MEI YU LAU v. SHIU KI LAU

IN THE COURT OF APPEAL

1995, Nos. 195 and 216
(Civil)

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J U D G M E N T

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Ching, J.A.:

1. On 18th January, 1996, we dismissed these two appeals with costs and said that our reasons would follow. These are my reasons, with which I understand Godfrey, J.A. agrees, for doing so, and this judgment may be read as our joint judgment.

2. The Appellant was the husband of the Respondent. In November, 1994, in the United States of America she obtained a dissolution of the marriage and a money judgment against him for just over US$4,000,000. It does not appear to be the subject of any appeal. In February, 1995, she instituted proceedings against him and three others in Hong Kong on the basis of that judgment. He was the 1st Defendant. The 2nd Defendant was Intertex Trading Company Limited which it was alleged was beneficially owned by him. The 3rd and 4th Defendants were his mother and father respectively.

3. On 8th February, 1995, the Respondent obtained ex parte a Mareva injunction against the Appellant and the 2nd and 4th Defendants. Broadly, it restrained them from dealing with his assets or assets alleged to be his in Hong Kong except insofar as they exceeded the amount claimed. Paragraph 9 allowed the 2nd Defendant to transfer assets or to make payments in the ordinary course of business provided that if any such transfer or payment exceeded HK$300,000 it was to inform the Respondent's solicitors of the nature of the asset transferred or the amount of the payment together with the source and destination of the transfer or payment. Paragraph 7 of the Order allowed the Appellant ordinary and usual living expenses of HK$30,000 per month or such further sums as may be agreed in writing. Notwithstanding that no order of any sort was made against the 3rd Defendant, paragraph 8 provided that

"Nothing in this Order shall prevent the Defendants from each expending a sum of HK$100,000 on legal advice and representation or such further sums as may be agreed by the parties in writing."

Paragraph 11 gave liberty to the Defendants to apply to discharge or vary upon 48 hours' notice.

4. On 1st March, 1995, the Respondent issued a summons for summary judgment against the Appellant under Order 14. By way of correspondence it was agreed that the Respondent should be allowed a total sum of HK$200,000 under paragraph 8. Summary judgment was refused by the Master and the Respondent lodged an appeal to a Judge in chambers on 7th July, 1995. This led to the Appellant seeking the use of further funds. The Respondent's reaction was that the amounts were excessive and asked for disclosure of assets which the Appellant refused to give. No agreement having been reached, the Appellant issued a summons on 19th August, 1995, seeking a variation of paragraph 8 so far as it applied to him to the extent that he could use

"..... a reasonable sum on legal advice and representation provided that the 1st Defendant's solicitors notify the Plaintiff's solicitors of all such sums transferred to them on account of such legal costs and disbursements within 24 hours of such transfer."

On 1st September, 1995, the Respondent issued a summons for disclosure of assets. The two summons came on before Yeung, J., on 4th September, 1995, when the Respondent's summons was adjourned sine die. It has not been restored. Yeung, J., ordered a variation of paragraph 8 only to the extent of permitting the Appellant to use HK$150,000 on legal advice and representation or such other sums as the parties may agree. This Order is the subject of the first of the appeals before us.

5. On 7th September, 1995, the Appellant issued a further summons for variation of paragraph 8 in exactly the same terms as his previous summons of 19th August, 1995. This and the Respondent's appeal against the refusal of summary judgment came before Findlay, J., on 7th September, 1995. Findlay, J., dismissed the Appellant's further summons with costs on 11th September, 1995. There is no appeal against that. Findlay, J., also upheld the Respondent's appeal and entered summary judgment in her favour.

6. On 15th September, 1995, the Appellant lodged his first appeal mentioned above. This notwithstanding that the application for a variation had been for the purposes of resisting the Respondent's appeal against refusal of summary judgment and that that appeal had already been concluded. This also notwithstanding the fact that no appeal was lodged against the refusal by Findlay, J., to vary paragraph 8. The Appellant sought permission to use further funds for the purposes of appealing against the summary judgment and launched that appeal on 22nd September, 1995. It is still pending. No agreement having been reached on any variation, the Appellant issued a third summons seeking yet again the variation that he had sought in his two previous summonses and adding an alternative that he should not be prevented from spending "a further sum of HK$525,750 on legal advice and representation or such sums as the parties may agree." This application came before Yeung, J., on 18th October, 1995, and was refused. The Judge gave brief reasons for his refusal. That refusal is the subject of the second of the appeals before us.

7. The first three grounds in the first appeal attack the quantification of the variation. It is said that the Judge was wrong in determining the amount the Appellant should be allowed to spend, that he had no jurisdiction to do so and that it had the effect of being a pre-emptive solicitor and own client taxation obtained at the insistence of the Respondent. These points are misconceived. The granting of a Mareva injunction and any subsequent variation is a matter of discretion. In the exercise of that discretion the Judge will bear in mind the importance of a Defendant's ability to fund legal representation. If he decides that there should be a variation he must then decide upon the amount to be released. It would generally be wrong to vary the Order to the extent that the Defendant is enabled to spend "a reasonable sum" provided that the Plaintiff is informed. The Plaintiff will have had an Order in his favour obtained by showing, inter alia, arguable issues and a risk of dissipation. To accede to the application of the Defendant in these circumstances would be to allow not only opportunity for abuse but would effectively require the Plaintiff to take further action to prevent the use of money which it regards as unreasonable even though an injunction is already in place.

8. Other grounds in the first appeal asserted that it was "contrary to natural justice to restrict a party from the use of his own funds except in circumstances where it is established that that party is dissipating or attempting to dissipate assets" and that it was wrong, in effect, for a Plaintiff to become a preferential creditor by way of a Mareva injunction. No more need be said as to the latter of these for it is clear that a Plaintiff who obtains a Mareva injunction is not a preferred creditor. The point, however, is irrelevant. The Mareva was granted on the basis that the Respondent required protection against dissipation and she puts her position no higher than that. As to the former of these arguments, a risk of dissipation has been found and there is no appeal against that finding. The result of the Mareva injunction is that while the assets are still those of the Appellant he has no right to deplete them below the set limit unless he is permitted to do so by the Court or the Respondent.

9. Turning to the second appeal, it would be convenient to deal first with ground 5 which asserts that the Judge below was wrong in that it was within his knowledge that

"the judgment the Plaintiff seeks to enforce by these said proceedings was based on findings of fact as to the totality of the 1st Defendant's (Appellant's) total assets after prolonged investigation."

It is true that the hearing of the American proceedings appears to have taken three days which were preceded by lengthy interlocutories. However, the ground of appeal proceeds upon a misreading of the American judgment. The Court there did not purport to come to a conclusion on the totality of the Appellant's assets. It did the best that it could in view of the lack of disclosure by the Appellant and in doing so accepted valuations of known assets for the purposes of its award. In two particular instances it was unable to come to any firm conclusion. First, in relation to the Appellant's liquid assets by way of bank accounts, certificates of deposit or other cash assets it found that the Appellant had at least US$4,000,000. Secondly, it found that the Appellant had acquired stocks, mutual funds and gold but was unable to arrive at a value because of lack of information. There was therefore no finding as to the totality of the Appellant's assets, far less a finding as to his assets in Hong Kong which are all that is the subject of the Mareva injunction. It did find that the shareholdings in the 2nd Defendant and other assets in the name of others were beneficially his.

10. The rest of the grounds of appeal constituted the Appellant's main argument. Yeung, J., came to his decision on the basis that there was no evidence from the Appellant as to whether he had assets other than those the subject of the Mareva injunction with which to pay his legal advisers. The argument was that this was wrong because it effectively required the Appellant to make disclosure of his assets and especially wrong since the Respondent's application for disclosure has not been pursued. Again, the point is misconceived. It is a basic proposition that where, as here, the exercise of the Court's discretion is sought a factual basis for that exercise must be given. None was given in this case. No claim was made that the Defendant had only these assets under restraint to look to for his legal fees. There may well be circumstances in which a Court might be persuaded to vary the terms of a Mareva injunction to allow funds to be used without disclosure of a defendant's other available assets but this is not such a case. The injunction here preserved assets only in Hong Kong to the extent of the claim. The Appellant persistently failed to make disclosure in the American proceedings. He failed to appear on the original dates of the hearing and, when the hearing was adjourned, he failed to appear at the adjourned hearing. He appears to have left the jurisdiction of that Court. On three occasions he applied for leave to expend a reasonable amount and he refused to give disclosure when asked to do so. We are not told that his attitude has changed. The respondent's affirmation leading the application for the Mareva injunction contained detailed allegations as to the Appellant's means which cried out to be dealt with but he made no answer. Here, then, is an Appellant who failed to attend at the trial in America which gave a judgment against him which we were not told is or would be the subject of an appeal. He is an appellant who has refused to give disclosure and who had been accused of concealing and dissipating his assets to defeat the Respondent's judgment. In these circumstances it would be simply wrong to allow him to deplete the assets subject to the Mareva without at least disclosing that he has no other assets.

11. It was argued before us that the fact that the Mareva injunction allowed the Appellant to use HK$30,000 per month for his living expenses and HK$100,000 for his legal expenses showed that the Court proceeded on the basis that he had no assets available save those the subject of the Order. That conclusion is not justified. The Order, as usual, was made ex parte when the Appellant had had no opportunity of putting forward his case. The Court could not know, at that stage, what if any other assets he might have. The same argument was advanced as to the 2nd Defendant being allowed to pay its usual business expenses but the same answer must be given. Similarly it was argued that by allowing the Appellant to use more than the original order allowed, the Respondent herself recognised that he had no other assets. To this it need only be said that it would be most unfortunate if Plaintiffs who regarded a request as being not worth resisting should have such concessions held against them.

12. In these circumstances we dismissed both appeals with costs.

Liu, J.A.:

13. I agree. As to the 2nd Appeal, I wish to add a few observations of my own. The Mareva has taken into its fold all the assets of the appellant. It is evident that the appellant sought leave to take more fund out of the identified assets for his legal expenses. These identified assets are considerably less than the set ceiling of US$4,168,771.15 in the Mareva Injunction. Many of the charges of concealment of assets made against the appellant had been left unanswered. The appellant had been less than co-operative. He was wanted in the courts of Taiwan and America. Against such a background of grave suspicion of concealment, unless the appellant was able and willing to state on affirmation, at least, that he had no other free assets than those identified in the Mareva Injunction, the court could not make an informed decision as to what assets should best be made subject to the proposed variation. Also, no reason was offered to the judge as to why the assets identified in the Mareva injunction should be the first to be so depleted. Further, if indeed there had been more free assets far exceeding, either by themselves or with those already identified in the injunction order, the ceiling of US$4,168,771.15, the appellant would have had to satisfy the court that his application was not otiose. In other words, the court would have been owed some explanation as to what, if any, difficulties the appellant would encounter if he was to be left entirely to himself to make his own arrangements. After all, the Mareva injunction did not prevent the appellant from disposing of his assets over and above US$4,168,771.15. The intervention of the court should not be sought in vain. Before the judge the question was not one of discovery but rather one which related to the mechanics of properly arriving at a just decision for further depleting the identified assets in the given scenario. In these unusual circumstances, there was sufficient material for the judge to exercise discretion in the way his did. That the judge's refusal to allow further depletion for legal expenses in this particular case was tantamount to a denial of the appellant's right to the exercise of his discretion before discovery is an argument of unattractive technicality.