JOEL KAI THOMAS v. TAO HSIAO SHAN, ALICE

HCMP 209/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 209 OF 2011

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D E C I S I O N

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1. This is the defendant’s application to discharge the ex parte Mareava injunction granted by myself on 21 December 2012 (“the Injunction”) and the plaintiff’s application to continue the Injunction.

2. The background of this case has been summarised in paras 3 to 9 of the reported judgment of Mr Recorder Jat, SC in Re Estate of Joachim Thomas [2011] 5 HKLRD 538 as follows:

“3. Mr Joachim Michael Thomas (deceased), who had lived in Hong Kong for a long time, passed away intestate in Hong Kong on 4 May 2007. The defendant (Madam Tao) was his wife. Letters of administration was granted to her on 12 June 2008.

4. The deceased had two children from an earlier marriage: a daughter (Jocelyne), born on 4 July 1980 and the plaintiff (Joel), born on 6 September 1983. They reside in Germany.

5. Madam Tao, Jocelyne and Joel are the only beneficiaries entitled to the Deceased’s estate (Estate).

6. By an originating summons issued on 14 February 2011 (amended on 20 April 2011) pursuant to the Rules of the High Court (Cap.4A, Sub.Leg.) O.85 r.2, Joel seeks (amongst other relief) disclosure from Madam Tao, as administratrix, of details of the assets belonging to the Estate, an order that Madam Tao provide an account, and an inquiry against her ‘as applicable’ (whatever that means) in respect of the assets of the Estate.

7. Amongst the assets listed in the originating summons of which disclosure and account are sought are two sums of USD750,000 and EUR350,000 respectively. It would appear that these sums were originally held in the bank account of Deutsche Consult (Asia) Ltd (DC), a Hong Kong company. According to Madam Tao, DC was the company through which the deceased provided trustee and corporate secretarial services to clients.

8. In her first affirmation filed in these proceedings on 17 May 2011, Madam Tao deposed that the Deceased had, on 18 April 2007, given instructions on behalf of DC to transfer the two sums into his personal account held with the same bank. On 24 April 2007, again on the Deceased’s instructions, the sums were remitted to an account held by Best Rate International Ltd (Best Rate) with a bank in Switzerland.

9.   Best Rate is also a Hong Kong company, with the Deceased being the sole registered shareholder of all its shares.  Although Madam Tao was at the material time of the transfers, and I think still is, a director of Best Rate, she deposed that she took no part in giving the transfer instructions to the banks.  Madam Tao’s evidence is that the two transfers were carried out entirely at the Deceased’s instructions and she did not know the purpose behind the transfers.  She also claimed that she had discovered since the Deceased’s death that he had held 50% of the shares in Best Rate on behalf of another, unnamed, person and that she had been able to find out that Best Rate had no assets.”

3. Hence, Joel is eager to find out what happened to the 2 substantial sums of money originally held in the bank account of DC.

4. I first dealt with this case on 10 October 2012.  By that time, Madam Tao agreed to make discovery of certain documents, and so I was given to understand that the only remaining issue between the parties was about costs which would be adjourned for argument later.

5. After obtaining the relevant documents disclosed by Madam Tao, Joel made an ex parte application for the Injunction before myself on 21 December 2012.  According to Ms Lam, counsel for Joel, the documents obtained by Joel after the order dated 10 October 2012 showed that the 2 sums of money had ultimately been transferred to Madam Tao’s personal account.  According to Ms Lam, Madam Tao has all along tried to conceal the whereabouts of the 2 substantial sums of money.  As there was serious risk of dissipation of assets, the court should grant the Injunction to protect the interest of the plaintiff.

6. As shown in the transcript of the ex parte application, I had ascertained from Ms Lam whether, before the discovery of the documents pursuant to 10 October 2012 order, Madam Tao had all along concealed information about the flow of funds and that the 2 substantial sums of money were ultimately transferred to her personal account.  Ms Lam confirmed that it was the case.  From the exchanges between the counsel and the bench, it was clear that it was one of the material facts upon which I granted the ex parte Injunction.

7. In this application to discharge the Injunction, Mr Leung, counsel for Madam Tao, tells me that this was not the case and the court had been misled in granting the Injunction. In the without prejudice meeting held in Nuremburg in Germany in April 2011 (about 20 months before the making of the ex parte application), Madam Tao had actually revealed to Joel that the 2 substantial sums of money were eventually transferred to her personal account, but she maintained that those were gifts from the deceased.

8. In fact, this without prejudice meeting had been referred to in the said reported judgment of Mr Recorder Jat in this case (paras 11-19), supra.  In the application before the learned Recorder, Madam Tao asked the court to strike out certain passages in the 2nd affirmation of Joel on the ground that they contained without prejudice materials.  Mr Recorder Jat allowed the application.

9. Without hesitation, I must say that the plaintiff had failed to disclose a material fact to the court.  With some regret, I must also say that the court had been misled.  If I had known about the information revealed by Madam Tao in the without prejudice meeting, I would not have granted the Injunction in the first place. 

10. As shown in the transcript itself, I had some reservation as to whether the court should grant the Injunction so many years after the death of the deceased, and I took the whole lunch time to consider whether to grant the application.  Further, the transcript shows that the court was very concerned as to when Joel knew about the 2 substantial sums of money being ultimately transferred to the personal account of Madam Tao.  By that time, Joel had portrayed a picture to the court that, until there was a court order ordering discovery, Madam Tao had concealed the fact that the 2 substantial sums of money were eventually transferred to her personal account.  This tipped the balance in favour of the granting of the Injunction.

11. It is clear that the court had been misled.  Joel does not dispute the alleged contents of the without prejudice meeting.  However, Ms Lam submits that when making an ex parte application, without prejudice negotiations are irrelevant, inadmissible and ought not to be disclosed.  In support of her submission, Ms Lam relies on, inter alia, the case of Kuang Teng Industrial Co Ltd v Multispark Ltd, HCA 1143/2000, unreported, judgment of Chu J (as he then was) on 7 July 2001, where the learned Judge refused to accept without prejudice documentation and evidence of negotiation in support of the ex parte application.

12. I disagree.  It is one thing to say that a plaintiff should not rely on the contents of without prejudice materials in support of an ex parte application, it is quite another to say that the plaintiff has positively misled the court because he knew that the statement he gave to the court was false in view of the information he obtained in the without prejudice discussion.  Ms Lam told me at the ex parte hearing that the plaintiff had just found out in November 2012 that the money had been transferred to Madam Tao’s personal account having been asking for the money’s whereabouts all these years.  This is certainly a false statement.  The fact that the Joel had only recently obtained documents showing the transfer of the money does not disturb the fact that the statement made by Joel’s counsel in the ex parte hearing was false.

13. Further, there are ample authorities which support that a plaintiff should draw the attention of the court to without prejudice materials in order to discharge the duty of full and frank disclosure (see: Pearson Education Ltd v Prentice Hall India Private Ltd [2005] EWHC 646 at para 35, Gulf Interstate Oil Corporation v ANT Trade & Transport Ltd of Malta (“The Giovanna”) [1999] 1 All ER (Comm) 197,and Steven Gee QC’s Commercial Injunctions, 5th ed, paras 10.014-10.015.

14. In my judgment, in view of the information obtained by Joel during the without prejudice meeting, Ms Lam should not have misled the court by saying that Madam Tao had all along concealed the whereabouts of the 2 sums of money until she supplied the documents to Joel pursuant to discovery order dated 10 October 2012.

15. Ms Lam also submits that the court should not look at the matters discussed in the without prejudice meeting because Madam Tao had already applied for and obtained an order before Mr Recorder Jat specifically prohibiting the plaintiff from disclosing the statements now complained of.

16. I again have to disagree.  As pointed out by the author in Steven Gee QC’s Commercial Injunctions at para 10.015, it is one matter to shut out evidence on what may otherwise be an admission (which was the substance of the application before Mr Recorder Jat), it is another matter for without prejudice rule to be used so that the court proceeds on a mistaken view as to whether there is real risk of dissipation of assets.  For the integrity of the judicial process and the due administration of justice, Joel should not have misled the court in view of the information he obtained in the without prejudice meeting.

17. I can also test the validity of Ms Lam’s argument by an example.  Assuming before the application for a Mareva injunction, the parties have made an agreement to settle the case in a without prejudice meeting, which contains a term that the parties should not disclose the terms of the settlement agreement.  If the settlement agreement has been made during the without prejudice discussion in respect of an outstanding debt, does it mean that the plaintiff can simply ignore the settlement agreement and asks the court to grant a Mareva injunction against the defendant without referring to the settlement agreement?  The answer is clearly no.

18. Ms Lam apologises for misleading the court.  She submits that the misrepresentation was not intentional.  Since Madam Tao had made a previous application to the court to exclude the materials discussed in the without prejudice meeting, she took the view that Joel should not have referred to anything in the without prejudice meeting in making the ex parte application.  Furthermore, Madam Tao has been less than honest in all her previous affirmations filed in these proceedings.  She only revealed that the 2 substantial sums of money had been transferred to Best Rate, without disclosing further that the 2 sums of money were subsequently transferred to her personal account.

19. At this stage, I accept that Ms Lam had not intentionally tried to mislead the court.  It is regrettable that she adopted a different interpretation of the law, and as a result she took the view, in my judgment erroneously, that Joel was entitled to make the statement about Madam Tao’s concealment of the 2 substantial sums of money to the court during the ex parte application.  As there are some legal authorities against such proposition, it is certainly unwise for Ms Lam to have proceeded with the ex parte application under such circumstances. 

20. Further, even if Madam Tao was less than honest in her previous affirmations (though she had revealed the truth about the whereabouts of the 2 substantial sums of money in the without prejudice meeting), it did not give a licence to Joel to present a mistaken or distorted picture to the court in the making of the ex parte application.

21. By reason of aforesaid, the ex parte Injunction was obtained by Joel based on a misrepresentation made to the court.  In such circumstances, the ex parte Injunction has to be discharged.  Further, Madam Tao had revealed to Joel the whereabouts of the 2 substantial sums of money about 20 months before the making of the ex parte application for the Mareva injunction, and so I have serious doubt as to whether there is any real risk of dissipation of assets on the part of Madam Tao.  Coupled with the fact that the court has been seriously misled in granting the ex parte order, I refuse to re-grant the Mareva injunction as sought by the plaintiff.