MENNO LEENDERT VOS v. GLOBAL FAIR INDUSTRIAL LTD AND OTHERS

HCA 4200/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4200 OF 1995

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BETWEEN

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D E C I S I O N

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INTRODUCTION

1.  On 1 December 2009, I handed down judgment in this action (the “Judgment”). I gave judgment in favour of the Plaintiff against the 1^st, 2^nd, 3^rd, 5^th, 6^th and 7^th Defendants. I ordered them to jointly pay the Plaintiff damages in the amount of $2.55 million together with interest from 1993 and costs. I also ordered all payments paid into Court by or on behalf of the 1^st and 3^rd Defendants together with all accrued interest to be paid out to the Official Receiver on behalf of the Plaintiff in partial discharge of the liability of the 1^st and 3^rd Defendants (the “Payment Out Order”).

2.  The 1^st, 3^rd and 6^th Defendants (collectively, the “Defendants”) appealed against the Judgment and applied for stay of execution of the Judgment pending the outcome of their appeal to the Court of Appeal. The 6^th Defendant (“Cheung”) is the sole beneficial owner and person in control of the 1^st and 3^rd Defendants. Hence, I treat Cheung as the alter ego of the 1^st and 3^rd Defendants. On 7 January 2010, I granted a partial stay of execution of the Judgment (the “Stay Order”).

3.  The Plaintiff had a change of his solicitors. His new solicitors discovered upon a land search that on 8 December 2009 Cheung’s husband filed a petition for divorce by consent and a consent summons to transfer Cheung’s entire interest in her property in Tai Po (the “Property”) to her husband as settlement of their matrimonial property.

4.  On 19 January 2010, the Plaintiff issued an inter partes summons (mistakenly dated as 15 January 2010) returnable before me on 4 February 2010 seeking inter alia, post-judgment Mareva relief against the 1^st, 3^rd and 6^th Defendants. On 23 January 2010, he applied and obtained an ex parte interim Mareva injunction before Yam J, sitting as the Duty Judge, restraining those Defendants from dealing with or otherwise disposing of their assets in Hong Kong up to the amount of $9 million.

5.  At the hearing before me on the return date, Cheung on behalf of herself and the 1^st and 3^rd Defendants contested the application for Mareva injunction. One of her grounds of objection was that the amount of $9 million sought to be restrained by the Plaintiff was excessive. I adjourned the application for argument, gave directions for filing of affirmations, ordered the interim injunction granted by Yam J to continue until the adjourned hearing subject to some minor amendments to its terms and ordered disclosure by those Defendants of their assets of an individual value of $10,000 or more in Hong Kong (the “Disclosure Order”).

6.  Pursuant to the Disclosure Order, Cheung served on the Plaintiff her 27^th Affirmation (not filed in Court) claiming that other than the payments made into Court and funds in her mandatory provident fund account, the Defendants have no assets whatsoever in excess of $10,000. Not being satisfied with this affirmation, the Plaintiff issued a summons on 15 March 2010 seeking further disclosure (the “Further Disclosure Summons”). On the following day, the Plaintiff also issued a summons seeking amendment of the terms of the Stay Order (the “Order Amendment Summons”).

THE FURTHER DISCLOSURE SUMMONS

The further disclosure sought

7.  Pursuant to the Disclosure Order, the Defendants were required to make disclosure of all their assets of an individual value of $10,000 or more in Hong Kong. In her 27^th Affirmation, Cheung averred on behalf of the 1^st and 3^rd Defendants that apart from the payment made into Court pursuant to the order of A Cheung J, they have no assets of an individual value of $10,000 or more in Hong Kong. The 1^st and 3^rd Defendants are companies which used to hold the two units in Thomson Commercial Building (the “Units”), which they purchased from Goldmark Agents Limited (“Goldmark”) and World Champ Limited (“World Champ”). The Units were sold by the 1^st and 3^rd Defendantsin October 2006, pursuant to the order of A Cheung J, and a sum of $2.25 million from the proceeds of sale was paid into Court pending the outcome of this trial. Three and half years have since lapsed. It is likely that the 1^st and 3^rd Defendants might have become shell companies with no assets of value.

8.  The Further Disclosure Summons is principally targeted at Cheung. In respect of her own assets, Cheung asserted in her 27^th Affirmation that she is the 100% owner of the shares of Avant Garde Limited, the 100% beneficiary owner of the 1^st and 3^rd Defendants and the legal owner of the Property which is a subject matter pending decision of the Matrimonial Court. Apart from those assets, Cheung asserted that she had no other assets in Hong Kong of an individual value of $10,000 or more. Mr Lam, counsel for the Plaintiff, submits that this assertion is incredible. Hence, the Plaintiff seeks the following disclosure:

(1)    name of banks and particulars of all bank accounts held by the Defendants in the past twelve months;

(2)    copies of bank statements of the above bank accounts for the past twelve months;

(3)    name of banks and securities brokerages of all securities accounts held by the Defendants in the past twelve months;

(4)    copies of securities account statements of the above securities accounts for the past twelve months;

(5)    name of credit cards held by the Defendants in the past twelve months;

(6)    copies of credit card statements of the above credit card accounts for the past twelve months;

(7)    particulars of landed properties held by the Defendants in the past twelve months; and

(8)    latest audited accounts of the 1^st and 3^rd Defendants.

The further disclosure sought is very substantial.  By way of passing observation, Cheung has not disclosed her beneficial ownership of Universal Agents Limited which was mentioned in evidence at trial.

The law

9.  The nature of Mareva relief is such that the majority of applications are made at a very early stage, sometimes even before commencement of action. However, a Mareva injunction may also be granted to a judgment creditor in aid of execution of his judgment even if he had not applied for or obtained one originally: see Gee on Mareva Injunctions and Anton Piller Relief, 4^th Ed at 26-30 generally and Deutsche Schachtbau-und Tiefbohr-Gesellschaft MBH v Shell International Petroleum Co Ltd [1990] 1 AC 295. The courts are much more ready to grant post-judgment Mareva injunctions because the plaintiff is a judgment creditor entitled to enforce the judgment by executing on the assets of the defendant and even to make him bankrupt or in the case of a corporation to have it wound up. As observed by Sir John Donaldson MR in Deutsche Schachtbau-und Tiefbohrgesellschaft MmbH v R’as Al Khaimah National Oil Company (No 1), [1990] 1 AC 295, such an injunction was not, strictly speaking, an injunction which fell into the Mareva category, but was an injunction granted as protection for a judgment creditor, under a jurisdiction recognised before the emergence of the Mareva jurisdiction.

10.  If a plaintiff has obtained a judgment which has become final, Mareva relief is not necessary. He may simply invoke the enforcement procedure. However, where the judgment is subject to appeal, a Mareva injunction is an important tool in the court’s armoury for protecting the judgment creditor in the sense of preserving the status quo pending appeal. The plaintiff, having succeeded at first instance, is entitled to have the fruits of his litigation protected from dissipation by the defendant, so that in the event that the appeal fails, the judgment will not be rendered nugatory. He is all the more entitled to the relief than a plaintiff before commencement of an action. The relief is a discretionary one. The discretion should be exercised in favour of the plaintiff, if he is able to show a likelihood of dissipation of assets liable to execution. Balance of convenience in the American Cyanamid sense does not even come into the equation.

11.  In addition, ancillary orders may also be made in aid of a freezing injunction to obtain disclosure of documents or information by a defendant concerning his assets. Usually, the plaintiff has but little information about the assets of the defendant. He may, through his course of dealing with the defendant, have acquired knowledge about some of the defendant’s assets connected with the subject matter. He may have obtained knowledge of the particulars of some of the bank accounts of the defendant into which he made payments or from which the defendant made payments to him. But he may not know what other accounts the defendant has with some other banks. Without such information, there is no way the Mareva injunction could operate properly. In Dadourian Group v Simms (No 2), [2007] 2 All ER 329, Arden LJ said at 335E:

“A freezing order is an important tool in the court’s armoury for the purpose of doing justice between the parties, or more precisely for the purpose of preventing or policing the disposition of assets which would inhibit the enforcement of an order.  In the normal situation, failures to provide information about assets subject to a freezing order can be enforced by orders for further information.  Litigants who are the subject of an order to produce further information will generally produce it to the best of their ability.  But that is not always the case, and the court will in particular be astute to identify those defendants who are deliberately concealing assets …”

Thus, usually a disclosure order is made as part of an order granting or continuing a Mareva injunction.  A defendant ordered to disclose or produce information shall do sowith total candour and to the best of his ability.  The court will be astute to identify those defendants who are deliberately concealing assets.  If a plaintiff is able to show that disclosure is likely to have been incomplete or that a defendant is likely to have concealed assets, the court will order further or specific disclosure.

Discussion

12.  At the hearing on 4 February 2010, Cheung did not object to the grant of an interim injunction except as to the amount to be restrained. Hence, the interim injunction ordered by Yam J was continued, the Disclosure Order was granted and directions were given for the hearing of the Mareva injunction application. The Defendants did not appeal against those orders.

13.  At the hearing on 25 March 2010, Cheung was represented by counsel, Mr Alwin Chan. Mr Chan submits, quoting The Principles of Equitable Remedies, 7^th edition, that a plaintiff who has obtained judgment should rely on the ordinary process of execution and not Mareva injunction, save in special circumstances. I reject that argument, which I think is confined to the case where the judgment has become final, but not to the present case where an appeal is pending: see paragraphs 9 and 10 above. Mr Chan then argues that the Defendants have complied with the Disclosure Order to the best of their ability and no reasonable inference can be drawn that the Defendants are deliberately concealing assets.

14.  Cheung graduated from the University of Hong Kong and practised as a medical practitioner in 1981. She qualified as a specialist in paediatric medicine in 1985. She started private practice in Tuen Mun and Shatin in 1987. She had been a successful medical practitioner at least until the beginning of 2008 when she closed down her practice in preparation for this litigation. To begin with, she had cash of about $550,000 when she financed the purchase of the Units in 1993. She said in evidence that she easily made over $100,000 a month in 1993. She purchased properties, financed her husband’s losses in foreign currency speculation, repaid the money she borrowed from her friends and the wife of the 2^nd Defendant for the purpose of purchasing the Units, paid off the mortgages over the Units purchased by the 1^st and 3^rd Defendants. On the above evidence, Cheung had been a successful medical practitioner with a profitable practice until the beginning of 2008. She must have accumulated very substantial assets over her fifteen years’ practice since 1993, including the Units. Subsequently, the Units were sold for $3.8 million in October 2006 with a net proceeds of $1.55 million after deducting the payment made into Court. Besides, she and her husband owned a guest house inherited from her parents-in-law. Even accepting that Cheung made no income since the beginning of 2008, it is difficult to imagine how those substantial assets could have evaporated within these two years.

15.  What arouses suspicion is that one week after Judgment was handed down, Cheung and her husband set in motion the process of disposing of the Property which is held in her sole name. According to the divorce petition filed by her husband, Cheung and her husband had been separated since 2001. Mr Lam submits that it could not have have a mere coincidence that Cheung’s husband could have filed the petition ten years after the separation and that they could have filed the consent summons to transfer the Property to Cheung’s husband one week after the Judgment against her was handed down. The fact that Cheung’s husband has always been in gainful employment adds suspicion to the disposition.

16.  Mr Lam further argues that the mere fact that the Defendants were applying for transcripts of the proceedings which would costs tens of thousands of dollars and is now instructing counsel suggests that the assertion that the Defendants have no assets of individual value of $10,000 or more in Hong Kong could not be true. Mr Chan’s answer to that submission is a mild suggestion that Cheung may have assets outside of Hong Kong. I agree with Mr Lam’s submission.

17.  Thus, in summary, Cheung had been a successful medical practitioner with a profitable practice and strong earning capability until the beginning of 2008. She appeared to have accumulated very substantial assets, including the proceeds of sale of the Units of $1.55 million net of the payment made into Court. It is difficult to imagine how those substantial assets could have evaporated within these two years. One week after judgment was entered against her, she started to dispose of the Property which is held in her sole name. She is able to afford costly transcripts and to pay legal fees for instructing counsel to represent her at this hearing. All these are inconsistent with her assertions in her 27^th Affirmation that the Defendants have no assets of individual value of $10,000 or above.

18.  I have formed an adverse view of the credibility and honesty of Cheung. I said in paragraph 472 of the Judgment:

“This case involves serious breach of fiduciary duty by Yung and dishonest assistance in a serious breach by Cheung and knowing receipt of the Companies’ property by Global Fair and Start Win.  Yung and Cheung have been most recalcitrant in their defence.  They put forward numerous arguments on the facts, which are frivolous, vexatious and factually incorrect.  In particular, Yung gave false evidence and acted with glaring dishonesty.  He tried every trick to mislead the Court.  Cheung supported him and reinforced his arguments.  An order for costs against them to be taxed on an indemnity scale is appropriate.”

Cheung dishonestly assisted the 2^nd Defendant in the breach of fidcuciary duty.  The 2^nd Defendant tried every trick to mislead the Court and Cheung supported and reinforced the 2^nd Defendant’s argument.  When Cheung’s assertion in her 27^th Affirmation is viewed against the above background, I am more than satisfied that a case has been made out that Cheung on behalf of herself and of the 1^st and 3^rd Defendants have not given full disclosure and are concealing their assets, or that their assets have already been dissipated.  In the circumstances, it is appropriate to require the 1^st, 3^rd and 6^th Defendants to make specific disclosure and to verify their disclosure by production of documents.

19.  Mr Chan argues that the specific disclosure sought is too wide and production of statements for the past twelve months burdensome. I do not agree. It is usual to order disclosure of particulars of bank accounts, securities accounts, credit card accounts and latest statements of those accounts. It may be burdensome to order disclosure of statements of those accounts for the past twelve months. But on the facts of the present case, where there is likelihood of dissipation, it is only appropriate to make such order, not for the purpose of tracing, but to verify the truthfulness of the disclosure and to identify other assets available for execution. Accordingly, I grant the order sought in terms of the Further Disclosure Summons with costs to the Plaintiff.

20.  After the hearing on 25 March 2010, Cheung wrote to me on 30 March 2010 seeking a review of my decision. She explained that she had scheduled for a trip out of Hong Kong between 19 and 28 March 2010. Hence she could not attend the hearing in person. She was fortunate to have been able to enlist the help of counsel at an affordable fee. These matters have no bearing on my decision. In any event, I have no jurisdiction to review my orders. I shall, however, deal with her arguments briefly.

21.  Cheung argued that the Plaintiff was unable to provide any evidence of non-disclosure on her part, that my order for further disclosure was ultra vires as it amounted to a tracing exercise and that production of bank statement of the current month would suffice. These issues have already been dealt with in paragraphs 11 to 19 above. Basically, the Plaintiff could have no idea what accounts the Defendants have. In law the Defendants are under a duty to give full disclosure. The inference that Cheung has not made full disclosure which I am able to draw from the indisputable facts is sufficient to enable me to exercise the discretion to grant the ancillary relief to aid in the Mareva injunction. The further disclosure ordered does not amount to a tracing exercise and there is no question that I do not have jurisdiction to grant such relief.

22.  Cheung specifically explained that she had no assets of individual value of more than $10,000 because during the two years when she ceased her medical practice she had spent all her saving on her living expenses, travelling expenses as well as medical and funeral expenses of her father. She even said she had to ask for temporary loans from her sisters. These explanations were not before me at the hearing on 25 March 2010. Cheung complained that she had no opportunity to file affirmation to object to the Further Disclosure Summons. She was legally represented at the hearing of that summons. Her solicitors should have taken instructions from her in relation to those matters and presented the evidence in the form of an affirmation. I am mindful that Cheung said that she left Hong Kong on 19 March 2010. However, on her own assertion, she had received the Further Disclosure Summons on 18 March 2010 and had time to respond to the Plaintiff’s solicitors on 19 March 2010. She must have instructed her own solicitors as well before leaving Hong Kong. She must have given full instructions to her solicitors or see to it that they receive her full instructions while she was out of Hong Kong. If she did not do so or that her counsel did not ask for time to do so, she cannot now complain. But even if such evidence had been filed in a proper affirmation, in view of the very strong contrary inference that may be drawn from the indisputable facts, her explanation is not capable of belief unless supported by documentary evidence. There was none. In other words, without the further disclosure I ordered, her explanation is still incapable of belief. Furthermore, one wonders why her father’s medical and funeral expenses had not been shared by her brothers and sisters and what was her source of funds to meet the costs of transcript and her legal representation, which she said were less than $20,000 but must be more than $10,000. In the absence of supporting documentary evidence, my decision would in all events be the same.

23.  Cheung also offered an explanation for the disposal of her matrimonial home. That, too, was a matter of evidence. Even if I were to accept her explanation and not to draw any adverse inference in respect of that disposition against her, my decision would still be the same.

24.  Cheung argued that the costs of the Further Disclosure Summons should have been in the cause of the appeal. Such a costs order would have been appropriate in an ordinary case and had the application not been contested or contested on more reasonable grounds. But this is not such a case. The inference that Cheung has assets of individual value of over $10,000 within jurisdiction is overwhelming. If indeed she has no such assets, it must be because she has dissipated them after the Judgment was handed down to evade execution or in anticipation of the result of the Judgment. In either event, even if she were successful in the appeal, she is the author of her own misfortune by attempting to evade the due process of the law. The Plaintiff has obtained judgment against the Defendants and an order for disclosure after due legal process. It is the Defendants’ right to appeal against the Judgment but her duty to provide full and frank disclosure pursuant to the Disclosure Order. Such disclosure would not cause any prejudice to her assets for as long as the appeal is still pending. Had she not so attempted to evade the due process of the law, the Plaintiff’s costs would not have been incurred and she could also recover the Defendants’ costs including the costs of complying with the order for further disclosure as her costs of the appeal. Under the circumstances, the Court’s discretion in ordering costs could not have been exercised in any other manner than to follow the event.

25.  Cheung’s letter added nothing to what Mr Chan had submitted on her behalf at the hearing on 25 March 2010. Instead, it only reinforced my suspicion that either she had not given full disclosure of her assets or that she has dissipated them or removed them out of jurisdiction in anticipation of the result of the Judgment.

THE ORDER AMENDMENT SUMMONS

The background leading to the Stay Order and the amendment sought

26.  In paragraph 476(6) ofthe Judgment, I ordered, inter alia, that all payments paid into Court by or on behalf of the 1^st and 3^rd Defendants together with all accrued interest shall be paid out to the Official Receiver in partial discharge of the liability of the 1^st and 3^rd Defendants after fourteen days (i.e. the Payment Out Order). On 7 January 2010, upon the Defendants’ application for stay of execution of that Judgment, I ordered thatthe Payment Out Order be stayed pending the hearing or other disposal or determination of such appeal or further order of the Court:

“except to the extent that all accrued interests from the Payments into Court by or on behalf of [the 1^st and 3^rd Defendants] be paid out to the Plaintiff’s solicitors, upon the solicitors’ undertaking that such payment out shall not be used otherwise than meeting any legal costs incurred in the said Appeal.”

By the Order Amendment Summons, the Plaintiff effectively seeks two amendments: firstly, to enlarge the exception to cover rental income from the Units paid into Court so that the rental income will be paid out to the Plaintiff and secondly, to permit the payment out to be applied towards meeting legal costs incurred in all applications relating or incidental to the appeal.

The law

27.  The Court has jurisdiction to amend or correct any defect or error in any judgment or order under Order 20 rule 11 of the Rules of the High Court. The rule applies only to cases where there is a clerical mistake in a judgment or order or an error arising from an accidental slip or omission, including a case where the judgment did not reflect the clear intention of the court stated elsewhere in the judgment. This is generally refered to as the “slip rule”. Apart from Order 20 rule 11, the court has inherent jurisdiction to vary its own orders so as to carry out its own meaning and to make its meaning plain: see Hong Kong Civil Procedure 2010, paragraph 20/11/1 and cases cited therein. In Hatten v Harris [1892] AC 560, Lord Watson held:

“Where an error of that kind has been committed it is always within the competency of the court, if nothing has intervened which would render it inexpedient or inequitable to do so, to correct the record in order to bring it into harmony with the order which the Judge obviously meant to pronounce.”

Discussion

28.  In all fairness to the Defendants, the first amendment is quite substantial, though not the second amendment which could properly be allowed under the “slip rule”. But I am prepared to allow both amendments under my inherent jurisdiction.

29.  I categorically affirm that it was my intention that nothing other than the capital sum of $2.25 million ordered to be paid into Court by A Cheung J was to be subject to the Stay Order and that other than that sum all payments made into Court together with accrued interest shall be released to the Plaintiff’s solicitors upon their undertaking that such payment out shall not be used otherwise than for meeting any legal costs to be incurred in the appeal including all applications relating or incidental to the appeal.

30.  Such intention is manifestly obvious when reading page 13 line U to page 14 line P of the transcript of the proceedings on 7 January 2010. I was then balancing the right of the Plaintiff to have his fruits of litigation and the interest of the 1^st and 3^rd Defendants over the payments in Court in the event that they are successful in their appeal. I was distinguishing between the capital sum of $2.25 million (mistakenly quoted as $2.55 million) ordered to be paid into Court by A Cheung J and all the other sums standing in the account in Court: see page 14 line A to B. Then I dealt with the balancing process. This is a case of the Defendants assisting in the breach of fiduciary duty of a director of Goldmark and World Champ. The Plaintiff as shareholder of the two companies has been financing the litigation. Very substantial legal costs have been incurred over the years, which far exceeded the damages to be recovered. It appears that those substantial costs were incurred as a result of the 1^st, 2^nd, 3^rd, 5^th and 6^th Defendants deliberately engaging in a costs wasting exercise. Now that the Plaintiff has succeeded in first instance, he is entitled at least to enjoy some of the fruits of his litigation. He should, at least, be released of the burden of financing the on going appeal, which is likely to be another costs wasting exercise which Cheung is particularly capable of. The Plaintiff should be allowed access to funds of a couple of million dollars for the appeal. My intention was that only the capital sum of $2.25 million shall be subject to the Stay Order, i.e. to remain in Court, while all the other sums shall be released subject to the undertaking by the Plaintiff’s solicitors. It was unfortunate that I used the words “interest accrued” or “interest” to describe all the other sums and that my mistake was quickly adopted by Mr Lam. But, it is also clear from page 14 line H to line J that the understanding between Mr Lam and me is that the capital sum of $2.25 million shall remain in Court, while all the other sums amounting to about $3 million shall be released to the Plaintiff’s solicitors and that both I and Mr Lam referred to that sum of about $3 million as “interest”. Then Mr Lam and I continued our exchange from page 14 line J to line P using the word “interest” meaning the sum of about $3 million. The amount of interest, in the normal meaning of that word, which accrued over those four years would be about a hundred thousand dollars which is far from being adequate to cover the likely costs of the appeal and could not be any sum near to $3 million. It was the payment into Court by the Official Receiver in respect of rental income received from the Units which constituted the bulk of that sum. The intention of the Court, Mr Lam as well as Cheung who was in Court was manifestly clear. Cheung must have no misunderstanding of that common intention. Her instructions to contest this application were obviously given in an attempt to benefit from the mistake.

31.  It must also be clear that the payment out is to be applied to meet all legal costs to be incurred in all legal processes relating or incidental to the appeal. With hindsight, it would have been clearer had I specified the amount to be subject to the Stay Order instead.

32.  Even if I were to step aside and look at the terms of the order and apply the ordinary principles of construction of document as summarised by Lord Hoffmann in Investor’s Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 897 at 912 to 913, the same result is inevitable. Construction of document is to ascertain the meaning which a document would convey to a reasonable man who has knowledge of the factual matrix leading to the making of the document. It is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammar; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. A reasonable man reading the transcript of proceedings must conclude that something must have gone wrong with the language and that the word “interest” means all the other payments including the rental income paid into Court by the Official Receiver as well as accrued interest from all such payments and the interest from the capital sum of $2.25 million.

33.  For the above reasons, I allow the Order Amendment Summons and make no order as to costs.

CONCLUSION

34.  Accordingly, I grant the further disclosure sought by the Plaintiff in his summons dated 15 March 2010 with costs to the Plaintiff and grant the amendments to my order dated 7 January 2010 sought by the Plaintiff in his summons dated 16 March 2010 with no order as to costs.