TIMEKEEPING SYSTEMS INC v. STEPHEN JOHN OBERLANDER AND ANOTHER

HCA 612/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 612 OF 2007

_________________________

BETWEEN

_________________________

_______________

D E C I S I O N

_______________

1.   Judgment has been entered in this action in favour of Timekeeping Systems Inc (“Timekeeping”) against Stephen John Oberlander (“Mr Oberlander”) and Security Products Universal Limited (“SPU”).

2.   Thereafter, Timekeeping obtained orders to examine Mr Oberlander in his capacity as an ex-director of SPU and in his personal capacity as a judgment debtor.

3.   Following the examination, Timekeeping applies for an order to imprison Mr Oberlander. The application is opposed.

BACKGROUND

4.   The background of this action is not disputed and may be summarized as follows:

(a) Timekeeping obtained a judgment from the Ohio Court in the USA in 1999 against Mr Oberlander and SPU for US$79,168 with interest and attorney fees of US$3,110.

(b) Timekeeping registered the judgment in various jurisdictions in the USA but was unable to successfully enforce the same. The judgment remained unsatisfied and the Ohio Court revived the judgment in 2006 in favour of Timekeeping for US$142,879.47 with interest and further ordered Mr Oberlander and SPU to pay collection costs and attorney fees totaling US$87,761.82 with interest.

(c) With a view to enforce the revived judgment in Hong Kong, Timekeeping commenced this action on 26 March 2007 against Mr Oberlander and SPU.

(d) Judgment was entered against SPU on 22 May 2007 in default of defence. On 7 August 2007, Timekeeping obtained an order to examine Mr Oberlander as an ex-director of SPU under Order 48. Mr Oberlander was personally served with the order in Hong Kong on 14 August 2007 but he did not attend the examination on 3 September 2007. He also failed to attend the adjourned examination on 14 December 2007 and 28 January 2008 despite being notified of the hearings.

(e) Timekeeping obtained summary judgment against Mr Oberlander on 28 January 2008 when he failed to turn up at the argument. On 28 May 2008,it obtained an examination order under Order 49B and a prohibition order against him.

(f) Mr Oberlander entered Hong Kong on 2 June 2008. Timekeeping’s solicitors were not able to locate Mr Oberlander thereafter for the purposes of the examination orders and the prohibition order was extended. On 21 August 2008, Timekeeping obtained a warrant of arrest and a fresh prohibition order against Mr Oberlander.

(g) Mr Oberlander was subsequently arrested by the bailiff on 8 September 2008 when he attempted to leave Hong Kong. He was brought before Master J Wong in answer to the examination orders. The learned Master gave directions for disclosure of documents for the purpose of the examination and released him.

(h) The examination commenced on 28 October 2008 before me. There were several adjournments with further disclosure orders made to oblige Mr Oberlander to make proper disclosure for the purpose of the examination. Mr Oberlander was initially unrepresented at the examination but, since May 2009, is legally represented. The examination concluded on 6 July 2009 and submissions were made on 27 July 2009.

THE RELEVANT LAW

5.   Order 49B, rule 1B(1) provides that:

“Where the Court is satisfied, following the examination conducted under rule 1A or following an examination conducted under Order 48, that the judgment debtor:-

(a) is able to satisfy the judgment, wholly or partly; or

(b) has disposed of assets with a view to avoiding satisfaction of the judgment or the liability which is the subject of the judgment, wholly or partly; or

(c) has wilfully failed to make a full disclosure as required under rule 1A(2) or at the examination under Order 48 or to answer any question as provided under that rule or Order,

it may, in its discretion, order the imprisonment of the judgment debtor for a period not exceeding 3 months.”

6.   It is common ground that:

(a) The jurisdiction of the court to imprison a judgment debtor should be exercised with care and circumspection. The court must be satisfied beyond reasonable doubt that one or more of the grounds set out in Order 49B, rule 1B(1) is established before making an imprisonment order, as the jurisdiction is analogous to proceedings for contempt which have long been recognized as criminal in nature and must be proved to the criminal standard of proof. [1]

(b) In order to invoke rule 1B(1)(b), the judgment creditor has to show that the judgment debtor has disposed of assets. Although the rule does not specify whose assets it was that were being disposed of, it should refer to the assets of the judgment debtor but not others. Furthermore, it must be proved that the disposal was made with a view to avoiding satisfaction of the judgment debt. [2]

(c) For an application under rule 1B(1)(c), non-disclosure must be judged as a whole following the examination rather than on disobedience of any specific order. Furthermore, the failure to make a full disclosure must be deliberate and intentional, as opposed to accidental or negligent. [3]

DISCUSSION

7.   Timekeeping’s application is based on rules 1B(1)(b) and (c). It is their contention that:

(a) Mr Oberlander has disposed of the proceeds from the sale of his SPU shares with a view to avoiding partial satisfaction of the judgment; and

(b) Mr Oberlander has wilfully failed to make a full disclosure as required under Order 49B, rule 1A.

(a) Has Mr Oberlander disposed of assets with a view to avoiding satisfaction of the judgment?

8.   It is common ground that Mr Oberlander used to own 60% of the shares in SPU. In the first week of June 2008, he sold the shares to Katie Choi for HK$162,000 through an intermediary called Jimmy Wang (or Wong). According to Mr Oberlander[4], he and Jimmy Wang met in the lobby of a bank in Sheung Wan. Jimmy Wang presented some transfer papers for him to sign and he received HK$162,000 in cash after signing the documents.

9.   It is also common ground that Mr Oberlander did not use the money or any part thereof to repay Timekeeping. Instead, he squandered the money. This is how he accounts for his use of the money[5]:

Q.	Can you tell us how you spent the money?
A.	Yes, it’s pretty easy, go out to nightclubs and meet young ladies, you go out and it just has a way of going.
Q.	Okay, let’s start with the very first one, the first night, first night out after you received the money.  What do [sic] you do with it?
A.	It wasn’t night, it was afternoon.  I went to Lan Kwai Fong, went over to one of the clubs there and…
Q.	How much did you spend?
A.	Oh, that night, probably around $12,000.
…
Q.	You spent $12,000 on food and drinks?
A.	And the young lady.
Q.	What do you mean by that?
A.	Well, she’s a working girl.
…
Q.	What about the next splurge?
A.	I wouldn’t say they were splurges, they’re sort of just every night, go out.
Q.	Every night?
A.	Virtually.  There may be some nights I took off but as I said, I’m…
Q.	… how long did you take to spend this $162,000?
A.	I was getting really down by probably the third week of August, I’d guess.  I was pretty out of money.
…
Q.	Right.  So third week of August you had about how much?
A.	I’m guessing, about seven or eight thousand.

10.   When Mr Oberlander was asked why he did not use the money to repay Timekeeping, this is how he responded[6]:

Q.	I’m going to ask you again.  You had the means, back in June this year, $162,000, and you refused to pay my clients.  I’m asking you for an explanation.
A.	I don’t have any explanation.
Q.	Why?
A.	If I don’t have any explanation, how can I tell you why?
Q.	Why don’t you want to pay my clients?  You…
A.	I don’t believe that I owe them the money.  These people sue everybody, that’s what they do.
Q.	Can you repeat that again, please?
A.	These people sue everybody.  They get involved in contracts that are impossible to fill and then when they – go to court for breach of contract and when they can’t defend themselves, they either settle or sue them.
Q.	So Mr Oberlander, you had the means and you simply refused to pay my clients because you believe that my clients are scum of the earth and they should not be paid because they go around suing people.  Would that be a fair statement?
A.	Well, that would be, probably.

11.   Mr Cheung (for Mr Oberlander) observesthat Timekeeping has to prove beyond reasonable doubt that Mr Oberlander has disposed of assets with a view to avoid satisfying the judgment. He submits that there is no direct evidence showing that the disposition was made with a view to avoid satisfying the judgment and no such inference can be drawn from the evidence in light of the following explanation given by Mr Oberlander[7]:

A.	If you read the deposition, I’m sure, from my ex-wife, I never have – she’ll tell you I have always been like this.  This is what I do.  If I make a lot of money, I go out and spend a lot of money.  If I make a little money, I go out and spend a little money.  I’m not a saver.  I like to go out and drink.  I’ll drink every night.  That’s what I do.  If I don’t have much money, I drink cheap wine.  If I’ve got a lot of money, I’ll go down the [sic] Lan Kwai Fong and drink Chivas Regal.
…
Q.	Notwithstanding the fact that you owe my clients sums of money under the judgment debt, you have literally disposed of this $162,000 by your splurging in Lan Kwai Fong, etc, with a view to avoiding paying my clients on the judgments…
A.	No, it wasn’t a view to avoid paying your clients.  It was a view to do what I always normally do.  What you’re saying then is every time in the past when I’ve made money and I’ve gone to a bar and I’ve picked up a girl, oh, I did it so I didn’t have to pay your clients.  Trust me, when I was in the bar, I wasn’t thinking about your client at all.
Q.	Certainly, of course not, I understand that.  But you did say, you did say earlier that you would rather spend the money on the bars, the drinks, the girls, than to pay my client.
A.	Yes, I think most guys would rather do that.
Q.	You’d rather do that, so isn’t it true, isn’t that the same you are saying, Mr Oberlander, right, isn’t it the same way of saying that you are doing that to avoid paying my clients?
A.	No, it’s not the same way of saying that.
Q.	Why not?
A	I just told you, it’s what I do.  I enjoy doing that.  I didn’t do it to avoid paying your client.  I did it to enjoy a lifestyle and to enjoy going out with very attractive young women, to go out drinking with people and having a good time.  I didn’t say, “Gee, I really want to avoid paying them money so I’ve got an idea, I’ll go out and drink,” I didn’t do it with that in mind.

12.   The gist of Mr Cheung’s submission is that Mr Oberlander was just being himself when he chose to spend the money as he did and he did not have the intention to avoid the judgment. I donot think I can accept this submission.

13.   To start with, Mr Oberlander’s explanation is clearly an afterthought given his previous answers (see paragraph 10 above).

14.   All along, Mr Oberlander has been aware of the judgments obtained by Timekeeping in various jurisdictions against him. He admits that he had the means to repay Timekeeping in the past but chose not to because he did not agree with Timekeeping[8]:

Q.	Do you acknowledge the debt my client has against you?
A.	I acknowledge they have – they’ve gone to court and they’ve got judgments against me, yes, I acknowledge that.
Q.	Right.  So is it your evidence that since the time my client entered the first judgment against you in 1999, you did not have any means to repay that?
A.	I wouldn’t say I didn’t have any means to repay them since 1999.
Q.	So is it your evidence today that you had means back in 1999 to repay them but you did not, you chose not to do so, is that your evidence, Mr Oberlander?
A.	I would say yes, that’s true, I chose not to pay them.
Q.	Thank you.  And is it also your evidence that since 1999, you did not have any means to repay my client, or is it because you had means but you just refused to do so?  Is that your evidence, Mr Oberlander?
A.	There were times since 1999 that, yes, I had money, and no, I didn’t pay them.
Q.	Right, and that’s because you felt that my clients should not be paid.
A.	I’ve always felt your clients should not be paid.  I think they’re scum of the earth.

15.   According to Mr Oberlander[9], he came to Hong Kong this time on 2 June 2008 specifically to meet Jimmy Wang and then to fly to the USA. He planned to stay in Hong Kong for just one night. When he attempted to leave the territory with the money on 3 June 2008, he was prevented from doing so by reason of the prohibition order obtained by Timekeeping against him.

16.   Mr Oberlander was made aware of the prohibition order obtained by Timekeeping against him when he attempted to leave on 3 June 2008[10]. However, he did not take steps to contact Timekeeping or its solicitors[11]. He subsequently made another attempt to leave Hong Kong and, this time, he was picked up by the bailiff.

17.   Mr Leong (for Timekeeping) observes from Mr Oberlander’s evidence that he is in essence “a man of straw” “living out of a suitcase”. Mr Oberlander has also acknowledged that he regards HK$162,000 as a lot of money[12] and he has not seen such amount of money for a long time[13]. Mr Leong therefore submits that for someone in Mr Oberlander’s financial circumstances to spend someHK$162,000 on “wine, women and song” in less than 3 months is demonstrative of Mr Oberlander’s intent to waste away, at all costs, the money he received just to prevent Timekeeping from laying its hands on the money. I agree.

18.   It is clear from the evidence that Mr Oberlander had planned to come to Hong Kong to dispose of his SPU shares and leave for the USA on the next day with the sale proceeds. However, the reality turned out not quite what he had expected and he became stranded in Hong Kong. He hasobtained legal advice before and knew that it would be futile for him to challenge the Hong Kong judgment so long as the Ohio judgments remained valid[14]. He knew he would be examined by Timekeeping before the Hong Kong court. So,what should he do with the money?

19.   I think the following exchanges between Mr Leong and Mr Oberlanderbetray what Mr Oberlander was thinking at the time[15]:

Q.	So I find it incredible that a person in your shoes, having received HK$162,000 had not put any money away and you’re telling the court that you have spent it all.
A.	What am I going to do with it, if I put it away?  If I put it away, you’re just going to take it.
…
Q.	... But your point is that notwithstanding coming into money, notwithstanding you owe my clients a judgment debt, your evidence is that you’d rather spend that way [sic] than to let my clients take it.
A.	If I have a choice between partying, going out with good-looking girls and drinking, yes.  That’s what I do.

20.   It is clear from the above that Mr Oberlanderwas conscious of the decision as to how he should deal with the money whilst he was stranded in Hong Kong. He contemplated that if he had put the money away, Timekeeping would be able to discover it and take it. But he found Timekeeping so objectionable that he would rather lose the money than letting Timekeeping take it. What better way to spend the money than through “wine, women and song” – something that he knows best?

21.   In my view, there is clear admission in this case from Mr. Oberlander that he intended to avoid satisfying the judgment by spending the money away. I therefore find that Timekeeping has proved beyond reasonable doubt that Mr Oberlander has disposed of the proceeds with a view to avoiding satisfaction of the judgment.

22.   Before leaving this issue, I should mention that Mr Leong is also relying on the following matters with a view to discredit Mr Oberlander’s explanation that he was merely doing what he normally does without the intention to avoid the judgment:

(a) The steps taken by Mr Oberlander to dissipate his shareholdings in Wise Plans Investment Limited from as early as the time when Timekeeping was threatening legal proceedings in the USA.

(b) The flurry of activities of Mr Oberlander and SPU, shortly after the commencementof this action,to wind down the operation of SPU and to transfer its business to a new entity called Safety Protection Universal Limited (sharing the same acronym, “SPU”) run by its former staffs (namely, Albert Tsang and Rosita Luk) at the same premises.

(c) Mr Oberlander’s denial in the face of Albert Tsang’s evidence that it was he who handed Albert Tsang the termination letter at the end of April 2007 and the record in his passport that he was indeed in Hong Kong on 26 and 27 April 2007.

(d) The steps taken by Mr Oberlander and SPU initiallyin this action to delay the proceedings.

(e) Mr Oberlander’s admission in open court that he has, on various occasions, lied or made misrepresentation in his credit applications and his tax returns.

23.   In the end, I do not need to resort to these arguments as there is direct evidence from Mr Oberlander on his real intention in disposing of the money.

(b) Has Mr Oberlander wilfully failed to make a full disclosure?

24.   It is Timekeeping’s case that Mr Oberlander has wilfully failed to make a full disclosure as required under Order 49B, rule 1A(2).

25.   That rule provides that:

“The judgment debtor shall, at his examination, make a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income and shall, subject to the directions of the Court, answer all questions put to him.”

26.   It is true that Mr Oberlander had failed to make a full disclosure at the outset of the examination. He did not produce anyordered document in his affidavits filed on 6 October 2008 in purported compliance with Master J Wong’s disclosure order.

27.   Mr Oberlander’s failure prompted a series of adjournments and further disclosure orders from this court. In the end, some of the ordered documents were produced and the position may be summarized as follows:

Documents ordered to be disclosed	Document(s) disclosed & Mr Oberlander’s explanation
Documents in respect of Mr Oberlander’s assets exceeding US$1,000	No disclosure. Mr Oberlander does not own any such asset.
Banking documents (in Hong Kong and elsewhere) including account opening form, bank opening mandate and bank statements	Malaga Cove Bank account activation documents, summary of banking activities from January to November 2008, and bank statements from 25 January 2002 to 25 March 2009 produced. Union Bank statements from 24 February 2003 to 23 May 2005 produced.
Credit card / charge card / debit card and all related statements	No disclosure. Mr Oberlander has written to various credit card companies requesting for such statements but to no avail.
Accounts of any business where Mr Oberlander was a sole proprietor, partner or shareholder	No disclosure. Mr Oberlander says his ex-wife takes care of the businesses.  Hehas written to her in the USA requesting for such documents but to no avail.
Tax returns and assessments filed worldwide including but not limited to Hong Kong and the USA	US Tax Return Transcripts for the years ending 1999 to 2001 and 2004 to 2007, and copies of US Tax Return for 2002 to 2005 and 2007 produced. Mr Oberlander has not filed any tax returns for 2008 and intends to do so when he goes back to the USA. Mr Oberlander has not filed any tax return in Hong Kong since 1999.
All shares and stocks certificates	No disclosure. Mr Oberlander does not own any shares or stocks.
Deeds or Land Registry entries in respect of all properties in Mr Oberlander’s name or owned by him worldwide	No disclosure. Mr Oberlander does not own any property.
Registration of vehicles owned by Mr Oberlander	No disclosure. Mr Oberlander does not own any vehicle.
Rental agreements, names of landlords, rental amount, duration of tenancy, full addresses for all properties leased by Mr Oberlander	Previous rental addresses provided and some rental receipts produced.
Details of remittance regarding loans disbursed by third parties	Two remittance receipts for money received from Brian McGowan produced.
Documents relating to the sale of SPU shares by Mr Oberlander	No disclosure. Mr Oberlander has misplaced the relevant documents.

28.   It is common ground that any allegation of non-disclosure must be judged as a whole following the examination. For those categories which he has produced nothing, Mr Oberlander has provided some explanation. For those categories which he has produced something, Mr Oberlander says he has tried his best. Timekeeping has been unable to contradict these explanations. Bearing in mind that any non-disclosure must be deliberate and intentional before the court’s jurisdiction is engaged, I cannot be satisfied that Mr Oberlander has wilfully failed to make a full disclosure.

29.   More specifically, Mr Leong complains that Mr Oberlander has failed to disclose documents confirmingthe income he reported in his tax returns filed in the USA. He submits that it is inconceivable for Mr Oberslander not to keep any record in support of his returns and, even if he has not, his tax representative in the USA should have. Mr Leong argues that Mr Oberlander has clearly failed to make a full disclosure as required under Order 49B, rule 1A(2) in not disclosing “all his assets, liabilities, income and expenditure and of the disposal of any assets or income” at the examination. I do not agree.

30.   Order 49B, rule 1B(1)(c) talks about failure to make a full disclosure as required under rule 1A(2), and rule 1A(2)obliges the judgment debtor to make a full disclosure of all his assets, liabilities, income and expenditure and of the disposal of any assets or income “at his examination”. In my view, the scope of Mr Oberlander’s examination is defined by the length and breath of the disclosure orders made. Master J Wong’s order dated 8 September 2008 directed Mr Oberlander to produce, inter alia, “tax returns and assessments filed worldwide including but not limited to Hong Kong and the USA” since 3 February 1999. Timekeeping did not seek disclosure of documents in support of the tax returns when they applied for the further disclosure orders. As such, Mr Oberlander has never been ordered to produce such documents. In those circumstances, I do not think he can be criticized for failing to disclose something which he has not been asked to produce.

31.   In any event, Mr Oberlander has confessed during his examination that he lied and made misrepresentations in his tax returns. He admitted that his tax returns could not be taken at face value[16] as he had “plucked [the figures] from the air and … put it into the accounts”[17]. In those circumstances, I doubt if there was ever any document in support of his tax returns.

32.   All in all, I am not satisfied Timekeeping has proved beyond reasonable doubt that Mr Oberander has wilfully failed to make a full disclosure.

CONCLUSION

33.   For the above reasons, I am of the view that Timekeeping has proved to the required standard that Mr Oberlander has disposed of the proceeds from the sale of his SPU shares with a view to avoid satisfying the judgment herein and the court’s jurisdiction under Order 49B, rule 1B(1)(b) is engaged.

34.   In deciding whether to order imprisonment, I take into account the fact that Mr Oberlander has already been prohibited from leaving Hong Kong for over a year since June 2008. Be that as it may, I don’t think I should place too much weight on his plight for being stranded in Hong Kong. The examination was unnecessarily lengthened due to his failure to maketimely disclosure as ordered.

35.   In the circumstances of this case, I am satisfied I should exercise my discretion in ordering imprisonment. I wish to state in no uncertain term that I am not imprisoning Mr Oberlander for the lifestyle he chooses to lead. What I am concerned with is his conduct in disposing of the proceeds so as to frustrate Timekeeping’s enforcement.

36.   Mr Leong and Mr Cheung havenot found any decided cases in which the court ordered imprisonmentunder rule 1B(1)(b). In my view, the statutory maximum of 3 months should be reserved for the most serious cases and I do not regard this case as falling within that category. Mr Oberlander is now 63 years old. Although he claims that he is required to undergo certain eye procedure and has developed some form of skin cancer whilst in Hong Kong, there is no medical evidence in support. The amount of judgment debt comes to over HK$1.8 million. Although Mr Oberlander could not have fully repaid Timekeeping, the money he disposed of cannot be regarded as insubstantial. Bearing in mind all the circumstances of this case, I have decided to order Mr Oberlander to be imprisoned for 14 days.

37.   I shall now hear the parties on costs.