CLARK QUANTUM KENT v. HAI TIN LTD AND OTHERS

HCA 961/2017

[2020] HKCFI 393

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 961 OF 2017

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________________________

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DECISION

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1.  This was an application of Clark Quantum Kent (formerly known as John Mohammad Clark and John Julius Tasca) (“the plaintiff”) by summons dated 21 November 2019 for (1) leave to appeal the Decision dated 7 November 2019 setting aside the order dated 17 April 2018 of Master M Wong granting the plaintiff leave to serve his amended concurrent writ of summons (“the amended writ”) on IHAG Holding AG (“D4”) and Privatbank IHAG Zürich AG (“D5”) out of the jurisdiction; and (2) that there be a stay.

2.  Pursuant to the order dated 6 December 2019 of Madam Justice Au-Yeung, the plaintiff’s application is dealt with on papers instead of an oral hearing.

3.  The relevant backdrop to this application is set out in the Introduction and Background sections of the Decision (§§2-32) to which reference should be made.

Grounds of appeal

4.  The draft Notice of Appeal (“the draft Notice”) is a prolix document of some 14 pages. In §8 of his written submissions dated 16 December 2019, the plaintiff set out a “summary” of the basis for the intended appeal, consisting of no fewer than 11 subparagraphs (numbered (a) to (k)). §8(k) was not a ground as such but (tellingly[1]) posed a question - had the plaintiff made out a prima facie case as set out in more detail in the draft Notice of Appeal?

5.  The principal grounds discernible from the plaintiff’s extensive summary and the draft Notice are considered under the headings below.

(1)  Failure to apply the correct test in determining whether there was a serious issue to be tried: §8(a), (c) and (h)[2]

6.  RHC Order 14 has no application to any claim based on an allegation of fraud: see Order 14, rule 1 (2) (b). In other words, summary judgment is not available in any such action.

7.  As I understand it, the plaintiff extracted the following proposition from that provision: “no summary dismissal in fraud/dishonesty cases”.

8.  The argument now made is that when considering whether there is a serious issue to be tried, by parity of reasoning, the court may not descend to the merits of a fraud or dishonesty-based claim because any refusal of leave to serve out of the jurisdiction would be equivalent to a summary dismissal of a claim involving fraud/dishonesty.

9.  I confess to having difficulty in following the logic of the argument. In §59 of the Decision, I concluded that, in the absence of authority supporting the plaintiff’s approach, there was no basis for the court not to be concerned with the merits of the plaintiff’s claim based on fraud/dishonesty for the purposes of Order 11. I remain of that view.

10.  The recent English Supreme Court case of Lungowe and others v Verdanta Resources Plc [2019] UKSC 20 at §42 et seq cited by the plaintiff is not on point since the case did not concern any claim in fraud/dishonesty.

11.  It was also said that in the absence of a defence and/or contrary evidence challenging the plaintiff’s pleaded case, the court ought to have proceeded on the basis of the plaintiff’s case and accepted the facts as pleaded unless patently incorrect.

12.  As explained in §§60-61 of the Decision, the 2 cases cited by the plaintiff at the hearing do not support his submissions. It has not been explained in what respects the court erred in arriving at its conclusion that the court should consider both the pleadings and the affidavit evidence when determining whether there was a serious issue to be tried.

(2)  Merits of the plaintiff’s claims not properly considered or not considered at all: §8(d) and (i)

13.  §2 of the draft Notice stated that in determining whether there was a serious issue to be tried, the court “took into account irrelevant matters or otherwise gave weight to matters which [it] should not have attributed such weight to” and proceeded to narrate over 6 pages of the draft Notice 19 apparent instances. In this regard, as will become apparent, the ‘justification’ or ostensible reason put forward in §2 (prefacing the 11 sub-paragraphs) for submitting an unconventional draft Notice - that the court made “a final (but summary) dismissal” of the plaintiff’s case - is simply wrong[3].

14.  The plaintiff’s lengthy narrative in §2 of the draft Notice is impossible to address because, as D4 and D5 submitted, it is a mixture of

(a) matters not pleaded by the plaintiff such as the allegation[4] (i) that D5[5] “should be taken to have known” or “had reason to know” that the actual trustee was Allied Finance Asia Ltd etc; and (ii) of receipt of overcharged fees[6];

(b) evidence not before the court at the substantive hearing[7]; and

(c) new arguments/assertions as to merits “as expanded” in the draft Notice[8], but without referencing the pleadings or the affidavit evidence. 

15.  §2 sought to bolster up the plaintiff’s case by providing “more detail”[9]. If more detail was indeed required, that should have been provided prior to making the leave application rather than at this late stage, by way of the draft Notice.

16.  The court was criticised for having “made a final (but summary) dismissal” of the plaintiff’s claims.  But that was not the case as the plaintiff well knew. A decision to set aside leave for service out is an interlocutory decision: Pacific Electric Wire & Cable Ltd v Texan Management Ltd, unreported, FAMV 71-73/2007, 13 March 2008, §7. Otherwise, the plaintiff would have appealed as of right rather than to seek leave as he has done.

17.  The setting aside of the Master’s order was the inevitable consequence of the plaintiff’s failure to show that there was a serious issue to be tried on the merits of any of his claims against D4 and D5. As explained in §§64-88 of the Decision, that was because either insufficient particulars had been pleaded and/or inadequate evidence had been adduced in support of the plaintiff’s various causes of action.

18.  A recurring complaint is the absence of any defence, requests for further and better particulars etc and contrary evidence challenging the plaintiff’s case. But as stated in §62 of the Decision, such absence is immaterial given that at the leave to serve out stage, the burden is on the plaintiff to establish a prima facie case and that there is a serious issue to be tried. 

(3)  Misdirection on the test or elements for dishonesty: §8(b), (e)-(g) and (i)

19.  Given that the parties were ad idem[10] as to the legal requirements necessary to establish knowing receipt and dishonest assistance at the hearing, what the court did was to apply those legal requirements.

20.  It is not understood how it is now said that the court’s treatment of the required elements was wrong as a matter of law. The plaintiff has not identified the passages in the Decision that show that a different (and erroneous) test was applied or that different/unnecessary legal requirements were considered and applied.

21.  The court considered the pleadings as well as the evidence adduced in light of the legal requirements that were common ground before reaching various conclusions, for example, at §§72 and 83. It also took note of the timeline of events derived therefrom as well as the persons involved at each stage from the pleadings and the evidence filed.

22.  The matters now alleged in the draft Notice and highlighted by the defendants in §15 of their written submissions opposing leave to appeal (set out in §23 below) were never pleaded.

23.  The new allegations made are the following:

(a) D4 and D5 “had clear reasons to be suspicious about the lawfulness of [certain but unspecified] actions” and “failed to make the necessary enquiries to satisfy itself of that lawfulness”: the draft Notice §3;

(b) “D4 and/or D5 had plenty of reasons to doubt, but it did not conduct the enquiry that it ought to have done”: the draft Notice §4;

(c) “it is perfectly apparent both that the Bank had reason for doubt in so far as the transaction was entirely untested and in fact had doubts as demonstrated by the repeated comments over an extended period made by banks senior management including Mr Walchli …”: the draft Notice §5(c);

(d) “in this case, the Bank knew of the circumstances in which Mirabaud wished to terminate its relationship with the beneficiary, and that the beneficiary was to that extent vulnerable, and that this vulnerability was increased by the doubts expressed by the Trustee and AFTAG concerning his mental stability”: the draft Notice §5(f);

(e) “the Bank permitted the beneficiary’s interests to be subsumed to its own interests in ensuring the availability of these funds for management” and “[it] clearly took no steps to verify whether the beneficiary’s approval had been obtained for the scheme”: the draft Notice §5(h); and

(f) the allegations concerning the alleged knowledge of D5 listed in subparagraphs (i)-(iv) of the draft Notice §5(h).

24.  These new unpleaded and unparticularised allegations are impermissible and cannot be entertained.  

25.  It would appear from section (3) of the plaintiff’s reply submissions and §5(h) of the draft Notice that the plaintiff is conflating his case against D4 and/or D5 with that of D8 as if D4 and/or D5’s knowledge at all material times was no different from that of D8. That will not do.

Conclusion

26.  For the reasons stated, the plaintiff has failed to establish that his intended appeal has reasonable prospects of success. It follows that the plaintiff’s application for leave to appeal falls to be dismissed.

The plaintiff’s application for a stay

27.  §3 of the plaintiff’s summons reads as follows:

“Alternatively, if leave is refused, execution of the Judgment be stayed pending the Plaintiff’s intended renewed application to the Court of Appeal to appeal from the Judgment”.

28.  The Decision allowed the defendants’ appeal from the order granted by the master and set aside the master’s order. This court’s order was effective from the date of the Decision, 7 November 2019.

29.  The defendants submitted that because the master’s order has already been set aside, it can only be restored upon the plaintiff successfully obtaining leave to appeal and upon his being successful in his intended appeal.

30.  Although the plaintiff maintained that the master’s order is not set aside if this court’s order were stayed, in my view, conceptually, that is incorrect. There was nothing left to be stayed by this court, quite apart from the fact that no reasons have been advanced as to why a stay is necessary.

Order

31.  Accordingly, the plaintiff’s summons dated 21 November 2019 is dismissed with costs to the defendants, such costs to be summarily assessed separately.

HCA 961/2017

[2019] HKCFI 2758

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 961 OF 2017

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BETWEEN

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DECISION

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1.  This was an application of IHAG Holding AG (“D4”) and Privatbank IHAG Zürich AG (“D5”) by summons dated 29 October 2018 for an order discharging (1) the order of Master M Wong dated 17 April 2018 granting leave to Clark Quantum Kent (formerly known as John Mohammad Clark and John Julius Tasca) (“the plaintiff”) to serve his Amended Concurrent Writ of Summons (“the amended writ”) on D4 and D5 out of the jurisdiction, and (2) the amended writ. At the conclusion of the hearing, my Decision was reserved which I now give.

Introduction

2.  The plaintiff is the sole discretionary beneficiary under the Monfred Trust (“the Trust”) established pursuant to a Trust Deed dated 3 July 2007 made between the settlor Jura Management Trust Reg and Hai Tin Limited (formerly Allied Finance Asia Limited), a company incorporated in Hong Kong (“D1” or “the Trustee”).  

3.  The matters pleaded in the statement of claim were largely derived from a Judgment dated 1 February 2017 of the Zürich District Court (“the Judgment”) in respect of a criminal complaint for embezzlement against the 8^th defendant Rolf Peter Schnellmann (“D8”) and a civil claim for losses brought by the Trustee as private plaintiff (“the Swiss proceedings”) and material from the prosecution file of the Swiss court[1].

4.  D8 was found guilty of qualified embezzlement and sentenced to 3 ½ years’ imprisonment and in respect of the civil claim, the Swiss court awarded the private plaintiff (namely, the Trustee) damage compensation in the sum of €4.346 million.

5.  The present action concerns the maladministration of the funds and assets of the Trust (“Trust Funds”) involving a number of transactions (all without the plaintiff’s knowledge or consent), directed to transferring the Trust Funds to D5 whose parent company, D4, is one of the participating interests in the Trustee.

6.  The following organisational chart summarises the corporate structure of the AFP Group[2]:

7.  The shares in AFP Holdings Limited (the “AFP Group”) the ultimate holding company of the Trustee are owned directly or indirectly as to one-third each by the 7^th defendant Roderic Noel Anthony Sage (“Mr Sage”), the 6^th defendant Bernhard Wilhelm Lampert (“Mr Lampert”) and D4 (the parent company of D5).  Each of them has a beneficial one- third interest in the Trustee.

8.  Mr Lampert was the CEO and authorised representative with single signature authority of the Trustee until about August 2010.

9.  He was also the ultimate beneficial majority shareholder of Allied Finance Corporation, a Panama incorporated company which heads a group of companies (“Allied Finance Group”) of which Allied ME, Allied Finance Trust AG (“AF”), Allied Finance Trust AG (Zürich) (“AFTAG Zürich”), Allied Finance Trust AG (Vaduz) (“AFTAG Vaduz”) and Allied Finance Services SA (“AFS”) are members.

10.  The AFP Group and the Allied Finance Group are affiliated through Mr Lampert’s cross beneficial shareholding. The AFP Group and the Allied Finance Group, inter alia, formed and administered off-shore companies for fund management and trust administration and management for third parties including D5.

11.  D8 was a director and an authorised representative with single signature authority of the Trustee. He was also “head” of AFTAG Zürich, engaged by AFS (acting through Mr Lampert) to provide such services.  His engagement was terminated on 31 July 2010.

12.  Mr Sage was the CEO of the AFP Group at the time.

Background

13.  This narrative is based on the plaintiff’s case as disclosed in his Statement of Claim (“SOC”) dated 23 April 2017 and the 1^st and 8^th affidavits of Marc Nicholas Sturzenegger (“MNS”) respectively dated 6 April 2018 and 12 February 2019.

14.  In about March 2009, the plaintiff who was the sole discretionary beneficiary of the Trust requested the distribution of liquid trust assets in order to invest in German real estate. As at 31 March 2009, the Trust Funds were held at Mirabaud & Cie SA (“Mirabaud”) and had a value of just over €5 million, 90% of which consisted of liquid funds (“Liquid Trust Funds”) and the balance being an illiquid hedge fund investment (“the Illiquid Trust Funds”).

15.  The Trustee apparently had grave concerns over the plaintiff’s mental state and was unable to obtain the protector’s approval to the distributions as he was not responding. It then emerged that the plaintiff had adopted US citizenship causing the Trustee some anxiety and Mirabaud wanted to end its client relationship with the Trust. 

16.  On 28 April 2009, D8 informed the Trustee[3] that “AF [AFTAG Zürich and/or AFTAG Vaduz] in Zürich has taken over the lead in dealing with this client.” D8/AFTAG Zürich thus assumed control of the trust monies. D4 and D5 maintain that they were not involved in the alleged delegation of control of the Trust Funds in April 2009.

17.  At about that time, in April 2009, D8 on behalf of AFTAG Zürich was preparing for its client D5 draft documentation[4] for a scheme being devised for clients referred by D5 with special status (ie clients which otherwise would soon be asked to leave D5).  The eventual solution proposed[5] was to get US clients off form A (a disclosure form) and have them invest through a structure where D4/D5 have control and use of funds without having a reporting problem.

18.  Various meetings were held in Hong Kong and elsewhere for the formulation and/or implementation of what developed into Cash Transfer Structure schemes (“the CTS schemes”) and that, amongst others, Mr Michael Gubser and Mr Daniel Wachli representatives of D4 and/or D5 were involved in such meetings.

19.  The maladministration mentioned earlier involved a number of transactions directed to transferring the Trust Funds to one of the participating interests in the Trustee, namely D4 and its related entities and included the following:

(1) The “Trust CTS Scheme”

20.  This was formulated and implemented to anonymize the plaintiff’s beneficial ownership. Its implementation involved the transfer of liquid trust assets in May 2009 [6] from Mirabaud through special-purpose vehicles (three of which were Hong Kong companies) to the non-interest-bearing account of a newly incorporated/acquired Ras Al Khaimah (“RAK”) company (ie a Dubai offshore company), Karim Limited (“Karim”).

21.  On 24 June 2009, €4,457,355 [7] of funds belonging to the Trust Funds (the “Scheme Trust Monies”) were deposited in Karim’s account.

22.  The objective of the Trust CTS Scheme was the ultimate transfer of the Scheme Trust Monies in Karim’s account to an account with D5 (which is owned by D4) for investment in the Rosmerta Fund with no obligation on D5 to identify the beneficial ownership but for the sole risk and benefit of Karim. The arrangement was intended for Karim to appear in the records of D5 as the beneficial owner of the shares in the Rosmerta Fund with no attribution of ownership to the Trust. The Rosmerta Fund was registered in St Vincent & the Grenadines and Helvetic Investments Pte Limited, a wholly owned subsidiary of D4 was the designated manager of that portfolio.

(2) The Titian Transfer Scheme

23.  When the Trust CTS scheme could not be completed as intended because the Scheme Trust Monies remained blocked in Karim’s account, D8 devised a substitute scheme for the purpose of attaining the ultimate objective of transferring the Scheme Trust Monies to the Rosmerta Fund.

24.  An option/sales agreement dated 23 March 2010 was created between Karim and Baltera Limited (“Baltera”) (controlled by D8) whereby Karim would buy an option from Baltera to sell an old master painting by Titian (“the painting”) for €5 million. It was a condition of the put option that the sale of the painting be completed by 31 December 2010, failing which the transaction would be revoked.

25.  The price of the put option was €4.35 million. It was based on an earlier agreement of December 2009 under which the painting had been sold by D8 via AFTAG Zürich to Kentaur Investments SA for €5 million but that transaction was never completed. The plan which was for the proceeds of sale of the painting to be deposited by Karim without any need to attribute them to the Trust or to declare the plaintiff’s ultimate beneficial ownership of them therefore unravelled.

26.  By way of initial implementation of the Titian Transfer Scheme, D8 procured the transfer of approximately €4.35 million of the Scheme Trust Monies to Baltera’s account in Liechtenstein on 23 March 2010. A month later D8 transferred the same to Swiss Internet Capital Group Ltd (“SICG”) also controlled by D8. As earlier noted, the Swiss court found D8 guilty of embezzlement €4.35 million of the Scheme Trust monies and liable to make compensation of that amount to the Trustee.

27.  At about this time, D8’s position within the Trustee (as director and authorised representative with single signature authority) was terminated on 27 April and 1 June 2010 respectively. His engagement as head of AFTAG Zürich was terminated on 31 July 2010 (see §11 above).

28.  In short, the present position is that the Trust has been deprived of €4.346 million transferred into Karim’s account subject to the value (if any) of the put option over the painting whose ownership and authenticity are in dispute.

29.  As regards the Illiquid Trust Funds, the proceeds were transferred to the bank account of AFTAG Vaduz with D5 on 24 June 2010.

30.  The plaintiff’s complaint is the maladministration of the trust assets described above and the relief sought is primarily the reconstitution of the Trust as if the breaches had not taken place.

31.  The allegations are that D4 and D5 (being one of the participating interests in the Trustee) formulated and/or implemented the Trust CTS Scheme and consented to and acquiesced in the assumption of control of the Trust Funds by AFTAG Zürich/D8 for that purpose thereby becoming trustees de son tort.

32.  It was said that the Trust CTS Scheme and its attempted implementation constituted (i) a breach of the duties of, inter alia, D4 and/or D5 as fiduciaries by reason of the fact that the Trust CTS Scheme allowed the payment of exorbitant fees (representing approximately 8.5% of the total value of the Trust Funds as at 11 May 2009) to entities in the AFP Group and the Allied Finance Group and putting the Trust Funds at risk of the imposition of penalties by the US tax authorities; and (ii) a conspiracy by the participating entities in the Trustee, implemented by Mr Lampert, Mr Sage and representatives and related entities of D4: SOC §20.

(A) The gateways under Order 11 on which the plaintiff relies

(1) Rule 1(1)(j)

33.  Service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ:

“ the claim is brought to execute the trusts of a written instrument being trusts that ought to be executed according to Hong Kong law and of which the person to be served with the writ is a trustee, or for any relief or remedy which might be obtained in any such action”.

34.  D4 and D5 submitted that this gateway does not apply because neither of them is an express trustee appointed under the trust instrument.

35.  The plaintiff has not asserted that D4 and D5 are “express” trustees. The pleaded causes of action against them is that they “acted in relation to the Trust Funds such as to make each of them constructive trustees (trustees de son tort)” [8]. The question therefore is whether constructive trustees come within this gateway.

36.  Mr Fung SC cited Chellaram v Chellarem (No 2) [2002] 3 All ER 17 for the proposition that gateway (j) has no application to constructive trusts. That case concerned the construction of the English counterpart (CPR 6.20(11)) [9] to the Hong Kong provision. Lawrence Collins J (as he then was) stated (at [138]) that CPR 6.20(11) does not apply to constructive trusts, referencing CPR 6.20(14) as providing for constructive trusts and as the reason for confining the application of CPR 6.20(11) to express trustees.

37.  The Hong Kong provision (Order 11, rule 1(1)(j)) is not identical in that it contains the following additional provision: “or for any relief or remedy which might be obtained in any such action” which is not part of CPR 6.20(11).  Mr Fung placed emphasis on the last four words “in any such action” and submitted that the relief and remedy sought are specifically confined to the action against the express trustee to execute a written instrument. It cannot extend to foreign defendants who are not express trustees.

38.  Mr Todd submitted that the word “or” introducing that clause must be disjunctive. Hence any relief or remedy which is sought as part of that action (ie the action against the express trustee to execute the trusts that are subject to Hong Kong law) would extend to other persons if they have aided and assisted such trustee in its breach of trust.

39.  If an action is brought against an express trustee for breach of trust under a written instrument governed by Hong Kong law, such an action would unquestionably fall within the first part of (j) and any consequential relief or remedy against the express trustee would be part and parcel of that action.

40.  On that analysis, the additional provision would serve no purpose.  That scenario could not have been intended. Plainly, the additional provision must have been added to serve a purpose or meet a particular situation not covered by the earlier part of the provision.

41.  On balance, I consider that the additional provision could apply if, for example, in an action brought against an express trustee for breach of trust, the relief or remedy is sought from a person who has aided and abetted that breach of trust by the express trustee and stems from that breach.

42.  Based on the pleaded case (see SOC §§14(1), (2) and (6), 18(2), 20(1) and 23), it would apply to D4 and D5.

(2) Rule 1(1)(p)

43.  Subparagraph (p) reads:

“ the claim is brought for money had and received or for an account or other relief against the defendant as constructive trustee, and the defendant’s alleged liability arises out of acts committed, whether by him or otherwise, within the jurisdiction.”

44.  To come within this gateway which applies to constructive trusts, it is incumbent on the plaintiff to establish that the liability of D4/D5 must arise out of the acts committed, whether by them or otherwise, within Hong Kong and that such acts must be substantial and efficacious.

45.  Without the initial transfer of the Liquid Trust Funds out of the Mirabaud account by the Trustee triggering a series of transfers by way of deposits and withdrawals of the funds through multiple bank accounts of special purpose vehicles two of which were formed in Hong Kong for that purpose, the subsequent chain of events could not have taken place.  The initial transfer by the Trustee was the triggering event followed by multiple deposits and withdrawals by the Hong Kong special purpose vehicles took place in Hong Kong.

46.  D4 and D5 became trustees de son tort by reason of their involvement and participation in the formation of the Trust CTS Scheme and its implementation which was designed to anonymize the plaintiff’s beneficial ownership of the Trust Funds and for its eventual receipt by D5 for investment in investment fund structures it controls.

47.  Subparagraph (p) does not require those acts to have been committed by the foreign defendants sought to be joined so long as the relevant acts were committed in Hong Kong. On this reading of the provision, the present action would also fall within this gateway.

(3) Rule 1(1)(c)

48.  Subparagraph (c) reads:

“ the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto”.

49.  As stated in Hong Kong Civil Procedure 2019 at 11/1/17, whether to grant leave involves a three-stage enquiry. It is common ground that D1 is the “anchor” defendant for the purposes of this provision and there is no challenge regarding the forum issue.

50.  D4 and D5 submitted that the plaintiffs have failed to demonstrate that they are necessary or proper parties in the claims against D1. It was said that the assertion that D4 and D5 were pivotal to the trust structure was but a bare assertion and it was not explained why they were pivotal to the trust structure which makes each of them a necessary or proper party to the claim against D1.

51.  Instead of addressing that criticism, the plaintiff fell back on his conspiracy claim to which D4 and D5 are part given that D5 was to be the ultimate recipient of the Scheme Trust Monies under the Trust CTS Scheme for investment in the Rosmerta Fund. On that basis, they would be necessary or proper parties for the purposes of this gateway.

(4) Rule 1(1)(d)(ii)

52.  The relevant part reads:

“ the claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract, being (in either case) a contract which … was made by or through an agent trading or residing within the jurisdiction on behalf of a principal trading or residing out of the jurisdiction”.

53.  The plaintiff’s complaints concern the maladministration of the Trust and seeks reconstitution of Trust Funds by way of equitable compensation. Mr Fung submitted that the plaintiff’s claims are not contractual in nature. There never was any contract between the plaintiff and D4 and D5.

54.  The plaintiff submitted that the Trust Deed is a contract under seal. I agree with Mr Fung that even if that were correct, the plaintiff, albeit the sole discretionary beneficiary thereunder, was not a party to the Trust Deed which was made between the settlor and the Trustee. In my view, the plaintiff has not shown that he is within this gateway.

(5) Conclusion

55.  For the reasons set out above, the plaintiff has made out a good arguable case that he is within sub-paragraphs (j), (p) and (c) of Order 11, rule 1(1).

(B) Whether there is a serious issue to be tried

56.  Apart from demonstrating that he is within one or more of gateways relied on, the plaintiff must also satisfy the court that there is a serious issue to be tried on the merits of the claim.

57.  Mr Todd submitted that, in substance, this test is no different from the test under Order 14 applications and there are sound policy reasons for applying the same test. A foreign litigant should not be subjected to proceedings which the defendant would be entitled to have summarily dismissed. That much was common ground.

58.  On the basis that the test for service out of jurisdiction is really the same as the test for summary judgment, Mr Todd submitted that this court should not descend to the merits of any claim based on fraud or dishonesty and invited the court to apply the approach of Order 14, rule 1‌(2)(b). Order 14 expressly excludes summary judgment for fraud or dishonesty.

59.  In the absence of authority (and none was cited) for that approach, I agree with Mr Fung there is no basis for the court not to be concerned with the merits of the plaintiff’s claim based on fraud or dishonesty for the purposes of Order 11.

60.  The plaintiff also invited the court to proceed on the basis that the facts pleaded in the SOC are decided in his favour and there should not be a trial on affidavits, citing the decision in Tay Choo Wah v The Singapore-Johore Express (Pte) Ltd [1992] 1 HKLR 19 followed in GDH Ltd v Creditor Co Ltd [2008] 5 HKLRD 895, [2008] HKEC 1780.

61.  These authorities do not support the plaintiff’s propositions. Both the pleadings and the affidavit evidence need to be considered. In the event that the facts are disputed the court should not attempt to try them on affidavit.

62.  The fact that D4 and D5 have not put in evidence to challenge allegations made for example in SOC §§14 (6), 18(2) and 21 cannot be taken as meaning that those allegations must be taken to be true. Whether or not D4 and D5 have put in a defence or filed evidence challenging the plaintiff’s case is immaterial. The question is whether the plaintiff has shown a serious issue to be tried in respect of each of his causes of action by affidavit evidence.

63.  Various causes of action were pleaded against D4 and D5: knowing receipt, dishonest assistance and conspiracy as well as for breaches of trust and/or fiduciary duties as trustees de son tort.

64.  In broad outline, D4 and D5 submitted that neither the pleadings nor the evidence in support provide the necessary particulars as to how each of them came to have the relevant knowledge of the alleged breach of trust by D1 or have reason to believe that the relevant funds came from a breach of trust. In relation to dishonest assistance no particulars have been given to demonstrate how they had assisted in D1’s breaches of trust/fiduciary duty and why they are said to be dishonest. No facts, matters and circumstances have been pleaded to demonstrate dishonesty.

65.  On the conspiracy issue, it is incumbent on the plaintiff to prove (i) the nature of the agreement; (ii) the unlawful means alleged; (iii) each unlawful act relied on as causing loss; (iv) the fact that each such act was carried out pursuant to the conspiracy; and (v) the relevant state of mind of the putative conspirator: see De Krassel v Chu Vincent [2010] 2 HKLRD 937 at §41. Mr Fung submitted that the plaintiff has not pleaded any particulars on each of the five elements.

66.  MNS’ 1^st affidavit in support of this application made references to the findings set out in the Judgment. It is to be noted that D4 is not mentioned in the Judgment at all and D5 featured only in the context of what the Swiss court found to be D8’s actual aim, which was for the Scheme Trust Monies to end up in Switzerland in D5’s accounts where it would be paid into the Rosmerta Trust[10].

67.  The plaintiff sought to show D4 and D5’s intimate involvement in the formulation and implementation of the Trust CTS Scheme through documentary evidence exhibited as MNS 8 to MNS’ 8^th affidavit the contents of which are described in §§23 – 33 of that affidavit.

68.  For present purposes, the material exhibits in MNS 8 are those covering the period from 19 April 2009 to 20 August 2009. While they show that Mr Gubser and/or Mr Walchli were involved with D8 relating to the setting up the St Vincent Fund requiring a particular structure for their US clients, neither the plaintiff nor the Trust featured in any of the documents. Nor was there any mention of a CTS scheme as such in the memorandum.

69.  The Trust was under the management of D1 (prior to AFTAG Zürich/D8 taking over on 28 April 2009) and was not one of D5’s existing clients. From May 2009 to April 2010, D8 was a director with sole signing authority in D1. He was also verbally tasked with solving the problem with the Trust by D1 and responsible for mandates[11].

70.  By email dated 28 April 2009 to Liz Abenoja, one of the plaintiff’s many investment advisers[12], D8 informed her that AF in Zürich “has taken over the lead in dealing with this client”. It is worth noting that D4 and D5 were not copied on this email.

71.  The 19 April memorandum from D8 prepared for his then upcoming meeting with Mr Gubser was concerned with the position of D5’s existing clients (who would have to leave the Bank i.e. D5) and had nothing to do with the Trust. “Intended clients” simply did not feature.

72.  It is unclear whether by that date D8 had already taken over control of the Trust from D1 although by 28 April he had clearly done so. There is simply no evidence to show when and how D4 and/or D5 learned about the Trust and their role in relation thereto.

73.  Pausing there, the SOC and the supporting affidavits made references to D4 and D5 as being one of the participating interests in the Trustee. That, presumably, is a reference to D4’s one third beneficial interest in the AFP Group. That fact of itself cannot be taken to mean that it knew what was happening in D1 which is a separate corporate entity.

74.  On 28 April 2009, AFTAG Zürich and D8 [13] its site director [14] took the lead (ie assumed control) over the Trust Funds D1 had placed with Mirabaud. That D4 and D5 were not involved in such assumption of control is clear from SOC §18(1) where they are not mentioned.

75.  That D8 and D4 and D5 worked on formulating and developing CTS schemes for IHAG clients from about May 2009 seems tolerably clear. But that is as far as it goes. It was very much a work in progress that appears to have lasted several months.

76.  As late as 6 June 2009, Mr Walchli in his email to D7 and D8 admitted to not being able “to understand what we sell why to whom”, remarking that despite discussions that took place in London his impression was that “we are far away from having mutually accepted solutions throughout all involved organisations (AFP, Allied [D4 and D5])”.

77.  The minutes of a meeting of 20 August 2009 concerning collaboration between D5 and AF, recorded D5 as stating that its position “is still the same as it was already at the Board Meeting in London in May 2009” and that D5 “is still looking for solutions in regard to their overseas clients because they have to leave the Bank by law at the End of 2009 at the latest”.

78.  The plaintiff’s case against D4 and D5 is premised on D4 and D5 being involved from inception as regards the Trust CTS Scheme[15] described in SOC §§21 and 23. Here, a distinction needs to be made between CTS schemes in general and the Trust CTS Scheme which relates specifically to the plaintiff. As recorded in the minutes of the 20 August 2009 meeting[16], D8 considered each client to be “unique”, requiring “an individual consultancy”.  In other words, a CTS scheme was not a “one size fits all” type of scheme.

79.  On 30 April 2009, Mr Lampert informed inter alia Mr Sage and Mr Saji Mathew that the AF group needed the special structure to be ready immediately. By 7 May 2009, “NEW SPECIAL structure with Standard Chartered Bank” had been established as well as destination accounts for three of the companies pleaded at §21(1) of the SOC, namely RSHL, SIL and PAML.

80.  Mr Walchli was one of a number of people who had been sent a copy of the emails which appear to have been internal communications of the Allied Finance Group. But the emails do not show why such structures were needed “immediately” and, critically, no particulars have been provided as to how Mr Walchli came to know that it was in respect of the Trust. 

81.  The Liquid Trust Funds were transferred out of Mirabaud in two tranches: on 14 May 2009 and 26 May 2009 [17] to RSHL, one of the special structure companies incorporated in Hong Kong.

82.  The Scheme Trust Monies were deposited in a non-interest- bearing account of Karim with the SCB Dubai on 24 June 2009.

83.  To make out a case of knowing receipt, the plaintiff has to show that D4 and/or D5 knew of D1’s breach of trust. While “emergency measures” [18] were said to have been taken and the decision made by D8 to liquidise the Trust, no particulars have been provided to show that D4 and/or D5 was aware of such matters and, if so, when that occurred. No particulars have been provided as to when and how D4 and D5 knew about the problems with the Trust and their involvement in providing a solution.

84.  While D5 was copied on the email of 7 May 2009, nothing is known of the context of the 30 April and 7 May emails. The mere fact that Mr Walchli was copied is neither here nor there given D5’s general interest in CTS schemes for its own clients.

85.  The Illiquid Trust Funds were transferred into the account of AFTAG Vaduz at D5. That fact of itself would not render D5 liable as knowing recipients without particulars to show that D5 knew that the transfer was in breach of trust or fiduciary duty.

86.  In my view, the plaintiff has not shown that there is the serious issue to be tried in relation to the knowing receipt claim.

87.  Dishonest assistance requires the plaintiff to establish that D4 and D5 had assisted in some breach of trust or fiduciary duty and were dishonest in doing so. I agree with Mr Fung that there is also no serious issue to be tried given the absence of particulars showing how D4 and D5 had assisted D1’s breaches of trust/fiduciary duty and why each of them is now alleged to be dishonest.

88.  On the conspiracy issue, given the absence of particulars of each of the five ingredients set out in De Krassel v Chu Vincent, there can be no serious issue to be tried.

Conclusion

89.  For the reasons set out above, I do not consider that the plaintiff has shown that there is a serious issue on the merits of any of his claims against D4 and D5.

90.  In view of my conclusion, it becomes unnecessary to deal with the limitation point and I do not propose to do so.

91.  Accordingly, the master’s order dated 17 April 2018 granting leave to serve the amended concurrent writ of summons on D4 and D5 out of the jurisdiction is set aside.

92.  An agreed draft order should be submitted for approval. There is to be an order nisi of costs here and below with certificate for counsel, such costs to be paid by the plaintiff to D4 and D5, to be taxed if not agreed.

Mr Richard Todd, instructed by Holman Fenwick Willan, for the plaintiff

Mr Eugene Fung SC, instructed by Baker & McKenzie,  for the 4^th and 5^th defendants

HCA 961/2017

[2019] HKCFI 1145

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 961 OF 2017

____________

____________

_________________________

REASONS FOR DECISION
ON COSTS

_________________________

I.  INTRODUCTION

1.  This is a dispute in respect of a trust (known as the “Monfred Trust”) (the “Trust”)under which the 1^st defendant is the sole trustee and the plaintiff is the sole beneficiary. The Trust is governed by Hong Kong law.

2.  There are two applications (by way of a summons dated 2 August 2018 (the “Summons”)) before the Court.  Paragraphs (1) and (2) of the Summons provide as follows:

(1)   An order that an injunction be granted against the 1^st defendant that the 1^st defendant do consent to and support with all means, including but not limited to by itself or by its directors, officers, employees, agents or such persons over which it exercises effective control or influence, an application to be made by the 8^th Defendant to the High Court for the Canton of Zürich (Obergericht des Kantons Zürich) (the “Obergericht”), Switzerland in case number SBI 70180-0:-

(a)   To permit inspections of the painting, “The Entombment of Christ” attributed to Titian (the “Painting”) to be carried out by person or persons;

(b)   for the proposed sale, if any, of the Painting, such sale to be subject to such conditions as the Obergericht may fix, in particular as to the receipt and retention of the proceeds of any such sale;

(2)   An order for the sale, if any, of the Painting in such manner and on such terms to be reviewed by the Obergericht upon the completion of the inspection of the Painting as set out in the foregoing paragraphs.

3.  The application was heard on 22 October 2018 and my decision was reserved.  At the hearing, the Court was already informed that the 8^th defendant was appealing against his criminal conviction and the hearing before the Obergericht was scheduled to take place on 13 December 2018.  It was however not apparent then that the sale of the Painting was going to be the subject matter of that appeal.  

4.  On 18 December 2018, the 1^st defendant’s solicitors informed the Court the appeal was heard and Obergericht’s short form decision together with the English translation of the same prepared by the 1^st defendant’s Swiss lawyers were enclosed (“Decision”).  The Court was informed that the Obergericht’s written reasons would be provided within 3 months.

5.  Although the written reasons of the Obergericht has not been made available, the parties then wrote to the Court making a number of points on the effect and impact of the Decision.

6.  Having considered the English translation of the Decision:    

(1)   It appears to me that the Obergericht has ordered that (i) the Painting be confiscated and realised by the cashier of the Zürich District Court (the “Bezirksgericht”) (§6) and that (ii) the proceeds from the realisation thereof be awarded to the 1^st defendant (§13). 

(2)   In these premises, it seems that there is no longer a need for the Court to order relief in terms set out in the Summons. That is because the process of sale of the Painting (and the manner in which it is to be conducted) are now completely in the hands of the Bezirksgericht, over which neither the 1^st Defendant nor the 8^th defendant has any control. If so, then the following results would seem to follow:

(i)   the 8^th defendant would no longer need to apply for sale of the Painting (since it has already been ordered by the Obergericht);

(ii)   an additional order for said sale would be superfluous; and

(iii)   the 8^th Defendant would not be a suitable applicant for inspection of the Painting (since it has already been divested from him by way of the Obergericht’s confiscation order).

(3)   Accordingly, none of the relief sought under paragraphs 1 and 2 of the Summons appears necessary or appropriate.

7.  Despite the aforesaid, the plaintiff’s solicitors maintained that an injunction in terms of the Summons was still necessary.  As the issue involves the interpretation and effect of the Decision, the Court directed a further hearing for submissions on the necessity of the orders sought. 

8.  The parties eventually agreed shortly before the resumed hearing that an injunction is no longer necessary and the only remaining issue was costs.  At the hearing on 26 April 2019, I ordered that:

(1)   costs of the Summons (including the hearing on 22 October 2018) be paid by the 1^st defendant to the plaintiff to be taxed if not agreed; and

(2)   there be no order as to costs for the hearing on 26 April 2019.

9.  In respect of the hearing on 26 April 2019, I took into account the fact that both parties had insisted that determination of the Summons was necessary until shortly prior to the hearing.  Further, although the plaintiff was successful in obtaining costs of the Summons, I declined to given them liberty to apply or to adjourn the Summons sine die as submitted by Mr. Todd.  I am therefore of the view that making no order is fair in the circumstances.

10.  As to costs of the Summons (including the hearing on 22 October 2018), I am of the view that had it not been the Decision, I would have allowed the plaintiff’s application in slightly different terms.  There was therefore good justifications in making the application in the first place and there is no reason why costs should not follow the event.  To explain my decision, I shall set out the reasons as to why I would have granted the injunction sought.    

II.   FACTUAL BACKGROUND

11.  The salient facts are largely undisputed.

12.  The plaintiff is a national of the United States of America and the sole beneficiary of the Trust.

13.  The 1^st defendant is a company incorporated in Hong Kong, carrying on business as, inter alia, a professional trustee. 

14.  The Trust was established pursuant to a trust deed dated 3 July 2007 executed between Jura Management Trust of Vaduz, Liechtenstein, as settlor and the 1^st defendant as trustee under its former name of Allied Finance Asia Limited (the “Trust Deed”).

15.  The 8^th defendant is the registered owner of the Painting, which was stored in an art storage depot near Cologne and is under judicial control of the Obergericht.

16.  The dispute between the plaintiff and the defendants arises from some convoluted schemes consisting of a series of complex transactions, with multiple corporate entities involved (the “Schemes”).  The particulars of the Schemes are not germane to the issues with which these applications are concerned. Suffice it for me to say that, in carrying out the Schemes, the 8^th Defendant caused the Trust fund to be deprived of a sum of €4.346 million (the “Sum”).  This is the finding of the 9^th Division of Bezirksgericht after a trial of the 8^th Defendant for “qualified embezzlement” in relation to the Schemes under the Swiss criminal code – a finding which is not disputed in the present proceedings.

17.  The following points in connection with the Swiss proceedings are relevant:-

(1)   The prosecution against the 8^th Defendant was instituted by the 1^st Defendant (as trustee of the Trust). In the same instance, the 1^st Defendant brought a civil claim against the 8^th Defendant in parallel, in a bid to reconstitute the Trust and recover any loss arising from the 8^th Defendant’s wrongdoing.

(2)   On 23 March 2017, the Bezirksgericht convicted the 8^th Defendant of qualified embezzlement on the basis that the 8^th Defendant misappropriated the Sum and used it for “his own personal needs and purposes between April 2010 and June 2011”. The reasoned judgment (the “Urteil”) was delivered on 27 April 2017.

(3)   In the Urteil, the Bezirksgericht ordered, inter alia, (1) that, in respect of the 1^st Defendant’s civil claim, the 8^th Defendant pay the 1^st Defendant the Sum as damages; (2) that the seizure of the Painting be lifted (and returned to the 8^th Defendant) because a sale thereof (as requested by the Prosecution) would be “inadvisable” at that stage.

(4)   On or about 12 April 2017, the 8^th Defendant lodged an appeal to the Obergericht against his conviction. The Prosecution, for its part, appealed against the lifting of the seizure.

(5)   Pending the appeal, the Painting remained under the control of the Obergericht. 

18.  In the wake of his conviction (and the compensation orders made by the Bezirksgericht), the 8^th Defendant (being the registered owner of the Painting then, as now) wished to exercise his right of ownership of the Painting to sell it and apply the proceeds to restore the Trust.

19.  This led the 8^th Defendant to file two applications to the Obergericht dated 6 December 2017 (the “December 2017 Application”) and 12 March 2018 (the “March 2018 Application”) for approval to have the Painting produced for inspection by a prospective purchaser.

20.  The December 2017 Application was refused by the Obergericht. As will be explained below, the reasoning for this decision would prove critical to the determination of the applications. I shall therefore set it out in full as follows:-

“Grounds of Decision

1. In these criminal proceedings, [the Painting] has been seized by the Cologne Office of the Public Prosecutor by mutual judicial assistance and stored at an art warehousing company in Germany.

2. By Submission dated 6 December 2017, the [8^th Defendant] gave notice that he had identified a party interested in purchasing [the Painting]. The [8^th Defendant] had also requested a date to visit the painting at the art warehouse for purposes of taking photographs.

3. The ownership title to the painting in question is currently still unclear. In his examination as a Defendant, the [8^th Defendant] himself took the position that he had sold [the Painting] and/or that he had transferred the shares to the owner of [the Painting] by way of security, and/or that the [1^st Defendant] is the beneficial owner of the Painting. Against this background, there is no legal basis whatsoever for the [8^th Defendant] to undertake any action with respect to a sale. For this reason, his application should be dismissed.”

21.  The March 2018 Application was, likewise, declined, on the ground that the 8^th Defendant had failed to resolve the “lack of clarityas to ownership of [the Painting]”.

22.  At this juncture, I note that, from the reasoning of the Obergericht set out above, its primary concern (if not its sole concern) appears to be the potential problems arising from the possibility of the 8^th Defendant not having title to the Painting. It follows that, if that could be adequately addressed, the Obergericht should be inclined to allow the 8^th Defendant’s application for an inspection (and, in all likelihood, sale) of the Painting, given he is the registered owner thereof. 

23.  After both of his applications were turned down, the 8^th Defendant attempted to seek the 1^st Defendant’s consent to a fresh application to the Obergericht for inspection and sale of the Painting (the “Proposed Application”). Nevertheless, the 1^st Defendant has remained resolute in refusing to consent to any such application; hence the applications by Summons.

III.  THE PLAINTIFF’S AND THE 1^ST DEFENDANT’S RESPECTIVE POSITIONS

24.  In support of the applications, the Plaintiff, in gist, submitted the following:-

(1)   There is a strong prima facie case that the 1^st Defendant is in breach of trust on two levels:-

(a)   First, the 1^st Defendant is vicariously liable for the 8^th Defendant’s misconduct.

(b)   Secondly, the 1^st Defendant, as the primary wrongdoer, is in continuing breach of trust by failing to take all reasonable steps to ensure restoration of the Trust funds.

(2)   The balance of convenience tips in favour of the Plaintiff for the following reasons:

(a)   It is in the best interests of all parties concerned to have the Painting sold at the best available price as soon as is practicable.

(b)   The Painting has a complicated history regarding its proper attribution and provenance. There is no guarantee that there will always be a willing and ready buyer to pay a price similar to that offered by a Mr. Heck, an intended purchaser interested in the Painting.

(c)   Given the available avenues of criminal appeals in Switzerland, it might take several years before the Plaintiff could be fully compensated by, inter alia, having the Trust fund reconstituted through the Swiss proceedings.

(d)   The 1^st Defendant would suffer no real potential prejudice arising from the orders sought (or at least it is unable to show any).

25.  Against these submissions, the 1^st Defendant put forward the following grounds in opposition to the applications:

(1)   Based on the advice given by the 1^st Defendant’s Swiss legal team, whether or not the 1^st Defendant consents to the Proposed Application would make no difference (the “No Difference Ground”);

(2)   The orders sought, if granted, would offend the Obergericht (the “Disrespect Ground”);

(3)   The 1^st Defendant might be deemed by the Obergericht to be colluding or cooperating with the 8^th Defendant pending the latter’s appeal, which might lead to repercussions because the 8^th Defendant is a “criminal” (the “Collusion Ground”);

(4)   The 8^th Defendant may take advantage of the prospect of selling the Painting in his appeal against his conviction and against the quantum of civil damages awarded by the Obergericht. In particular, the 8^th Defendant might be able to pay less damages to the 1^st Defendant than he otherwise would by reason of the sale (the “Reduction of Damages Ground”); and

(5)   Damages are an adequate remedy to compensate the Plaintiff for any loss arising from the Court’s refusal to grant interim relief (the “Adequacy of Damages Ground”).

IV.  RELEVANT LEGAL PRINCIPLES

Mandatory interlocutory injunction

26.  The injunction sought is in the nature of a mandatory injunction. The following propositions concerning the grant of this species of injunction are well-established (see the summary in Hong Kong Civil Procedure 2019 at §29/1/11, 29):-

(1)   As with an interim negative injunction, the applicant generally needs to show, at the outset, that damages would not be adequate to compensate them for any loss caused by the refusal to grant a mandatory interlocutory injunction. If they fail to do so, injunctive relief would normally be withheld.

(2)   If there is doubt as to the adequacy of damages in compensating either the applicant or the respondent, the Court shall proceed to the “balance of convenience” stage. Through this balancing exercise, the Court would take whichever course appears to carry the lower risk of injustice should it turn out that it is wrong.

(3)   So far as merits are concerned, the Court would not grant a mandatory injunction unless it feels a high degree of assurance that, at the trial of the action, it would be shown that the injunction is rightly granted. The applicant would therefore need to make out a “strong prima facie” case on the merits in order to succeed.

27.  Since the Court is exercising its equitable jurisdiction whilst granting an interim injunction, the Court should give due weight to general equitable considerations in considering whether to do so in any given case.

28.  It is trite that “equity does not act in vain”, which requires the Court to withhold injunctive relief where to do otherwise would be tantamount to “locking the stable door after the horse has bolted”: see Hsin Chong Construction (Asia) Ltd v Henble Ltd (unrep., HCCT 23/2005, 12 May 2005) per Reyes J (as he then was) at §29.

Application under Order 29, rule 4

29.  Order 29, rule 4 provides as follows:

“The Court may, on the application of any party to a cause or matter, make an order for the sale by such person, in such manner and on such terms (if any) as may be specified in the order of any property (other than land) which is the subject-matter of the cause or matter or as to which any question arises therein and which is of a perishable nature or likely to deteriorate if kept or which for any other good reason it is desirable to sell forthwith.”

30.  The purpose of this rule is to avoid any injustice that might result from goods becoming of no value or significantly reduced value over the course of interlocutory proceedings: see Hong Kong Civil Procedure 2019 at §29/8/11; On Demand Information plc v Michael Gerson (Finance) plc [2003] 1 AC 368 per Lord Hobhouse at §§7, 33.

The law of trusts

31.  It is settled law that trustees are subject to the supervisory jurisdiction of the Court and that they are under a duty to safeguard trust assets. They are, additionally, placed under a fiduciary duty to act in the best interests of the beneficiaries: see Libertarian Investments Ltd v Thomas Alexej Hall (2013) 16 HKCFAR 681 per Ribeiro PJ at §§72-3.

V.  ANALYSIS

Merits of the Plaintiff’s case against the 1^st Defendant

32.  I agree with the analysis of Mr. Stock SC, Counsel for the Plaintiff, with regard to the merits of the Plaintiff’s claim against the 1^st Defendant in trust. In particular, I am satisfied that there is a strong prima facie case that the 1^st Defendant has acted in breach of trust in the two ways delineated above.

33.  In particular, I accept that on the materials before me, it is highly probable that the 1^st Defendant would be held to be vicariously liable for the 8^th Defendant’s wrongful conduct at trial by reason of the close connection between the two. Indeed, contrary to the submissions of Mr. Brown, Counsel for the 1^st Defendant, case law suggests that the principal does not need to have knowledge of its agent’s wrongdoing for vicarious liability to arise: see Dubai Aluminium Co Ltd v Salaam [2003] 2 AC 366 per Lord Nicholls at §22.

34.  Further, I am satisfied that, being the trustee of the Trust, the 1^st Defendant is under a continuing fiduciary duty to protect the value of the Trust fund. In this respect, the Plaintiff is, in my view, correct in saying that, under the present circumstances, the 1^st Defendant’s consent would be conducive to the Proposed Application. I would develop this point in greater detail below when I consider whether equity would act in vain in the present premises. For present purposes, I shall only point out that, once it is accepted that the 1^st Defendant’s consent does help, it naturally follows that the 1^st Defendant is duty-bound to agree to the Proposed Application because doing so is precisely a way to recover the Trust assets.

35.  Mr. Brown sought to detract from the Plaintiff’s two-level analysis by contending as follows:

(1)   So far as the first level of breach is concerned, it is “irrelevant” to the present applications because the applications are not concerned with the culpability of the 1^st Defendant, but rather whether there is a strong prima facie case that the Painting should be sold.

(2)   In relation to the second level of breach, the 1^st Defendant, by taking proceedings in Switzerland against the 8^th Defendant and successfully obtaining judgment against him, has discharged his duty to take all reasonable care to safeguard the Trust assets.

36.  With respect to Mr. Brown, I do not agree with his analysis.

37.  When one speaks of “merits” in the context of an interlocutory injunction application, one is addressing the merits of the applicant’s cause of action. In this case, the Plaintiff’s cause of action as against the 1^st Defendant is breach of trust. Accordingly, it is the quality of this cause of action that the Court is interested in at this stage of the applications.

38.  Mr. Brown’s formulation of the issue (i.e. whether the Painting should be sold) takes one nowhere because it is, in effect, another way of asking, should relief be granted as per the Plaintiff’s request.

39.  As to whether the 1^st Defendant has already done enough to discharge its duty, I consider that it has not, for the simple reason that the duty is continuing and cannot be discharged once and for all. That the 1^st Defendant previously made an effort (a commendable one at that) to reconstitute the Trust is no answer to the question whether the 1^st Defendant has taken all reasonable steps that are open to it at this point in time to do the same. Accordingly, if it is unreasonable for the 1^st Defendant to withhold its consent in the present premises (which I believe, for the reasons given below, it is), then its prior diligence is no defence.

40.  In connection to this argument, Mr. Brown also questioned whether selling the Painting would, on a closer analysis, indeed allow the Trust to be reconstituted. His reasoning was as follows: since the Painting is currently under the control of Obergericht, selling it would transform the Painting into monetary assets which would, nevertheless, still remain in the possession and control of the Obergericht thereafter. Sale of the Painting would therefore be of no use whatsoever to the restoration of the Trust fund.

41.  I do not accept this argument.

42.  For one thing, one would recall that the Obergericht rejected the December 2017 and March 2018 Applications on the basis that the true ownership of the Painting remains obscure. On the assumption that the Proposed Application is allowed, it would, ex hypothesi, mean that the Obergericht is no longer bogged down by the issue of ownership. Realistically, therefore, there is no reason to suppose that the Court, despite being satisfied as to who owns the Painting, would forfeit the sale proceeds after the Painting is sold.

43.  Further, I am satisfied that the Painting is of such a sort that there is not always a readily available market for it. This means that, by the time the Swiss (or Hong Kong) proceedings are concluded, there might be no willing and ready buyer at all. It is therefore paramount for the 1^st Defendant and the Plaintiff to act promptly where there is such a buyer, so that the opportunity to reconstitute the Trust fund would not be lost. In this light, even if the 1^st Defendant is correct in suggesting that the sale proceeds would not go to the Trust immediately after the sale, selling the Painting would still be a critical step towards restoring the Trust fund.

The No Difference Ground

44.  The more controversial issue, in my mind, is whether the 1^st Defendant’s consent would in any material way assist the 8^th Defendant in the Proposed Application. If it would not, it would bear on the analysis of the present case in two fundamental ways: first, as alluded to above, the duty on the 1^st Defendant’s part to give consent to the Proposed Application would not have arisen in the very first place; and secondly, equitable relief ought to be withheld on the basis that equity does not act in vain.

45.  In this regard, Mr. Stock SC furnished an affirmative answer on the footing that the Obergericht would consider any material new facts and reassess its decisions accordingly and, that the 1^st Defendant’s consent is material because he was identified by the Obergericht as having a possible interest in the Painting.

46.  To the contrary, Mr Brown maintained that the 1^st Defendant’s consent to the Proposed Application would not take the matter any further because its consent (without more) does not dispose of the question of ownership over the Painting – the hurdle in the December 2017 and the March 2018 Applications. The 1^st defendant could, so the argument runs, expect “exactly the same response” from the Obergericht, unless that issue is resolved.

47.  I appreciate the force in Mr Brown’s argument, but I have come to reject it in the light of the reasoning behind the Obergericht’s decisions on the two Applications. The Obergericht appears to have refused the Applications on the basis that some third party might have some interest in the Painting. If the 1^st defendant – the party expressly identified by the Obergericht as potentially having a competing interest with the 8^th Defendant – comes forward and signify its agreement to the inspection and sale, it would naturally (to say the least) go some way to addressing the Obergericht’s concerns.

48.  Granted, the 1^st Defendant’s consent would not be conclusive or determinative of the title issues relating to the Painting, but it would certainly address a concern which had been bothering the Obergericht and thus lead to a real possibility that the Proposed Application would be allowed the third time around. This would be sufficient for the duty to consent on the part of the 1^st Defendant to arise and for equity to intervene in the present premises because its consent does help in a material way.

49.  It also follows that, by failing to consent to the Proposed Application, the 1^st Defendant has acted in breach of its duty to restore the Trust fund. It is not open to the 1^st Defendant to argue (as it did) that, insofar as it does not oppose the Proposed Application, it has discharged the said duty – the duty requires it to take positive steps to preserve the value of the Trust.

The Disrespect Ground

50.  I shall deal with this Ground briefly because, with respect to Mr. Brown, it has little merit. As submitted by Mr. Stock SC, reconsideration of procedural decisions is a normal and accepted part of the Swiss legal process (or, indeed, any developed legal system). It is hard to see why the Swiss Court would feel affronted simply because this Court grants an order which would enable it to make a final determination on the matter. In my view, there is no usurpation of jurisdiction or any other form of disrespect involved.  

The Collusion Ground

51.  Again, with respect, this Ground is devoid of merit. On the face of the evidence, the Proposed Application is understood by all parties involved (including the Obergericht: see, for instance, a letter from the 8^th Defendant’s Swiss lawyers to the Obergericht dated 12 March 2018, explaining the motives behind the December 2017 Application) to be an attempt by the 8^th defendant to atone for its wrongdoing. It is inconceivable that the Obergericht would find the 1^st defendant’s consent to such an innocuous arrangement inculpatory or otherwise suggestive of illicit activities.

The Reduction of Damages Ground

52.  This Ground is, yet again, lacking in merit because, as explained by Mr Stock SC, any reduction in the amount payable by the 8^th Defendant to the 1^st defendant must mirror a co-extensive increase in the Trust fund. In this light, the Trust would in no way be worse off as a result of sale of the Painting. Quite the contrary, an expedient restoration of the Trust funds would be beneficial to the Trust for the self-evident reason that the risks of non-recovery further down the road (by reason of, say, any of the Defendants’ insolvency) could be avoided altogether.

The Adequacy of Damages Ground

53.  The thrust of the 1^st defendant’s logic could be boiled down to this: even if the plaintiff is right in claiming that, should injunctive relief be withheld, the Painting would depreciate in value (or, worse still, might not be sold at all), any damage that it suffers is capable of being quantified (and so adequately compensated for by damages).

54.  This line of reasoning is flawed. The Trust in the present premises is an investment trust which is intended to generate returns for the plaintiff: see Clause 3 of the Trust Deed. The sooner the Trust is reconstituted, the sooner the fund could be used to that end. Accordingly, should the Plaintiff be denied the relief sought in these applications (and the sale not take place as a result), it might suffer some loss of investment returns, which would, by its very nature, be difficult to quantify.

55.  Admittedly, there is a chance that the Obergericht might refuse to allow the inspection or sale even with the 1^st defendant’s consent. This would, however, be something that the trial judge would have to consider when fixing the quantum for this head of damage because, if relief is withheld from the plaintiff, one would never know what would have happened during the interim period before trial had it not been. This just goes on to demonstrate the difficulty in quantifying such losses.

Balance of convenience

56.  In the light of the foregoing analysis (in particular given the plaintiff has shown that it has a strong prima facie case and that damages would not adequately compensate it for loss occasioned by a denial of interim relief), the balance of convenience tips in favour of the plaintiff. 

57.  What is more, I consider the burden that the injunction would place on the 1^st defendant to be minimal.  The “positive act” that the 1^st defendant might be required to perform involves expenditure of little cost or labour (if any). The lack of hardship that might be experienced by the 1^st defendant, in my view, reinforces the plaintiff’s case. 

Conclusion on the interim mandatory injunction application

58.  In the circumstances, I have come to the view that the Plaintiff has satisfied the test for an interim injunction to be granted so as to mandate the 1^st defendant to agree to any Proposed Application.

59.  Notwithstanding that, I am not satisfied with the breadth of the order in terms of paragraph 1 of the Summons. I am particularly troubled by such phrases as “support with all means” and “such persons over which it exercises … influence”, which are vague and imprecise. As correctly pointed out by Mr. Brown, mandatory injunctive orders, being coercive in nature, must be drafted with sufficient precision, lest the injuncted party be held liable for contempt through no fault of its own: see The Incorporated Owners of Jade Plaza v Lam Chau Shing & Ors (unrep., HCA 2331/2004, 28 June 2005) per DHCJ Saunders at §3.

60.  At the conclusion of the hearing, I have invited the plaintiff to re-consider the wordings of paragraph (1) of the Summons but the invitation was declined by the plaintiff’s solicitors.  Whilst I am satisfied that an order along the lines of paragraph (1) ought to be made, I am of the view that the wordings should be revised by adding the words “in writing” after “support” and deleting “with all means, including but not limited to …control or influence”. 

Order for sale under Order 29, rule 4

61.  On the evidence available, I am satisfied that the Painting (which is clearly the “subject-matter” of the present action) does not have a readily available market because of the complicated history surrounding its attribution and provenance. This means that, if, for instance, the present prospective buyer runs out of patience and walks away, there is a real risk that the Painting would remain unsold. Accordingly, the requirements under Order 29, rule 4 are, in my view, satisfied, in that there are good reasons for the Plaintiff to sell the Painting forthwith.

62.  Mr Brown took two issues with the plaintiff’s submissions concerning this order.

63.  First, Mr Brown submitted that the Painting was not “perishable” and that “there is no suggestion that it is deteriorating”.

64.  Whilst this is factually true, the plaintiff in the present case relies on the open-textured part of Order 29, rule 4 (namely, that it is “desirable to sell forthwith” the Painting “for good reasons”), rather than that it is “perishable” or “deteriorating”.

65.  Secondly, Mr. Brown discounted the evidence produced by the Plaintiff by, essentially, pointing out that, at various points in time, there were buyers willing to pay a considerable sum for the Painting (despite the lack of promotion on the market). It appears that he was seeking to draw an inference from this that, contrary to the Plaintiff’s allegation, the Painting has a decent demand on the art collection market.

66.  I am not, however, persuaded that any such inference has the effect of removing the probative value of the Plaintiff’s evidence. The Bezirksgericht’s observation that the Painting might not have any substantial value at all and the persistent rumours as to the authenticity of the Painting on the relevant market, for instance, remain strong evidence in support of the plaintiff’s view.

67.  In these premises, I would have accepted the plaintiff’s submission that any potential buyer of the Painting would have to have a certain appetite for risk and that the Court should not assume that there will always be a coterie of such eager buyers for it. An order for sale under Order 29, rule 4 would accordingly be apposite relief to the plaintiff.