RE KIM DOTCOM AND OTHERS

HCMP 116/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 116 OF 2012

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J U D G M E N T

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1. This is an application by D2 to set aside the Restraint Order made by Madam Justice Bokhary on 18 January 2012. This was an ex parte hearing in Chambers Not Open to the Public. The Secretary for Justice appeared as agent for the Untied States of America. The present proceedings were held in Chambers Open to the Public pursuant to my previous order, reasons for which have been handed down.

2. There was no issue as to jurisdiction.  Both parties agreed the court had the necessary jurisdiction to hear and determine this application derived from various sources to which I do not need to refer. The application commenced with the court hearing the proceedings before Madam Justice Bokhary when the ex parte grant of the Restraint Order took place on 18 January 2012.  It is clear and accepted that the Secretary for Justice presented no skeleton argument to the court, relying on the oral application of Ms Linda Lam DPGC who represented the said Secretary for Justice and the Affirmation of Customs Officer Yu Yat-ming, Sunny.  There is however, no criticism of the Secretary for Justice as it was not the practice to provide such a document at that time.  That affirmation is detailed, informative and would have ensured Madam Justice Bokhary had an extensive appreciation of the allegations and the progress of the case against all defendants including D2.  The effect, and I say this will the utmost respect, is that putting together the oral ex parte application made to Her Ladyship with the affirmation I referred, to there were ample grounds for the making of the order.  Thus, in my judgment the grant of the order is beyond reproach on the information provided.  There can be and there is no criticism of Her Ladyship in this application from the applicant.  The basis of the challenge is what was not laid before her and I will deal with that presently.

3. The court was told that seven individuals and the two companies referred to had proceedings commenced against them by the filing of an indictment.  That indictment by a Grand Jury was filed in the United States against D2 and others on 5 January 2012. Arrest warrants were requested for the individuals including Kim Dotcom (D1), Finn Habib Batato (D4), Mathias Ortmann (D7) and Bram Van Der Kolk (D9).  All face formal extradition from New Zealand.  In respect of D2 nothing further, apart from the obtaining of this Restraint Order was done as for reasons which will later be explained nothing more could be done.  Now almost 3 years have elapsed since the filing of the indictment.

4. It is perhaps, obvious but worth stating that the making of a Restraint Order is not a matter of routine.  It is a draconian order usually  prior to a conviction, if indeed there is a conviction, where the presumption of innocence glows like a beacon in the dark.  Yet the court deems it necessary in the interests of justice to grant an order that prevents a person, legal or corporate, from going about his or its normal, everyday business.  It prevents the individual or corporation from dealing in, dealing with or disposing of his/or its own property.

5. It is a weapon of necessity that blows away individual or corporate freedoms for the greater good.  It follows logically therefore that it is not to be made lightly and there is a heavy burden on the applicant for the order to embrace fully the concepts of candour, openness and full disclosure not only of matters relevant to the application but also matters which may be relevant.  Thus and only thus can the court make a rational, balanced judgment as to the propriety of the issuing of the order.

6. In the present application as I have made clear, the Secretary for Justice appeared as agent for the Government of the United States of America.  The burden of full disclosure rests with the foreign power so as to allow the local agent properly to discharge his duty of full and frank disclosure of all that is material or all that might be material to the High Court in Hong Kong.  In short the Secretary for Justice could only disclose what was known whether from what was informed or what was gleaned from further enquiry of the United States.  What the High Court of Hong Kong was never told was that there were legal problems relating to service of the summons in respect of D2.  That is why it was never moved along.

7. It is clear beyond a shadow of a doubt that the High Court of Hong Kong does not overlook and condemns by punitive action any failure to be frank and open.  Recorder Ma, SC, as he then was, in Yau Chiu Wah v Gold Chief Investment HCA 807/2001 (unreported) at paragraph 43 ruled:

“Material non-disclosure is rightly regarded as a serious matter and in certain cases would not only justify the setting aside of an existing order but may also constitute the determining factor in the refusal of a fresh grant.”

This case concerned a Mareva Injunction so it is akin to the present case.  In that case whilst the court found these was material non-disclosure based on the facts, the original exparte injunction was set aside but a new one was granted.

8. In Kan Hung Cheung v The Director of Immigration HCAL 74/2007 (unreported).  A Cheung J, as he then was, said at paragraph 15:

“Materiality is not determined by asking if the judge had, had before him the additional facts later disclosed would he have come to the same conclusion. The right test is that the court must be fully informed of all the facts that are relevant to the weighing question which the court has to make in deciding whether or not to make the order.”

Whilst this was a very different type of case the principles are demonstrable and expressed to the extent the court must have all the facts relevant to considering matters before it, in order to decide itself what is material and what is not.  In other words in an exparte application the applicant must be open, frank and candid, not selective and secretive.  This is perhaps self-evident as an order of this type restricts the freedom of a person or body corporate without that person or body corporate being able to respond and contradict the information advanced.

9. The applicant has made it clear throughout that the good faith of the Secretary for Justice is not impugned.  It is the United States Government who did not bring to his attention the problems over service.  In short those problems can be put as follows.  It is accepted by both the counsel for the Secretary for Justice and on behalf of the United States Government that the matter referred to hereafter was never disclosed when the Restraint Order was granted.  That too is acknowledged in the Affidavit of Robert W Wiechering dated 28 May 2014.  The response is that they are not material, as irrelevant so there was no need for or purpose in such disclosure.

10. The issue here is Criminal Rule 4 which lays down that a summons is served by delivering a copy to an officer or agent.  Then the rule goes on to require a copy to be mailed to the organisation’s last known address in the Eastern District of Virginia or principal place of business elsewhere, within the United States.  As I have said it is not a matter of dispute inter partes that Rule 4 cannot be complied with fully because of this.  Primary service, the Secretary for Justice, contends on behalf of the Government of the United States can be complied by serving a summons on individual defendants primarily D1, Kim Dotcom on his successful extradition for trial in the United States from New Zealand.  Those proceedings have not yet commenced, being set for February of 2015.  That is over 3 years since the filing of the indictment on 5 January 2012. 

11. Of course, no-one can say when that process of extradition will be completed given the appeal paths open to the various accused.  Indeed no-one can say even if it will every be completed.  Thus Megaupload Limited, D2, face an indeterminate wait before primary service of the summons, if it is effected at all and a likelihood that the requirement for secondary service can never be complied with.

12. The respondents in this application placed varying degrees of reliance on a decision of the United States District Court for the Eastern District of Virginia of the 5 October 2012.  This is of limited influence on my decision.  The reason is that this took place many months after the initial grant of the Restraint Order and of course it has little or no bearing on the present proceedings save to acknowledge and confirm the secondary service problems faced by the United States Government.  The fact that the judge in the said court declined to dismiss the indictment and denied the motion without prejudice is of little consequence.  On my reading and understanding of the report of the proceedings it was no more than, as I have said, a recognition of the problems but that dismissal at that stage was too extreme.  The judge did, however, leave open the door for further such motions at a later date.  By way of comment, the judge’s finding that it may be able to be served by the serving on the individual defendants or defendant, if extradited it to the United States and then mailing it to the address at which they may be lodged, is at the best speculative.  In other words he recognises the problem and acknowledges a possible solution at sometime in the uncertain future.  That solution is merely a possibility.

13. The stance adopted by the Secretary for Justice as agent for the Government of the United States is to maintain the non-disclosure of the problems was based on the contention that they are irrelevant.  That there existed potential and real legal avenues to strike at the assets of D2.  This, in my opinion, is a somewhat dogmatic and short sighted response. Whilst I recognise that this has to be the response as there is nowhere else to go in defending the failure to disclose.  It may well be that the belief that these problems were irrelevant was an honest and sincere belief on the part of the United States Government.

Conclusion

14. The question for this court then is “was there a material non‑disclosure in the initial application for the Restraint Order made on 18 January 2012?”  It may well be that the United States Government can successfully seek forfeiture of the assets of Megaupload Limited, either civilly or in criminal proceedings.  It may be that the United States Government can even at some uncertain time in the future bring criminal proceeding against D2.  However at this time and on 18 January 2012 they could not because of the problems over service.  In my opinion, that was relevant information of which the court should have been made aware in order to weigh all factors before issuing this draconian order.  It may well have been that had Her Ladyship been made aware of this she would still have issued the order.  It was not for the applicant in those ex parte proceedings to cherry pick what was to be made available to the court.  These difficulties were and are live and relevant.  They were of some import.  This is a serious matter and justifies the setting aside of the Restrain Order which I do now. Having said that and set aside the order I do not find any grounds to conclude that the non-disclosure was deliberate in the sense it was consciously withheld in order to mislead the court.  It was a serious and demonstrable error of judgment on behalf of the United States Government not a calculated act of deception.  It is also a matter in which the interests of justice do, in my opinion, override the normal rights of D2 and the assets should be preserved and held pending full and final consideration.  Therefore I do regrant the Restraint Order and agree with the applicant in these present proceedings that the conditions applying therefore should be reconsidered in view of the changed circumstances.  Particularly the efflux of time and miasma of legal uncertainty dogging the action.  Therefore I regrant the Restraint Order in the original terms but subject to representations as to the conditions either today or at a later date.  Also I order that such proceeding should take place in Chambers Open to the Public, there being no good sound reason to exclude publicity and openness.