ACCENT DELIGHT INTERNATIONAL LTD AND ANOTHER v. YVES BOUVIER AND ANOTHER

HCMP 573/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 573 OF 2015

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D E C I S I O N

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The factual background:

1. The plaintiff companies are incorporated in the British Virgin Islands and are held by a family trust governed by Cypriot law.  There is no dispute that they are vehicles by which a wealthy Russian businessman, domiciled in Monaco, Mr Dmitri Rybolovlev (Mr Rybolovlev) acquires artworks.  Although strictly the artworks were acquired by one or other of the plaintiff companies it is convenient to refer to them as having been acquired by Mr Rybolovlev.  The artworks are of the very highest quality by artists such as da Vinci, Matisse, Picasso, Monet, Renoir, Modigliani, Degas, Gauguin, Toulouse-Lautrec, Klimt, Rodin, El Greco and Rothko. 

2. The prices paid for these artworks range from a Picasso for US$12.5 million to a Klimt for US$183 million.  The papers demonstrate that between August 2003 and August 2014, the plaintiffs purchased artworks of a total value in the order of US$577 million, €720 million, CHF45 million, and £30 million, (in total, on present exchange rates some US$1,490 million).

3. Mr Bouvier is a businessman and the majority shareholder in President of Nature Le Coultre SA, a Swiss company which carries on business of the storage, packing and shipping internationally of artworks. Through that company Mr Bouvier operates “Freeport” facilities, (essentially bonded warehouses), in Geneva, Singapore and Luxembourg.  Mr Bouvier is a Swiss national and has been resident in Singapore since 2009.  Prior to that Mr Bouvier was a resident of Switzerland.

4. It is not in dispute that Mr Bouvier engages in the business of private purchase and sale of valuable works of art and has a very strong network of connections with international auction houses, curators, galleries, art dealers and private collectors of high quality art.

5. MEI Invest Limited (MEI Invest) is a company incorporated in Hong Kong which has corporate shareholders.  Mr Bouvier accepts that this company was at all material times wholly owned and controlled by him, and is his alter ego.

6. Mr Rybolovlev first met Mr Bouvier in 2003, when Mr Bouvier acted on Mr Rybolovlev’s behalf in obtaining a missing certificate of authenticity for a painting by Chagall.  A business relationship is thereafter came into existence between them.  At the centre of the proceedings between Mr Rybolovlev and Mr Bouvier is now a dispute as to the true nature of that relationship. 

7. The case for Mr Rybolovlev is that Mr Bouvier became his agent sourcing and negotiating with vendors for the acquisition of major works of art on Mr Rybolovlev’s behalf.  There is no dispute that the great majority of the communications with Mr Bouvier in respect of the purchase of the artworks are undertaken through a Mr Mikhail Sazonov (Mr Sazonov) who was the principal representative for Mr Rybolovlev and the plaintiff companies in that respect. 

8. The case for Mr Rybolovlev is that Mr Bouvier was paid a 2% commission in respect of the artworks purchased. There were occasions when this sum was adjusted, but broadly the assertion is that Mr Bouvier was paid a commission that was a percentage of the price of the artwork.  Mr Sazonov says[1] in respect of the involvement of MEI Invest:

“I also understood from Mr Bouvier that the invoice was issued by MEI Invest and the purchase price paid to MEI Invest, rather than the third-party seller(s) of the artwork: (1) so as to ensure complete confidentiality of the transaction, which was highly valued in the art world, including the identity of the seller(s); and (2) as MEI Invest was holding the artwork as a de facto “escrow agent” for the third-party seller in Freeport, and would release the same to the Plaintiff(s) once it receives the purchase price.  I further understood that Mr Bouvier would then arrange for the purchase price to be transferred from MEI Invest to the third-party seller(s) of the artwork;”

9. Mr Bouvier denies that he was an agent and says that he was simply the vendor of the artworks, through his company, MEI Invest, to Mr Rybolovlev.  Mr Bouvier says that as the true vendor of the artworks he was entitled to agree any price he wished with Mr Rybolovlev.  Mr Bouvier says further that the payment of the 2% sum was a payment to cover administrative expenses involved in the transaction.

Mr Rybolovlev’s New Year discovery:

10. In 2012, Mr Rybolovlev had acquired from MEI Invest, through the negotiation of Mr Bouvier, a Modigliani painting entitled “Nu Couche au Coussin Bleu” for US$118 million.  On New Year’s Eve 2014/New Year Day 2015, Mr Rybolovlev learned that the seller of the painting had received only US$93.5 million, US$24.5 million less than he had paid for it.  As a result of further enquiries Mr Rybolovlev learned that a da Vinci “Christ” for which, in 2013, he had paid MEI Invest, through the negotiation of Mr Bouvier, US$127.5 million had been sold, apparently to MEI Invest, for between US$75-80 million, US$52.5-47.5 million less than he had paid for it.

11. As a result of these discoveries Mr Rybolovlev came to the view that Mr Bouvier had defrauded him by purporting to act as an agent acquiring artworks on his behalf, and concealing from him the true price at which they had been acquired.  By interposing MEI Invest as the vendor at a higher price Mr Rybolovlev believed that Mr Bouvier had made a secret profit.  Mr Sazonov says that Mr Rybolovlev believes that the secret profit may amount to as much as US$1 billion.

Arrest in Monaco:

12. On 9 January 2015 Mr Rybolovlev caused a criminal complaint to be made to the General Prosecutor of the Principality of Monaco in respect of the circumstances of the sale of the artworks to his companies by Mr Bouvier.  On 12 January 2015 the Chief Public Prosecutor of Monaco requested the Chief of the Monaco police to commence investigations.  An Examining Magistrate was appointed in Monaco and on 25 February 2015, Mr Bouvier was arrested and interviewed in Monaco. 

13. On 27 February 2015, the plaintiff companies and Ms Ekaterina Rybolovleva, a beneficiary of the Cyprus family trusts which hold the plaintiff companies applied to join in the Monaco proceedings as civil parties.  This procedure in Monegasque law enables the victim of a criminal offence to seek compensation after the determination of the criminal proceedings.

14. On 28 February 2015, in the Monaco criminal proceedings, at the direction of the Examining Magistrate, the status of Mr Bouvier in the investigation became that of “inculpé”, an expression used in Monegasque criminal law. 

15. There is a dispute between the parties as to the precise nature of this status.  Mr Beresford contends that it amounts to having been charged with offences.  In the normal course of events, under a common law system, a person who is charged with an offence will in due course face trial. Ms Ismail says that that characterisation overstates the position of the person who is inculpé as it does not necessarily follow that that person will be sent to trial. 

Proceedings are commenced in Singapore:

16. Since 2009, Mr Bouvier has been resident in Singapore.  Prior to that, he was a resident of Geneva.  On 12 March 2015, the plaintiffs commenced proceedings against the defendants in Singapore.  The writ identifies three causes of action against Mr Bouvier: a breach of fiduciary duty, fraudulent misrepresentation/deceit and wrongful interference with goods.  The cause of action against MEI Invest is dishonest assistance and/or knowing receipt.

17. There is a third defendant in the Singapore proceedings, a Ms Rappo.  She resides in Monaco and was a close friend of Mr Rybolovlev and his family.  Mr Bouvier considers that she has been instrumental in maintaining the relationship between himself and Mr Rybolovlev and that reason has been paying to her commissions, apparently related to the acquisition of the paintings.  The proceedings in Singapore allege a conspiracy to injure by unlawful means against all three defendants. 

18. Ms Rappo is also the subject of investigation in the Monaco criminal proceedings.

The Hong Kong proceedings:

19. On 12 March 2015, the same day as the issue of the Singapore proceedings, on an ex parte application, Deputy High Court Judge D’Almada Remedios granted a Mareva injunction in aid of foreign proceedings, with orders for disclosure in aid of the Mareva Order.  In particular, the injunction restrains both defendants from removing from Hong Kong any of their assets which are within Hong Kong, whether in their own name or not, and whether solely or jointly owned, up to the value of US$500 million. 

20. The next day an Originating Summons was issued seeking the continuation of the injunction and other orders.

21. On 19 March 2015, the defendants issued a summons seeking the discharge of the ex parte Mareva order, and other orders.  It is not necessary to trace the procedural history of the matter since then as it is agreed that the only matter that I am concerned with is the discharge of the Mareva injunction.

The relevant law:

22. There is little dispute between the parties as to the relevant law.  The jurisdiction to grant interim relief in the absence of substantive proceedings arises from s 21M, High Court Ordinance Cap 4 (HCO).  The jurisdiction involves a two-stage process.  I adopt Ms Ismail’s description of that process in the following terms:

(a)    The first question is whether the conditions for Mareva injunction would have been satisfied if the substantive proceedings were pending before the Hong Kong Court.  This would involve the consideration of the usual requirements such as a good arguable case, risk of dissipation and balance of convenience.

(b)   The second question is whether the fact that the Court has no jurisdiction apart from s 21M in relation to the subject matter of the proceedings concerned makes it “unjust or inconvenient” for the Court to grant the application.  In considering the question of convenience, there are five main considerations:

(i)   whether the making of the order would interfere with the management of the case in the primary court, eg whether the Hong Kong order would be inconsistent/overlap with the primary court’s order;

(ii)   whether it is the policy of the primary court not to make worldwide freezing/disclosure orders;

(iii)  whether there was any danger that the orders made would give rise to disharmony or confusion and/or risks of conflicting, inconsistent or overlapping orders;

(iv)  whether at the time the order was sort there was likely to be a potential conflict is to jurisdiction making it inappropriate and inexpedient to make the order;

(v)   whether, in a case where jurisdiction was resisted and disobedience was to be expected, the court would be making an order which it could not enforce.

23. The Court, in deciding whether to grant relief under s 21M should make a separate exercise of judgment rather than simply accepting the decision of the foreign court.

The duty to make full material disclosure:

24. It is a fundamental proposition that plaintiffs have a duty to make full and fair disclosure of all material facts at an ex parte application.  I adopt Ms Ismail’s description of the requirements of full and fair material disclosure:

(a)    Materiality is an objective issue to be decided by the Court, and not by the assessment of the plaintiff or his legal advisers.  A fact is material if it is relevant to the weighing operation when the Court decides whether to make the order.  It is no answer to a complaint of non-disclosure that if the relevant matters had been placed before the Court, the decision would have been the same.

(b)   The duty of full and frank disclosure applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made proper inquiries.

(c)    The extent of the inquiries required depends on all the circumstances including the nature of the case made by the applicant, the order sought and the probable effect of the order on the defendant and the time available to the applicant for making inquiries.

(d)   The disclosure should be made in the affidavit and/or skeleton submissions and not in the exhibits.

The grounds for discharge of the Mareva injunction:

25. Ms Ismail relies upon the following matters to say that the Mareva injunction ought to be discharged:

(a)    the plaintiffs have failed to discharge their duty to give full and frank disclosure by failing to disclose the following material facts:

(i)   the plaintiffs failed to inform the Hong Kong Court that the transactions which are the subject of the claim may (to put it at its lowest) be governed by Swiss law, and that the claims made by the plaintiffs are not available under Swiss law;

(ii)   the plaintiffs incorrectly informed the Hong Kong Court that Mr Bouvier had been charged with and would be standing trial for fraud in Monaco; and

(iii)  the plaintiffs failed to inform the Hong Kong Court of the extensive, established and valuable nature of Mr Bouvier and his business empire.

(b)   Consequently, by virtue of (a)(iii) above, there was insufficient evidence to demonstrate that there is a real risk of dissipation of the defendants’ assets.

Swiss law:

26. It cannot be argued by Mr Beresford that the plaintiffs did not know that Mr Bouvier claimed that the relationship between himself, Mr Rybolovlev and the plaintiffs was governed by Swiss law.  In his second statement to the Monaco police made on 26 February 2015, (which was in the plaintiffs’ possession prior to the issue of the proceedings and Singapore), Mr Bouvier said:

“The works were made available in Geneva, the status reports were made in Geneva, on a de facto basis, the legal venue was in Switzerland and for all the documents made, Swiss law is applicable. … They manoeuvred to bring the conflict and my arrest to Monaco and not Geneva, which would have been logical in relation to what I have previously stated”

In his third statement to the Monaco police, also made on 26 February 2015, (also in the plaintiffs’ possession), Mr Bouvier said:

“I think that Mr Rybolovlev should have brought his complaints in a civil court, and above all he could have brought his case in Geneva, but I think he wants to avoid the application of Swiss law to this case.”

27. There are further factors in the factual circumstances disclosed in the exhibits from which it may be seen that an argument is available at the appropriate law required to resolve the dispute between the parties is Swiss law.  Although for quite a long period of time no formal written contracts had been used between the parties, two earlier written agreements, dated 25 October 2004 and 10 April 2006, albeit not between precisely the same parties as the litigation, but between parties representing Mr Rybolovlev and Mr Bouvier, had contained formal statements that the contracts were to be governed by Swiss law.

28. One of the transactions which is the subject matter of the Singapore proceedings between the 2^nd plaintiff and the 2^nd defendant was the subject of a written agreement dated 16 October 2006.  That document was contained in the exhibits.

29. Even without the assertions made by Mr Bouvier in his Monaco police interviews it must be obvious to those advising Mr Rybolovlev that an argument was open that a course of conduct had been established from which it might be contented that the transactions, which were the subject of invoice only and no written agreements, may be argued to be governed by Swiss law.

30. It is right that at the ex parte hearing the Court was informed that the defendants might seek to rely on the written agreement of 16 October 2006, but the attention of the Court was not drawn to the fact that the agreement contained a Swiss governing law clause.  Instead, the court was referred only to a warranty provision in that contract.

31. Ms Ismail relies upon the following factual circumstances to assert further that the parties transactions have the closest and most real connection with Swiss law:

(a)    the intended performance of the contract is was to be in Switzerland in the following respects:

(i)   save for 3 transactions, payments for all the artworks were to be made to MEI Invest in Switzerland;

(ii)   almost all payments of administrative expenses, (claimed by the plaintiffs to be commissions, were made to Mr Bouvier’s bank account in Switzerland;

(iii)  delivery of the artworks were, in almost all cases, by way of issue of the storage certificate into the name of the plaintiffs, where the artworks were generally stored in Switzerland at the time of the sale;

(iv)  all of the key documents in respect of the artworks were transferred to Mr Rybolovlev’s office in Geneva.

(b)   before purchase the parties conducted meetings, (usually Mr Sazonov and Mr Bouvier) and viewed most of the artworks in Geneva;

(c)    Mr Sazonov was based in Geneva on all e-mails were sent to and from Geneva for or by him.

32. The expert legal evidence establishes that Swiss law does not have a tort of fraudulent misrepresentation, nor a tort of deceit; the concept of a constructive trust does not exist; the plaintiffs could only ever make a monetary claim against the defendants; if the defendants did keep any unauthorised profits, there could be no proprietary claims; the equitable process of tracing is not available and concepts of dishonest assistance and knowing receipt are not available.

33. Ms Ismail says that consequently, in the weighing process, the ex parte judge would need to know those facts in order to properly assess the requirement to determine under s 21M(4) whether it would be unjust or inconvenient for the Court to grant the application.

34. Mr Beresford is right when he says that I may assume that Singapore law is the same as Hong Kong law.  There is no suggestion to the contrary.  But I do not accept the submission that the difference between Singapore or Hong Kong law and Swiss law renders immaterial a failure to disclose, at the ex parte stage, the fact that the causes of action brought in Singapore do not have parallel causes of action in Switzerland, or that of the governing law of the relationship between the parties may be Swiss law. 

35. To a limited extent, I accept Mr Beresford’s submission that it is not a material fact that a plaintiff may have a right to sue in another jurisdiction, or that a contract may be governed by the law of another jurisdiction.  That is the case when the primary proceedings are brought in Hong Kong.  It is a common event in Hong Kong litigation that foreign law is proved, as the proper law of contract in respect of proceedings in Hong Kong.  But the situation is different when the primary proceedings are in a foreign jurisdiction and injunctive relief sought under s 21M HCO.  It is all the more so, when the primary proceedings are in one jurisdiction, and proper law of contract or the relationship between the parties may be in another jurisdiction other than Hong Kong or the primary jurisdiction.

36. Significantly, I do not understand Ms Ismail to be able to assert that the issues raised by the conduct of Mr Bouvier do not give rise to causes of action in Switzerland.  None of the Swiss law evidence put in by Mr Bouvier suggests that the issues raised by his conduct are not actionable in Switzerland.  All that is suggested is that the causes of action known to Singapore, Hong Kong (and English) law are not paralleled by causes of action in Switzerland.  But that is a long way from saying that the conduct is not actionable.

37. As Mr Beresford puts it, the evidence of Swiss law adduced by Mr Bouvier does not suggest that the duties or conduct on the part of Mr Bouvier of which complaint is made, are not actionable at Swiss law.  When the issues raised by the conduct are examined in the light of the expert Swiss law evidence, is clear that the conduct is actionable in Switzerland.

38. Once it is established that the conduct complained of is actionable in Switzerland, under whatever description, and actionable in Hong Kong, the jurisdiction exists to grant s 21M relief in Hong Kong.  As it is necessary to consider whether or not the conduct is actionable in the foreign jurisdiction as part of the weighing process under s 21M(4), it follows that it is a material non-disclosure to fail to put before the court the circumstances of Swiss law. 

39. I accept Ms Ismail’s submission that the possibility that Swiss law may be involved is a material matter in the weighing process under s 21M(4) HCO. 

40. I accordingly find that there has been material nondisclosure in the failure of the plaintiffs to inform the ex parte Court that arguments were open that Swiss law may be the governing law of the transactions and that consequently Switzerland may be the appropriate forum to resolve the disputes.

Characterisation in the Monaco proceedings:

41. It is not necessary for me to determine the precise status of the Monegasque concept of inculpé in Hong Kong law. The evidence shows that it is a status given to a person during the course of an investigation.  It appears that a person who is inculpé will have been informed of the charges that are under investigation and will have been notified of their right to silence.  A person who is inculpé may not necessarily face trial as during the investigation period the investigators will consider both inculpatory and exculpatory evidence in the process of determining whether or not there will be a trial.

42. The expert evidence from Monaco is that when a decision is made to put a person to trial on a criminal matter they then become “prévenu” and will face a trial at which guilt or innocence is determined.  It appears to me that the status of being inculpé may be similar to that of a person in Hong Kong who has been granted police bail before being charged.

43. It may well have been overstating the position in the course of the ex parte hearing to have described Mr Bouvier as having been “charged” and a person who “will face trial in Monaco”.  But just as in Hong Kong, under Monegasque law, the presumption of innocence applies to a person under investigation or charged with an offence.  Thus, I have no doubt at all that the ex parte Judge, being a very experienced criminal Judge, would not have been adversely influenced at all against Mr Bouvier by having been told that he had been charged and would face a trial, instead of merely that he was under investigation in Monaco and had been released on an equivalent of police bail.  She would have been fully aware that no inference of guilt could be drawn from the assertion that a charge had been laid.  Like any defendant charged, Mr Bouvier would be assumed innocent until found guilty.

44. There is nothing in the point and it is not a matter of material non-disclosure or a basis upon which I should discharge the injunction.

Mr Bouvier’s background and business:

45. Ms Ismail is right to say that where a defendant is a long established, well-known foreign corporation or individual, or is known to have substantial assets in countries where a judgment can easily be enforced, there is less likely to be a risk of dissipation of assets or default on a judgment.  In those circumstances, those facts, if not brought to the attention of the ex parte judge might well justify a discharge of the injunction.  That is particularly so if the litigation arises from a pure commercial dispute where different positions might justifiably be taken by parties who need to go to litigation to resolve the commercial dispute.

46. But I am satisfied that this is not a case where, if a good cause of action is established, (and that is not in dispute), a Mareva injunction would be refused upon the basis that dissipation of assets or default is not a real risk. 

47. This is a case in which a breach of fiduciary duty and deceit is alleged.  Mr Bouvier does not dispute the fact of the e-mails that have been presented through Mr Sazonov’s affidavits.  From the terms of those e-mails it is said against Mr Bouvier that he was an agent negotiating with a buyer for a commission from Mr Rybolovlev.  Mr Bouvier does not deny the terms of the e-mails, but seeks to explain them by saying that the apparent references to negotiation with third parties are mere “negotiation tactics”.

48. I understand Mr Bouvier to be saying that they were tactics he adopted in his negotiation with Mr Sazonov on behalf of Mr Rybolovlev in respect of his, Mr Bouvier’s, own sale of artworks to Mr Rybolovlev.

49. It is not necessary for me to reach any conclusion on this dispute.  That is a matter for the trial.  But I can make an assessment of the position when having regard to the risk of dissipation. 

50. First, it may be strongly argued that the e-mails demonstrate that Mr Bouvier is in negotiation with an independent willing seller and is attempting to reduce the sale price sought by that seller to the best advantage of Mr Rybolovlev.  That is completely contrary to Mr Bouvier’s assertion that he was negotiating for himself.  As Reyes J put it in plain terms in Ngo Tai Hong v Endenne Development Ltd (unreported, 19 December 2005, HCA 7988 and 7929 of 2000):

“It is a fraud knowingly to state that something is the case, when it is not, for the purpose of inducing someone to enter into an agreement.”

51. The e-mails consistently reflect a process whereby Mr Bouvier is endeavouring to reduce the price that Mr Rybolovlev will have to pay the artwork in question.  It is a truly remarkable circumstance if a man, wishing to sell his own artwork, will negotiate with the prospective buyer in terms which seek to reduce the price the buyer will have to pay to him for the artwork.

52. The factual circumstances raise a very strong case of breach of fiduciary duty or deceit.  That is a factor that the court is entitled to take into account in determining the risk of dissipation. 

53. Were the dispute between the parties an ordinary commercial dispute with no suggestion of either commercial sharp practice or no suggestion of conduct in which there is a strong case that the conduct may constitute breach of fiduciary duty is likely to be material non-disclosure to fail to put before the ex parte judge appropriate information concerning the worth of the defendant to enable a proper assessment of the risk of dissipation.  However, where there is alleged a strong case for a breach of fiduciary duty or deceit on the part of the defendant, the plaintiff is entitled to say that the risk of dissipation plainly arises from conduct of which he complains.

54. In these circumstances I do not accept that there has been any material non-disclosure in the extent to which the ex parte Court has been informed of Mr Bouvier’s background.

Disposal:

55. The usual rule is that an ex parte injunction will be discharged if it was obtained without full disclosure.  The rule has a twofold purpose; it deprives a wrongdoer of an advantage improperly obtained, and it serves as a deterrent to ensure that applicants realise that they have a duty to disclose and of the consequences, which may include a liability in costs, if they fail in their duty: see Hong Kong Civil Procedure 2015 29/1/15; Brink’s Mat Ltd v Elcombe [1988] 3 All ER 188.

56. But where there has been non-disclosure of material facts at the ex parte application, and full disclosure is made at a hearing inter partes, the court has a discretion to continue the ex parte injunction or to discharge it and immediately re-grant substantially the same injunction: see Cheung Kam Wah v Cheung Hon Wah [2005] 1 HKC 136.

57. In the course of his oral submissions Mr Beresford raised with me that this was an appropriate case for such a re-grant. Ms Ismail, understandably, had not expected such an application to be made, as it had not been signalled in any way in Mr Beresford’s skeleton.

58. Although I am satisfied that there has been material non‑disclosure I do not, at this stage, make any order arising from that finding.  I indicated at the hearing that if the question of a re-grant arose I would give the parties an opportunity to be heard.  The matters set out in §§45-55 are sufficient to justify the consideration of a re-grant.

59. The solicitors for the parties are to attend me in Chambers at 9:45 am on Monday, 22 June 2015, with Counsel’s diaries in order that I may fix a day for further argument, which, as the parties appreciate must be well prior to Friday, 31 July 2015.  When I fix a date to continue the matter I shall also fix a timetable the exchange of skeleton arguments.  There is to be no further evidence.

60. All questions of costs are reserved.