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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D E C I S I O N

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1. The 1^st defendant (Kim Dotcom) and the 2^nd defendant (Megaupload Limited) applied by Summons dated 2 September 2015 to vary the restraint order granted in these proceedings to allow for, inter alia, payment of legal expenses (historic and future) and future living expenses.

2. In considering such an application, the court exercises a discretion whether or not to allow variation for legal and living expenses and takes into account many factors, including whether full disclosure has been made of assets by the applicants [see: Secretary for Justice v Tan Lam Chuan [2005] 3 HKC 545].  There is a requirement of full and frank disclosure and the burden rests on the applicants to satisfy the court that they have no other assets available to them to meet those expenses [see: Secretary for Justice v Zhenly Ye Gon [2012] 2 HKC 523 per Hartmann JA at 536C].

3. I have read the evidence filed, read the written submissions provided and listened to the oral submissions made.  I am satisfied that the 1^st and 2^nd defendants have made such disclosure as would justify an exercise of my discretion to vary the restraint order so as to make it subject to appropriate conditions and exceptions relating to reasonable living expenses and reasonable legal expenses. 

4. I agree with the submissions of Mr McCoy, SC (and with him, Mr Albert Wong), on behalf of the 1^st and 2^nd defendants, that in effect, the issue of disclosure has already been decided in the Judgments of Courtney J of the New Zealand High Court dated respectively 12 March 2015 and 23 April 2015.

5. In the Judgment of Courtney J dated 12 March 2015, Her Honour held at paragraph 33 that: 

“… I am satisfied that Mr Dotcom is not able to meet his immediate expenses from unrestrained property and that the only practicable source of funds is the restrained bonds.”

6. In the Judgment of Courtney J dated 23 April 2015, at paragraph 14, again Her Honour held that: 

“I have concluded that Mr Dotcom does not have the ability to meet his legal and reasonable living expenses from trust assets because, on the evidence, those assets are not sufficiently liquid…”

7. I agree with Mr McCoy that I should pay due regard to the judgments of Courtney J, which were decisions reached after cross-examination of the 1^st defendant.  Clearly, in proceedings before the New Zealand High Court, the 1^st defendant has already been the subject of intense inquiry as to full disclosure of his assets and the reasonableness of his living expenses.

8. It should perhaps be noted that the 1^st defendant has offered to submit himself to cross-examination in these proceedings over the video-link, which was declined by the Secretary for Justice.

9. As to historic legal costs, Mr Walsh, SC (and with him, Ms Ada Chan), on behalf of the Secretary for Justice, submitted that the court has discretion to vary a restraint order to pay unsecured creditors only when there are ample assets to satisfy any confiscation order [see: Luan Gang v Cal Dive Offshore Contractors (Mauritius) Ltd [2014] 5 HKC 469 per P Li J at 484G].  The intention of the legislation is not to give priority to unsecured creditors [see: International Associated Attorneys Ltd v Eurostock Energy Ltd [2012] 6 HKC 570 per Au-Yeung J at 585B].

10. I agree.  For this reason, I would disallow any variation in respect of the payment of legal costs to Haldanes in Hong Kong and to Simpson Grierson and Mr Paul Davison, QC, in New Zealand. These are all historic legal expenses [see: paragraph 133 of the 1^st Affidavit of Kim Dotcom].

11. Finally, as to the figure of NZ$80,000 per month claimed by the 1^st defendant by way of living expenses, it should be noted that after having assessed various requirements, including care for his five children, two of whom are autistic, Courtney J concluded at paragraph 30 of her Judgment dated 23 April 2015 that:

“On these figures a reasonable figure for living expenses is NZ$170,000 per month. Mr Dotcom may have access to that figure each month pending the expiry of the lease on the property. At that point I would expect that the position will be reviewed.”

12. This figure was based on the 1^st defendant living in a very large mansion known as the Coatesville Property.  In an attempt to reduce his living expenses, the 1^st defendant has now moved away from the Coatesville Property and into an apartment in Princes Wharf, Auckland.  Living expenses have now been reduced from NZ$170,000 to NZ$80,000 per month.

13. Indeed, by a Consent Order of Courtney J made on 15 October 2015, the injunction in New Zealand was varied to effect an overall reduction of the 1^st defendant’s living expenses from NZ$170,000 per month to NZ$80,000 per month to reflect his new accommodation arrangements and increased liability for education expenses.

14. Although it would appear that the New Zealand plaintiffs had asked the court to record that they were not agreeing that Mr Dotcom’s proposed new monthly living allowance is “reasonable” or “ordinary”, it was nevertheless an order made by the consent of the parties. 

15. I agree with Mr McCoy that the question of living expenses is a matter that has been adjudicated upon in New Zealand. It should further be noted that the order was made at a hearing by way of teleconference attended by, inter alios, the legal representative of the Commissioner of Police, in his capacity as the Interested Party. 

16. For the above reasons, I would allow the sum of NZ$80,000 per month for the 1^st defendant’s reasonable living expenses.

17. I will now hear the parties on the proper form of the order to be made.