YEUNG SIU YUNG v. FAN PUI WAN, MARGARET AND OTHERS

HCA 1211/2018

[2022] HKCFI 847

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1211 OF 2018

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DECISION

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1.  This is the 2^nd application by Cheng Tak Hei Danny (“D3”) by summons dated 24 August 2021 for variation of the expenses allowance exception to the Mareva order based on intervening change of circumstances since his 1^st application. The variation sought concerns additional legal expenses for the present action and the related criminal proceedings. At the conclusion of the hearing the Decision was reserved which I now give.

Background

2.  Yeung Siu Yung (“P”) claims to be the victim of a conspiracy to defraud by unlawful means in the form of fraudulent misrepresentation and/or deceit by the defendants being Fan Pui Wan Margaret (“D1”), D2 (D1’s husband), D3 (D1’s secretary), D8 (D1’s extra-marital lover), D4, D6 and D7 (being companies owned and controlled by D1) and D5 a company owned by D8. D3 is also the company secretary of D4 and D7. D2-D8 are hereafter collectively referred to as “the defendants”.

3.  D1, the mastermind behind the conspiracy, met and befriended P in mid-2014 offering assistance to P in making investments. It is P’s case that D1 exploited that relationship to conduct a fraudulent scheme. Each of D2, D3 and D8 met with P at some stage to reinforce what D1 had said to P and the corporate entities that D1 controlled (namely D4, D6 and D7) were used to effect the conspiracy.

4.  D3 took over D1’s role in trying to induce P to make further payments between August and November 2017. D3 knew that D1 was then serving a sentence in Hong Kong in another criminal case but told P that D1 was sick and hospitalised in the UK. During this time D3 also helped D1 operate the bank account held by D4 as well as passing 3 letters containing misrepresentations to P.

5.  P brought this action in May 2018, claiming against the defendants jointly and severally for, inter alia, a total sum of $66,115,909.35 plus damages.

6.  P reported the matter to the police in early November 2017. The defendants were arrested in mid-December 2017. Under caution, D3 admitted having delivered a letter to P for D1 (whom he knew was serving a custodial sentence) in August 2017. He also admitted that he knew D1 would use P’s monies to pay her legal fees and to repay some of her debtors.

7.  D1 was charged under ESCC 1210/2018 (“D1 ESCC”) whereas D2 and D3 were charged under ESCC 2379/2019 (“the criminal proceedings”).

8.  D3 denies any knowledge of the fraudulent scheme. He runs a defence of bare denial and claims that as D1’s employee, he had merely carried out D1’s instructions.

9.  P obtained a Mareva order on 23 May 2018 against all defendants restraining the disposal of assets up to a value of $63,854,669.46[1].

10.  On 27 November 2019, D3 obtained an Angel Bell order varying the expenses allowance exception to the Mareva order, increasing the living expenses of D3 from $2000 per week to $38,000 per month and costs on legal advice and representation in the civil case from $100,000 to $450,000 up to the 1^st pre-trial review hearing.

11.  D3 disclosed the following assets worth over $50,000: (a) sale proceeds of just over HK$4.1 million (“the sale proceeds”) representing his 50% share in a property in Des Voeux Road West (“the DVRW property”) co‑owned with his brother Cheng Tak Fat since 2010 and sold in July 2018; and (b) another property also co-owned with his brother since 1995 at Queen’s Road West (“the QRW property”). The QRW property has been the matrimonial home of his brother since that date.

12.  The sale proceeds as well as D3’s half share in the QRW property are subject to the Mareva order.

Legal principles

13.  It is common ground that the principles enunciated by Lord Bingham in Fourie v Le Roux [2007] 1 WLR 320 at §2 and by Lord Donaldson MR in Derby & Co Limited v Weldon (Nos 3 & 4) [1989] 2 WLR 412 at 76E-F apply. In summary, a Mareva injunction is designed to prevent a defendant dissipating his assets with the intention or effect of frustrating enforcement of a prospective judgment. Its purpose is not to place the plaintiff in the position of a secured creditor nor to impede the defendant in any way in defending himself against the claim.

14.  In determining whether the funds should be released, the tests to be applied differ to some extent depending on whether P’s claim is proprietary or non-proprietary. For the former, a more stringent test is applied[2]. Each case involves a two-step process.

15.  The 2 tests are explained and set out in the Hong Kong Life Insurance Ltd v Fung Siu Cheung Michael [2014] HKCFI 292 at §§32-34. Whichever test the court is to apply, stage 1 in the 2 tests is not that different, it being incumbent on the applicant to show that he does not have any other assets available to meet the payments and that the main difference between the 2 tests is in stage 2[3].

16.  It is common ground that as regards the sale proceeds of the DVRW property, the claim is non-proprietary. To satisfy stage 2 of the non‑proprietary claim, the applicant has to show that the purpose of the application is not an attempt to dissipate the assets to frustrate the execution of judgment by the plaintiff.

This application

17.  D3 took out the present summons on 24 August 2021 (“the Summons”) for a 2^nd Angel Bell order to vary the Mareva order and seeks additional legal costs based on a change of circumstances since the 1^st Angel Bell order in that (a) criminal charges have been laid against him in the criminal proceedings; and (b) P has disclosed her documents in the civil case of approximately 1800 pages and the police have served the committal bundles including unused materials of approximately 7700 pages (“the police documents”).

18.  D3 has been advised that given the nature of the charges the criminal proceedings and D1 ESCC would be consolidated and committed to the High Court for trial with jury. D3 denies those charges and will maintain a not guilty plea.

19.  The original return date for the committal hearing was vacated due to Covid-19 and, prior to the date of the Summons it was adjourned a number of times as D2, also a defendant in the criminal proceedings, is abroad and has yet to return to Hong Kong.

20.  There have been no fewer than 6 adjournments since the date of the Summons as D2 is still abroad, the adjourned committal hearing is scheduled to take place on 18 July 2022. Should that actually take place, it is anticipated that the trial dates are likely to be some 18 months after committal.

21.  D3 seeks (a) a total sum of $2,745,500 on legal advice and representation for the criminal proceedings; and (b) an additional $580,000 for the civil case to the 1^st PTR.

(a) Costs for the criminal proceedings

22.  D3’s application for approximately $2.75 million is based on an estimated bill of costs in respect of a trial of 28 days. The basis for the time estimate does not appear in the hearing bundles although at the hearing Mr Danny Fung, counsel for D3, informed the court that that was the advice from (unidentified) counsel advising D3 on the criminal case.

23.  While D3’s solicitors’ bill of costs in that sum is undated, the fee quotations obtained from counsel were obtained 9 months before the Summons and before receipt of the index of the committal bundles disclosing the volume of documents.

24.  As earlier noted, the criminal proceedings have not even reached the committal stage. Should the committal hearing take place as scheduled in mid-July, the trial dates are unlikely to be earlier than December 2023. Given past history and the current Covid-19 situation, further adjournments cannot be ruled out in which case the trial dates are likely to be even later, sometime into 2024.

25.  Mr Danny Fung sought to justify the release of funds now on the basis that if the application has to be renewed, it would take a year before that application would be heard.

26.  That estimate is hardly borne out by the fact that less than 7 months have elapsed since the Summons was taken out for this hearing. In so far as additional time has to be factored in for future appointments because of GAP that is currently in place, that would similarly have a knock-on effect on potential trial dates.

27.  In D3’s 5^th affirmation dated 24 January 2022, D3 made reference (at §10) to the option he has to elect for a preliminary inquiry before a magistrate for the purpose of ensuring that the severity of the offence and the adequacy of evidence warrant the transfer of the case to the High Court.

28.  Until then, D3’s stance (throughout the 27 months since criminal charges were first laid against him in mid-October 2019) has been and remains that he will maintain a not guilty plea and defend against those charges in the High Court jury trial.

29.  At the hearing, Mr Fung was asked to clarify his client’s position as to whether D3 was seeking costs for legal advice so that he could make an informed election. Mr Fung made it clear to the court more than once that D3 was not asking for such costs. Rather, D3 is asking for the estimated costs for the preparation of and the jury trial itself to be released from the sale proceeds.

30.  It would appear that a person (presumably) from D3’s legal team hazarded a guess at the length of the trial prior to obtaining fee quotations from counsel in November 2020. At that time the police documents had not been served on D3. Counsel’s fees as well as solicitors’ costs are based on the 28-day estimate which, seemingly, would have been plucked out of thin air.

31.  It is worth mentioning that D3’s solicitors’ costs are calculated on the basis of 8 hours in court per day (plus a 1-hour conference with client) when, typically, court sittings are but 5 hours a day. That the cost estimates are artificially inflated and unreliable are self-evident.

32.  In the present case, it is unnecessary to dwell on those matters as I am firmly of the view that this application for costs of the criminal proceedings is premature.

33.  In any event, should it transpire that the delay in obtaining a hearing date for a renewed application would prejudice D3’s preparation of his defence, there is always the option for D3 to make an urgent application if warranted by the circumstances.

34.  Accordingly, the application for costs for the criminal proceedings is dismissed.

(b) Additional costs for the civil case

35.  The exception to the Mareva order provided for $100,000 for legal costs. That amount was increased to $450,000 by the 1^st Angel Bell order to cover costs up to the 1^st PTR. That was based on evidence in support of that application showing expected costs of $325,000 up to the 1^st PTR. On the assumption that the initial $100,000 has already been expended, there is a small sum of $25,000 remaining available for costs.

36.  Mr Fung submitted that as D3 is now in possession of the police documents they are relevant to the civil proceedings. In addition, P1 has disclosed 1800 pages of documents in her list. It would take Mr Fung’s instructing solicitor 100 hours (at $5800 per hour) to review the documents disclosed since the 1^st Angel Bell order running to some 9500 pages. Hence D3’s application for an additional $580,000 for the civil case.

37.  I confess to having difficulty following Mr Fung’s submissions and line of reasoning regarding the relevance of the police documents in the civil case. As I understand it, the drift of his submission runs as follows: while it is true that D3 denies the allegations made against him, he has his own view of events and could have perceived them in a different light; that D3 was mistakenly and innocently used by other defendants/schemers and that D3 needed more information to find out what exactly happened in order to prepare his defence.

38.  It was submitted that the criminal proceedings and the civil case concern the same subject matter. However, as the police have more resources than P to discover materials, the unused materials in particular will need to be read by those instructing him.

39.  While I accept that the criminal proceedings and the civil case overlap, it does not follow that the issues arising in each are the same. D3 has not identified particular issues in the civil case and the nature and substance of the police documents relevant to those issues. Pausing here, it is not for the court to decipher the issues and work out the relevance of the police documents. The burden lies firmly on the applicant.

40.  Part G of the committal bundle contains the list of unused materials and comprises 490 entries under 3 subheadings: (1) items 1-55 are items seized within D4’s office; (2) items 56-181 are items seized within a mini storage facility used by D4; and (3) items 182-490 are police documentary exhibits.

41.  A quick perusal of subheading (3) items include approximately 60 search warrants, personal items consisting of inter alia high-end brand name handbags (40 plus), watches, various mobile phones, computers, notebooks, Sim cards, USBs, numerous bank documents etc. It is beyond my comprehension that the items described can have any relevance to the civil case. I doubt if anyone from D3’s legal team had even bothered to peruse the items contained in Part G.

42.  If what is relevant has not been described above, it behoves D3 (and not the court) to identify and explain what they are and in what way they are material to the civil case.

43.  I am not at all satisfied that the police documents are relevant to the civil case and in so far as the application for additional costs in the civil case is based on the need for D3’s solicitors to spend time to review the police documents, it falls to be rejected.

44.  P1 has disclosed approximately 1800 pages of documents for the civil case. They comprise 5 main categories of documents: (i) company, land and motor vehicle search records, the search result of the SFC’s register of licensed persons against D1 and agreements and declarations and investment proposals/ notes; (ii) correspondence; (iii) bank statements/bank records/bank correspondence; (iv) documents/information on D1’s criminal cases; and (v) a handful of miscellaneous items such as flight details, hotel invoices and news reports.

45.  The bulk of P’s documents come under category (iii). They relate to cheques, bank transfers, remittances, cashier’s orders in favour of the accounts of D3, D4 and D7, bank statements the accounts of the various defendants including D3, D4 and D7, account opening forms relating, inter alia, to D3.

46.  Frankly, a substantial part of the documents are documents that D3 would have seen or have had in his possession in his role as D1’s employee and company secretary of D4 and D7. Those are hardly documents that require perusal by his legal representatives. In my view no more than a handful would require their perusal.

47.  Stage 1 of the non-proprietary test requires D3 to show that other than the sale proceeds and his half share in the QRW property, he has no other assets.

48.  Mr Mike Yeung, counsel for P, submitted that D3 has failed to show by sufficient evidence that he has no other assets available to meet his legal fees.

49.  D3’s evidence at the time of the 1^st Angel Bell order showed that he required $60,000 per month to support his wife and 2 teenage children. He remains unemployed. Any shortfall between his expenditure and the monthly living expenses of $38,000 is apparently met from loans/largesse from his mother and brother and borrowings from financial institutions.

50.  Mr Yeung made the point that D3 is obviously able to borrow from his mother and brother who have not made any repayment demands for past borrowings and are plainly open to further requests for financial assistance.

51.  Whilst the evidence shows that D3’s mother and brother appear to be an inexhaustible source for borrowings, I do not consider that the fact that D3 is able to borrow from family can transform such borrowings into assets that D3 owns. By borrowing he incurs a debt whether or not the lender demands repayment.

52.  That said, there are aspects of the evidence that cast doubt on D3’s veracity and reliability. For example, in accounting for the sale proceeds, D3 explained that they represented his 50% share in the DVRW property and that completion took place in August 2018. He disclosed the payment of a removal fee of over $2.2 million to his brother at the time[4].

53.  However, in his 4^th affirmation dated 24 August 2021, when explaining that the QRW property was a gift from his grandmother to him and his brother in 1995, D3 stated (at §33) that since that date the QRW property has been the matrimonial home of his brother and his wife. The 2 versions are diametrically opposed and both cannot be true.

54.  That aside, another troubling aspect is that D3’s 2^nd, 3^rd, 4^th and 5^th affirmations respectively dated 30 April 2019, 17 July 2019, 24 August 2021 and 24 January 2022 as well as his brother’s affirmation dated 30 April 2019 made in support of D3’s 1^st Angel Bell application all give the DVRW property address as the deponent’s address. That is a rum state of affairs indeed and cries out for an explanation. At the very least, it shows a very callous attitude on D3’s part as regards the accuracy of matters stated in his affirmations.

55.  Further, notwithstanding Mr Fung’s sardonic remarks, that P should have obtained Norwich Pharmacal relief for bankers’ books in relation to D3’s bank accounts is hardly surprising. In fact, as of June 2018, D3 and his brother held a joint account with the Bank of China.

56.  D3’s explanation is that the Mareva order only required D3 to state assets in excess of $50,000 in value. He asserted that the balance in the account was below that threshold at that date and exhibited a statement for that bank account dated 30 March 2019 in support.

57.  D3 sought to deflect criticism by accusing P of creating a fuss over that bank account and mischaracterising it as a failure to make disclosure of assets. He submitted that since the account is frozen, D3 has no access to it in any event.

58.  In my view, D3’s response is misguided, what is material information being D3’s assets when he made his 1^st affirmation on 19 June 2018 and on the date of this application. The $50,000 threshold is irrelevant for the present application. The fact that his account is frozen does not mean that no payments could have been made into it.

59.  The absence of an up-to-date statement or to exhibit a stale statement lends support to P’s submission that such intentional withholding of relevant evidence renders applicable the following passage in Hong Kong Civil Procedure 2022 at §29/1/79:

“The court is entitled to have a ‘very healthy scepticism’ in respect of assertions made by the defendant, and where the defendant has previously put forward evidence of questionable credibility, the court should take a ‘very cautious view’ of the defendant’s evidence in support of varying the order (Anokh Singh Pannu v Alantic Ltd, unrep., HCA 1696/2010, [2012] HKEC 669).”

60.  Taking into consideration the matters set out in §§51-58 above, I take the view that it is appropriate to do so in the present case. That, coupled with the limited matters that require perusal (see §§44-46 above), I am not satisfied that any further variation is required to be made to release additional funds for the civil action.

Order

61.  For the reasons stated above, D3’s application for a 2^nd Angel Bell order is dismissed.

62.  There is to be an order nisi of costs in favour of P, such costs to be with certificate for counsel and to be summarily assessed. P is directed to lodge her bill of costs within 7 days of this Decision, D3 to lodge his objections within 14 days thereafter and P to lodge a reply (if any) within 7 days thereafter.

63.  The summary assessment will be disposed of in Chambers.