ATTORNEY GENERAL v. KO SAI MAN AND OTHERS

HEADNOTE

Courts practice and procedure - Drug Trafficking (Recovery of Proceeds) Ordinance (Cap.405) as modified by LN 19 of 1991 - assets in Hong Kong subject to a restraint order pursuant to an external confiscation order in the United States - application for partial release of those assets for legal fees to contest their seizure in the United States courts - evidence that such release would not be granted in the U.S. courts - Held: Subject to natural justice and our own legislation, the approach of the Hong Kong court to enforcement of its own restraint order should be sympathetic to that of the U.S. courts towards the original confiscation order - application refused.

HCMP No.2607 of 1991

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

IN THE MATTER OF THE DRUG TRAFFICKING

(RECOVERY OF PROCEEDS)(DESIGNATED COUNTRIES

AND TERRITORIES) ORDER 1991

-----------------------

J U D G M E N T

-----------------------

1. The applicants are the respondents to proceedings under the Drug Trafficking (Recovery of Proceeds) Ordinance (Cap.405), where under a restraint order was placed on assets in their various names. The Attorney General obtained this restraint order on behalf of the Government of the United States of America and the original order was made on 4th September 1991. It has subsequently been amended, but the assets remain under restraint.

2. The principal Ordinance was modified by the Drug Trafficking (Recovery of Proceeds) (Designated Countries and Territories) Order 1991 and it was under s.10 as so modified that the order was granted. It suffices to say that the validity of the restraint order is not called into question at this hearing.

3. The summons herein has apparently been misfiled and a copy was handed in on the morning of the hearing, together with a copy of the 1st respondent's supporting affirmation. With the consent of Miss Maguire for the Attorney General, this irregularity was condoned.

4. The summons seeks the release from the restrained assets of the sum of US$50,000 to pay lawyers' fees in the United States to contest the forfeiture of the restrained assets themselves. The application is resisted by the Attorney General.

5. I have been referred to the legislation in the United States where under the assets were restrained prior to the corresponding application under the Hong Kong legislation. It is a complex statute but the relevant subsection provides simply that

"(h) All right, title, and interest in property described in subsection (a) of this section shall vest in the United States upon commission of the act giving rise to forfeiture under this section."

So far as I can glean from the papers, and it was not explained in argument, the order in the United States operates as a vesting order nisi. In other words, pursuant to the subsection the property vests in the U.S. Government, subject to the rights of those affected to apply to the court to set aside the order on a date specified. If the claimant fails to attend on the date, the United States Government may then apply for final judgment for the vesting of the property in its favour in default of appearance.

6. It is important here to note that the date for appearance of the claimants (the respondents in Hong Kong) before the United States court was 10th February 1992. They did not appear and the United States has already filed for final judgment. That application will be heard on 5th March, which places a severe time constraint on these proceedings. Another factor is that the United States proceedings are civil proceedings and are issued in rem against the assets which are restrained.

7. At annexure JMM7 to her affidavit of 18th February 1992, Miss Maguire has annexed what are described as a memorandum of law and a declaration. These emanate from James M. Catterson, Assistant U.S. Attorney and are filed in the appropriate court in New York in support of the U.S. Government's application to dismiss the 1st respondent's claim to the seized assets. The document purports to state the facts and argues the law on the question of releasing restrained assets to cover legal fees. Neither the provenance of this document nor the legal arguments it contains are disputed by the applicants in the present proceedings. It is important to note that on the decisions cited, the United States courts appear not to countenance the partial release of restrained assets to contest the restraint itself.

8. Two decisions are cited to this effect by Mr. Catterson. Both are known as United States v. Peter Monsanto and are referred to for convenience as Monsanto III and Monsanto IV. The relevant extract from Monsanto III reads 

"Neither of the fifth or sixth amendments to the constitution requires congress to permit a defendant to use assets adjudged to be forfeitable to pay that defendant's legal fees."

The Monsanto IV decision was to the effect that  

"If the Government succeeds in establishing probable cause, the policies favouring forfeiture .............. preclude any constitutional requirement that equities be further weighed or balanced on the issue of making funds available to retain counsel."

The phrase "probable cause" in this passage relates, according to Mr. Catterson, to probable cause for the restraint on the claimant's assets. As the assets have already been restrained, that threshold has apparently been crossed.

9. These principles appear to establish the position in United States law in relation to contesting a restraint in the restraint proceedings themselves.. This was the position which led to the respondents' summons of 10th February 1992, which was heard by Sears J. on 14th February and was adjourned with liberty to the Attorney General to file further affidavit evidence.

10. The present summons however represents a departure from that position. To his affirmation of 26th February 1992, the first respondent annexes a copy of a letter from Messrs. O'Niell and Lysaght, Attorneys in California, addressed to his Hong Kong solicitors. This letter discusses an attack against the forfeiture not from within the proceedings, but by way of taking a point on lack of jurisdiction. So far as I can gather, the jurisdictional point rests on the fact that the restraint proceedings in the United States are brought in rem against the assets, and the assets themselves are all in Hong Kong. The correspondent Attorney in California goes on to say that^-he would require a retainer in the sum of US$50,000. The relevant extract in his letter reads -

"....... our firm will require a retainer in the sum of US$50,000 in order to make an appearance in the Eastern District of New York in these proceedings. We would include in this retainer our retention of a local counsel to assist us in monitoring the proceedings in New York. It is our firm's policy to bill on an hourly basis and the retainer will be applied to both fees and costs on a monthly basis. If the retainer is exhausted, we will bill Mr. Ko on a monthly basis and will expect to be kept current on these invoices. Should a successful result be obtained for Mr. Ko in this matter it is of course in his discretion to pay a premium to our firm for our successful efforts."

What is striking about this passage is that California Attorneys are seeking a very large retainer to employ local counsel in another jurisdiction some 3,000 miles away. Even supposing Mr. Ko to be entitled to the release of some assets under restraint to cover legal fees, this is surely not the most economical way of funding his litigation. The US$50,000 retainer is the sum which is sought to be released in the present proceedings.

11. It is not for me to deal at length with the jurisdictional point which the California attorneys have raised. The Hong Kong order has however been made in full realisation of the whereabouts of the restrained assets. The American legislation represents a rigorous approach to the drug problem, but the Hong Kong legislature has endorsed its severity in providing the local remedy of restraint when, as here, an "external confiscation order" has been made - s.9(1)(c) of the Hong Kong Ordinance as amended by the Order of 1991.

12. I do not in any event find an effective distinction for the purposes of this hearing between a claim by the respondents in entering appearance in the forfeiture proceedings and an attack on those proceedings from outside by way of the jurisdiction argument. Either way, the respondents are seeking the release of a portion of the seized funds in order to contest the seizure itself. It was this that the two Monsanto cases appear to have decided should not be allowed under the law of the United States.

13. The Monsanto cases are apparently criminal in nature, whereas this matter involves civil proceedings. According to Mr. Catterson however the principle of not releasing restrained assets for legal fees was extended to civil forfeiture in another case cited in his arguments.

14. The civil nature of these proceedings is also adduced in another context which I find relevant. The 6th amendment to the United States Constitution appears from Mr. Catterson's arguments to provide for the right to counsel in criminal matters but not in civil cases. This position is reflected in our own Bill of Rights which entitles anyone charged with a criminal offence to a counsel of his choice, with a similar absence of provision for legal representation as of right in civil suits. The seizure of assets moreover does not prevent the respondents from attending the hearing, it merely restricts their ability to employ counsel to do so for them.

15. In considering the arguments of James M. Catterson based on these American decisions, I again note that his conclusions are not contested. Mr. Wu for the respondents has argued in effect that the court should nevertheless release the funds in the interests of justice.

16. I accept therefore that the relief claimed in this summons, namely the partial release of seized funds to contest the seizure itself, is not available to the respondents under U.S. law. The Hong Kong court is not however fettered by this principle and may exercise its own discretion. Facts to be considered would include the overall balance of the justice of the situation and the reciprocity of the relationship between Hong Kong and the United States on the question of the recovery of drugs proceeds.

17. What I find crucial to the decision is whether or not the Hong Kong court should apply in priority those very principles which the United States courts have themselves placed secondary to the right of the U.S. Government to the seized assets. I have no doubt that the Hong Kong court is able to do so, but that is not the whole answer. In considering the issue, weight should be given to any appearance of a fundamental breach of natural justice in the process of obtaining and enforcing the restraint order. If no such breach is evident, the impetus of the Hong Kong decision should be towards sympathy with the approach in the U.S. courts.

18. The involvement of the respondents in the events leading to the seizure order in the United States are described in the complaint in rem annexed as JMM6 to Miss Maguire's affidavit of 16th October 1991. From this document and from the procedure described in the papers as a whole, the court in New York has evidently reached a conclusion that probable cause was shown for the seizure to be ordered. The involvement of the respondents is argued in detail, and given the subject matter and the purpose of the legislation, I find no fundamental infringement of natural justice in the process. I have described the legislation as rigorous, but in its context it is understandably so.

19. Having reached that conclusion, and conscious of the reciprocity involved in enforcing the United States order through our courts, I am not prepared to do more than the United States courts would themselves do within their own domestic context. I am reinforced in this decision by the fact that the respondents are not entitled as of right in civil proceedings, either in our law or apparently in that of the United States, to counsel of their choice. Their rights of movement are unfettered and they are free to attend the hearing in New York on 5th March.

20. I therefore find that the Hong Kong court should not only enforce this United States order, as it has done, by issuing a restraint order. It should also enforce its own order in a manner which, so far as consistent with our own legislation and fundamental justice, reflects enforcement in the United States. There being no apparent infringement of either Hong Kong legislation or natural justice, the application is refused.

21. Costs are awarded to the Attorney General and the receivers are ordered to release sufficient assets to pay those costs on presentation of a taxed bill.