NOKIA FRANCE SA v. IBERICATEL 38 SL AND OTHERS

HCA3487/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3487 OF 2003

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REASONS FOR DECISION

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1. In this action there are eight defendants. I am concerned with the 3rd, 4th, 5th and 6th defendants ("these defendants"). The 3rd and 4th defendants are husband and wife, the 5th and 6th defendants are companies in which they have each a 25% indirect beneficial interest. The plaintiff's claim is based on fraud. It is substantial and complicated. On 13 November 2003 the plaintiff obtained worldwide Mareva injunctions against each of these defendants. The injunctions were continued first on 21 November 2004 and then on 13 February 2004 after a contested hearing before Reyes J. The plaintiff's claim against these defendants included an allegation that various sums paid to or received by these defendants were the proceeds of fraud.

2. On 13 February 2004, Reyes J, whilst continuing the injunction in each of the Mareva injunction, permitted each of these defendants to spend "a reasonable sum on legal advice and representation".

3. By order dated 29 June 2004, the parties were ordered to exchange list of documents by 30 July with inspection to be carried out within seven days thereafter; witness statements of fact to be exchanged by 30 August 2004 and exchange of expert evidence by 30 September; and the estimated length of the trial is 15 days.

4. By summons dated 6 July 2004, these defendants applied for an order that the Mareva injunction against the 4th defendant should be varied by permitting her to spend a reasonable sum on legal advice and representation "for herself and for the 3rd, 5th and 6th Defendants". This application is supported by the 7th affirmation of the 3rd defendant, the 3rd affirmation of the 4th defendant and the 4th affirmation of Robert San Pé, a partner with Messrs Koo & Partners, solicitors for these defendants. The reason for the application is that the 3rd, 5th and 6th defendants are close to exhausting their funds available to pay legal fees. As the above timetable shows these defendants can be expected to incur substantial costs in the next few months.

5. These defendants have been represented by the same counsel and solicitors. They have filed a joint defence. They run a common defence. So far legal costs have been split equally.

6. It appears from the available evidence that the 4th defendant's assets in the frozen bank accounts, freely available for expenditure on legal fees, comprised about HK$3.5 million.

7. This application is opposed by the plaintiff. The plaintiff insists that these defendants should each foot 25% of the legal costs. Basically these defendants' application is contested on the basis that the 4th defendant has no legitimate interest in funding the defence of these other defendants and that it would be a dissipation of assets if she were permitted to do so.

8. It is also said that the 3rd defendant is not without means. From 7th affirmation of the 3rd defendant it appeared that he has a credit balance in his account with the Standard Chartered Bank in the sum of approximately HK$288,000. In her 6th affirmation, Ms Fewins of Messrs Clyde & Co., solicitors for the plaintiff also deposed to the fact that the 3rd defendant co-owned a flat in the Swiss Tower with the 4th defendant. Some complaint was made of the fact that the 3rd and 4th defendants are living in a rented townhouse whilst the flat at Swiss Tower is left vacant. But, according to the defendants, no tenant was found because of the Mareva injunction. Anyway, Koo & Partners have claimed in correspondence that the mortgagee (Fortis Bank) of the flat has been pressing for repayment of loans secured on the flat and that unless repayment was made they would exercise the bank's right to take possession of and sell the property. Ms Fewins made the point that this was not supported by anything in writing from the Fortis Bank. But, there is no reason to doubt the evidence. Anyway, the plaintiff's attitudes to sale can be seen from Clyde & Co.'s response dated 3 May 2004 :

"We do not have instructions and indeed our client has not taken any decision as to whether they will ultimately consent to the sale of the Swiss Towers property. However, our client has no objection to your client obtaining a valuation from an international property company and marketing the property for sale through that company and other local agents. We request that your client obtains and provides us with a valuation report on the current market value - not a forced sale valuation - of the Swiss Towers property from a reputable international property company such as... . Such a valuation should be in writing and forwarded to us on receipt, together with any market information that your client may have obtained verbally or otherwise from local agents as to the market value of the property. Please also advise, in light of such information, the price your client intends to ask for the property and we will then obtain instructions from our client on the asking price in a current rising property market."

9. Mr Pe who appeared for the defendants complained of the uncooperative attitude of the plaintiff in this regard. He also said that to obtain a valuation would cost about HK$20,000. The attitude of the plaintiff might not have been unhelpful but it is obvious from this exchange that the sale of the flat is unlikely to be straightforward. Nor is it likely to take place soon enough to generate cash for the payment of costs.

10. However since the $280,000 and the Swiss Tower property and the $3.5 million are all covered by the Mareva injunction, so far as dissipation goes, I do not think it makes any difference whether the legal fees are to be paid out of one source or another. The Mareva injunction also permitted living and business expenditure to be incurred by the 3rd defendant so that the fact that he has some available funds in his bank account does not mean that he can afford to continue to fund his legal defence.

11. Having regard to the nature of the case, the tight timetable and the prospect of a 15-day trial, I believe substantial legal costs would be involved, and a large part of it, would be incurred in the next few weeks. Having regard to the common defence, I also doubt whether there would be any savings in costs if the 3rd, 5th and 6th defendants were to become unrepresented because of their inability to pay their share of the legal fees and then for the 3rd defendant to be represented alone.

12. Ms Fewins also took the point that there are other sources of revenue available to these defendants, for example, bank loans. She says that there is no documentary evidence that these defendants were unable to borrow money to fund their defence. With respect that is not looking at the matter with common sense. Can one expect these defendants to go to a bank and say : we have worldwide Mareva injunctions against us, we do not have assets available to pay our legal fees, please lend us the money so that we can defend the action. I do not believe that these defendants have a realistic chance of being lent money by banks for that purpose. Hence I have no difficulty in accepting the defendants' assertion that they would not be able to raise bank loans to fund the defence.

13. She then drew my attention to paragraphs 30 and 31 of Reyes J's judgment dated 13 February 2004. There, the learned judge was dealing with the argument advanced on behalf of these defendants that continuation of the Mareva's would ruin their business. The learned judge said :

"... I am not satisfied that the Defendants could not maintain their business from funds provided by companies within the group not subject to any Mareva."

14. The 3rd defendant in his 7th affirmation has dealt with the question of alternative resources in paragraphs 9, 10 and 11. Also, according to Mr Pe there would also be no resources available from Global Telecom Distribution Plc which was referred to in paragraph 31 of Reyes J's decision. I am satisfied that there are no alternative resources.

15. Ms Fewins has referred me to Gee on Mareva Injunctions and Anton Piller Relief, 4th ed, p.318 where it is said :

"The general principle is that where a party seeks a variation to the injunction to enable a payment to be made, it is incumbent on that party to satisfy the court that the proposed payment would not be in conflict of the policy underlined the Mareva injunction."

16. There is no doubt about the principle. Mr Pe referred me to the case of Kea Corporation v. Parrott Corporation Limited, a decision of the English Court of Appeal given on 24 September 1986 where Sir John Donaldson, M.R. said at page 3 :

"Applying that principle here, I cannot see that if Mr Peters uses English funds to pay his lawyers to defend him in proceedings which are brought against him in England it can possibly be said that his purpose is to ensure that assets are not available to satisfy a judgment. It would be quite different if the proceedings were in America and he was seeking to take money from this country to defend himself in America. One can work out all sorts of permutations in which one could say, 'This is an unnatural thing to do. It is unreasonable. The real purpose must be to remove assets from the potential clutches of a plaintiff.'..."

Ms Fewins was right in saying that there Sir John Donaldson was dealing with an application by a defendant to use money to fund his own defence.

17. But, the court is concerned to ensure that a Mareva injunction does not operate oppressively and Reyes J when he was dealing with the amount of permissible expenditure had this to say :

"24. While I accept that there may be some double benefit to the 3rd and 4th defendants, a Mareva injunction is inevitably an intrusion into the normal orderly process of a person's life. Pending final determination at trial, the inconvenience caused by a Mareva to a party should be minimised as much as reasonably possible. I do not think that the allowance has now being paid out are excessive, especially given the 3rd and 4th defendants' apparent lifestyle prior to the imposition of the Mareva injunction (as disclosed by the evidence). I therefore decline to reduce the allowances allowed under the injunctions. As for the contention that the funds subject to the Mareva injunctions are being depleted, that seems to be an inevitable corollary of the asset value (approximately $20 million) which the Plaintiff has managed to freeze and the time taken to bring the action to trial. To vary the Mareva allowance down by $167,000 or so per month, will not in the scale of things substantially assist the Plaintiff by way of security for its action. The practical answer to the problem seems to be for the Plaintiff to bring its claim to trial as speedily as possible."

18. Adopting the same approach, I have made the variation sought. I believe the 3rd defendant has a legitimate interest in seeing that the claim against the 5th and 6th defendants in which she has an indirect 25% interest and the defence of her husband should be properly conducted. I took into consideration the fact that these defendants have a common defence. I also took into consideration the fact that if the 3rd, 5th and 6th defendants were to be unpresented it might make the defence of the 4th defendant more difficult. As I have said I doubt whether it would reduce the amount of costs that she has to pay. Using the language of Sir John Donaldson I ask : Is it an unnatural thing to do? Is it unreasonable for the 4th defendant to wish to see that the defence of these defendants are properly conducted? Was the real purpose the dissipation of assets? I think the answer is "no".

19. Therefore in the exercise of my discretion I have permitted the variation.

Costs

20. The defendants asked for the costs of this application. I think the order I would make is that the costs of the application should be costs in the cause. These defendants required a variation of the order. They have come to court to obtain it. The matter was dealt with promptly - they made the application on 6 July and the order was made on 9 July. I cannot say that the plaintiff was unreasonable in not consenting to the variation. So, in all the circumstances, I believe the proper order to make is that the costs of this application be costs in the cause.