HCMP 633/2019
[2023] HKCFI 2149
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
MISCELLANEOUS PROCEEDINGS NO 633 OF 2019
________________________
| | IN THE MATTER of an application on behalf
of the Plaintiffs YU QUAN LI and LOU XIAO
JIE against the Defendant SUEN KIN WING in HCA 1671/2018 for an Order of committal |
| | and |
| | IN THE MATTER of Order 52 rules 1 and 3
of the Rules of the High Court (Cap. 4A) |
________________________
BETWEEN
| YU QUAN LI | 1st Plaintiff |
| LOU XIAO JIE | 2nd Plaintiff |
| and | |
| SUEN KIN WING | Defendant |
________________________
| Before: | Deputy High Court Judge Winnie Tsui in Court |
| Dates of Hearing: | 31 May 2022 and 6 January 2023 |
| Date of Judgment: | 31 August 2023 |
________________________
J U D G M E N T
________________________
INTRODUCTION
1. This is the trial of the 1st and 2nd plaintiffs’ application for an order for committal of the defendant for contempt.
2. The plaintiffs raise two counts of contempt:
(1) Count 1 – the defendant was in breach of the worldwide freezing injunction granted on an ex parte basis on 18 July 2018, and continued and varied on 27 July 2018 in the High Court action HCA 1671/2018 (“the Injunction”) by assigning his interests in 27 apartments in London to a company called Southern Capital Ltd, a BVI company, on 27 July 2018.
(2) Count 2 – he was in breach of the ancillary disclosure order contained in the Injunction (“the Disclosure Order”) by wilfully and repeatedly failing to disclose his assets to the plaintiffs.
3. Count 1 primarily turns on whether the defendant had the necessary state of mind for contempt when he made the assignment. Count 2 turns on the extent to which he may rely on the privilege against self-incrimination when he has failed to disclose any asset at all pursuant to the Disclosure Order.
4. At the trial, the plaintiffs were represented by Mr William Wong, SC, appearing with Ms Tiffany Chan. The defendant acted in person. He has been acting in person in these contempt proceedings since November 2019.
5. The plaintiffs called the 2nd plaintiff as their only witness. Her evidence is contained in her 5th affirmation made on 14 March 2019 in HCA 1671/2018. She was tendered for cross-examination but the defendant had no question for her. As such, the plaintiffs’ evidence is unchallenged. In any event, the evidence primarily relates to the background facts surrounding the grant of the Injunction and the Disclosure Order and the plaintiffs’ investigation into the defendant’s assets, including their communication with the police.
6. The defendant has filed an opposing affirmation dated 27 July 2021. At trial, having been informed of his right to remain silent, he elected to rely on and adopt the contents of the affirmation and was cross-examined on it. He called no other witness.
7. In a previous directions hearing before me, the defendant confirmed that he understands English but would prefer to use Cantonese in the trial. The trial was therefore conducted in Cantonese. But I directed that all written documents be in English.
BACKGROUND FACTS
8. The plaintiffs are husband and wife. They were clients of UBS AG, a well-known bank. They opened a joint account there in 2014 for investment purposes. The defendant was then an associate director of the bank and was assigned as the client advisor to the plaintiffs’ account.
The plaintiffs’ case in HCA 1671/2018
9. The plaintiffs’ case in HCA 1671/2018 is broadly as follows. The details are not material to the committal application and will not be recited here.
10. The plaintiffs say that during the period from November 2016 to February 2018, they were defrauded by the defendant in the sum of about HK$120 million. Based on various representations made by the defendant, they transferred sums of money in Renminbi to an account designated by the defendant for currency conversion, believing that the converted sums would then be transferred back to their account in US dollars or HK dollars at UBS. It turned out that some of these funds were not transferred back. The defendant fabricated transaction slips and bank statements to conceal the fraud from the plaintiffs. The plaintiffs say that the defendant had misappropriated these funds.
11. The fraud was discovered in about June 2018 when a new account manager was assigned to the plaintiffs’ account and the authentic bank statements showing the true state of the account were given to the plaintiffs.
The material terms of the Injunction and the Disclosure Order
12. Based on the above case, the plaintiffs obtained the Injunction in the following month to restrain the defendant from disposing of or dealing with his assets both in and outside Hong Kong pending further order of the court. The plaintiffs were also granted the Disclosure Order.
13. The Injunction followed the standard wording. The material terms relevant to Count 1 are in para 1(1)(b). Para 1(1) is reproduced below:
“The defendant must not —
(a) remove from Hong Kong any of his assets which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned, up to the value of HK$130,000,000, and
(b) in any way dispose of or deal with or diminish the value of any of his assets, whether within or outside Hong Kong, whether in his own name or not, and whether solely or jointly owned up to the same value. This prohibition includes, but not limited to, the following assets, in particular:
(i) Any money in the [defendant’s account] at HSBC;
(ii) [Three properties in London]
(iii) [Two properties in Zhuhai, China]
(iv) The property and assets of the defendant’s companies known as:
(1) Mega On Limited and
(2) Fourwell Inc Limited
or the sale money if any of them have been sold.” (underline added)
14. Count 2 is based on the Disclosure Order. The material terms are contained in para 2 (subject to two variations made on the return day):
“(1) The defendant must inform the plaintiffs in writing at once of all his assets of an individual value of HK$10,000 or more, whether in or outside Hong Kong, whether in his own name or not, and whether solely or jointly owned, giving the value, location and details of all such asset. The defendant may be entitled to refuse to provide some or all of this information on the grounds that it may incriminate him.
(2) This information must be confirmed in an affidavit which must be served on the plaintiffs’ solicitors within 7 days after this Order has been served on the defendant.”
15. The Injunction was first granted at an ex parte hearing on 18 July 2018. It was then served on the defendant on the following day, 19 July 2018, by three methods, including the following:
(1) email; and
(2) courier to his last known address at Imperial Cullinan, Kowloon.
16. There was no personal service of the Injunction on the defendant.
17. The return day was on 27 July 2018. On that day, the defendant instructed counsel to attend the hearing and to vary the Disclosure Order. It was ordered that the ex parte order be continued with two variations to the Disclosure Order. First, the monetary threshold for disclosure of assets was increased from HK$10,000 to HK$50,000. Second, the time limit for disclosure was extended to 10 August 2018.
The alleged breach in Count 2
18. On 9 August 2018, the defendant filed a short affirmation (containing four paragraphs only) in relation to the Disclosure Order (“the disclosure affirmation”). He made no disclosure of any of his assets. Instead, he invoked the privilege against self-incrimination. He said:
“2. I am advised by my legal advisers and verily believe that I have the right to refuse to disclose the requested information on the ground that the provision of such information may incriminate me, which is expressly provided for in the said order.
3. I verily believe that, in view of the matters already raised by the Plaintiffs against me, including the pending and potential criminal investigation, providing the information requested may incriminate myself.” (underline added)
19. The affirmation was followed by some correspondence between the parties’ solicitors. The plaintiffs’ solicitors contended that a mere statement by the defendant that the information on his assets may incriminate him is not sufficient and that he should explain the clear link between the information and the offence which he was charged with. The defendant’s solicitors generally disagreed.
20. Notwithstanding the correspondence, the fact remains that the defendant has to date not disclosed any of his assets pursuant to the Disclosure Order. The plaintiffs contend that that amounts to a breach of the order, which is the subject matter of Count 2.
The alleged breach in Count 1
21. As for the subject matter of Count 1, ie the alleged breach of the Injunction, it is not disputed that three deeds of assignment were signed by the defendant and dated 27 July 2018 and that under the deeds, the defendant’s interests in 27 apartments in England, known as Apartments 57, 97 to 108, 117, 118 and 131 to 142, 8 Casson Square, London (“the Casson Square properties”), were assigned to Southern Capital Ltd for nominal consideration as of that day.
22. It would immediately be noted that the assignment in fact took effect on the same day as the return day of the Injunction.
23. At the time when the plaintiffs obtained the Injunction, they were not aware of the defendant’s interests in the Casson Square properties. They were not part of the three London properties expressly listed in the Injunction.
Subsequent events
24. To complete the background facts, shortly afterwards, in September, the police informed the plaintiffs of the existence of the Casson Square properties.
25. On 27 November 2018, the plaintiffs obtained a corresponding freezing injunction against the defendant in England. This time, the Casson Square properties were expressly listed as part of the defendant’s assets to be injuncted. It was subsequently continued on 18 January 2019.
26. Upon being served with the English injunction, a developer in England provided information on the Casson Square properties to the plaintiffs. It was only at this point that they discovered the assignment of these properties on 27 July 2018.
THE PLAINTIFFS’ CASE OF CONTEMPT
27. The above background facts are largely uncontroversial. As mentioned at the outset, the plaintiffs’ factual evidence was not challenged by the defendant.
28. Based on these facts, the plaintiffs commenced the present committal proceedings in April 2019, putting forward the above two grounds of contempt. For Count 1, the plaintiffs contend that the assignment amounts to “dealing with” the defendant’s assets.
29. The plaintiff also seeks an order to dispense with personal service of the Injunction pursuant to Order 45, rule 7(7).
30. Order 45, rule 7(2)(a) provides that an order shall not be enforced unless it has been personally served on the person concerned. Rule 7(7) gives the power to the court to dispense with service “if it thinks it just to do so”.
31. Here, the Injunction was not personally served but was sent to the defendant by email and courier one day after the ex parte order was made.
32. It is plain to me that it is just to make a dispensing order in the present case. It is evident that at some point before the return day hearing on 27 July 2018, the defendant was aware of the making of the ex parte injunction and its terms, as he instructed counsel to attend the return day hearing on his behalf and to apply for variation of the Disclosure Order.
33. The purpose of Order 45, rule 7(2) is to ensure that notice of an order is given to the party bound: Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830 at para 69. That is no doubt the case here. Not only had the defendant had notice of the ex parte injunction before the return day, he had also had the opportunity to consider its terms and receive legal advice on it so that counsel was able to seek the variation at the hearing. Furthermore, the standard penal notice is set out in both the front page and the back sheet of the sealed copy of the order. The defendant must be taken to have been fully aware of the consequence of any breach.
34. In the circumstances, it is just to dispense with the service required under Order 45, rule 7(2)(a).
THE DEFENDANT’S CASE
35. The defendant’s opposing affirmation consists of only one short paragraph, with no particulars given. It read:
“我反對原告人作出的指控的原因 — 1. 該項樓宇在買的時候合約中已經有注明日後我要把樓宇的合約從我個人名義轉到我名下100%的公司，原因是稅務安排。2. 我在把樓宇從我個人轉到我100%持有的公司，我沒有向專業人士查詢所以不知道這也視為資產轉移。3. 樓宇轉到公司後，我沒有把它變賣或其他任何的行動。”
Count 1
36. In the course of his cross-examination, he supplemented his evidence as follows.
37. He studied commerce in university and graduated in 2008. His first job was with DBS Bank and he earned about HK$20,000 a month. He worked there for about six months and then moved to HSBC. His income was much increased there. He earned about HK$100,000 to HK$150,000 a month, inclusive of salary and bonus. He then worked at UBS for about six years, earning a similar income.
38. Back in April 2018 (ie just shortly before the alleged fraud was exposed), the defendant entered into three apartment sale agreements, all dated 27 April 2018, for the purchase of the Casson Square properties. The total consideration was about £20 million. At that time, he paid only the deposits for the apartments. He did not intend to eventually complete the sale but planned to sell the apartments one by one before final payments were due for the completion.
39. Furthermore, while he entered into the agreements in his personal name, he intended from the outset to transfer the properties from his own name to a BVI company because the latter would be charged capital gains tax at a much lower rate than if the properties were held in his personal name. As the BVI company was not yet ready, he signed the agreements in his personal name.
40. In this regard, he highlighted clause 12.5 of the agreements. It read:
“The Buyer may additionally within 3 months of the date of this agreement assign the benefit of its interest under the whole of this Agreement only on one occasion only:
(a) to a limited company of which the Buyer is a majority shareholder and in respect of which a legal opinion, from a reputable law firm in the jurisdiction in which that company is registered, is provided to the Seller stating that such company is entitled and empowered by its constitution to enter into and complete the arrangements set out in this Agreement and any ancillary documents and to complete the purchase of the Property;
(b) to a member of the Buyer’s immediate family; or
(c) a trust substantially owned or controlled by the Buyer and benefitting the Buyer’s immediate family
subject to the form of assignment being approved by the Seller (acting reasonably)”
41. After he signed the agreements, he proceeded to incorporate Southern Capital Ltd in the BVI. It is his evidence that the company was 100% owned by him.
42. In support of that, in the course of his oral evidence, he produced a copy of a certificate of incumbency signed by Vistra (BVI) Ltd and dated 1 June 2018. It certified that the company was incorporated in the BVI on 24 April 2018 and that the defendant was its sole director and shareholder. It also stated that the defendant was appointed as director on 24 May 2018.
43. The certificate had not been disclosed prior to the trial. Hence the court would treat it as the defendant’s application to rely on a newly disclosed document at the trial. The plaintiffs opposed the application. Meanwhile, the trial proceeded with the document received on a de bene esse basis.
44. The three deeds of assignment were signed by him, both on behalf of himself as assignor and on behalf of Southern Capital Ltd as assignee. The defendant said that the whole arrangement to transfer his interests to a BVI company had been made back in April 2018 and that he had in fact signed the three deeds before 27 July 2018.
45. As regards the assignment and its effect on the Injunction, it was the defendant’s belief at the time that:
(1) Since Southern Capital Ltd was 100% owned by him, its assets were in effect his assets. In cross-examination, he highlighted the following words in para 1(1)(b) of the Injunction: “whether in his own name or not”.
(2) When asked whether he knew that holding a property in his own name is different from holding it through a company, the defendant disagreed and said that the ultimate beneficial ownership of the property would be the same.
(3) He disagreed with counsel that by entering into the deeds of assignment, he had “dealt with” the properties. To his knowledge, the properties were owned by him. Hence the assignment did not in any way prejudice the plaintiffs’ rights under the Injunction and there was no breach of its terms. In re-examination, he reiterated that the assignment would not cause loss to the plaintiffs.
(4) He did not consult any professional advisers in relation to the assignment. In his affirmation, he said that because of that, he did not know that the assignment would be regarded as asset transfer. In cross-examination, he was asked why he did not seek professional advice. He replied that it was because he firmly believed that the transfer was still under him and would not cause loss to the plaintiffs’ interests and not breach the Injunction.
(5) It was put to him that contrary to what he stated in his affirmation, clause 12.5 of the apartment sale agreements did not compel him to transfer (see the use of the word “要”, as quoted in para 35 above) but instead permitted him to do so. The defendant agreed but said that he had already instructed lawyers to effect the transfer.
(6) It was then suggested to him that in light of the Injunction, he could change his instructions to his lawyers. The defendant replied that he received the injunction order just shortly after he was released on police bail and he was very confused then. Therefore, he simply followed the original plan to assign.
46. As his assets were frozen, the defendant failed to pay the next stage payments under the apartment sale agreements when they became due in November 2018. The agreements were therefore rescinded by the developer and the deposits forfeited.
47. In summary, the defendant’s case is that he had assigned his interests in the Casson Square properties to a company wholly owned by him and such transfer did not amount to any “dealing with” as prohibited by the Injunction. That was his belief at the time and that was why he did not consult any professional advisers in relation to the assignment then.
48. On the other hand, the plaintiffs invite the court to draw the inference that by the assignment, the defendant intended to conceal and shield the Casson Square properties from the knowledge of the plaintiffs so as to prevent them from being subject to enforcement action if the plaintiffs get a judgment against him in the future. Furthermore, the court should infer that the defendant did so as part of his preparatory steps for his intended sale of the properties via Southern Capital Ltd in the future.
Count 2
49. As regards the alleged breach of the Disclosure Order, the defendant said that when he received the Injunction, he received legal advice that he had the right to remain silent.
50. In cross-examination, the defendant confirmed that over the years he had purchased real properties and cars, using his salary and also the proceeds from his own investments. It was pointed out to him that these assets were legitimate personal assets not relating to any criminal offence, and hence they ought to be disclosed under the Disclosure Order. The defendant’s reply was that if he disclosed anything, it might add to his burden as he did not know what effect that disclosure might have. In re-examination, he added that at that time he did not make such fine distinction between different types of assets, as now suggested by counsel.
51. In short, he relies on the privilege against self-incrimination and contends that he should not be held liable for contempt.
LEGAL PRINCIPLES
52. The legal principles governing civil contempt are well-known. In his written submissions, Mr Wong has extracted the following principles from the case law, which I reproduce below.
53. The burden is on the applicant to prove his case beyond reasonable doubt. In hearing a committal for civil contempt, the court adopts a three-stage approach. First, it construes the order in question to ascertain their meaning and operation. Secondly, it determines whether the respondent has in fact complied with the order as construed. Thirdly and finally, it considers whether any failure to comply was accompanied by a state of mind necessary to establish punishable contempt. The respondent has the right to remain silent and does not have to prove anything. However, adverse inference may be drawn from his election not to call evidence which could displace the prima facie case against him: see, eg, China Shanshui Cement Group Ltd v Zhang Caikui[2018] HKCFI 444 at paras 54, 55 and 57.
54. As to the requisite state of mind, it is not necessary to prove that the respondent’s conduct was contumacious, ie that he directly intended to disobey the order. It is sufficient to prove that the act constituting the breach was made intentionally, not casually or accidentally: China Shanshui at para 56. In this regard, it is sufficient to prove that the respondent knew the facts which are said to make his act a contempt and that such act was not accidental. A mistake about the legitimacy of action to comply with a court order is no excuse for non-compliance. This is because if it were otherwise, obedience to court orders would be problematic as it would depend on the correctness of legal advice about what the party bound by the order might lawfully do to obey it: Kao, Lee & Yip at paras 45 and 63.
THE ISSUES
55. I consider that for Count 1, the following issues fall to be considered:
(1) When the assignment of the defendant’s interests in the Casson Square properties took effect on 27 July 2018, was Southern Capital Ltd 100% owned by the defendant?
(2) Did the defendant “deal with” the Casson Square properties, as prohibited in para 1(1)(b) of the Injunction, when he made the assignment?
(3) When he made the assignment, what was his belief or state of mind? Was it his belief, as alleged by him, that he did not regard himself as “dealing with” the properties when he made the assignment? Or, should the court draw the inference, as contended by the plaintiffs, that he intended to conceal or shield the properties from them?
(4) Would the state of mind, as found by the court, be sufficient to hold the defendant liable for contempt?
56. For Count 2, the material issues are:
(1) Is the defendant entitled to invoke the privilege against self-incrimination by merely making a blanket assertion in the way he did in his disclosure affirmation?
(2) What was his state of mind when he made his disclosure affirmation and after that?
DISCUSSION – COUNT 1
57. I shall deal with Count 1 first.
Issue (1) – was Southern Capital Ltd wholly owned by the defendant?
58. It is the defendant’s case that Southern Capital Ltd was wholly owned by him at the time of the assignment. The supporting evidence comprises his opposing affirmation (“我100%持有的公司”), in which the name of the company was not mentioned, and the certificate of incumbency.
59. The plaintiff opposes the admission of the certificate. Mr Wong submits as follows:
(1) It is a last-minute application.
(2) There is no reason why the defendant did not adduce this document when he filed his opposing affirmation or in any event not since then.
(3) The defendant has not explained the provenance of the certificate.
(4) Given the last-minute disclosure, the plaintiffs would not have the opportunity to verify the document.
(5) In any event, the certificate is of low probative value. It is dated 1 June 2018, which is before the date of assignment of 27 July 2018.
60. The points made by Mr Wong in sub-paras (1) to (4) are plainly valid.
61. However, in exercising my discretion, I should also consider the following matters:
(1) The contents of the certificate are plainly material to the factual issue concerning the ownership of Southern Capital Ltd.
(2) They corroborate the defendant’s assertion that the company was wholly owned by him. That was an assertion which he had made earlier on in these proceedings.
(3) It is true that since the certificate was only produced in the course of the trial, to admit it now would deprive the plaintiffs of the chance to verify or challenge it. On the other hand, the certificate appears to be in standard form. Given that the company is a BVI company, there would have been perhaps very little room for the plaintiffs to conduct any verification even if it had been disclosed earlier.
(4) It is also true that the certificate pre-dates the date of assignment. However, the two dates are not that far apart.
(5) The sequence of events described by the defendant is that in April 2018, he signed the agreements to purchase the Casson Square properties in his personal name because at that time the BVI company was not yet ready. Then, he made arrangement for acquiring one. The date of certificate was June. It also stated that the defendant was appointed as director in May. Lastly, the assignment took effect in July.
(6) In light of this chronology, while the date of the certificate was earlier than the date of assignment, the contents are, in my view, of probative value.
62. On balance, I would admit the certificate of incumbency into the evidence.
63. I further accept the defendant’s assertion, which I find as fact, that at the time of the assignment, Southern Capital Ltd was 100% owned by him.
64. I do so for the following reasons.
(1) The defendant’s assertion that he effected the assignment to obtain tax advantage is inherently plausible. Under this arrangement, it makes sense for the assignee to be wholly owned by him.
(2) His assertion is also consistent with, and is therefore supported by, clause 12.5 of the apartment sale agreements. The intention of the clause is plain from its wording. It allowed the buyer to transfer the properties to closely connected persons, such as a majority-owned company or an immediate family member.
(3) The defendant’s assertion is fully corroborated by the contents of the certificate of incumbency.
65. I also accept the following evidence of the defendant, which I find as facts. When he entered into the apartment sale agreements in April 2018, he intended to eventually transfer his interests in the properties to a BVI company owned by him in order to enjoy a lower capital gains tax rate. And he had made arrangement for that purpose back in April, including instructing lawyers in England. That was the reason why he became the sole shareholder of Southern Capital Ltd shortly afterwards. Further, he had signed the three deeds of assignment before 27 July 2018.
66. As I said above, the defendant’s assertion regarding the tax-driven arrangement is inherently plausible and supported by contemporaneous document. Furthermore, I note that clause 12.5 stipulated that any transfer should be done within three months of the date of the apartment sale agreements, which date fell on 27 July 2018, ie precisely the date of the deeds of assignment. Practically speaking, instructions must have been given and documentation works must have been done some time before that day.
Issue (2) – did the defendant “deal with” the Casson Square properties?
67. Under the Injunction, did the defendant “deal with” his interests in the Casson Square properties when he assigned them to Southern Capital Ltd, a company 100% owned by him?
68. The defendant argues not. He contends that the ultimate beneficial ownership of the properties remains his and the assignment has therefore not caused any loss or prejudice to the plaintiffs under the Injunction.
69. I should note at this juncture that the “deal with” question is an objective factual question, which is a distinct issue from that concerning the defendant’s accompanying state of mind.
70. The following two authorities cited by Mr Wong provide guidance on this issue.
71. First, in Z Ltd v A-Z and AA-LL [1982] 1 QB 558, the English Court of Appeal construed the words “otherwise dealing with” in section 37(3) of the Supreme Court Act 1981.
72. The section is substantially the same as section 21L(3) of the High Court Ordinance, Cap 4. I quote the latter below:
“The power of the Court of First Instance under subsection (1) or section 21M to grant an interlocutory injunction restraining a party to any proceedings from removing from the jurisdiction of the Court of First Instance, or otherwise dealing with, assets located within that jurisdiction shall be exercisable in cases where that party is, as well as in cases where he is not, domiciled or resident or present within that jurisdiction.”
73. Lord Denning MR held that the words “otherwise dealing with” should be given a wide meaning and should not be considered as ejusdem generis with “removing from the jurisdiction”. He added that a mareva injunction could be granted in circumstances where there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied. That would include a situation where there would be a disposal of assets by the defendant, within the jurisdiction, in such a way that they would be beyond the reach of the plaintiff: 571D-G.
74. In other words, applying a purposive approach, the words “deal with” should, in appropriate cases, be construed widely and liberally in order to address the mischief which a mareva injunction is designed to tackle in the first place, ie to protect a plaintiff from an empty judgment.
75. In Z Ltd, the ruling was made in relation to the statutory wording. In my view, it must apply equally to the interpretation of the same words “deal with” which appear in our standard form mareva injunctions, as they derive their legal basis from the very same statute.
76. The second authority is The Queen on the application of Revenue & Customs Prosecution Office v R and Lloyds TSB plc [2007] EWHC 2393 (Admin). This is an authority directly on point in the present case.
77. In that case, R was the defendant subject to the freezing order. The order expressly stated that the freezing prohibition applied to an account which he maintained with the bank, with the account number specified. In a totally innocent attempt to maintain better control over the funds sitting in the account, the bank transferred the funds from the specified account to two other accounts (also with the bank). R knew about this arrangement at the time. McCombe J held that the transfer was a “manifest” case of “dealing with” the funds and hence was a “clearest” breach of the freezing order on the part of R and the bank: paras 20 and 21.1.
78. The judge rejected the submission that there was no “dealing with” because the nature of R’s assets remained the same, ie a debt owed by the bank to him, notwithstanding that the account number had changed. The reasoning of the judge was as follows (para 19.1):
“I do not accept that submission. The relevant order was a freezing order, having the well known objective of rendering the defendant’s assets more readily available for enforcement as and when necessary. The restraint on dealing with an asset is a restraint on any action by a defendant which may have the effect of rendering that process more difficult. … The expression “to deal with” is designed to catch any other activity in relation to the frozen assets, which is not otherwise expressly identified.” (underline added)
79. The reasoning is of course in line with what Lord Denning said in Z Ltd that the words “deal with” should be given a wide meaning, bearing in mind the mischief a mareva injunction is designed to address. In R and Lloyds TSB, McCombe J took the construction task one step further – not only would any act which may lead to an empty judgment be caught by the words, they should also be construed so as to cover any act which would have the effect of rendering the enforcement more difficult.
80. In my view, when construing the words appearing in a mareva injunction, the starting point of the analysis must be the fact that an injunction has already been granted. It means that the court has already taken the view that the circumstances are such that the plaintiff should be protected from the risk of having nothing or not enough to enforce if it succeeds in obtaining a judgment in the future. That is the proper context against which the construction exercise should be undertaken.
81. Hence, when an issue arises as to whether a defendant may undertake a specific act within the terms of a mareva injunction and the relevant terms therefore fall to be construed (like here, whether the defendant’s transfer of his assets to his wholly owned company amounts to “dealing with”), the issue ought to be evaluated by asking the question whether that act would adversely impact on the plaintiff’s future enforcement of the judgment or the ease of such enforcement (and if so how). If the answer is “Yes”, that must be a factor weighing heavily in favour of construing the relevant terms to cover the act in question. It follows that inevitably the matter is to be looked at primarily from the perspective of the plaintiff. This is because the focus here is how he would be affected by the act in question.
82. Then, what about the perspective of the defendant? He defendant may have his own view and consider that his act would not prejudice the plaintiff’s interests in any future enforcement action and would therefore not infringe the injunction. In this regard, McCombe J said, at para 24:
“Parties must not lightly take upon themselves the decision as to how best a Mareva order should be policed. That is what the bank did here. It took the risk, and I find that what it did was a contempt of this court.”
83. Finally, in R and Lloyds TSB, the other significant factor was that the bank account was specified in the freezing order itself. Hence, the claimant had the comfort that the asset could be specifically identified. By the transfer, however, the identifying characteristic was lost and the claimant’s comfort gone: para 20.1. However, this feature does not appear in our case as the Casson Square properties were not spelt out in the Injunction.
84. Applying the above legal principles, I am of the view, and find, that the assignment of the Casson Square properties from the defendant’s personal name to Southern Capital Ltd was a clear case of “dealing with”, notwithstanding that the company was wholly owned by him at the time. My reasoning is as follows.
85. First, legally speaking, the defendant and the company are two separate entities. After the assignment, the interests in the properties vest in a new entity. On its face, it is a clear case of “dealing with”.
86. Secondly, from the plaintiffs’ perspective, it would likely have the effect of rendering the enforcement of any future judgment against the defendant more difficult, because now the properties are one level removed from the defendant. Any enforcement step would be complicated by that fact and also by the fact that Southern Capital Ltd is a BVI company. For that reason, I disagree with the defendant’s contention that the assignment has caused no prejudice to the plaintiffs. The prejudice lies in the fact that the protection given to the plaintiffs under the Injunction is much weakened by reason of the assignment.
87. Thirdly, the defendant argues that the beneficial ownership of the properties remains all along in his hands, whether before or after the assignment. In my view this argument is beside the point. The same argument was rejected in R and Lloyds TSB. This is to view the matter solely from the defendant’s own perspective. It may make no difference to him whether the properties were held by him personally or by his company. But it does make a marked difference as far as the plaintiffs are concerned.
88. Accordingly, the defendant had “dealt with” the Casson Square properties by the assignment. He was therefore in breach of the Injunction.
Issue (3) – what was the defendant’s state of mind?
89. In determining the defendant’s state of mind when he made the assignment, I take into account the following matters.
90. The objective fact is that at that time, he knew of the grant of the Injunction, its terms, its effect and the consequence of any breach. This is evident as he had legal representation at the hearing on the return day and counsel applied on his behalf to vary the Disclosure Order.
91. The further objective fact is that at that time, he knew of the terms of the deeds of assignment. He further knew that the effect of the assignment would be to transfer his interest in the properties to Southern Capital Ltd. It must logically be inferred from this fact that the defendant was fully aware of him and Southern Capital Ltd being two different legal entities.
92. It is the defendant’s own evidence that he did not consult any professional advisers on the assignment.
93. I find his decision not to consult any professional advisers about the assignment because he firmly believed that the assignment would not breach the Injunction to be inherently unbelievable.
94. The critical period of time here was between 19 and 27 July 2018. Although by that time he had already instructed lawyers to carry out the assignment, he had also by that time been made aware of the grave consequence of breaching the Injunction. The terms of the Injunction ought to have given him pause in relation to the assignment.
95. In this regard, his own personal profile should also be taken into account. He had been working in the banking industry for some years. He was earning a very decent income at a prestigious bank. He had previously managed the plaintiffs’ account with the bank, which was a high value account with over US$20 million in assets.
96. During that time, he had English lawyers working on the assignment documentation for him and Hong Kong lawyers advising him on the Injunction. Yet, with his banking background and experiences, he did not see fit to consult any one to enquire into, clarify or confirm his own understanding of the impact of the Injunction on the assignment or vice versa. Instead he proceeded with the assignment as scheduled without raising any question with his lawyers. I consider that such conduct to be contrary to common sense and therefore inherently implausible.
97. I also consider that given his personal background, work experiences, and his knowledge about the Injunction and the assignment at the time, his evidence that he believed that the assignment would not cause any prejudice to the plaintiffs is incredible. I reject it accordingly.
98. In my view, based on the primary facts stated in paras 90, 91, 95 and 96 above, the irresistible inference is that by proceeding with the assignment on 27 July 2018, the defendant intended to conceal and shield his interests in the Casson Square properties from the knowledge of the plaintiffs.
Issue (4) – was that a punishable state of mind?
99. That being the intention of the defendant, the requisite mental element for contempt is proved. I find that it was a deliberate decision not to obey the Injunction.
100. In any event, if I am wrong on Issue (3) and if the defendant’s evidence on his state of mind is to be accepted, the defendant should still be held liable for contempt, on the authority of R and Lloyds TSB. On his case, even though he did not deliberately disobey the Injunction, he proceeded with the assignment intentionally, not casually or accidentally. He cannot now rely on his mistake about the assignment and his interpretation of the Injunction as a reason for non-compliance. In that event, however, his culpability would of course be of a lesser degree.
Conclusion
101. Based on the factual findings made above, I find it established that the defendant was in breach of para 1(1)(b) of the Injunction by “dealing with” the Casson Square properties when he made the assignment on 27 July 2018. He did so with a view to concealing and shielding those properties from the knowledge of the plaintiffs. Count 1 is therefore proved.
DISCUSSION – COUNT 2
102. I now address Count 2.
Issue (1) – is the defendant entitled to invoke the privilege in the way he did?
103. Is the defendant entitled to invoke the privilege against self-incrimination by merely making the blanket assertion as he did in the disclosure affirmation?
104. It is clear that the answer is “No”.
105. Mr Wong has referred me to the decisions in China Shanshui Cement Group Ltd v Zhang Caikui [2017] 2 HKLRD 719 and Sun Man Wai Kennis, appointed by the order of Master S P Yip dated 30th May 2016 to act as the representative of the Estate of Uy Moon Eng, deceased v Sun David Tse Chien[2021] HKCFI 591. Those decisions do not concern disclosure required under an ancillary disclosure order. However, the following principles discussed in those decisions are presently relevant:
(1) The privilege must be claimed on oath by the party asserting it on his own behalf. However, the mere fact that a party swears that his answer (or, in the present context, the documents) would incriminate him is not conclusive or sufficient. Further, the matter should be dealt with by proper evidence by affidavits.
(2) It is not enough for the party invoking the privilege to establish that he is facing a real risk of prosecution of a particular offence. He must go further and establish that requiring him to provide disclosure has a tendency to expose him to a criminal charge. The court must be satisfied that there is reasonable ground and that the objection is taken bona fide.
(3) In deciding whether a claim for the privilege should be upheld, the court has to examine whether there is a “clear link” between the information sought and the offence.
(4) It behoves the party asserting the privilege to identify which provisions or offences he is said to be potentially liable for, as such identification enables the court to assess, by reference to the circumstances of the case, whether the asserted risk is a real and appreciable one. This is important, as the court must make sure that the privilege is not abused.
106. Mr Wong points out that the defendant has not particularised how the privilege is engaged in his case. He simply states that providing the information sought in the Disclosure Order “may incriminate him”. He has not identified the offence which he claims he may be exposed to. He has not established any “link” between the information sought and any offence. In the circumstances, he has failed to make out the case to invoke the privilege.
107. I agree with Mr Wong’s submissions, which are plainly correct, both as a matter of common sense and as a matter of case law.
108. I should just add that in the solicitors’ correspondence exchanged shortly after the filing of the disclosure affirmation, the defendant’s then solicitors made the remark that the risk of self-incrimination in the present case is self-evident. This is not a point relied on by the defendant at the trial. In any event, the disclosure affirmation falls far short of what is required of the defendant. It basically tells the court nothing about the ground on which the privilege is being invoked. It is such that the court cannot even begin to start the evaluation process.
109. Mr Wong further submits that on the defendant’s own evidence, he has assets which have been acquired over the years using his salary and investment proceeds. Prima facie these would be entirely legitimate assets and unrelated to any crime. As such, there is no room for the privilege to be invoked in relation to this group of assets.
110. Again, I agree with Mr Wong’s submission, which is plainly correct. Accordingly, I hold that in relation to these legitimate assets, there is no room for the defendant to invoke the privilege.
Issue (2) – what has been the defendant’s state of mind?
111. The objective fact is that the defendant has to date failed to disclose any assets of his at all. I have already held that he is not entitled to rely on the privilege against self-incrimination. He is therefore in breach of the Disclosure Order.
112. The next question is whether such breach is accompanied by the requisite mental state so that he should be held liable for contempt of court.
113. The objective fact is that the defendant had received legal advice on the Disclosure Order. It must therefore be inferred that he has had full knowledge of the terms and effect of the order since receiving it.
114. By failing to make any disclosure even up to now, he has therefore been in breach of the order intentionally and wilfully. Furthermore, he must know that there are assets which he owns legitimately, ie not potentially related to any crime. Yet he has not disclosed any of such assets. I find that he has been deliberately disobeying the Disclosure Order.
Conclusion
115. Based on the factual findings made in paras 111 and 114 above, I find it established that the defendant was in breach of the Disclosure Order by wilfully and repeatedly failing to disclose any of his assets of HK$50,000 or more to the plaintiffs. And the necessary state of mind for a punishable contempt is proved. Count 2 is therefore made out successfully.
ORDERS
116. For the above reasons, I find both counts of contempt proved beyond reasonable doubt.
117. I order that the service required under Order 45, rule 7(2)(a) be dispensed with. I also make a costs order nisi that the plaintiffs do have costs of the amended originating summons, including the leave application and all reserved costs, on an indemnity basis, to be taxed if not agreed. I grant a certificate for senior counsel only, as the case is a straightforward one.
118. The matter is now adjourned for sentencing. I make the following directions:
(1) The amended originating summons be adjourned to a date to be fixed in consultation with counsel’s diaries no later than five months from the date of this judgment, with 2 hours reserved, for the purpose of mitigation and sentencing.
(2) The defendant must attend the hearing, failing which a warrant may be issued for his arrest.
(3) The defendant be at liberty to file and serve an affirmation on matters relevant to mitigation and sentencing at least 28 days before the adjourned hearing.
(4) No further affirmations be filed without the leave of the court.
(5) The defendant is at liberty to lodge and serve skeleton submissions at least 14 days before the adjourned hearing.
(6) The plaintiffs be at liberty to reply by skeleton submissions at least 7 days before the adjourned hearing.
119. I direct that the plaintiffs’ solicitors should take all reasonable steps to bring the above directions to the attention of the defendant as soon as practicable.
| (Winnie Tsui) |
| Deputy High Court Judge |
Mr William Wong, SC and Ms Tiffany Chan, instructed by Addleshaw Goddard (Hong Kong) LLP (up to 30 September 2022) and (since then) Baker & McKenzie, for the 1st and 2nd plaintiffs
The defendant appeared in person