with liberty to restore; and

(b) in respect of the 8/6 Summons, allowed the application in terms of §2 of the same, save that I ordered that the cross-examination be confined to §§5.1 and 5.2 of D1/#2 (as opposed to the entirety of D1/#2 as stated at §2 of the 8/6 Summons).

2.  By way of summons dated 14 June 2019 (the “Leave Summons”), D1 applies under Order 59 rule 2B for leave to appeal the 31/5 Decision.

3.  On 10 July 2019, I directed that the application be disposed of on paper and gave directions for the lodging of submissions.

4.  On 9 August 2019, a new team of legal advisers representing D1 wrote in and sought an extension of 14 days from 9 August 2019 to lodge submissions in support of the Leave Summons.

5.  On 15 August 2019, I granted D1 an extension of time to 26 August, and directed P to lodge any reply within 21 days upon receipt of D1’s submissions.

6.  On 26 August 2019, Mr Adrian Wong, counsel for D1, filed his submissions in support of D1’s application for leave. On 16 September 2019, Mr Steven Kwan and Ms Charlotte Chan, counsel for P, filed their submissions in reply on behalf of P.

The test

7.  When deciding whether to grant leave to appeal, the consideration is whether D1 has shown that his proposed appeal has a “reasonable prospect of success”.

8.  I agree with Mr Kwan ^[1] that whether any “reasonable prospect of success” has been shown should not be considered in vacuum, but should be considered in the light of the nature of the proposed appeal.

9.  In the present case, D1 proposes to appeal against my exercise of discretion in granting the Further Injunction and in ordering the cross-examination of D1. I note, as I have recorded at §31 of the 31/5 Decision, in particular that Mr Pang SC (senior counsel then appealing for D1 before me) did not seek to dispute that a serious issue to be tried on merits had been shown.  The proposed appeal hence relates to my consideration of “balance of convenience” and “just and convenient”.

10.  I respectfully refer to without repeating the “established principles” applicable to proposed appeal against exercise of discretion, as explained by Kwan JA in Re Decade Technology Ltd, HCMP 1941/2011, 31 January 2012 (at §21).

The proposed grounds

11.  In the Leave Summons, D1 set out two proposed grounds (“Proposed Grounds #1 and #2”).  In Mr Wong’s submissions, he sets out one further ground which is not in the Leave Summons. I will call it the Proposed Ground #3.  I will deal with them in turn.

Proposed Grounds #1.1 and #1.2

12.  In gist, it is sought to argue that I erred at §42 of the 31/5 Decision that the balance of convenience lies in favour of the grant of the Further Injunction, and that it was fair and convenient and convenient to do so. In particular, it is sought to be argued that D1 has adduced evidence on his means when I erroneously found that he had not ^[2], and that my “finding” at §42(k) was erroneous in the absence of any allegation that D1 would not be good to meet P’s claim. It has further been submitted that I have reversed the burden of proof on adequacy of damages ^[3].

13.  I have set out my understanding of the law at §40 of the 31/5 Decision. I state in particular at §§40(c) and 40(e) that “At those stages [when balance and convenience and just and convenient fall under consideration], the broad discretion of the court is engaged.  Whilst relevant, adequacy of damages remains only one of the relevant considerations to be taken into account…”, and that “Going hand-in-hand with the question of adequacy of damages is the issue as to whether the defendant is good for the money. If he is not, it may hardly be said that damages is adequate as a remedy”. D1 does not seek to challenge the approach I set out there.

14.  I have set out at §42(h) the evidence on D1’s alleged wealth or worth. I also set out at §42(i) my observations on the wanting nature of D1’s assertion that “It cannot be validly suggested that I would be unable to meet any claim for damages”.

15.  The monetary amount of the claim by P against D1 is very substantial. Further, as emphasized by Mr Kwan in his submissions ^[4], P’s claim is proprietary in nature.

16.  In my view, I am justified in considering the totality of the evidence when balancing the convenience. The evidence includes the size and nature of P’s claim, and the evidence on D’s net worth.  That was the exercise I was undertaking when deciding how my discretion should be exercised. There is further no question of any burden of proof having been reserved.

17.  In my view, Proposed Grounds #1.1 and #1.2 have no reasonable prospect of success.

Proposed Ground #1.3

18.  As part of Proposed Ground #1, it is sought to be argued that I erred in granting the Further Injunction when there was evidence of certain competing claims.

19.  I repeat §§21(f), 22 and 42(f) of the 31/5 Decision. For those reasons, and given my overall consideration of the evidence in balancing the convenience, I am of the view that Proposed Ground #1.3 has no reasonable prospect of success.

Proposed Ground #2

20.  Proposed Ground #2 concerns the Order I made in respect of the 8/6 Summons. It is sought to be argued that I have failed to consider that ordering pre-judgment cross-examination is exceptional and rare in view of the time and expenses involved which could be wasted and injustice caused to D1. 

21.  In my view, I have sufficiently considered those matters — see in particular §§59, 60, 65 and 67 of the 31/5 Decision.

22.  It is further sought to be argued that I have failed to adequately consider the injustice caused to D1 without giving him another opportunity to file further disclosure.

23.  I have set out at §§48-51 and 62 of the 31/5 Decision P’s requests for further disclosure via correspondence. D1 had been afforded the chance to file a further affirmation to effect disclosure. He failed to take that up. Further, and as pointed out by Mr Kwan ^[5], D1 maintained in D1/#3 and through his counsel during the hearing that he had complied with Chan J Order ^[6], and that the alternative of filing further disclosure had never been suggested by him or on his behalf.

24.  In my view, Proposed Ground #2 has no reasonable prospect of success.

Proposed Ground #3

25.  Proposed Ground #3 relates to the relative strength of the parties’ case.

26.  Mr Pang for D1 during the trial did not seek to dispute that a serious issue to be tried on merits had been shown ^[7].

27.  Mr Wong argues ^[8] that “where the factors render the balance of convenience even, there is a necessity for the learned Judge to consider the quality of P’s evidence and the relative strength of the parties’ case”. In my view, the balance of convenience was not even. The consideration of relative strength is not engaged. I refer to §42(m) of the 31/5 Decision.

28.  In the context of this proposed ground, Mr Wong seeks to rely on a certain resolution not adduced before me for the purpose of the hearing. I accept Mr Kwan’s submission ^[9] that D1 has failed to satisfy conditions 1 and 2 of Ladd v Marshall, and the issue of relative strength of parties’ case should not be allowed to be reopened at this stage.

29.  In my view, the Proposed Ground #3, whether considered separately or in conjunction with Proposed Ground #1 (as Mr Wong in his submissions is seeking to), has no reasonable prospect of success.

Conclusion

30.  In my view, all the Proposed Grounds, whether considered separately or together, have no reasonable prospect of success.

Disposition

31.  I therefore refuse D1 leave to appeal.

32.  In the circumstances, I also refuse any stay.

Costs

33.  I make a cost order nisi that D1 should bear the costs of this application, to be taxed if not agreed. Any party who seeks summary assessment or otherwise any variation should file its submissions within 14 days from the date hereof, submissions in opposition within 14 days of receipt, and reply within 7 days thereafter.

HCA 3017/2017

[2019] HKCFI 1415

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

______________

______________

______________

DECISION

______________

HEARING NOT OPEN TO PUBLIC

1.  I have been informed that arising out of the facts in the case, certain criminal investigations have been on-going.  For fear of prejudicing any party in any criminal prosecution which might result, I have upon request directed that this hearing be conducted in Chambers and not be open to the public.  The uploading and publication of this Decision will also be embargoed until further order (which embargo I subsequently lifted upon P’s application and in the absence of any submissions to the contrary from D1).

THE SUMMONSES

2.  There were originally four summonses before me.  Two (one by P for leave to re-amend the Amended Statement of Claim and one by D1 for leave to file the 2^nd affirmation of Wong Shiu Sang for the purpose of this hearing) have been consented to, leaving the following two:

(a)   the summons dated 6 June 2018 (the “6/6 Summons”) taken out by the plaintiff (“P”) for inter alia a proprietary injunction with ancillary disclosure order (the “Further Injunction Application”):

(i)   requiring the 1^st defendant (“D1”) to preserve and restraining him from dealing with:

(1)   the sum of JPY 1,002 million (converted to about HK$72.4 million, the “3^rdSum”) or its fruits or proceeds;

(2)   the sum of US$18 million (converted to about HK$139.7 million, the “4^thSum”) or its fruits or proceeds; and

(ii)   requiring the 5^th defendant (“D5”) to preserve and restraining it from dealing with the sum of JPY 305 million (converted to about HK$21.2 million, the “5^thSum”) or its fruits or proceeds; and

(b)   P’s summons of 8 June 2018 (the “8/6 Summons”) for disclosure of details about the artworks (the “Artworks”) purchased by D1 as stated in paragraph 5.2 of his 2^nd affirmation of 8 May 2018 (“D1/#2”), alternatively for cross-examination of D1 on D1/#2.

3.  In his written submissions, Mr Whitehead SC (who together with Mr Steven Kwan and Ms Charlotte Chan appeared for P) indicated thatit was P’s intention to confine at this stage the Further Injunction Application to the 3^rdSum and a sum of HK$22,556,519.38 out of the 4^thSum[1].  I was invited to adjourn sine dine §7(ii) (in so far as the balance of the 4^th Sum is concerned) and §§9 and 10 (relating to the 5^th Sum) of the 6/6 Summons [2].  

THE RELEVANT BACKGROUND

4.  The case has come before me a number of times.  I refer to two Reasons for Decision I handed down on 16 March 2018 and 9 November 2018.  I refer to but will not repeat them. 

5.  According to D1[3], he is a Japanese entrepreneur and art collector.

6.  In 1969, D1 founded Universal Entertainment Corporation (“UEC”), a company listed on the Tokyo Stock Exchange.  It was in the casino resort business and the business of development, manufacturing and sales of Pachislot and Pachinko machines and peripheral devices.

7.  UEC is the parent company of P.

8.  Between 9 March 2011 and 8 June 2017, D1 was the sole director of P.

9.  The 2^nd defendant (“D2”) was a company incorporated in Hong Kong.  It was also founded by D1.  At times material to the present action, D1 owned about 46.38% shares in D2, which in turn held 67.90% of the shares in UEC.  The balance of the shares in D2 were held by D1’s family members.  According to D1[4], save for its shareholdings in UEC, D2 was concerned only with the personal matters of D1 and his family.

10.  According to D1[5], D5 was a private company concerned only with D1’s personal matters.

11.  On 27 December 2017, P took out a Writ against D1 to D4 (D5 was only subsequently added).  Two series of fund transfers were pleaded.  We are here only concerned with the one relating to the sum of HK$135 million (the “HK$135 m”).  In that regard, P averred that:

(a)   D1 caused P to transfer on 2 March 2015 a sum of HK$135 million to an account held by D4 with the HSBC (“the D4 HSBC A/C”), which sum (or at least HK$130 million thereof) was almost immediately afterwards used by D3 to repay a loan he owed to D2 (by seven sums in the total amount of HK$130 million (the “HK$130 m”) remitted between 4 and 13 March 2015 into an account held by D2 with the Bank of China (“the D2 BoC A/C”);

(b)   on about 12 March 2015, D1 procured and caused D2 to transferJPY 887 million (about HK$56.8 million, the “1^st Sum”) to D1 for him to purchase art works and for his own personal use;

(c)   P further claimed that D1, in order to cover up the illegitimacy of this series of transfers, caused P to enter into a purported loan agreement with D4 on 3 March 2015 (“the Loan Agreement”).  The amount of the purported loan was HK$135 million.  D3 was named therein as the guarantor. 

(d)   P averred that it had no (or no legitimate) commercial dealings with D3, D4 and D5;

(e)   As summarized by Mr Whitehead [6], P hence claims against D1 as a former director of P for misappropriating from P the sum of HK$135 million in breach of his fiduciary duties, and against other defendants for their dishonest assistance and knowing receipt in transferring HK$130 million back to D1 for his personal use.

12.  At the stage when the Writ was first issued, without the benefit of some further disclosures which it subsequently had, P was proceeding on the basis that part of the HK$130 m was with D1 (ie the 1^st Sum), and that the balance in the sum of HK$73.2 million (the “2^nd Sum”, HK$130 million − HK$56.8 million = HK$73.2 million) remained in the hand of D2.

13.  On 23 January 2018, P took out an application for a proprietary / Mareva injunction (with disclosure in aid) against D1 and D2.  That application was supported by the affirmation of Lui Kwan Pok bearing the same date.  Amongst other things, Mr Lui stated that on 23 May 2017, upon receipt of an auditor’s report alleging various misconducts committed by D1, UEC appointed a Special Investigation Committee to investigate into the matter (“Special Investigation Committee”).  It consisted of three Japanese attorneys.  The Special Investigation Committee published its Investigation Report on 29 August 2017.  The report was produced.  Its contents and conclusions supported P’s case.

14.  That application came before L Chan J on 26 January 2018.  The material terms of the order (“Chan J Order”) L Chan J granted at the conclusion of the hearing were as follows:

“ …

AND UPON THE UNDERTAKING of [D1] given by his Counsel that [D1] shall preserve and shall not deal with, dispose of or in any way make use of (save with the written consent of [P] or Order from the Court), diminish the value of or part with possession of [the 1^st Sum] or its fruits or proceeds (whether the same is within or outside Hong Kong until after trial of this action or further Order) [7]

BY CONSENT, IT IS ORDERED THAT:

1. [D1] shall disclose to [P] in writing within 28 days as to the whereabouts and what, if anything, has become of the [1^st Sum]. The information to be disclosed to [P] shall be confirmed in an affidavit / affirmation which must be served on [P’s] solicitors.

2.   [D2] shall preserve and shall not deal with, dispose or, or in any way make use of (save with the written consent of [P] or Order from the Court), diminish the value of or part with possession of the sum up to [the 2^nd Sum], to the extent the [2^nd Sum] or any balance thereof is still in possession of and/or under the control of [D2] (whether the same is within or outside Hong Kong) until after trial of this action or further Order.”

15.  On 20 February 2018, for reasons set out in my Reasons for Decision of 16 March 2018, I granted to P a banker’s books order pursuant to section 21 of the Evidence Ordinance (the “s 21 Order”) in relation to inter alia the D4 HSBC A/C and D2 BoC A/C.  Those further records and information obtained as a result showed that:

(a)   in respect of the D4 HSBC A/C, HK$130 m of the HK$135 m was indeed transferred back to D2;

(b)   in respect of the D2 BoC A/C:

(i)   its relevant opening balance (before the transfers into it of the HK$130 m) was HK$44,982,027.14;

(ii)   D4 transferred to D2 the HK$130 m between 4 March and 13 March 2015;

(iii)   on 13 March 2015, the 1^st Sum was transferred to D1;

(iv)   on 8 May 2015 and 26 August 2015, D2 received two sums of HK$100 million odd and HK$49.8 million odd respectively from two sources not related to P’s claim (the “two Intervening Deposits”);

(v)   on 7 June 2016, D2 transferred to D1 the 3^rdSum;

(vi)   on 23 August 2016, D2 transferred to D1 the 4^thSum;

(vii)   on 17 May 2017, D2 transferred to D5 the 5^thSum;

(viii)   net of three other withdrawals (of insignificant amounts),only HK$35,086,356.42 (less than half of the 2^nd Sum) remained in the D2 BoC A/C.

16.  On 8 May 2018, in purported compliance with §1 of the Chan JOrder, D1 filed D1/#2.  The material paragraphs are §§5.1 and 5.2, wherein D1 said:

“ 5.1. On 16 March 2015, a sum of approximately JPY 887 million was deposited in my SMBC account. On 18 March 2015, 2 sums of 500 million JPY and 387 million JPY were withdrawn from the same account (‘the said sums’).

5.2.   The said sums were paid to Gallery Kochukyo and Seiichiro Teramoto in Japan for purchase of artworks on or about 18 March 2015.”

17.  On 6 June 2018, P took out the 6/6 Summons:

(a)   P sought thereby leave to amend the Statement of Claim so as to include as part of its claim certain matters revealed in the information P had by then had access to as a result of the s 21 Order.  I granted leave on 15 June 2018;

(b)   P also made the Further Injunction Application now before this Court.

18.  The Further Injunction Application was supported by the 3^rd affirmation of Yeung Sui Hung.  It principally set out the information gleaned from the further information obtained as a result of the s 21 Order.

19.  On 8 June 2018, P took out the 8/6 Summons.

20.  D1 filed his Defence on 8 May 2018.  It was subsequently amended on 2 October 2018 to plead to P’s Amended Statement of Claim.  His case, as summarized by Mr Pang SC (who together with Ms Pauline Leung and Ms Sharon Chan appeared for D1 and D5), goes as follows:

(a)   P was in the business of operating a casino;

(b)   D3 approached D1 for investment in his junket business in return for which D3 would arrange his customers to gamble at P’s planned casino in the Philippines [8] ;

(c)   Mr Yoshinao Negishi (“Negishi”) was entrusted to undertake all due diligence, negotiation of terms and risk avoidance in relation to the intended loan with D3 for investment in junkets [9] ;

(d)   Unknown to D1, Negishi arranged and executed two separate loans; one between D2 and D3, and the other between P and D3 with D4 acting as its guarantor [10] ;

(e)   D1 denied that he had acted in breach of fiduciary duties and/or breach of trust; and

(f)   the 3^rd and 4^th Sums were unconnected to loans made to D3 but were loans advanced by D2 to D1.  The 5^th Sum was a loan advanced by D2 to D5.

21.  D1 filed his 3^rd affirmation (“D1/#3”) on 13 July 2018.  It was filed in opposition of the Further Injunction Application.  It is a 14-page document (excluding back-sheet) with 33 paragraphs:

(a)   §§1 – 7 were introductory;

(b)   §§8 – 12 were background.  He touched on his worth, which I will come back to;

(c)   §§13 – 15 related to what he described as his ouster of control in D2 and UEC;

(d)   §§16 – 20 related to allegations that the Special Investigation Committee lacked independence.  He claimed at §20 that:

“ … the Special Investigation Committee merely analysed evidence on face value and took UEC’s evidence at face value. I declined to attend any interviews with the Committee knowingthat the purpose of its establishment was pre-determined to smear my reputation. It is now evident that their findings are biased and its conclusions were reached through using threatening tactics on its interview subjects …”

I note and observe that D1’s criticisms were bare assertions that were not supported by any facts or particulars;

(e)   §§21 – 24 related to what D1 described as oppressive litigation tactics by various parties against him, including how he said civil and criminal allegations had been made against him in various countries;

(f)   §§25 – 31 related to the 3^rd, 4^th and 5^th Sums:

(i)   He said, at §26, that:

“ Similar to the allegation [P] made in relation to the First and Second sum [sic], the allegation [P] is making now in relation to the Third, Fourth and Fifth Sum is wholly untrue and I deny these unfounded allegations.”

(ii)   I note however that in D1/#3, D1 chose not to set out and explain his case on the 1^st and 2^nd Sums.  He did not verify on oath what had been pleaded at §§7 – 8 of his Defence.  Nor did he provide any further evidence in that regard beyond the bare facts which one finds at those two paragraphs of his Defence;

(iii)   He pointed out [11] that the 3^rd and 4^th Sums were effected some 12 to 13 months after the transfer of the HK$130 m,and that the 5^th Sum some 26 months afterwards.  He further pointed out that those three sums were effected after the two Intervening Deposits, and as such, they “could not have been part of the sums which [P] claims it was entitled to”;

(iv)   He said at §28 that:

“ The 3^rd and 4^th Sums were loans made by [D2] to me and were intended to be repaid. There is now produced and shown to me marked exhibit ‘KO-9’ being documents I now have possession of in respect of the said sums created by unknown persons.”

(v)   I note that “KO-9”, apart from being “created by unknown persons”, was nothing but a one-page table entitled “Okada Holdings Limited / BOCM Transaction details (Oct 2014 – June 2017)”.  39 entries were set out therein.  Two transactions (34 and 35) with amounts similar to the 3^rdSum and 4^thSum were described as “Loan to shareholder”.  It otherwise gave no particularsin relation to the 3^rd and 4^th Sums.  Not even D1 in D1/#3 cared to provide any explanation on it.  It has very little value;

(g)   §32 concerned the 8/6 Summons.  D1 said therein that:

“ As regards the [8/6 Summons], I crave leave to [D1/#2] and I verily believe that I have complied with the [Chan J Order]. I am advised and verily believe that any further disclosure is unnecessary at this stage. [P’s] claim is in respect of money, even though it is framed as a proprietary claim.It cannot be validly suggested that I would be unable to meet any claim for damages. I shall leave to my counsel to address this Honourable Court further at the substantive hearing of the said summons.”

I note however that no specific evidence has been given on D1’s alleged worth.  I will come back to this point.

22.  In paragraph 2 above, I mentioned D1’s application for leave to adduce the 2^ndaffirmation of Mr Wong Shiu Sang.  Though the application has been consented to, the following matters relating to that affirmation remains relevant:

(a)   Mr Wong is a solicitor of Messrs SSW & Associates who, according to him, has the conduct of these proceedings on behalf of D1.  In paragraph 4 of his 2^ndaffirmation, Mr Wong said:

“ On 5 December 2018, [D1] presented our firm with a sealed envelope addressed to him from [D2]. Upon his instructions, the said envelop was opened. The said envelope contained a demand note from [D2] dated 22 November 2018 for payment from [D1] regarding a schedule of loan involving the sums of JPY3,821,502,427, USD18,000,000, and HKD1,8000,001 (‘the Demand Note’). There is now produced and shown to me marked exhibit ‘WSS-4’ being a copy of the Demand Note dated 22 November 2018.”

(b)   Having produced a copy of the purported Demand Note, Mr Wong then at paragraph 5 volunteered some observations on the same.  He claimed at §6 that the Demand Note was “therefore relevant to these proceedings and [P’s] Summons in that it supports [D1’s] case that the Third and Fourth Sums were loans advanced by [D2] to him.”

(c)   D1 chose to provide no evidence on the purported Demand Note himself.  He chose not even to tell the Court how it was delivered to him.  He clearly could and could have.  The purported Demand Note is dated 22 November 2018, nearly two weeks before D1 allegedly provided the same to his solicitors.  D1 had plenty of time to swear an affidavit on the same had he wanted to.  He chose to try to adduce the same through his lawyer and via the instructions he gave them.  In my view, such factual evidence ought to be given by D1 but not through his lawyer in such a manner;

(d)   In my view, factual evidence given in such a way has little value.

23.  At paragraph 2 above, I also mentioned P’s application for leave to re-amend its Amended Statement of Claim, which I granted in the absence of any objection.  The purpose of the re-amendments, as explained by Mr Whitehead, was to make clear that, given the proprietary nature of its claim, P’s claim covers and extends to:

(a)   any traceable amounts of the Sums involved;

(b)   any gains or profits which D1 had derived from his breach of duties and/or trust which P has alleged;

(c)   account of profits and/or assessment of equitable compensation;and

(d)   “An inquiry what assets in the hands of the Defendants represent the sum of HK$135 million … and the sum of HK$16 million ‌….” [12]

Mr Whitehead further emphasized that given the nature of P’s claim as further amended, P would in law have the option to either assert his beneficial ownership of the proceeds or to bring a personal claim against D1.  He relied in this regard on Foskett v McKeown [2001] 1 AC 102, where Lord Millett explained at page 130A–C that:

“ The simplest case is where a trustee wrongfully misappropriates trust property and uses it exclusively to acquire other property for his own benefit. In such a case the beneficiary is entitled at his option either to assert his beneficial ownership of the proceeds or to bring a personal claim against the trustee for breach of trust and enforce an equitable lien or charge on the proceeds to secure restoration of the trust fund. He will normally exercise the option in the way most advantageous to himself. If the traceable proceeds have increased in value and are worth more than the original asset, he will assert his beneficial ownership and obtain the profit for himself.There is nothing unfair in this. The trustee cannot be permitted to keep any profit resulting from his misappropriation for himself, and his donees cannot obtain a better title than their donor. If the traceable proceeds are worth less than the original asset, it does not usually matter how the beneficiary exercises his option. He will take the whole of the proceeds on either basis. This is why it is not possible to identify the basis on which the claim succeeded in some of the cases.” (Original emphasis)

THE FURTHER INJUNCTION APPLICATION

24.  I consider the Further Injunction Application first.

P seeking a proprietary injunction

25.  This Further Injunction which P is seeking under the 6/6 Summons is not a Mareva injunction, but has been proceeded upon as an “interlocutory preservation order and/or proprietary injunction” [13]. The distinction between a Mareva injunction and a proprietary injunction for the present purpose has been succinctly explained by Scott LJ (as he then was) in Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769 at 776e, that:

“ Equitable tracing leads to a claim of a proprietary character.A fund is identified that, in equity, is regarded as a fund belonging to the claimant. … The only relevant interlocutory protection that can be sought in aid of a money claim is a Mareva injunction,restraining the defendant from dissipating or secreting away his assets in order to make himself judgment proof. But if identifiable assets are being claimed, the interlocutory relief sought will not be a Mareva injunction but relief for the purpose of preserving intact the assets in question until their true ownership can be determined. Quite different consideration arise from those which apply to Mareva injunctions.” (emphasis added)

26.  The “different consideration” was summarized by Flaux J in Madoff Securities International Ltd & Anor v Raven & Ors [2012] 2 All ER (Comm) 634, at §§127 – 128, that:

“ MSIL seeks a proprietary injunction against the Kohn defendants. It is essentially common ground that there are three elements which the claimant has to demonstrate for the grant of a proprietary injunction, following the approach prescribed by American Cyanamid Co v Ethicon Ltd [1975] 1 All ER 504, [1975] AC 396: (1) that the claimant has shown that there is a serious issue to be tried on the merits; (2) that the balance of convenience is in favour of granting an injunction and (3) that it is just and convenient to grant the injunction.

In other words, both the basis for a proprietary injunction and the circumstances in which it will be granted are different from the case of a freezing injunction: see Polly Peck International plcv Nadir (No 2) [1992] 4 All ER 769 at 787 per Lord Donaldson of Lymington MR.  In particular, unlike in the case of a freezing injunction, it is not necessary to show any risk of dissipation of assets and, even if there has been delay in making an applicationwhich might lead to refusal of a freezing injunction, a proprietary injunction may none the less be granted: see Cherney v Neuman [2009] EWHC 1743 (Ch) at [101]–[102] per Judge Waksman QC sitting as a Judge of the High Court.”

27.  Whether P can have the benefit of a proprietary injunction ordering the preservation, and restraining the disposal, of the 3^rd Sum and the 4^th Sum (or part thereof) will be dependent upon whether the HK$135 m originated from P could be traced to them.

Relevant rules on tracing

28.  Mr Whitehead has in his written submission taken me through a number of principles relevant to the process of tracing.  Whilst those rules were not specifically admitted by Mr Pang, he, upon my enquiry, informed me that he at the same time did not seek to dispute them.

29.  Those rules as submitted by Mr Whitehead in his written submissions[14], which I accept in the absence of any contrary submissions from Mr Pang, may be summarized as follows:

(a)   To preserve the value contributed by the beneficiary to a mixed fund, the order of priority in which the various withdrawals and investments may have been respectively made is wholly irrelevant: Re Oatway [1903] 2 Ch 356, 360 – 361 per Joyce J;

(b)   In Brazil v Durant International Corp [2016] AC 297, the Privy Council (at §38), in the context of a tracing claim, endorsed the view of Richard Scott VC in Foskett v McKeown [1998] Ch 265, 283, that:

“ … the availability of equitable remedies ought to depend on the substance of the transaction in question and not on the strict order in which associated events occur.”

(c)   What is required is a “clear link” between the claimant’s funds and the asset or money into which he seeks to trace.  As explained by Lord Neuberger MR in Sinclair Investments (UK)Ltd v Versailles Trade Finance Ltd [2012] Ch 453, at §138:

“ I do not doubt the general principle, reiterated by Lord Millett in Foskett v McKeown [2001] 1 AC 102, that if a proprietary claim is to be made good by tracing, there must be a clear link between the claimant’s funds and the asset or money into which he seeks to trace. However, I do not see why this should mean that a proprietary claim is lost simply because the defaulting fiduciary,while still holding much of the money, has acted particularly dishonestly or cunningly by creating a maelstrom. Where he has mixed the funds held on trust with his own funds, the onus should be on the fiduciary to establish that part, and what part, of the mixed fund is his property.”

(d)   Whether the “clear link” is established can be a matter of inference;

(e)   Important to the process of tracing is the principle of subordination. As explained by Lord Millett in Foskett v McKeown [2001] 1 AC 102 at 132C, that:

“ The tracing rules are not the result of any presumption or principle peculiar to equity. They correspond to the common law rules for following into physical mixtures (though the consequences may not be identical). Common to both is the principle that the interests of the wrongdoer who was responsible for the mixing and those who derive title under him otherwise than for value are subordinated to those of innocent contributors. As against the wrongdoer and his successors, the beneficiary is entitled to locate his contribution in any part of the mixture and to subordinate their claims to share in the mixture until his own contribution has been satisfied.”

(f)   In the case of a trustee having blended trust moneys with his own, he cannot be heard to say that he took away the trust money when he had a right to take away his own money—this may be called the Hallett rule after the case of Re Hallett’s Estate (1880) 13 Ch D 696, per Jessel MR at 727;

(g)   Where the trustee draws moneys from a mixed fund for investment and then dissipates the balance, he is not permitted to rely on the Hallett rule to maintain that the investment was bought with his own money—this may be called the Oatway rule after the case of Re Oatway, supra, per Joyce J at 361;

(h)   Both the Hallett rule and the Oatway rule resolve evidential uncertainty against the wrongdoer—Bridge, The Law of Personal Property (2018), §31-043;

(i)   As between the claimant and the wrongdoer, the claimant can “cherry pick” the tracing rule most favourable to him— Shalson v Russo [2005] Ch 281, per Rimer J at §144, and Bridge, supra, §31-044;

(j)   Where the trustee mixes trust money with his own, the equities are clearly unequal—see Re Tilley’s Will Trusts [1967] Ch 1179, per Ungoed-Thomas J at 1189A, adopting page 315 of Snell’s Principles of Equity (26^thed);

(k)   Further, as explained by Lord Millett NPJ in Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681, at §174:

“ Where the absence of evidence is the consequence of the fiduciary’s own breach of duty the court is not without resource, for it can have resort to three principles.First, it may be able to take the fiduciary at his own word and use his falsehoods to establish the facts as if they were true even though they are known to be untrue. Secondly the court is entitled to make every assumption against the party whose conduct has deprived it of necessary evidence. And thirdly the court is entitled to be robust and do rough and ready justice without having to justify the amount of its award with any degree of precision.”

30.  I apply the rules above when considering this application.

Whether serious issue to be tried

31.  I can be brief here, as Mr Pang did not seek to dispute that a serious issue to be tried on merits had been shown.

32.  In the course of his oral submissions, Mr Pang at one stage invited me to consider the cogency of the evidence adduced by P.  He however made it clear that he was not saying that there was no issue to be tried, but that the point was raised in the context of the exercise of my discretion.  I will return to this aspect of the matter later. 

33.  I have considered one point made by Mr Pang in his written submissions[15]which might be regarded as relevant to the threshold question of serious issue to be tried:

(a)   Mr Pang submitted that the 3^rd and 4^th Sums did not stem from P.  He pointed to D1’s evidence and his pleaded defence that they were loans from D2;

(b)   I have commented on the wanting nature of the evidence adduced by D1 in this regard.  I stress in particular the lack of particulars in, and explanations by D1 on, “KO-9”.  I also repeat the highly unsatisfactory way in which the purported Demand Note was produced, which seriously affected its evidential value;

(c)   Mr Pang then referred to the fund flow of the D2 BoC A/C.  He pointed out the time gaps between the depositing of the HK$130 m and the 3^rdSum (12 months) and 4^thSum (13 months).  He also referred to the two Intervening Deposits.  He submitted that “[i]n the premises, the 3^rd and 4^th Sums are not and could not stem from the $130 [m] of P and are thus not the bone fide subject matter of P’s case”;

(d)   In respect of the time gap, I agree with Mr Whitehead’s submissions that lapse of time per se does not defeat equitable tracing; nor would it break any clear link between the funds which the evidence could otherwise demonstrate;

(e)   I add, supported by Madoff Securities, that delay per se also will not be sufficient to defeat a proprietary injunction;

(f)   I note the existence of the two Intervening Deposits.  However,having considered the fund flow of the D2 BoC A/C which Mr Whitehead set out in his written submissions[16], and applying the rules on tracing discussed above, I am satisfied that there was a clear link between the HK$130 m and the 3^rd and 4^th Sums. 

34.  I have considered all the evidence before me.I have considered the Investigation Report prepared by the Special Investigation Committee.  I have considered the criticisms made by D1 against the Committee.  In myview, those criticisms are bare assertions unsupported by any particulars.  Ihave also considered the directions of the remittances and transfers involved,the amounts of those sums, and their time proximity.  I stress that I am not here to try the case on affirmations.  Having considered all the evidence, I am satisfied that a serious issue to be tried on merits has been shown.

Balance of convenience, and whether grant just and convenient

Submissions on behalf of D1

35.  Under these two heads, Mr Pang made a number of points:

(a)   His main point was that as damages is going to be an adequate remedy, no injunction should be granted;

(b)   He further submitted that “It is plainly wrong for the Court to grant interlocutory injunction over the 3^rd and 4^th Sums when faced with competing claims; D1 would be caught in an impossible position if he were to repay the sums as demanded”[17];

(c)   He submitted that P’s present application is clearly part of a messy series of disputes over control of UEC.  He pointed to certain matters which he categorized as the “litigation conduct”of P, and submitted that they are relevant to question as to whether the Further Injunction Application should be granted;

(d)   He criticized the quality of the evidence relied upon by P.

36.  In respect of the adequacy of damages as a remedy, Mr Pang developed his submissions as follows:

(a)   Although P’s claim is packaged and pleaded as a proprietary claim, stripped of the niceties that P is entitled to trace such sum paid out of P’s account, P’s claim is a money claim for HK$120 million [18] ;

(b)   Currently, out of the sum claimed by P, HK$56.8 million (ie the 1^stSum) is covered by D1’s Undertaking, and HK$35 million protected by the Chan J Order.  There is no suggestion by P in its affirmation that damages would not be an adequate remedy for P in the event it succeeds in its claim [19] ; and  

(c)   There is also no suggestion that D1 or D5 would not be able to meet any judgment if adjudged liable [20].

Adequacy of damages—the law

37.  On the question as to whether, in the context of an application for a proprietary injunction, it is necessary for the applicant to show that damages would not be an adequate remedy, I have been cited quite a number of authorities.

38.  Mr Whitehead submitted that it is not necessary to show inadequacy of damages as a remedy.  He relied on Wason Holdings Limitedv BHP International Markets Limited[2018] HKCA 113.  In that case, the plaintiff pledged certain shares with the 1^stdefendant as security for a loan.  The 1^stdefendant had subsequently sold them in the market, unlawfully the plaintiff alleged.  An ex parte injunction was obtained preventing the 1^stdefendant from disposing of or otherwise dealing with their proceeds.  The injunction was proprietary in that sense.  In §37 of the judgment, Hon Barma JA held (and Yuen JA agreed) that:

“ Mr Coleman submitted that as the injunction sought was not a Mareva injunction, it was not necessary to demonstrate a risk of dissipation of assets. As we understood it, Mr Barlow did not dissent from this proposition. Mr Coleman further submitted, and I accept, that as the injunction sought was proprietary, it wasalso unnecessary to show that damages would not be an adequate remedy. However, it remains necessary to demonstrate that the balance of convenience favours the granting of the injunction, and that it would be just and convenient to do so.”

In the end, the Court of Appeal allowed the 1^st defendant’s appeal and set aside the order continuing the injunction.  As explained by Barma JA in §38:

“ With respect to the judge, and to Mr Coleman, I am clearly of the view that in the circumstances of this case, the balance of convenience was against the granting of the injunction sought. Given that the shares had been sold, the effect of the injunction could be to secure a sum of money (whether the cash proceeds of the sale of the shares, or the eventual proceeds of any further loan to other customers of the 1^st defendant which could be identified as having been made using those proceeds) to satisfy any judgment the plaintiffs might ultimately obtain. However, given the nature of the business operated by the 1^st defendant, requiring it to set aside a sum of money, which it would be prevented from deploying in its business, would be likely to have a significant adverse impact. On the other hand, from the plaintiffs’ point of view, whatever judgment they may obtain at the end of the day is likely to involve the payment of money to them. Where that money comes from is ultimately of little consequence to the plaintiffs. Although their claim may be characterised as proprietary, in the particular circumstances of this case, it is nonetheless a claim to money. Unless there is reason to think that the 1^st defendant will be unable to meet such a claim, there is no particularly pressing need for money to be kept aside to meet it. With respect to the judge, while he was correct to say that the 1^st defendant did not have much in the way of assets in Hong Kong, it did not follow that the 1^st defendant’s assets overall (although possibly not very liquid) were not adequate to enable the plaintiffs’ claims to be met. The amount of the claim against the 1^st defendant is not simply the value of the shares that were sold—credit must be given for the USD 22,867,382 advanced as a loan to the 1^st plaintiff, which had not yet been repaid. This would substantially reduce any amount payable to the plaintiff, making it all the more likely that the 1^st defendant, would be able to meet the claim if successful.”

39.  Mr Pang on the other hand submitted that it is necessary to show inadequacy of damages as a remedy even when one is concerned with a proprietary injunction.  He relied on the following authorities (some of them submitted by way of a Further List of Authorities filed on 4 January 2019 after the hearing):

(a)   The Guidelines set out at §29/1/11 of Hong Kong Civil Procedure 2019 Volume 1, and in particular, the following passage on how the court may approach the issue of balance of convenience:

“ (1) The governing principle is that the court should first consider whether, if the plaintiff succeeds at the trial, he would be adequately compensated by damages for any loss caused by the refusal to grant an interlocutory injunction. If damages would be an adequate remedy and the defendant would be in a financialposition to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage;”

(b)   Feng Loy Chuen v Lim Yiong Lin [1977] HKLR 471, where Zimmern J refused an application for a preservation order under Order 29, rule 2 on the basis that the plaintiff could be fully compensated by payment if he were successful, and there being no allegation that the defendant would not be good for his money;

(c)   Samtani v Samtani [2012] 4 HKLRD 872, where Deputy JudgeAu-Yeung (as she then was) cited Feng Loy Chuen and observed at §79 that the Court will refuse to grant a preservation order if damages will be an adequate remedy for the plaintiff;

(d)   Wong Man Hon Frederick v China Times Securities Limited HCMP 608/2017 (unreported, 18 July 2017):

(i)   That case was also concerned with an injunction to restrain a collateral agent from disposing of certain shares deposited with it as security, which injunction was therefore in that sense proprietary in nature;

(ii)   In refusing leave to appeal, Barma JA observed at §9 of the judgment that:

“ Where damages are an adequate remedy, it is the settled practice of the court to decline to grant interlocutory injunctive relief. We can see no reason to depart from that settled practice here. Thus, even if the plaintiff were able to make good his grounds ofappeal, this would take him nowhere, as damages would, for the reasons we have just explained, be an entirely adequate remedy for any wrong that the plaintiff may have suffered.That being so, the appeal would be bound to fail. Leave to appeal must therefore be refused.”

40.  I have considered the authorities cited to me.  In my view, the approach of the Courts when approaching an application of an interlocutory proprietary injunction has been consistent:

(a)   Adequacy of damages as a remedy is not relevant to the question as to whether there is any serious issue to be tried;

(b)   It only becomes relevant when the court comes to consider the question of balance of convenience, and whether it would be just and convenient to grant the injunction sought;

(c)   At those stages, the broad discretion of the court is engaged.  Whilst relevant, adequacy of damages remains only one of the relevant considerations to be taken into account.  It is not a necessary element, in the sense that its absence will inevitably dictate how the court’s discretion is to be exercised;

(d)   While the practice of refusing an interlocutory injunctive relief where damages is an adequate remedy is settled, that remains a matter of practice;

(e)   Going hand-in-hand with the question of adequacy of damages is the issue as to whether the defendant is good for the money.  If he is not, it may hardly be said that damages is adequate as a remedy.

41.  I shall apply the above when considering this application.

Discussion

42.  For the following reasons, and subject to the terms of the order which I will return to, I form that view that the balance of convenience is in favour of the grant of the Further Injunction sought, and that it is fair and convenient to do so:

(a)   P’s claim is proprietary in nature.  It is P’s monies and their traceable proceeds which P is claiming.  It is also seeking account of profits and an inquiry.  It has the option as explained by Lord Millett in Foskett v McKeown.  Though P’s claim is ultimately monetary in nature, its proprietary right has to be acknowledged and respected;

(b)   P’s claim is for a very substantial sum.  Depending on what properties its funds could be traced to (eg the Artworks), its claim can at its option be beyond the sum alleged to have been misappropriated by P to start with—see Foskett v Mckeown;

(c)   Mr Pang submitted that HK$56.8 million (ie the 1^stSum) is covered by D1’s Undertaking.  In this regard, I agree with Mr Whitehead that at this stage, D1’s Undertaking has no practical effect in preserving the proprietary interest in the 1^stSum. Despite D1/#2, the particulars or whereabouts of the Artworks have remained unknown;

(d)   In respect of the 2^nd Sum, only HK$35 million remained in the D2 BoC A/C;

(e)   In the circumstances, it is only fair and just that P be afforded escalated interlocutory redress;

(f)   Mr Pang submitted that the 3^rd and 4^th Sums are subject to competing claims.  I repeat paragraphs 21(f)(iv) and (v) above.  I repeat further paragraph 22 above.  I have nonetheless considered the allegations and put them in the balance;

(g)   In relation to the so-called litigation conduct of P, I agree with Mr Whitehead that “it is a nonpoint” [21]. Those assertions are, with respect, of very limited relevance to the application before me;

(h)   In my view, what is of particular importance at this stage of my consideration, and specifically in the context of Mr Pang’s submissions on adequacy of damages as a remedy, is the failure on D1’s part to adduce any evidence on his alleged wealth or worth.  In the course of the hearing, Mr Pang described the quantum of P’s claim as “pocket change” for D1.  I invited Mr Pang to assist me on the evidence showing D1’s worth.  Mr Pang pointed me to §9 of D1/#3.  There, D1 stated:

“ In 1969, I founded what has now become [UEC], a company listed on the Tokyo Stock Exchange and in the casino resort business and the business of development, manufacturing and sales of Pachislot and Pachinko machines and peripheral devices. UEC is the parent company of [P]. As at 31 December 2017, UEC had net assets of nearly JPY260 billion (nearly HKD$18.5 billion). There is now produced and shown to me marked exhibit ‘KO‑2’ copy of the latest publicly available Financial Information of UEC.”

(i)   UEC may be a company with substantial assets.  D1 might have interest in D2 which in turn has interest in UEC.  But that at best is only one aspect of D1’s portfolio.  He has otherwise adduced no evidence as to whether he himself is subject to any liabilities.  At §32 of D1/#3, he barely asserted that “It cannot be validly suggested that I would be unable to meet any claim for damages.” D1 has simply made no attempt to tell the Court his net worth;

(j)   I agree with Mr Whitehead in this regard that if the point that D1 would be good for any judgment which P may get were to be responsibly run, D1 should have adduced evidence on his net worth.  He has not;

(k)   As I have observed above, the question of adequacy of damages goes hand-in-hand with the issue as to whether the defendant is good for the money.  If he is not, it may hardly be said that damages is adequate as a remedy;

(l)   In any event, I also agree with Mr Whitehead that if the quantum of P’s claim is really just pocket change for D1, the imposition of the Further Injunction would hardly inconvenience him;

(m)   Mr Pang then invited me to consider the quality of P’s evidence and in effect the relative strength of the parties’ case.  In the course of the hearing, I raised with Mr Pang the approach summarized at §29/1/16 of Hong Kong Civil Procedure 2019, that relative strength of each party’s case has to be disregarded except as a last resort in some circumstances.  In my view, that factor is not engaged in this case.

Conclusion on the Further Injunction Application

43.  For reasons set out above, I grant the Further Injunction in terms of §1.1 (concerning the 3^rd Sum) and §1.2 (concerning HK$22,556,519.38 out of the 4^thSum) of the draft order annexed to Mr Whitehead’s written submissions.  I also grant the discovery in aid set out at §2 of the draft order.

44.  I will come back to the balance of the 6/6 Summons.

THE 8/6 SUMMONS

45.  In the course of the hearing, Mr Whitehead made clear that his primary application was for cross-examination of D1.

46.  I have set out above the relevant terms of the Chan J Order.

47.  I have also set out above the relevant contents of D1/#2. 

48.  On 6 June 2018, P’s solicitors (“Haldanes”) wrote to D1’s solicitors (“SSW”) and complained about the inadequacy of D1’s disclosure.  It was pointed out that “no details have been given as to the details of the whereabouts of the Artworks”.  The wording of D1’s Undertaking was emphasized, in that the undertaking was to preserve the 1^stSum or “its fruits or proceeds”.  D1 was demanded to disclose “within the next 3days details of the Artworks and their current whereabouts.”

49.  SSW replied on the same day.  They referred to the wording of §1 of the Chan J Order.  It was asserted that:

“ Nowhere in paragraph 1 of the Order or otherwise in the Order requires [D1] to disclose the details and whereabouts of anything other than the ‘First Sum’ as defined.

We are of the view that [D1] has fully complied with the Order and your request for details of the Artworks and their current whereabouts is therefore misconceived.”

50.  On 7 June 2018, Haldanes wrote back.  They said that both the intention and paragraph 1 of the Chan J Order were clear.  They maintained that the discovery made in D1/#2 was “plainly insufficient”. D1 was afforded the opportunity to file a further affirmation to effect the necessary discovery, failing which an application for cross-examination of D1 on D1/#2 would be made.

51.  D1 did not budge.  The 8/6 Summons was taken out the following day. 

52.  I have also set out above §32 of D1/#3.  Despite the correspondence which I have set out above, D1 said therein that “I verily believe that I have complied with the [Chan J Order].  I am advised and verily believe that any further disclosure is unnecessary at this stage.”

Non-compliance with the Chan J Order

53.  I first consider whether D1 has complied with the Chan J Order.

54.  I come back to the wording of the Chan J Order.  It requires D1 to disclose “the whereabouts and what, if anything, has become of the [1^st Sum].”  The scope of the disclosure demanded is not limited to the 1^stSum, but is expressly extended to what has become of the 1^stSum.  In my view, the meaning of the term “what has become” is by itself plain enough.  If there can be any room for ambiguity, the ambiguity disappears as soon as the wording of D1’s Undertaking is taken into account.  P is not just after the 1^stSum, but also its “fruits or proceeds”.  “What has become” clearly covers the “fruits or proceeds” of the 1^stSum so as to (i) allow D1’s Undertaking to be properly policed; and (2) allow a process of tracing to be conducted in order that the 1^stSum and its “fruits or proceeds” could be preserved.   

55.  I have considered D1’s disclosure.  He disclosed nothing about “Gallery Kochukyo and Seiichiro Teramoto”.  One does not even know whether “Seiichiro Teramoto” is a gallery or a person.  No particulars of the Artworks have been provided.  One does not even know whether they in fact exist.  The information provided is useless when it comes to the policing of the Undertaking or allowing any tracing to be conducted.

56.  I add that P is in this case not simply seeking to obtain discovery to police a Mareva injunction.  It is seeking the disclosure to preserve its assets.  This has to be recognized. 

57.  Mr Pang submitted [22] that D1 had fully complied with the Chan J Order and that he should not be penalized for any deficit in the terms of the Order which P drafted.  I disagree.  I do not agree that there is any deficit in the terms of the Order. 

58.  For the reasons set out above, I am of the view that D1 has failed to comply with §1 of the Chan J Order.  His purported disclosure has been wholly inadequate.

Jurisdiction

59.  The Court has the jurisdiction to order cross-examination in circumstances like what this Court is facing—see Yau Chiu Wah v Gold Chief Investment Ltd [2002] 2 HKLRD 832, per Ma J (as the Chief Justice then was) at §20. 

60.  The existence of the jurisdiction has been confirmed by the Court of Appeal in Motorola Solutions Credit Co LLC v Kemal Uzan & Ors[2014] 5 HKC 96, where Lam VP observed at §18 that:

“ The ultimate test on whether an order for cross-examination should be made in interlocutory proceedings is whether it is necessary in the interests of justice. Though cross-examination is not that frequently allowed in the context of interlocutory applications, we agree with the Judge that the court has an unfettered discretion to allow cross-examination even in such context.”

Ordering cross-examination in the interests of justice

61.  In the present case, the purported disclosure by D1 has been, as I have found, wholly inadequate.  The information is useless for the policing of the Undertaking.  The proprietary nature of P’s claim has also to be borne in mind.

62.  P has made request for further disclosure via correspondence.  D1 has been afforded the chance to file a further affirmation to effect disclosure.  He failed to take that up. 

63.  In D1/#3 at §32, D1 maintained his position that he had complied with the Chan J Order and refused to effect further discovery.  Having done so, he said in that same paragraph further, and I repeat, that “[P’s] claim is in respect of money, even though it is framed as a proprietaryclaim.  It cannot be validly suggested that I would be unable to meet any claim for damages.”  If D1 were of the view that the Chan J Order ought not to have been made, he was at liberty to seek to have it discharged.  He did not.  It remains binding on him.  It has to be complied with.  D1’s wealth is irrelevant in this regard.

64.  Mr Pang, relying on the same submissions he raised in the course of the Further Injunction Application, argued that as there was no evidence that D1 would not be able to satisfy any monetary judgment made against him, to compel D1 to make further disclosure would be oppressive.  He further submitted that if the Court was to take the view that damages wasan adequate remedy, there would simply be no basis for any disclosure.  For the same reasons I set out in paragraph 42 above, I reject those submissions.

65.  I do not find it oppressive to order D1 to be cross-examined on §§5.1 and 5.2 of D1/#2.  The issue will be clear—what the 1^st Sum has become.  Answering questions in that regard ought not require much information gathering by D1.  It ought not to be a difficult process.

66.  Mr Pang referred to the criminal investigation against D1 over the subject matter of this claim and submitted[23] that “it is trite that D1’s right to remain silent is constitutionally protected in criminal proceedings which will be infringed by any further disclosure orders being granted.”  It was a sweeping submissions not supported by any authority or particulars. I do not accept those submissions.  A mere statement by a witness that an answer may incriminate him is not sufficient to found any claim of privilege against self-incrimination—see China Shanshui Cement Group Ltd v Zhang Caikui [2017] 2 HKLRD 719, per Au-Yeung J at §7.  In any event, I do not see how answering questions on what has become of the 1^stSum is going to incriminate him in any way, having as he has made the claim that he had purchased the Artworks with it.    

67.  I remind myself that non-compliance with a disclosure order will not automatically lead to any order for cross-examination.  It is not frequently allowed during an interlocutory application.  However, in the present case, having balanced the considerations as I have done above, I am of the view that it is necessary in the interests of justice to order D1 to be cross-examined on §§5.1 and 5.2 of D1/#2.  I allow the application in terms of §2 of the 8/6 Summons, save that I order that the cross-examination be confined to §§5.1 and 5.2 of D1/#2 (as opposed to the entirety of D1/#2 as stated at §2 of the 8/6 Summons). 

68.  For the avoidance of doubt, I record that in the course of the hearing, Mr Whitehead sought to expand the scope of the proposed cross-examination to D1/#3.  I refuse to order that. That is not what the 8/6 Summons seeks, and is unjustifiably wide in any event.

69.  I allow parties to, if necessary, seek directions on the conduct of the cross-examination, which directions should be sought on papers first.

THE BALANCE OF THE 6/6 SUMMONS

70.  Mr Whitehead sought the balance of the 6/6 Summons to be adjourned sine dine with liberty to restore after P has obtained and considered the ancillary disclosure which I may order D1 to give as a result of the Further Injunction Application.  In my view, that is a fair and just approach. I so order, despite Mr Pang’s objections.

COSTS

71.  I make a costs order nisi that (1) the costs of the 6/6 Summons in relation to the sums referred to in paragraph 43 be in the cause; (2) the balance of the costs of the 6/6 Summons be reserved; and (3) the costs of the 8/6 Summons be to P.  Any party who seeks any variation should file its submissions within 14 days from the date hereof, submissions in opposition within 14 days of receipt, and reply within 7 days thereafter.

HCA 3017/2017

[2018] HKCFI 2788

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

______________

______________

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D E C I S I O N

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1.  The Plaintiff first came before me on 6 February 2018 for discovery and inspection of certain materials and documents pursuant to Section 21 of the Evidence Ordinance Cap 8 and the inherent jurisdiction of the court. On 20 February 2018 I allowed the application. I set out the reasons in my Reasons for Decision handed down on 16 March 2018. In that Reasons for Decision, I also gave some background about the case which I will adopt but not repeat.

2.  On 6 June 2018, the plaintiff took out another summons (the “6^th June Summons”) for inter alia further injunctive relief against some of the defendants.  One of the Order sought was that:

“The 1st Defendant shall preserve and shall not deal with, dispose of or in any way make use of (save with the written consent of the Plaintiff or Order from the Court), diminish the value of or part with possession of (i) the sum of JPY ¥1,002 million…(the “Third Sum”) or its fruits or proceeds…”

The plaintiff also seeks thereby a similar Order against the 1^st defendant (“D1”) relating to another sum of US$18 million (called the “Fourth Sum”) and against the 5^th defendant (“D5”) relating to yet another sum of JPY¥305 million (called the “Fifth Sum”).

3.  The plaintiff, D1 and D5 attended before me on 15 June 2018.  The plaintiff, represented by Mr Kwan, sought an interim-interim injunction in respect of the Third, Fourth and Fifth Sums.  I raised with Mr Kwan the justification of granting what were said to be proprietary injunctions covering sums which in total exceeded the total amount of the plaintiff’s monetary claim.  I also raised with Mr Kwan the wide scope of the Orders sought, covering not only the specific Sums but also their “fruits or proceeds”.  I was thus concerned about the difficulty in identifying those “fruits or proceeds”, and hence the difficulty in policing any interim-interim injunction in those terms.  I on that occasion refused to grant any interim-interim relief.  I gave some directions on the filing of evidence.  I then adjourned the 6^th June Summons for substantive hearing.

4.  The 6^th June Summons was subsequently fixed to be heard before me on 19 December 2018.

5.  On 23 August 2019, Messrs Haldanes, solicitors acting for the plaintiff, wrote to my clerk.  They claimed that D1’s and D5’s cases relating to the three Sums as set out in their affirmations filed pursuant to my directions were not supported by any documentary proof.  They then said:

“Further, a number of recent news reports have revealed that the 1st Defendant has been arrested by the ICAC concerning the subject matter of the misappropriated HK$135 million in this action. The arrest of the 1st Defendant suggested a real risk that the 1st Defendant may further dissipate the funds in question unless restrained by the Court.”

Haldanes then continued to say:

“In view of the above, the Plaintiff has decided to renew its application for interim injunction against the 1st Defendant only in respect of the Third Sum referred to in paragraph 7 of the Summons pending the substantive hearing in December 2018…

It is estimated that the length of the hearing of the renewed application for interim injunction in respect of the Third Sum is 30 minutes.  In the premises, we respectfully seek leave for the Summons to be relisted before His Lordship with 30 minutes reserved.”

6.  On 30 August 2018, I gave the following directions:

“It is a matter for the Plaintiff to decide whether it seeks to have the matter re-listed. If the Plaintiff decides to do so, it has my leave to have it re-listed before me. The duration of any hearing so relisted is for the parties to estimate.”

7.  The scope of the Leave was limited, that if the plaintiff decided to have the matter relisted, the matter could be relisted before me. By so directing, I was not endorsing any decision on the part of the plaintiff to have the matter relisted.  Access to court is the plaintiff’s right. How it intended to exercise its right was a matter for it.  It was a decision for the plaintiff to make.  But it does however mean that should the plaintiff decide to have the matter relisted, and now that it has, it is for it to justify why the Court should in effect rehear the part of the application concerning the Third Sum despite the fact that the substantive hearing of the 6^th June Summon will take place in 40 days’ time.

8.  As it turned out, the plaintiff did have the matter relisted before me. They come before me this morning.  Mr Kwan continues to appear for the plaintiff.  He has filed a 13-page submissions with 20 authorities.  D1 is represented by Mr Pang.  His team has filed a 4-page submissions with 4 authorities. The hearing was set down for 30 minutes.

9.  I at the outset of the hearing invited Mr Kwan to clarify whether he is seeking an interim-interim injunction pending the substantive hearing of the 6^th June Summons, or whether he was seeking an interim injunction pending trial (thereby in effect seeking an earlier hearing of that part of the 6^th June Summons).  I ask because it appears to me that Mr Kwan is trying to have it both ways.  In the last paragraph of his written submissions, he submitted:

“If the Court agrees with the above submissions, it would have no difficulty in granting a proprietary injunction restraining the 3^rd Sum until trial or further order. Alternatively, the Court may grant an interim injunction pending the substantive hearing on 19 December 2018.”

The difference is of some importance.  If this is in fact an earlier hearing of the part of the 6^th June Summons relating to the Third Sum, (but not for interim-interim relief), and should I dismiss it, the plaintiff should not be permitted to have a third bite of the cherry and to reargue the matter yet again on 19 December 2018.  It will have to appeal against my decision.  Further, I see no reason why the hearing of the 6^th June Summons should be split up into two.  In the end, Mr Kwan confirms that his application is for interim-interim relief.

10.  That being the case, Mr Kwan will have to justify why he is entitled to have the matter reargued.  The topic is not dealt with in his written submissions. No material change of circumstances has been pointed to.  Nor did the matters raised in Haldanes’ letter of 23 August 2018 constitute in my view any material change of circumstances.  They suggested that the cases of D1 and D5 were not supported by any documentary proof.  Those allegations go to merits of the parties’ case, which will be considered during the substantive hearing.  In so far as D1’s arrest is concerned, Haldanes relied on it to show increase in the risk of dissipation.  Mr Kwan adopts that.  I do not at this stage see any necessary causal relationship between the two.  The information on the arrest before me is limited.  I take heed of what Mr Pang has informed me, that the ICAC has in fact returned to D1 his passport upon court order.  I further note that the Third Sum had been paid over more than two years ago.  But importantly, the plaintiff is before me this morning seeking a proprietary injunction in relation to the Third Sum.  Mr Kwan has emphasized this a number of times in his submissions.  As Mr Kwan has pointed out at paragraph 40.2 of his submissions, when it comes to proprietary injunction, there is no need to show risk of dissipation.  Mr Kwan submits that whilst that is so, the change remains relevant and sufficient to justify the relisting of the application.  I do not agree.  As Mr Pang has submitted, risk of dissipation not being a necessary element for the grant of a proprietary injunction, any change in that regard should not be regarded as a material one in the context of an application for one.

11.  In the circumstances, I agree with Mr Pang’s submissions that seeking the same interim-interim relief which has previously been denied by the Court where there has been no material change of circumstances is contrary to the underlying objectives in Order 1A of the Rules of the High Court, in particular Order 1A, rules 1(a), (b), (c) and (f). I refuse to entertain it.

12.  By reason of the above, I refuse to entertain the application.  I will proceed to hear the parties on costs.

Mr Steven Kwan and Ms Charlotte OT Chan, instructed by Haldanes, for the plaintiff

Mr Robert Pang, Ms Pauline Leung and Ms Sharon Chan, instructed by SSW & Associates, for the 1^st defendant

HCA 3017/2017

[2018] HKCFI 472

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

______________

______________

_________________________

REASONS FOR DECISION

_________________________

Introduction

1.  This is the plaintiff’s application for discovery and inspection against the Hongkong and Shanghai Banking Corporation Limited (“HSBC”)and the Bank of Communication Ltd (“BoC”) (“the Inspection Summons”). The application is made pursuant to Section 21 of the Evidence Ordinance Cap 8 and the inherent jurisdiction of the court.  Neither bank is a party to the action.  They have been notified of the application.  They do not seek to be heard.

2.  At the end of the hearing, I allowed the application but was only prepared to grant an order in terms which are narrower and more specific than those originally sought. I said that I will give my reasons.  I now do.

The pleaded case of the plaintiff

3.  At the time material to the action, the 1^st defendant was the sole director of the plaintiff.  He was also the sole director of the 2^nd defendant.  He together with his family members held the entirety of the shares in the 2^nddefendant.  The 1^st defendant apparently also controlled an entity by the name of Skyrise Trading Limited (“Skyrise”) (or was otherwise the 1^st defendant’s nominee).

4.  The 2^nd defendant was a substantial shareholder of Universal Entertainment Corporation (“UE”), a public company incorporated in Japan.  The plaintiff was a wholly owned subsidiary of UE.  As said, the 1^st defendant was the sole director of the plaintiff. 

5.  The 4^th defendant was apparently a company incorporated in the British Virgin Islands (“BVI”).  It was apparently controlled by the 3^rddefendant, or was otherwise his nominee.  I will come back to explain why I use the word “apparently”.

6.  The plaintiff had never had any commercial dealings with the 3^rd defendant, the 4^thdefendant, or Skyrise.

7.  On 27 December 2017, the plaintiff caused a Writ to be issued against the defendants.  Two series of transfers have been pleaded:

(a)  First, the 1^st defendant was claimed to have caused the plaintiff to transfer on 2 March 2015 a sum of HK$135 million to an account held by the 4^th defendant with the HSBC (“theGoldluck HSBC Account”), which sum (or at least HK$130 million thereof) was almost immediately afterwards used by the 3^rd defendant to repay a loan he owed to the 2^nd defendant (by 7 sums in the total amount of HK$130 million remitted between 4 and 13 March 2015 into an account held by the 2^nd defendant with the BoC (“the D2 BoC Account”) ), which repayment upon receipt by the 2^nddefendant was in turn transferred to and used by the 1^stdefendant for his personal purposes.  The plaintiff further claims that the 1^stdefendant, in order to cover up the illegitimacy of this series of transfers, caused the plaintiff to enter into a purported loan agreement with the 4^th defendant on 3 March 2015 (“the Loan Agreement”).  The amount of the purported loan was HK$135 million.  The 3^rddefendant was named therein as the guarantor.  The 4^thdefendant was described therein as a company whose address was at a PO box in the “British Virgin Island” [sic];

(b)  Second, the 1^st defendant was claimed to have caused the plaintiff to issue a bearer cheque in the sum of HK$16 million which he himself collected in May 2015.  Skyrise’s name was subsequently inserted as the payee, and the cheque was cleared and paid into an account held in the name of Skyrise with the HSBC (“the Skyrise HSBC Account”) on about 14 May 2015.  The plaintiff claims that the transaction was unauthorized, and the fund for the 1^st defendant’s own personal use.

8.  The main cause of action against the 1^st defendant is breach of fiduciary duties which he owed as the sole director to the plaintiff.  The primary cause of action against the other defendants is knowing receipt or assistance.  Constructive trusts have been pleaded.  The claims are pleaded as being proprietary in nature.  The forms of relief sought include a declaration that the defendants are liable to account to the plaintiff the sum of, net of certain other transfers, about HK$120.05 million, payment of that sum, and tracing.

9.  On 23 January 2018, the plaintiff took out an application for an interlocutory proprietary injunction against the 1^st and 2^nd defendants.  That injunction sought was in effect a Mareva injunction/preservation order with disclosure in aid.  That application came before L Chan J on 26 January 2018.  At the conclusion of the hearing, the 1^stdefendant gave an undertaking in terms of the injunction sought against him and consented to the making of certain disclosure by affirmation within 28 days.  The 2^nddefendant was enjoined from dealing with certain assets, but was granted leave to file its affirmation within 14 days from the date thereof in opposition of the disclosure sought against it.  According to the evidence placed before L Chan J, the 2^nd defendant had difficulty complying with the discovery sought as the 1^stdefendant was the sole signatory of the D2 BoC Account, and without the 1^stdefendant’s co-operation, which had not been forthcoming, the 2^nd defendant could not access that account.  To complete the picture, the 2^nddefendant has since sought from me an extension of time for the filing of that affirmation, which I have granted. 

The Inspection Summons

10.  On 19 January 2018, the plaintiff took out the Inspection Summons for inspection of banker’s records in relation to:

(1)  all accounts which the 4^th defendant maintained with the HSBC,

(2)  all accounts which Skyrise maintained with the HSBC, and

(3)  all accounts which the 2^nd defendant maintained with the BoC. 

The summons first came before me on 6 February2018.  The 2^nd defendant consented to the application upon the condition that “the information obtained from Bank of Communication be shared in full” with it.  The summons was however not served upon the 1^st defendant (who was the sole signatory of the D2 BoC Account), the 4^th defendant or Skyrise.  In relation to the 1^stdefendant, my concern was further exacerbated by the fact that there had been multiple on-going legal proceedings between the 1^st defendant and other parties (who were not before me) over the control of the 2^nddefendant.  The effect on those other proceedings of allowing the 2^nddefendant to share the information obtained from the BoC was unknown.  In addition, I expressed concern over two matters:

(1)  the width of the order sought, given that it was meant to cover all accounts which the 4^thdefendant and Skyrise held with HSBC, and all accounts which the 2^nddefendant held with BoC; and

(2)  the applicability of the concept of right against self-incrimination:

Mr Kwan, counsel appearing for the plaintiff, in discharge of the duty to make full and frank disclosure (the application being ex parte in so far as Skyrise and the 4^thdefendant were concerned), properly raised for my attention the case of Waterhouse v Narker [1924] 2 KB 759 and submitted in his written submissions that “the court will not order discovery if, on the evidence of the parties to the action, the entries tend to incriminate them”.  I however raised reservation about the relevance of the right against self-incrimination given that the banker’s records concerned existed independently of the will of the defendants.  I in the end adjourned the summons for further and substantive argument.

Further steps undertaken by the plaintiff after the first hearing

11.  After the first hearing of the Inspection Summons on 6 February 2018, the plaintiff undertook further steps in its endeavor to serve the application upon the 1^st defendant, the 4^th defendant, and Skyrise.  I describe their efforts below.  Results were mixed.

12.  Immediately after the first hearing on 6 February 2018, the plaintiff served the Inspection Summons upon the 1^st defendant together with the skeleton submissions of the plaintiff and the 2^nddefendant previously filed.  On 15 February 2018, the 1^st defendant through his solicitors wrote in and indicated that he was neutral to the application.  He did not seek to be heard.  Nor did he seek to raise any right against self-incrimination.

13.  The plaintiff engaged a corporate service provider to conduct a company search in the BVI on the 4^th defendant.  It turned up no company with the exact name of the 4^thdefendant.  The closest was an entity with the similar name of “Goldluck Technology Limited”, but with a BVI address different from that set out in the Loan Agreement.  These are the reasons why I used the word “apparently” in paragraph 5 above.

14.  A company search was conducted on Skyrise.  The sole director and shareholder was a person with a Taiwan identity number.  The plaintiff could not be certain that it was the same Skyrise which was named as the payee in the bearer cheque of HK$16 million.  

The hearing on 20 February 2018

15.  The Inspection Summons came back before me on 20 February 2018.  Having heard Mr Kwan, counsel for the plaintiff, and Mr Yates, solicitor for the 2^nddefendant, I granted a toned down version of the order sought.  Below are my reasons.

Service of the Inspection Summons

16.  The 1^st defendant has now been served.  He did not seek to be heard.  Nor has the 1^st defendant raised any concern about the prospect of the plaintiff sharing the bankers’ records it might obtain with the 2^nddefendant. In this regard, I am further satisfied that whatever records which the plaintiff might share with and serve upon the 2^nddefendant, their receipt by the 2^nddefendant would be subject to an implied undertaking that they can only be used for the purpose of the proceedings herein.  That adequately addresses my concern about any misuse of those records by the 2^nddefendant. 

17.  The 4^th defendant and Skyrise have not been served.  Would that prevent an order pursuant to section 21 of the Evidence Ordinance from being granted?  My view is no.

18.  I have considered the same issue recently in another case[1]. I reiterate my reasoning here.  I start with Section 21 of the Evidence Ordinance, which provides that:

“ (1) On the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings.

(2) An order under this section may be made either with or without summoning the bank or any other party, and shall be served on the bank 3 clear days before the same is to be obeyed, unless the court or judge otherwise directs.”

19.  It is clear from the wording of section 21(2) that there is no statutory prerequisite or requirement for an application pursuant to section 21 to be served on the account holder. Indeed, an order under the section may be made “without summoning … any other party.”

20.  In Chan Wai Sun & Anor v Law Shiu Kai [2003] 3 HKLRD 954, Chu J (as she then was) observed at paragraph 15 of the judgment that:

“ On the question of notice of this application, the authorities had considered that it is necessary to give notice of the application to both the bank and the holder of the account. In the present case, the summons and the affirmation had been served on Hongkong Bank, and it has no objection to it. In the case of General Profits, the difficulty is that no information about it can be obtained from the public records. It is simply not possible to serve on General Profits or to give due notice of the present application, a fact that the court has to bear in mind when deciding in what way it should exercise its discretion.”

21.  In Arnott v Hayes (1887) 36 Ch D 731, Cotton LJ, having considered the wording of section 7 of the Bankers’ Books Evidence Act, 1879 (which is materially the same as section 21 of our Evidence Ordinance), observed at page 736 of the judgment that:

“Various objections are taken to the order. The first was that the order ought not to have been made ex parte. … I am of opinion that the [Bankers’ Books Evidence Act, 1879, s.7] does give the Judge such jurisdiction. It says that the order may be made ‘either with or without summoning the bank or any other party.’ It is urged that ‘party’ here does not mean ‘party to the action,’ but it must include parties to the action. There is, therefore, power to make the order ex parte, though under ordinary circumstances I think it better that the person whose account is to be looked at should be served.” (Emphasis added)

22.  I have considered the above authorities.  I note that the preference suggested by Cotton LJ was qualified by the words “under ordinary circumstances.”  In my view, it will no doubt be fairer to serve an application under section 21 upon or otherwise give notice to the person whose account is to be inspected.  That is however not always possible.  The bottom line remains that such service is not a statutory requirement, and any insistence that service or notice should be a prerequisite for an application under section 21 would in my view impose unjustified fetters upon the courts’ discretion that can be exercised under that section. 

23.  In the present case, in so far as the 4^th defendant is concerned, the company search in BVI does not reveal any company with its exact name and particulars as set out in the Loan Agreement.  In so far as Skyriseis concerned, the plaintiff cannot be certain at this stage as to whether the Skyrise which the company search shows up was the same Skyrise we concerned with.  Requiring the plaintiff to serve the application upon that Skyrise (as disclosed in the company search) would risk revealing confidential case information to a wrong party, not to mention causing substantial inconvenience to that Skyrise at the same time.

24.  In the circumstances, I am satisfied that the circumstances in the present case are not ordinary, and that there are sufficient justifications for the plaintiff to proceed with the application without having served the same upon either the 4^th defendant and Skyrise.

25.  However, the absence of service is not entirely irrelevant.  It is a factor which I will take into account when considering how my discretion will have to be exercised.  I note that Chu J in Chan Wai Sun in effect adopted the same approach.  I will come back to this.

Privilege against self-incrimination

26.  Neither the 1^st nor the 2^nd defendants have sought to claim any privilege against self-incrimination.  In my view, that privilege is not engaged in the present context.  It is not the defendants who are being compelled to disclose any incriminatory material.  The bankers’ records exist independently of their will.  “The privilege is not a privilege against incrimination; it is a privilege against self-incrimination” ^[2] As has been authoritatively observed by Ribeiro PJ in HKSAR v Lee Ming Tee & Another(2001) 4 HKCFAR 133, at 177E–G:

“ In evaluating this balance, it is important to bear in mind that the purpose of the privilege is to respect the will of the accused to remain silent, thereby ensuring that the accused is not compelled to provide proof of his or her guilt. The privilege has no application to evidence which exists independently of thewill of the accused. This proposition was expressly recognised in Saunders v United Kingdom (1996) 23 EHRR 313 at para 69. Indeed, in my judgment, there is much to be said for the general proposition that there is no inherent unfairness in establishing a person’s guilt by the use of reliable objective evidence obtained from an independent source, even if the acquisition of that evidence was facilitated by clues contained in the excluded admissions. This view accords with common law doctrine based on R v Warickshall (1783) 1 Leach 263 and the cases approving it, cited above.”

The width of the inspection sought

27.  During the further hearing on 20 February 2018, Mr. Kwan tightened up the order sought in the following ways:

(a)  in respect of the 2^nd defendant, instead of seeking inspection of records of all accounts which it maintained with the BoC, the plaintiff has now restricted the order sought to the D2 BoC Account;

(b)  in respect of the 4^th defendant, instead of seeking inspection of records of all accounts which it maintained with the HSBC, the plaintiff has now restricted the order sought to the Goldluck HSBC Account and one specific related account;

(c)  in respect of Skyrise, instead of seeking inspection of records of all accounts which it maintained with the HSBC, the plaintiff has now restricted the order sought to those accounts Skyrise maintained with the HSBC which related to transactions that took place between 14 May 2015 (i.e. the date when the bearer cheque was paid into an account Skyrise maintained with the HSBC) and the date of disclosure.

Consideration of the application under section 21

28.  I have considered the approach explained by Barnett J in Assets Investment PT Ltd v The United Islamic Investments Foundation (HCA 4392/1993, 21 January 1994, unreported), Chan Wai Sun and South Staffordshire Tramways Co v Ebbsmith [1895] 2 QB 669.  I also referred AKBANK T.A.S. v Mainford Limited where I have considered those similar authorities.  In my view, when considering an application under section 21, the main test is relevance.  I am on the facts satisfied that the accounts which the plaintiff seeks to inspect contain material relevant to its claim.  They are in fact highly germane to the issues of fund flow and the identities of the parties involved. In AKBANK T.A.S. v Mainford Limited, I express reservation as to whether, as observed by Lord Esher MR at pp 674 and 675 of Staffordshire Tramways Co v Ebbsmith, the applicant should be required to establish that the account is really that of the party to the proceedings or that the party is so closely connected with it that it would be evidence against him.  However, in the light of the facts set out above, I am satisfied that, even if I were to apply this more stringent test, the plaintiff has passed the necessary threshold.

29.  The authorities mentioned above have stated that the power for inspection under section 21 should be exercised with great caution.  I agree.  The privacy of the account holder, and banker/customer confidence have to be respected.  I have indeed approached the application with great caution. I have taken into account the fact that neither the 4^th defendant norSkyrise has been served at this stage.  I have on the other hand considered carefully the evidence as set out above, which included an Investigation Report prepared by the Special Investigation Committee set out by UE.  I have considered the directions of the remittances or transfers involved, the amounts of those sums, and their time proximity.  On the face of pleadings and as supported by the affirmatory evidence before me, there is a clear prima facie case of breach of fiduciary duties on the part of the 1^st defendant, and knowing receipt or assistance by the other defendants (including Skyrise).  The allegations are serious, and the total amount involved was substantial. The records which the plaintiff are seeking to inspect are highly relevant.  The scope of the order which the plaintiff is now seeking has been narrowed down and specifically defined. I have also taken into account the neutral stance adopted by 1^st defendant.  There is no evidence suggesting that the 1^st defendant, the 4^th defendant or Skyrise would suffer any damage on top of the limited infringement of their banker / client confidence.  I am in all the circumstances satisfied that an order in terms of the summons as has been narrowed down ought to be made. 

Inherent jurisdiction of the court

30.  The discussions above are confined to the limb of the application under section 21 of the Evidence Ordinance.  Given my conclusion expressed above, there is no need for me to consider the other limb of the application under the inherent jurisdiction of the court.  I will just add this.  That jurisdiction to order disclosure by a third party is well established.  It is both wider than section 21 of the Evidence Ordinance (in the sense that it is not confined to banker’s records), and at the same time narrower (in the sense that it is a power developed in aid of proprietary or tracing claims) - see Norwich Pharmacal Company v Customs & Excise Commissioners [1974] AC 133 and Bankers Trust Company v Shapira [1980] 1 WLR 124.  Some specific limits on that jurisdiction have also been developed—see Arab Monetary Fund v Hashim (No 5) [1992] 2 All ER 911, A Co v B Co [2002] 3 HKLRD 111, and CTO (HK) Ltd v Li Man Chiu [2002] 2 HKLRD 875.  In the present case, the plaintiff’s claim is a proprietary one involving tracing.  The evidence in my view demonstrates a real prospect that the information sought may lead to the location or preservation of assets to the claim.  The order sought is specific.  The balance tips in favour of me exercising my discretion granting the order.  If required, I would also have granted the application pursuant this common law jurisdiction which the courts possess.

Conclusion

31.  I grant the application as narrowed down.

HCA 3017/2017

[2018] HKCFI 394

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

______________

______________

_____________________

REASONS FOR DECISION

_____________________

1.  This is the 2^nd defendant’s (“D2’s”) application for time to file its affirmation pursuant to paragraph 4 of the Order made by L Chan J on 26 January 2018.

2.  On 27 December 2017, the plaintiff caused a Writ to be issued against inter alia the 1^st defendant (“D1”).  The causes of action include breach of fiduciary duties which D1 allegedly owed as the sole director to the plaintiff.  The primary cause of action against D2 is knowing assistance.  The forms of relief sought include a declaration that D1 is liable to account to the plaintiff the sum of about HK$120.05 million, payment of that sum, and tracing.

3.  On 23 January 2018, the plaintiff made an application for an interlocutory proprietary injunction against inter alia D1 and D2.  That injunction sought was in effect a Mareva injunction / preservation order with disclosure in aid.  That application came before L Chan J on 26 January 2018.  At the conclusion of the hearing, D1 gave an undertaking in terms of the injunction sought against him and consented to the making of certain disclosure by affirmation within 28 days.  Leave was given to D2 to file its affirmation of opposition within 14 days from the date thereof.

4.  In the meantime, on 19 January 2018, the plaintiff took out an application pursuant to section 21 of the Evidence Ordinance and the inherent jurisdiction of the court for inspection of banker’s records in relation to certain account.  One of the accounts the records of which the plaintiff seeks to inspect is held in the name of D2 with the Bank of Communication Co Ltd.  D1 is the sole signatory of that account.  That summons had not however been served upon D1.  D2 consented to that order upon the condition that it be shown any banker’s records in relation to that account which the plaintiff might be permitted to inspect.  The summons came before me on 6 February 2018.  During that hearing, I raised the issue as to whether the summons for inspection ought to have been served upon D1.  The matter was ultimately adjourned for substantive argument on 20 February 2018.  D2 now comes before me for time to file the affirmation pursuant to paragraph 4 of the Order made by L Chan J on 26 January 2018.

5.  I have considered the submissions made on behalf of the parties.  I regard it as fair that before D2 files its affirmation pursuant to the direction made by L Chan J, it should have the result of the application for inspection.  In particular, should the application for inspection be successful, it should have the benefit of the relevant banker’s records for the purpose of preparingits affirmation.  The plaintiff has agreed to show D2 those records if the order for inspection is granted.  After all, those records, if and when available, will be discoverable to D2 in the normal course of event. 

6.  In the circumstances, as a matter of fairness and having looked at the full picture, I grant D2 an extension of 28 days from the date hereof for D2 to file its affirmation.  Costs in the sum of HK$1,040 be paid to the plaintiff.

Mr S H Yeung, of Haldanes, for the plaintiff

Mr Mark So, of Reynolds Porter Chamberlain, for the 2^nd defendant