QUESTNET LTD v. KURT GEORG ROCCO RINCK AND ANOTHER

HCA 1475/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1475 OF 2006

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J U D G M E N T

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1.  QuestNet is a company incorporated in the British Virgin Islands, and registered in Hong Kong under Part XI of the Companies Ordinance.  QuestNet is owned, as to 80%, by QI Ltd, a Cayman Islands company, and as to 20% by a Mr Joe Fabregas.   QuestNet is one of various companies within a Group, principally owned by QI Ltd.  The defendant, Mr Rinck, and two others, and Mr Bismark and a Mr Vijayaratham were the founders of the Group.  Mr Rinck, I am told from the bar holds a very small shareholding in QI Ltd.  Until early July 2006 Mr Rinck was an employee, and a director of, QuestNet.  He was also a director of QI Ltd.  His positions as director of both of those companies, and as an employee of both of those companies has been terminated.

2.  The particular business run by QuestNet made it necessary for various of QuestNet’s directors to establish in their personal names, to be used as what were described as “buffer accounts”, bank accounts in which funds were held, to be available to QuestNet, to avoid potential problems which may arise should QuestNet’s own bank accounts be frozen.

3.  In order to establish one of these buffer accounts, on 18 November 2003, Mr Rinck made a declaration of trust in favour of QuestNet in which he declared that he held all moneys in certain accounts with Citibank in Hong Kong, namely accounts numbered 12330345, 12330353, 82346968, 19356439, 39052036 and 29342899, (the Citibank accounts), which accounts were in his personal name, and that he held:

“all money which may be accrued to or deposited into the aforesaid account from time to time on trust for the absolute benefit of (QuestNet) until such time as those money are withdrawn, transfer or in whatever way he taken out from the aforesaid account according to the instruction of (QuestNet).” (sic)

4.  By a subsequent similar declaration of trust, dated 13 December 2005, Mr Rinck reiterated the declaration of trust that he had made in relation to the Citibank accounts, and further declared that he held all money in account number 800777 (under Identification #800777 SAWTSCHENKO) with Dominick Co Bank in Zurich, Switzerland upon trust for the absolute benefit of QuestNet.  In these proceedings the funds in the various accounts, as at 30 June 2006, have been referred to as the Trust Funds.

5.  A dispute arose between Mr Rinck and QuestNet around late June or early July 2006, as a result of which QuestNet took steps to remove Mr Rinck from his positions as an employee and director of the company.  Mr Rinck disputes that those steps have been effective.

6.  Mr Rinck made demand upon QuestNet for what he described as dividends due to him.  In making that demand he said in correspondence:

“….if payment is not received within seven days, you will leave me constrained without choice but to draw on any securities held in my name on behalf of (QuestNet).”

7.  On 4 July 2006, QuestNet wrote to Citibank and Dominick Co Bank requiring them not to give effect to any instructions they might receive from Mr Rinck, and referring to them the respective declarations of trust.  On 8 July 2006, QuestNet wrote to Mr Rinck and reminded him of the fact that he had executed declarations of trust, and instructed him to transfer the Trust Funds contained in the various bank accounts, as at 30 June 2006, to QuestNet.

8.  Mr Rinck did not respond to QuestNet’s satisfaction, and a writ was issued seeking a declaration that Mr Rinck is liable to account for the Trust Funds together with consequential orders.  Subsequently Mr Lane was joined as a second defendant, but the proceedings have not been served upon him, and I am not concerned with him today.

9.  In the course of interlocutory proceedings in this matter Mr Rinck has been demonstrated to have persistently refused to comply with various disclosure orders, as a result of which he has been held to be in contempt.  A warrant for his arrest has been issued: (see the judgement dated 17 November 2006).

10.  QuestNet now seeks summary judgement against Mr Rinck.  He has been absent and unrepresented in the proceedings before me today.

11.  In the pleadings filed during the period he was represented, Mr Rinck countered the demand that he return the Trust Funds, held by declaration of trust, to QuestNet by contending that he is entitled to setoff sums due to him by way of dividends due to him from QuestNet, against the funds so held.  He contends also that his signature on the 13 December 2005, trust declaration has been forged.  In addition he makes an allegation, not entirely clearly, that the funds in the Citibank account are not the funds of QuestNet, but our funds belonging to other companies in the QuestNet Group.  Mr Rinck gives no proper particulars of this allegation.

12.  In the course of a number of interlocutory proceedings that have had to come before me, a number of affidavits have been filed.  I have had regard to all of the affidavits that have been filed in this matter.  In the course of those affidavits Mr Rinck has made a number of claims which have been demonstrated to be quite untrue by the evidence filed on behalf of QuestNet.

13.  Mr Rinck asserts that he owns one third of the QuestNet Group, and 20% of QuestNet.  There is no documentary evidence to support either of these claims.  To the contrary there is direct evidence from QuestNet officers that Mr Rinck does not own any shares in QuestNet.  On the evidence before me Mr Rinck was not, and never has been, a shareholder in QuestNet.  That he may be a minority shareholder in QI Ltd is irrelevant.

14.  Mr Rinck has asserted that the Trust Funds contained in the buffer accounts held in trust by him and other QuestNet officers were kept off QuestNet’s books.  That is untrue.  The audited accounts show that the existence of the accounts was reflected in the books of QuestNet.

15.  The evidence establishes that neither QuestNet nor any other company within the Group has ever declared dividends.  Instead, bonuses were paid to directors and employees of companies within the Group.  At no stage has Mr Rinck ever particularised the claim that dividends have been declared.  No documents have been produced demonstrating the declaration of any dividends. 

16.  It is important in this respect to remember that the declarations of trust are in favour of QuestNet, a company in which, as clearly established by the evidence, Mr Rinck holds no shares which might give rise to any entitlement to a dividend.  It is entirely irrelevant that Mr Rinck may be a shareholder in QI Ltd, that company in turn being a shareholder in QuestNet.  QuestNet is a separate legal entity, and any shareholding Mr Rinck might have in a company holding shares in QuestNet cannot assist him in raising an argument as to a setoff.

17.  It is right that a number of SMS messages have been produced by Mr Rinck, however none establish a declaration of dividends by QuestNet which might result in the liability to make a payment to Mr Rinck.

18.  On the face of the trust documents that have been produced to the court it is unarguable that the funds in the various accounts are held other than for the benefit of QuestNet.  The law is plain.  QuestNet have a proprietary right to the Trust Funds in the various accounts.  In those circumstances there can be no setoff by Mr Rinck what ever claim he might have against QuestNet: see Zemco Ltd v Jerrom-Pugh [1993] BCC 275 at 281 CA, Per Hoffman LJ (as he then was).

19.  I do not disregard the allegation made by Mr Rinck in the course of the pleadings that his signature on the 13 December 2005, declaration of trust is forged. 

20.  In July 2006, when QuestNet demanded Mr Rinck pay the trust funds to them, Mr Rinck’s response was to refuse to pay, claiming a setoff in monies owed by the QuestNet Group in the form of dividends.  If, as he now asserts, his signature on the trust documents was forged, that would have been an obvious point to raise immediately.  He did not do so.  Having regard to the nature of the allegation, his failure to raise the point immediately is astonishing.  He puts no evidence to the court as to the validity or otherwise of the signature other than a mere assertion of forgery.

21.  I am satisfied that neither the contention that Mr Rinck is entitled to a dividend from QuestNet, nor his assertion that the signature on the second trust declaration is forged up, nor his contention that the funds are not QuestNet’s own funds, are sufficient to raise a triable issues.  It is not enough in O 14 proceedings to simply assert as to issues without particulars to demonstrate that those issues are genuinely arguable.  I adopt the words of Reyes J. in Sumikin Bussan International (HK) Ltd v The Precast Piling & Engineering Co Ltd [2002] HKCU 426 where he said:

“Faced with an O 14 application, a defendant cannot be sparing of the particulars of his defence and then claim, as a result of his own parsimony in detail, that there is an obscurity which must await trial for illumination.”

22.  This is a case in which QuestNet seeks to recover its own monies over which it has a proprietary entitlement.  Mr Rinck has signally failed to demonstrate any triable issue in the course of the many interlocutory proceedings that have culminated in this hearing.  I am satisfied that this is a proper case for summary judgement.

23.  There will accordingly be a declaration that the 1^st Defendant, Kurt George Rocco Rinck, is liable to account to the Plaintiff, QuestNet Ltd, for the trust funds held by him in Citibank and Dominick Bank, that the said Kurt George Rocco Rinck shall forthwith pay or replace the said Trusts Funds to QuestNet Ltd. 

24.  There will be an order for an account of the sum due to QuestNet Ltd, including compound interest thereon, until the payment or replacement of the Trust Funds, and in order that the said Kurt George Rocco Rinck shall pay to QuestNet limited the amount found due on taking the account. 

25.  There will be an order for a permanent injunction restraining the said Kurt George Rocco Rinck from any dealing with all other disposal of the assets of QuestNet Ltd and in particular the Trust Funds.  The interim injunctions granted to QuestNet by Poon J. on 21 July 2006, and Sakhrani J. on 1 August 2006shall continue until further order of the court.

Costs:

26.  Mr Maurellet sought costs in the action of either a common fund or an indemnity basis.  This is a case where the plaintiff sought to recover its own property.  The declarations of trust were clear and unequivocal.  No proper defence was offered to the claim.  I am satisfied that this is a case where the plaintiff is entitled to it costs on the action to be taxed on a common fund basis.

27.  Mr Maurellet sought costs on the O 14 summons on a gross sum basis.  In straightforward matters such as O 14 proceedings across sum costs are appropriate as they avoid the expense of taxation.  A schedule costs and Counsel’s fees was submitted to move totalling $564,550.00.  I have reviewed the schedule and am satisfied that there is a degree of overlap between the work required on the action and that undertaken for the O 14 proceedings.  In all other respects the sums claimed are reasonable.  Taking a broad view of the matter I fixed gross sum costs on the O 14 proceedings at $450,000.00.