ANOKH SINGH PANNU v. ALANTIC LTD AND OTHERS

HCA 1696/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1696 OF 2010

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BETWEEN

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D E C I S I O N

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Background

1.  By an Order of Lam J dated 11 November 2010, the Court granted a Mareva Injunction against the defendants up to the value equivalent to US$922,350.00.  As a result of this Order, two bank accounts of the 4^th defendant were frozen, namely, (1) account numbered 012-721-9-213312-4 at Bank of China (Hong Kong) Limited (“the BOC account”); and (2) account numbered 7871-0452-0883 at Hang Seng Bank Ltd. (“the HSB account”).

2.  By an Order of Suffiad J dated 19 November 2010, the Order of Lam J was varied in that the 4^th defendant was allowed to spend a lump sum of HK$50,000.00 on legal advice and representation.

3.  The plaintiff filed his Statement of Claim on 23 December 2010.  The plaintiff alleged (in paragraph 20) that by reason of a fraudulent scheme, he was induced into parting with US$922,050.00 into bank accounts maintained by the 1^st to 3^rd defendants.  Paragraph 26 of the Statement of Claim identified a number of individuals as “Fraudsters” but the corporate defendants were not included.  The Statement of Claim did not suggest that any of the plaintiff’s money had been deposited into any bank account of the 4^th defendant.  As a matter of fact, paragraph 22 pleaded that between 4 and 18 October 2010, the Fraudsters further attempted to entice him into transferring a sum of US$500,000.00 to the HSB account of the 4^th defendant. However, by that time, the plaintiff already discovered the fraud and had reported the matter to the Police in Hong Kong.  There was thus no remittance of money by the plaintiff to the HSB account.  It is further clear from the rest of the pleading that the plaintiff was merely claiming entitlement to tracing vis‑à‑vis the 1^st to 3^rd defendants.

4.  Unfortunately, the Statement of Claim was rather confusing in that from time to time, allegations were made collectively against “the Defendants” without any care to distinguish the involvement of each particular defendant.  For instance, in paragraph 34(2) it was pleaded that “the Fraudsters and/or the Defendants have been unjustly and incontrovertibly enriched at the Plaintiff’s expense to the extent of US$922,350” and in paragraph 34(3) it was pleaded that “the Fraudsters and/or the Defendants have had and received the Payments in sums totaling US$922,350 to the use of the Plaintiff and the Plaintiff is entitled to recover the same from the Fraudsters and/or the Defendants as money had and received”.  It is however clear that under paragraph 20, only a total sum of US$922,050 (which is a slightly different figure compared to what was pleaded in paragraphs 9, 29, 33 and 34) was paid out by the plaintiff into various bank accounts maintained by the 1^st to 3^rd defendants.  There was thus no basis to include the 4^th defendant in the allegations made under paragraphs 34(1) and 34(2).  It also seems that the plaintiff's cause of action against the 4^th defendant is essentially based on dishonest assistance to fraud.  It is not even a case based on “knowing receipt”.

5.  Accordingly, at the hearing, I specifically sought clarification from counsel for the plaintiff as to whether the plaintiff’s claim against the 4^th defendant can be treated as a “proprietary claim”. Counsel for the plaintiff confirmed that the plaintiff has no proprietary claim against the 4^th defendant.

6.  In any event, in August 2011, the plaintiff was successful in its enforcement actions against the 1^st to 3^rd defendants and recovered US$558,433.23.  Accordingly, by an Order of Sakhrani J dated 15 August 2011, the limit of the Mareva Injunction was reduced from US$922,350.00 to US$363,916.77.  By the same Order, the parties consented to a further variation so that the 4^th defendant was permitted to transfer a lump sum of HK$450,000.00 to its solicitors for the purpose of settling its legal costs.

7.  According to the 4^th defendant’s own evidence, as of 14 July 2011, there was a total of US$1,668,466.51 in the BOC and HSB accounts. In or about November 2011, the parties consented to a consolidation of the two bank accounts into one.  Eventually, only the BOC account remained.  However, roughly one year later as of 14 January 2012, only a total of US$367,191.42 remained in the BOC account.  The remaining balance was thus merely marginally above the revised limit of the Mareva Injunction. I shall return in due course to a more detailed discussion on the various transfers out of the 4^th defendant's bank accounts between 14 July 2011 and 14 January 2012.

8.  By a summon dated 17 February 2012, the 4^th defendant applied for a further variation of the Mareva Injunction with a view to permitting the transfer of HK$285,000.00 to its solicitors for the purpose of settling its legal costs.  This application is opposed by the plaintiff.

Applicable legal principles

9.  In an application by a defendant for permission to make use of frozen assets to defray legal costs, the correct test as suggested by the learned author of Commercial Injunctions, Steven Gee, 5^th ed. at para. 20.054 is as follows:

“The correct test is to consider objectively the overall justice of allowing the payment to be made including the likely consequences of permitting it on the prospects of a future judgment being left unsatisfied, and bearing in mind that the assets belong to the defendant and that the injunction is not intended to provide the claimant with security for his claim or to create an untouchable pot which will be available to satisfy an eventual judgment.

Therefore, the principle is that a defendant can use his own money which is frozen under a Mareva Injunction to fund the defence provided that it is apparent that there are no other funds or source of payment which should as a matter of objective fairness be used to pay for the defence rather than the frozen funds. This may require the defendant to adduce ‘credible evidence’ about his other assets before the court can be satisfied that it is just that he should be able to use the particular frozen assets.

Because a real risk of dissipation has already been established by the evidence, judges are entitled to have a “very healthy scepticism” about assertions made by the party against whom the Mareva Injunction has been granted, and this should be borne in mind in deciding whether further evidence should be required. If in addition the defendant has been less than frank in his dealings with the court or the claimant over legal or living expenses, this would tend to reinforce the case for putting in place a regime requiring the defendant to adduce evidence showing a complete picture each time he requires further funds, thus enabling the court to police the payments…

If the evidence indicates that the defendant has already hidden away substantial assets abroad, it should be unjust to permit him to use what is left of the depleted English assets to make such a payment…”

10.  In Assets Investments Pte Limited v The United Islamic Investments Foundation & ors. [1951] 1 HKC 560 at paras. 14-15, Mortimer JA said:

“14. The purpose of a Mareva Injunction is to prevent a party dissipating its assets by removing or keeping them from the court’s control so as to avoid the risk of having to satisfy a judgment. It is trite to say that if a party is in control of assets not frozen by the injunction, he must usually be made to use those assets for his ordinary and legal expenses first.

15. There is no difference in approach if a party who is the subject of a worldwide Mareva is shown to be in control of other assets which he is wrongfully keeping out of the court’s clutches in order to avoid the risk of having to use them to satisfy a judgment. As Donaldson M.R. said at 3F in Major General Campbell Mussells v. Okerentugba Gbataminigin Thompson & anor. (unreported CA 1983 M. No. 1689 and 1690), having set out the general principle-

‘This is the principle; and if there is reason to believe that people are asking for money for school fees, doctors’ bills, solicitors’ costs, or whatever, simply as a means of avoiding bringing free money into this country, or as a means of not having to use other moneys which have not been discovered and which they wish to keep out of the clutches of the court, of course they will be refused.’

          However, it is important to point out that these are not principles of law but of approach… There are cases where the balance between the avoidance of deliberate dissipation on one hand and abuse of the Mareva jurisdiction to put pressure on a defendant on the other is difficult to achieve.  It is a matter of discretion…”

11.  It is also trite law that the test is more stringent if the Mareva Injunction granted is based on a “proprietary claim”.  In such circumstances, the defendant will have to satisfy a two-stage test as expounded in The Ostrich Farming Corporation Ltd v Ketchell and Walker, unreported 10 December 1997 which had been quoted in extenso and applied in Hong Kong in Cathay Pacific Airways Limited v Luk Shu Keung & ors., HCA 2895/2001, at para. 4.

12.  At the hearing, counsel for the plaintiff and solicitor for the 4^th defendant agreed that the legal principles to be applied to the facts of the present application are as set out in paragraphs 9 and 10 hereinabove.

Discussions

13.  In making the application for variation, solicitors for the 4^th defendant made the following main points:

(1)     The plaintiff’s claim against the 4^th defendant is not a proprietary claim.  The more stringent “two-stage test” in The Ostrich Farming Corporation Ltd v Ketchell and Walker is not applicable.

(2)     The 4^th defendant has credit balance of US$367,191.42 in [the BOC account] as of 14 January 2012.  Following the reduction of the Mareva Injunction limit by Sakhrani J to US$363,916.00, there is now an excess of US$3,275.00 in [the BOC account] which is really an unfrozen amount and should be readily available to the 4^th defendant.

(3)     The 4^th defendant is not in control of any assets other than the funds now frozen in the BOC account.  Neither the 4^th defendant nor its sole director/shareholder, viz. Miss Kayed, have been able to raise funds from any other source.

(4)     The 4^th defendant has (at all times) complied with the Mareva Injunction.

(5)     If the 4^th defendant is denied access to the BOC account to settle its legal expenses, it would no longer be able to obtain legal representation in defending the very serious allegations made against it.  In that case, it would constitute an abuse of the Mareva jurisdiction.

14.  The 4^th defendant’s application was opposed by the plaintiff on the following grounds:

(1)     The 4^th defendant is obliged to adduce credible evidence to show that there are no funds or source of payment which should as a matter of objective fairness be used to pay for the legal costs rather than the frozen funds.

(2)     The Court is entitled to exercise “very healthy skepticism” about the 4^th defendant’s assertions.  The 4^th defendant is obliged to give a full and frank disclosure/account of her finances.

(3)     The evidence of Miss Kayed should be approached with extreme caution because she had given incredible and contradictory evidence earlier in these proceedings. 

(4)     The 4^th defendant has failed to disclose its overseas assets or availability of resources and provided no corroboration for Miss Kayed’s bare assertions.

(5)     The 4^th defendant/Miss Kayed has failed to properly explain the whereabouts of various withdrawal of funds, notably those withdrawals within three months since the Order of Sakhrani J dated 15 August 2011.

(6)     In the premises, the 4^th defendant has failed to discharge its duty to make full and frank disclosure/account of its financial affairs and the Court should not exercise the discretion in its favour.

15.  Before examining the evidence put forward by the 4^th defendant (through Miss Kayed) in support of this application, I would first briefly state the defence put forward by the 4^th defendant.  In the first affirmation of Miss Kayed filed 14 January 2011, she said she set up the 4^th defendant in July 2010 to act as a collection agent on behalf of Deco Investment Limited (“Deco”).  She produced copies of invoices purportedly issued by Deco to its customers which showed that it was a company having a place of business at a certain London address.  Miss Kayed further said that Deco would purchase supplies from a company in Singapore named Loving Country Holdings Company Limited (“Loving Country”).  Again, she produced copies of contracts between Deco and Loving Country indicated that the latter maintained a place of business at a certain address in Singapore.  Miss Kayed said that for tax reasons, Deco would ask its customers in Ghana to pay the 4^th defendant which would receive payments as Deco’s collection agent.  After receiving funds, the 4^th defendant would transfer funds to Deco or Loving Country.

16.  In the 3^rd Affirmation of the plaintiff filed 16 February 2011, it was pointed out that searches were conducted in London and Singapore to show that both Deco and Loving Country were fictitious.  Documentary evidence was adduced by the plaintiff to proof that there were no such companies carrying on business at those stated addresses in London and Singapore.  In the 2^nd Affirmation of Miss Kayed filed 22 February 2011, she denied that the said two companies were fabricated by her/4^th defendant.  She said she was asked by one Mr Dawdi to assist his business, namely Deco.  She knew very little about Deco and Loving Country and trusted Mr Dawdi’s assurance that everything was legitimate.  In her 3^rd Affirmation filed 20 April 2011, Miss Kayed exhibited a one-page copy agreement between Deco and the 4^th defendant.  Other than the copy invoices and contracts (which were rather self-serving in nature), there was no real attempt to meet the plaintiff’s documentary evidence that no such companies as Deco and Loving Country actually existed and carried on business at the stated addresses in London and Singapore respectively.  This state of affair remains, since April 2011, even up to the present application. 

17.  Counsel for the plaintiff relied heavily on the above as instances of the 4^th defendant/Miss Kayed having given incredible evidence such that in the present application, when approaching their evidence of lack of funds and resources to pay for legal expenses, this Court should be extremely cautious in examining their assertions.  Counsel for the plaintiff also referred to another incident in which the 4^th defendant/Miss Kayed had given rather contradictory evidence.  This incident related to a sum of US$475,000.00 received by the 4^th defendant in the BOC account on or about 16 November 2010.  In her 1^st Affirmation (filed 14 January 2011), Miss Kayed stated that it was a sum received from a customer of Deco named Ocean View Co. Ltd (“Ocean View”).  She went on to explain this purported transaction in detail and referred to telephone conversations directly between herself and Ocean View.  She then exhibited a customer credit advice in respect of this remittance.  However, this document revealed that the remittance was actually made by a German company named “wip GmbH”. Then in April 2011, solicitors for the plaintiff received notification from Hang Seng Bank that the 4^th defendant was sued by wip GmbH in HCA 1843/2010 and another Mareva Injunction had been granted by the Hong Kong Court against the 4^th defendant. A copy of the Statement of Claim in HCA 1843/2010 was exhibited to the 5^th Affirmation of Hui Yee Osbert filed 3 May 2011.  This Statement of Claim pleaded that wip GmbH was induced by fraud into transferring the sum of US$475,000 into the 4^th defendant's BOC account.  There was absolutely no reference to Ocean View and it remains a mystery as to why a purported transaction with Ocean View would involve wip GmbH remitting money to the 4^th defendant.  Counsel for the plaintiff relied on this as yet another incident of fabrication of evidence by the 4^th defendant/Miss Kayed.

18.  In the light of these incidents, I agree with Counsel for the plaintiff that I should exercise caution in examining the evidence and assertions put forward by the 4^th defendant/Miss Kayed in support of the present application.  I am of course conscious of the fact that this Court cannot finally resolve issues of credibility at interlocutory proceedings.  However, in order to persuade me to exercise my discretion in its favour, the 4^th defendant has to adduce credible evidence to demonstrate that there are no other funds or sources of payment which should, as a matter of objective fairness be used to pay for its legal expenses rather than the frozen funds. Even in the absence of such troubled background, this Court is already entitled to have “very healthy skepticism” about the 4^th defendant's assertions. In the light of the above troubled background, in my judgment, this Court is surely obliged to take a very cautious view towards the assertions now put forward by the 4^th defendant in support of the present application. 

19.  In support of the present application, the 4^th defendant relied on the 4^th Affirmation of Miss Kayed filed 26 March 2012.  She stated that since the last variation Order made by Sakhrani J on 15 August 2011, the 4^th defendant had tried extremely hard to borrow funds in both her name and/or in the 4^th defendant's name.  Despite strenuous efforts, they were unable to secure any additional funding for legal expenses.  Consequently, the only available source of fund would be the money now remains frozen in the BOC account.  Miss Kayed stated that if the 4^th defendant were not permitted to make use of the frozen funds, it would not be able to engage legal representation to defend against the present action which would be a serious prejudice to the 4^th defendant.

20.  It was however admitted by Miss Kayed in the same affirmation that as of 30 July 2011, the 4^th defendant still had a total of US$1,668,466 in its two bank accounts.  Since the variation Order of Sakhrani J dated 15 August 2011, the following transfers out of the said bank accounts took place:

(1)     HK$450,000 was paid to the 4^th defendant's solicitors as legal expenses as permitted by the Order of Sakhrani J;

(2)     on 26 September 2011, funds were transferred to wip GmbH as part of the settlement of HCA 1843/2010.  The exact sum transferred to wip GmbH was not specified allegedly due to a confidentiality clause in the settlement agreement;

(3)     in or about end of October 2011 or beginning of November 2011, Miss Kayed received a phone call from Mr Dawdi who requested her to transfer the funds in the 4^th defendant's bank accounts to him/Deco.  Then a few days later, she received a called from Mr Dawdi’s lawyer who firmly demanded her to return the funds to Deco.  She was then given details of the bank account and the dates for making fund transfers.  Consequently, by a series of transfers on 9^th, 10^th and 23^rd November 2011, a total sum of US$730,000 were remitted out of the 4^th defendant's bank accounts;

(4)     further funds were paid by the 4^th defendant in legal fees and disbursements.  Miss Kayed however did not specify what amounts had been paid as such.  She merely stated the final remaining closing balance of the BOC account as US$367,191 which was slightly above the injunction limit.

21.  Counsel for the plaintiff submitted that Miss Kayed’s version on how the 4^th defendant parted with the said US$730,000 is incredible and wholly unsubstantiated or corroborated by any reliable evidence.  He submitted that her version looks even more incredible when compared to various statements she made in her witness statement filed 21 October 2011.  It is crucial to note the date of this witness statement as it was filed shortly before the said series of transfers totaling US$730,000 in November 2011.  It is pertinent to set out the relevant paragraphs of Miss Kayed’s witness statement:

“85. I was a 22 year old female at the time and I accept now, with the benefit of hindsight and given what I have since learned about wip GmbH in High Court proceedings number HCA 1843 of 2010, that I may have been a little naïve in accepting everything I was told by Mr Dawdi on behalf of Deco without question…

86. After I found out that wip GmbH, the Plaintiff in HCA 1843 of 2010 had alleged that it had been cheated and after I had got over the stress and anxiety that hampered me and prevented me from thinking logically for months after the Freezing Order had been made, I finally had time to consider and think logically about the details of Plaintiff’s claim together with HCA 1843 of 2010. I had an emotional breakdown after the Freezing Order was made and it took me a long time to recover. I was only able to start thinking properly again around May this year. When I started thinking about the matter and after talking to friends and family, I became concerned about the payment of US$474,987.90 that was received in the 4^th defendant’s BOC A/C number 021-72192133124 on 16^th November 2010. I realized that the information I had received from Mr Dawdi about this transaction conflicted with what wip GmbH were saying in HCA 1843 of 2010. I therefore got up the courage to speak to Mr Dawdi about it because I was very concerned and confused. My friends and family told me that because I was a director of the 4^th defendant, I needed to find out the truth. However, I have not been able to make any contact with Mr Dawdi since about May 2011 and he seems to have disappeared or is avoiding me.

87.     I now feel very angry with Mr Dawdi for causing me to be put into this situation and I cannot trust Mr Dawdi anymore.  I feel that I have been stupid and my pride and self confidence have been hurt.  I am also extremely worried about my personal situation and worried that the court will not believe me that I am an innocent party and that at no time did I have any idea that I was dealing with bad people.”

22.  Counsel for the plaintiff submitted, and I accept, that if what Miss Kayed said in her witness statement was truthful, and given her realization that Mr Dawdi caused her to be implicated in possible frauds and was a person not to be trusted again, then the version she gave in her 4^th Affirmation for parting with huge sums of money merely at the telephone demands of Mr Dawdi and his purported lawyer is simply incredible.  Incidentally, Miss Kayed did not seem to have consulted his Hong Kong solicitors before she effected the transfers which was extremely curious given the situation she faced.  More importantly, Miss Kayed and the 4^th defendant never provided evidence, documentary or otherwise, to identify the purported recipients of the said transfers.  Conveniently, bank statements of the relevant months that could reveal details of these transfers were not included in the exhibits.  It is also important to note that whilst Miss Kayed deposed earlier to the fact that the 4^th defendant maintained an office in London and engaged a number of staff members, she provided no audited financial statements of the 4^th defendant and even put forward excuses for refusing to provide any management accounts of the 4^th defendant. There is thus every likelihood that the 4^th defendant and/or Miss Kayed may have assets in the UK, or more importantly bank accounts in the UK or outside Hong Kong.  With the 4^th defendant withholding evidence and information as to the identities of the recipients of the said transfers, one cannot ignore the real probability that the US$730,000 had in fact been transferred out of the jurisdiction, out of the plaintiff’s reach, yet still within the reach and control of the 4^th defendant and/or Miss Kayed.

23.  Counsel for the plaintiff also reminded me of the curious feature that despite months of apparent disappearance or avoidance, Mr Dawdi allegedly abruptly resumed contact with Miss Kayed and demand for transfer of money within 3 months of the variation Order made by Sakharni J. He submitted that it was too much of a coincidence.  He further made a purely objective observation that within 3 months of Sakhrani J’s reduction of the injunction limited to US$363,916.77, successive transfers were made with the practical effect of dissipating over US$1 million, leaving behind what is just sufficient to satisfy the Mareva Injunction.  Solicitor for the 4^th defendant submitted that the 4^th defendant was entitled to make whatever use of its money which was not subject to frozen.  Whilst he is strictly correctly, this Court however has to consider the 4^th defendant’s conduct in the entire context of the case and ask whether this is a case of a defendant removing all its assets from the jurisdiction whilst it can, leaving behind just the frozen sum, and later comes to this Court seeking permission to lay its hands on the frozen sum on a pretext of requiring it for the purpose of legal representation.  In my judgment, that is why a critical examination of the evidence and assertions put forward by the 4^th defendant and Miss Kayed is important to the proper exercise of my discretion.

24.  As explained by Mortimer JA in Assets Investments Pte Limited v The United Islamic Investments Foundation & ors., this Court has to exercise a balance between the avoidance of deliberate dissipation on the one hand and abuse of the Mareva jurisdiction to put pressure on a defendant on the other.  In all the circumstances of this case and for reasons explained earlier, I am of the conclusion that the 4^th defendant has failed to provide this Court with credible evidence that it has no other sources of funds to support the legal expenses that would be required in the proper defence of this action.  I thus exercise my discretion not to accede to the 4^th defendant’s summons dated 17 February 2012 which is accordingly dismissed.

25.  As for costs, the 4^th defendant agreed in the summons that even if the application were successful, it should be awarded to the plaintiff upon summary assessment.  Shortly before the conclusion of the hearing, counsel for the plaintiff provided the 4^th defendant with a computation which, solicitors for the 4^th defendant would need time to consider whether or not, and if so what objections could be raised.  Both parties agreed that in order not to waste further costs, this Court could deal with the summary assessment on papers.  I therefore directed that solicitors for the 4^th defendant shall, within 7 days, serve to this Court and the plaintiff’s solicitors written objections, if any, to plaintiff’s computation.  I further directed that within 7 days from service of the aforesaid objections, solicitors for the plaintiff shall serve their written reply, if any, to this Court and the 4^th defendant’s solicitors.  I also gave general liberty to apply for this purpose.