C v. H AND ANOTHER

HCMP 1080/2024

[2024] HKCFI 1854

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1080 OF 2024

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REASONS FOR DECISION

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A.  Introduction

1.  On 24 June 2024, I heard an ex parte application made by the plaintiff (“P”)  for a Mareva freezing injunction and ancillary asset disclosure orders against two defendants (“D1” and “D2” respectively).  I granted the injunction and a requirement for asset disclosure, and various other ancillary orders, including as to confidentiality and the service of documents.  The order was slightly amended on 26 June 2024.

2.  On 12 July 2024, I dealt with the first return date of P’s inter partes application for continuation of the orders made ex parte, and further orders relating to and consequent upon the joinder of a third defendant (“D3”).

3.  D1 did not appear and, in so far as the applications were made against him, I dealt with them as seemed apt.  Insofar as the applications were made against D3, it was made on an ex parte basis and I also dealt with them as seemed apt.  For present purposes, I need say no more about D1 or D3.

4.  However, on 5 July 2024, D2 issued an application seeking the discharge of the orders made against him, as well as interim variations of the orders pending the substantive hearing of the discharge application.  The interim variations included (1) the stay of, or extension of time for compliance with, the asset disclosure obligations until 21 days after the determination of the discharge application, and (2) permission to use a greater sum than the HK$50,000 per month allowed in the orders for legal advice and representation.  There was also an application for the balance of the proceeds of sale by D2 of a property to be held by his solicitors, and for them to be able to release them to D2 to meet the permitted use of frozen funds in the proposed variation.

5.  At the hearing: (1) I fixed the hearing date of 2 October 2024 for the determination of the discharge application, and gave directions for a timetable of evidence and skeleton arguments prior to that hearing; (2) I extended the time for compliance by D2 with the asset disclosure obligations until a new compliance date is set on 2 October 2024, or until further order; (3) I permitted D2 to spend a sum of up to HK$1.2 million on legal fees and representation for the period up to and including 2 October 2024; and (4) I directed D2’s solicitors to hold the proceeds of sale and not to permit them to be dealt with, disposed of or otherwise diminished in any way, other than to fund the permitted amounts under the order as varied.

6.  I now give brief reasons for my decisions. 

B.  Time for Compliance with Disclosure Obligations

7.  The deadline set by the ex parte order for D2 to provide asset disclosure was 5 July 2024, the date on which D2 issued his discharge application, also seeking the stay or extension of time for giving asset disclosure until a period after the determination of that application.

8.  P was content to permit a further period until 17 July 2024, and Mr Manzoni submitted that there was no basis warranting deferring compliance with the asset disclosure obligations pending the determination of D2’s application to discharge.

9.  The applicable principles are, it seems to me, well settled.  They can be found explained in varying ways in, for example: Grupo Torras v Al-Sabeh (UK Court of Appeal, 16 February 1994); Motorola v Uzan [2002] EWCA Civ 989; Raja v Hoogstraten [2004] 4 All ER 793; JSC BTA Bank v Ablyazov [2010] 1 All ER (Comm) 1029; Malofeev v VTB [2011] EWCA Civ 1252; and (in Hong Kong)  Akai Holdings Ltd (in liquidation)  v Ho Wing On Christopher [2005] HKEC 590.  Naturally, the focus on particular principles tends to arise on the individual facts of each case.

10.  However, attempting my own summary of the applicable principles, they might be stated as follows:

(1)  Asset disclosure ancillary to a Mareva/freezing order is properly recognised as the normal provision, so that the freezing order can be properly policed and effective.

(2)  Indeed, the disclosure requirement is intimately involved in the effectiveness of the Mareva/freezing order, and gives it teeth.

(3)  Hence, the fact that there is a pending challenge to the Mareva/freezing order is not of itself a ground for suspending the operation of the disclosure of assets order in the interim.

(4)  This is in part because an interim injunction may be granted on assumptions of fact and law, so that it follows that an interlocutory injunction may be granted on an assumption that there is jurisdiction or a proper basis for it – such as the inherent jurisdiction to grant an asset disclosure order ancillary to and in furtherance of another order.

(5)  Though an asset disclosure order is, as a matter of legal principle, ancillary to the Mareva/freezing order, there can be a different link in practice.

(6)  In many cases – in particular in international cases leading to a worldwide Mareva/freezing order – it is likely to be the disclosure order which will be the most useful in practical terms.

(7)  In such cases, it may be that the disclosure order made in Hong Kong will be the main remedy in Hong Kong, and the Mareva/freezing order can be seen as a ‘holding’ injunction, to give the plaintiff time to apply to the relevant foreign court for appropriate orders relating to the foreign assets disclosed.

(8)  But the Hong Kong Court is given the power to control the plaintiff’s exercise of his right to seek appropriate orders in foreign countries, by taking the standard form undertakings from the plaintiff that he will not without leave of the Court either (a) begin proceedings against the defendant in any other jurisdiction or use information obtained as a result of an order of the Court in Hong Kong for the purpose of civil or criminal proceedings in any other jurisdiction, and (b) seek to enforce the Hong Kong order or seek an order of a similar nature including orders conferring a charge or other security against the defendant or the defendant’s assets.

(9)  So, a defendant has no general entitlement to a stay of an asset disclosure obligation ancillary to a Mareva/freezing order pending the determination of the defendant’s application to discharge that order.

(10)  However, there is no authority to support a proposition that a defendant will always be refused a stay of the obligation to make disclosure pending the final determination of his application to set aside the Mareva/freezing order.

(11)  In a normal case, a stay of the disclosure obligations pending the determination whether the freezing order is to stand is likely to be refused.

(12)  But, each case must be judged by reference to its own particular situation.

(13)  There will inevitably be situations where a view may be taken with regard to the appropriateness of the freezing order remaining in place during the interim period pending determination of the discharge application, yet for a stay to be granted on the disclosure order.

(14)  The Court must strike a balance between (a) the prejudice to the defendant if he is required (incorrectly, as it may turn out)  to disclose assets and (b) the prejudice to the plaintiff if the defendant is not required (incorrectly, as it may turn out)  to disclose assets.

(15)  This is similar to the ordinary balancing exercise when considering interim orders, in assessing where the greater risk of prejudice lies.

(16)  When dealing with an interim application, a broad brush approach necessarily has to be taken – lest on the application for a stay the Court determines the very issues which are to be determined later.

(17)  Relevant to the discretionary balancing exercise will be matters including (but not limited to):

(a)  the fact that disclosure obligations can be onerous and, in some cases, potentially damaging to the defendant;

(b)  the length of time that a discharge application is likely to take to be determined (being the period of time the plaintiff will be without the information it needs to police the order, if the order is ultimately not discharged);

(c)  whether there is a good arguable case that a fraud has been perpetrated;

(d)  whether the defendant has at least an arguable case that the injunction will be discharged.

(18)  Lastly, there is no authority for any general proposition that a defendant who has made a timely application should not be heard on that application (or on the question of an interim stay)  until he has first made the disclosure to which he objects.

11.  In making my decision in effect to stay D2’s asset disclosure obligations under the ex parte order until the date of 2 October 2024, when I shall hear the discharge application (or until further order), I took into account the above principles and I gave such weight as seems to me to be appropriate to the following matters:

(1)  the discharge application can be heard by me within 12 weeks (on a date convenient to both leading Counsel for P and for D2);

(2)  the evidential timetable set for the hearing of that application;

(3)  the at present yet to be clarified precise formulation of the claim which P mounts against D2;

(4)  the apparent existing distinction between the strength of case against D1 and D2, in particular as regards allegations of fraud;

(5)  the limited matters relied upon by P in support of its assertion of the risk of D2’s dissipation of assets;

(6)  the discharge application is made on a basis which, as Mr Barlow SC has submitted, cannot at this stage be said to be without at least some apparent merit.

12.  I have also taken account of the fact that there is a fast-moving ongoing investigation process being conducted by the liquidators of P, some of the fruit of which may come out in the evidence to be filed, but where I have in any event also expressly provided for liberty to apply.

C.   Allowance for Legal Advice and Representation

13.  One of the standard provisions in a Mareva/freezing injunction makes express exceptions to the freezing order, so that it does not prohibit the defendant from spending a particular sum of money each month towards his ordinary and proper living expenses, and an appropriate sum on legal fees and representation.

14.  Ordinarily, asset disclosure can be relevant to that provision, as it may identify that the defendant has assets in excess of the amount frozen, from which he can support his living and/or legal expenses. But the point of the exception is to ensure that the defendant can, where appropriate, use his own money to meet his own ordinary expenses and to pay for his own legal representation in his defence to the proceedings, or to particular aspects of the proceedings.

15.  The original ex parte order in this case permitted D2 to use a sum of HK$50,000 per month towards his ordinary and proper living expenses and also $50,000 per month on legal fees and representation.  D2 sought a variation to permit an immediate use of HK$2 million plus HK$200,000 per month from August 2024 for his legal fees and representation.

16.  Mr Manzoni SC for P laid emphasis on the fact that, from some evidential materials available, it seems that D2 may have assets in the order of US$250 million, and the net proceeds of the sale of the Hong Kong property – which will be held by D2’s solicitors subject to the Court’s order and directions – is but a small proportion of that, being around US$5 million (approximately HK$42.8 million).  Hence, Mr Manzoni submitted that D2 ought not to be allowed to dissipate those funds, when he clearly has other funds from which he could support himself and pay legal fees and for legal representation.

17.  Whilst there is force in that submission, it seemed to me that D2 should be permitted to use the sum of up to HK$1.2 million for his legal fees and representation for the period up to and including 2 October 2024, namely the hearing of the discharge application.  In reaching that decision, I took into account in particular:

(1)  the context I have already canvassed above;

(2)  my decision as regards the stay on asset disclosure;

(3)  there is at present no proprietary claim against the net sale proceeds; and

(4)  the sum of HK$1.2 million (around US$150,000)  that I have allowed is a relatively small (if not negligible)  figure in the scheme of things as asserted by P, such that the overall potential prejudice to P may be limited. 

18.  Obviously, in addition, making an order in that form sets no precedent.  What is to happen after 2 October 2024 will be dependent upon the outcome of the discharge application, with the benefit of such further evidence as is filed and further submissions as are made.  Any future order will, if appropriate at all, be made on a fresh exercise of discretion in the circumstances then pertaining.