HYUNDAI MERCHANT MARINE (HONG KONG) LTD v. MA CHUN KIT

HCMP 1115/2017

[2018] HKCFI 176

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1115 OF 2017

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J U D G M E N T

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1.  By an Originating Summons filed on 16 May 2017 (OS), the Applicant (Hyundai Marine) seeks a committal order against the Respondent (Ma) for breaches of the Mareva Injunction Order (Order) made in HCA 619 of 2016 (Main Action).

2.  Leave to commence these proceedings was granted on 4 May 2017 pursuant to an O.52, r.2(2) Statement filed on 14 March 2017.  The breaches of the Order concern undisclosed assets of Ma and the dissipation of the same.

Background

3.  The following summary of the background facts is not in dispute. 

4.  Ma used to work for Hyundai Marine.  He first joined the company in 1992 as an Accounts Clerk.  He was promoted gradually and became its Deputy General Manager (Accounting). That was Ma’s post when he was summarily dismissed on 4 March 2016.  At that time, he was earning a monthly salary of HK$37,900.

5.  It is the case of Hyundai Marine that, between 2009 and 2016, Ma caused a total sum equivalent to HK$387,655,303.70 (Sum), which involved 262 transactions, to be wrongfully transferred from his employer’s accounts to his own accounts.  Hyundai Marine asserts, inter alia, a proprietary claim over the Sum.   

6.  In Ma’s Amended Defence, it was pleaded that the money which made up the Sum was transferred with the knowledge, consent and authorization of Hyundai Marine pursuant to an Agreed Arrangement devised to overcome foreign exchange control of the Mainland.  Such Arrangement was required due to the need of Hyundai Marine to make payments to service providers in the Mainland. 

7.  Hyundai Marine says that the Agreed Arrangement is entirely a fiction created by Ma.  However, the court is not concerned with the underlying merits of the Main Action in these committal proceedings.

8.  The matter was reported to the police by Hyundai Marine.  There is an Indictment against Ma containing 2 counts of theft.  He is on bail pending the trial of his case in the High Court, the date of which has not been fixed. 

The Order

9.  On 10 March 2016, upon Hyundai Marine’s ex parte application, the court granted the Order against Ma in the Main Action.  The Order, inter alia, enjoined Ma from dealing with his assets up to the value of HK$322,345,743 (Restriction on Disposal of Assets); included the usual ancillary disclosure order; and made provisions for monetary exceptions in respect of Ma’s ordinary and proper expenses (HK$9,000 per week) and legal costs (HK$100,000). 

10.  The Order was endorsed with a Penal Notice and was served personally on Ma on 11 March 2016.

11.  The Order was subsequently varied on 18 March 2016, 14 April 2016, 26 August 2016 and 3 February 2017.  The amendments included revising the limit of the Order to the Sum.  They are of little relevance to the present committal proceedings.  There has been no application by Ma to discharge or vary the Order until 27 December 2017 when he took out an application to vary the provision for his legal expenditure. 

12.  The total assets which Ma had disclosed pursuant to the Order amounted to about HK$53.3 million.  Mr Wong, appeared with Ms Ng for Hyundai Marine, had asked the court to contrast the amount of Ma’s disclosed assets with the modest salary which he had. 

13.  Ma’s girlfriend and his parents had subsequently been joined in the Main Action on the basis that some of the money wrongfully taken from Hyundai Marine by Ma was transferred by him to his girlfriend and parents.  Such transfers involved a total sum of about HK$25.76 million. 

The subject matters of complaint

14.  Subsequent to the granting of the Order, on 25 May 2016, Ma opened 5 accounts with Citibank (Hong Kong) Limited (May Accounts).

15.  At the material times, Ma had 2 American Express credit cards (Credit Cards), respectively a Platinum Card and a Centurion Card.

16.  According to Ma’s evidence, the following sums were deposited into the May Accounts.  Firstly, a total sum of HK$2,988,082.44 which was realized from the termination of 6 insurance policies (Insurance Policies).  Secondly, a total sum (by way of 26 deposits from 2 June to 2 September 2016) of HK$916,950 was deposited by Ma’s friends pursuant to a Reimbursement Arrangement (see below).  These payments add up to HK$3,905,032.44 (Deposited Sum).

17.  According to Ma’s explanation, the Deposited Sum was transferred out of the May Accounts for the following purposes.  These transfers add up to precisely the Deposited Sum :

(1)   Mortgage payments in the total sum of HK$275,728;

(2)   Payments for the Credit Cards in the total sum of HK$1,539,916.08;

(3)   Expenses permitted under the monetary exceptions of the Order in the total sum of HK$543,000;

(4)   Other personal and property expenses in the total sum of HK$1,546,388.36.

18.  Hyundai Marine says that, despite the disclosure obligations under the Order, no disclosure was made by Ma in relation to the May Accounts, the Insurance Policies or the Credit Cards (Ma’s explanations will be dealt with below).  However, for the present purpose, Hyundai Marine does not take issue with the non-disclosure save that the court is asked to bear in mind the non-disclosure of the Insurance Policies as a relevant fact in assessing Ma’s state of mind when he acted in breach of the Restriction on Disposal of Assets.

19.  Two affirmations had been filed by Ma in opposition to this application.  According to his 5^th affirmation (Ma 5^th), the main affirmation, the pay-outs from the Insurance Policies constituted the bulk of the Deposited Sum.  However, the Insurance Policies had never been referred to in Ma’s earlier affirmations by which he made asset disclosure pursuant to the Order.  It should be noted that there was a complaint by Hyundai Marine’s solicitors that it appeared from Ma’s bank statements that he was holding valuable insurance policies which were not disclosed.  By a letter dated 3 June 2016 (Letter), acting on his instructions, Ma’s solicitors denied that Ma had assets of an individual value of over HK$50,000 save for those which had been disclosed.

20.  In these committal proceedings, the court is invited by Hyundai Marine to focus on the complaints relating to the breaches of the Restriction on Disposal of Assets which arose from the transactions carried out with the May Accounts and the Credit Cards.

21.  Hyundai Marine contends that although Ma had made no challenge of the Order, it had not prevented him from taking matters into his own hands in order to maintain his extraordinary lavish lifestyle.  This is especially egregious because: (a) it was unlikely that Ma would be able to justify his lavish lifestyle under the monetary exceptions of the Order; and (b) the fact that Hyundai Marine is asserting a proprietary claim means that to justify a variation of the monetary exception Ma would need to adduce evidence to show (i) an arguable case for denying Hyundai Marine’s proprietary claim and/or (ii) he had no other assets which may be used for the purpose[1].

22.  In fairness to Ma, he had explained in his evidence that the May Accounts were in fact a consolidated account, with 5 different account numbers for a saving account, a cheque account and accounts for 3 different currencies.  As at the date of the Order (in its original terms) and the first 2 variations thereof, those Accounts were not in existence. 

23.  Further, the terms of the Order did not restrict or prohibit Ma from opening any new bank account.  He therefore opened the May Accounts in order to manage his living and regular expenses.  The May Accounts were required to be disclosed by the terms of the Order after another variation on 26 August 2016 (the order was sealed on 31 August 2016). 

24.  Mr Mughal, who appeared for Ma with Ms Ma, explained that there was no disclosure of these Accounts due to a co-incidental catalogue of events that occurred at the beginning of September 2016, which led to confusion and misunderstanding between Hyundai Marine, Ma and their solicitors.  Given that there is no longer any issue on whether Ma is in breach of the Order by failing to disclose the May Accounts, it is unnecessary to set out those events. 

25.  Pursuant to the directions of the court, Mr Wong had provided a table setting out how the Deposited Sum was depleted in accordance with the explanations given by Ma.  The table has been modified with an added column on the left to number the payments.  The modified table is attached to this judgment as Annex I. 

26.  I shall next refer to the applicable law, the issues for determination and then proceed to examine each of the classes of payments to decide whether it constituted a breach of the Restriction on Disposal of Assets.  References to items below are references to the items in Annex I.

Law

27.  The applicable principles are settled and not in dispute.  The proper approach of the court involves a three-stage test :

“There was no dispute that the proper approach in committal for civil contempt by reason of breach of a court order is essentially a three-stage test, namely: (1) first, the relevant court order must be construed to ascertain its meaning and operation; (2) secondly, it must be determined whether the defendant has in fact complied with the order as so construed; and (3) thirdly, it must be determined whether any failure to comply was accompanied by the state of mind necessary to establish punishable contempt.”

Effiscient Ltd v Edward Eugene Lehman [2013] 3 HKC 300, §14 per Fok JA

28.  No order will be enforced unless it can be shown that the terms are clear and unambiguous.  The burden is on the plaintiff to prove the defendant’s contempt beyond reasonable doubt: Hao Xiaoying v Wong Yiu Lam William & Ors, HCMP 1968/2014, 2 March 2015, §34.

29.  In establishing the requisite state of mind, it is enough to show that the conduct itself was intentional without being contumacious.  A mistaken believe as to the legitimacy of the act is not a defence: Suzanne Ruth Henderson v Scott Henderson, HCMP 2016/2014, 14 July 2015, §§16-17.

Issues

30.  Mr Mughal had identified the issues for the court as follows :

(1)   Whether on the proper construction of the terms of the Order, Hyundai Marine can prove beyond a reasonable doubt that Ma was in breach of the terms (Issue 1); 

(2)   For each alleged breach, whether Hyundai Marine can prove beyond a reasonable doubt that the failure of Ma to comply was accompanied by a state of mind necessary to establish punishable contempt.  In other words, whether Ma acted in wilful disobedience of the terms of the Order (Issue 2); and

(3)   Whether the court should exercise its discretion to order any alternative directions or conditions in lieu of committal.

31.  The requisite state of mind to establish contempt is that (a) the contemnor knew the facts which are said to make his act or omission a contempt and (b) such act or omission was not accidental (see Hong Kong Civil Procedure 2018, vol 1, rubric 52/1/17).  This, I believe, is what Mr Mughal meant by “wilful disobedient”.

32.  Mr Mughal had confirmed that no issue is taken on Ma’s knowledge of the terms of the Order.  In light of that position and, in particular, the personal service of the Order (in its original terms) on Ma with a Penal Notice, I grant the dispensation of personal service of the amended Order sought in para (3) of the OS.

Payments related to Properties (items 1 to 3)

33.  According to the disclosure made by Ma, he has 3 landed properties.  Two of these properties involve a mortgage.  Firstly, a flat at Celestial Heights which was acquired without a mortgage in November 2013 at HK$19.8 million.  A mortgage was taken out from HSBC in January 2016 against this property.  Secondly, a flat at Festival City purchased at about HK$8.4 million with a mortgage from HSBC in November 2011.  The 2 mortgage accounts were disclosed in the Letter.

34.  In respect of the mortgage payments (item 1), Mr Wong’s complaint is, with respect, largely technical.  It was submitted that such payments amounted to “dealing with”[2] assets for which Ma did not have the sanction of the court.  On the other hand, Mr Wong accepted that a failure to service the mortgage loans would likely result in foreclosure by the mortgagee, which would not be desirable for purpose of preserving these assets[3].  Indeed, given the state of the property market, Mr Wong accepted that in all probabilities the value of these properties has increased significantly. 

35.  Further, Mr Mughal submitted that his lay client might be accused of dissipation of assets if he had defaulted in servicing the mortgage loans resulting in enforcement actions by the mortgagee. 

36.  In the premises, technicalities aside, I am unable to see any complaint of real substance in respect of the mortgage payments. 

37.  In respect of items 2 and 3, I am satisfied on the evidence and the analysis of same by Mr Mughal that the payments were genuine and indeed utilised for the mortgages and paying the management fees and government rates.  However, given the circumstances of this case and with a healthy degree of scepticism, I cannot accept without proof (there is none) that the sum of HK$85,566 under item 2 did originate from Ma’s friends.  There is no particulars whatsoever of these friends.  There is no reason to discount the possibility that Ma has salted away some or most of the money taken from his ex-employer (this is not an issue in this application). 

38.  As for technical breach of the Order, if any, it would not be right to penalise Ma for it.  In light of these circumstances, the complaint over on these payments should not be taken further.

Spending permitted by the Order (items 7 and 8)

39.  There is no controversy over item 7.

40.  In relation to item 8, the issue is whether Ma had misconstrued the Order when he apparently took the view that the legal expenses permitted under the same were increased when the Order was amended on 18 March and 26 August 2016[4]. Hyundai Marine maintains that the exception under the Order was a one-off allowance. 

41.  On the face of the Order (whether in its original terms or as amended), there is nothing to suggest that the spending limit on legal expenses had been increased.  I am unable see any real defence to the infringement, and Issues (1) and (2) are satisfied. 

42.  However, given that Ma was at all material times legally represented, more likely than not any mistake over the construction or understanding of the Order was made under legal advice.  Further, the permitted expenses would have been exhausted some time ago. 

43.  In the premises, although a mistaken understanding of a court order resulted from erroneous advice is no excuse for non-compliance (see Kao, Lee & Yip v Koo Hoi Yan (2009) 12 HKCFAR 830, §63), it may be said that it would be unduly harsh to impose penalty on such non-compliance.  The matter may have to be considered when these proceedings return to court for hearing on the appropriate order to be made against Ma for having breached the Order.

44.  I come to the highly controversial payments.

Credit Card Payments (items 4 to 6)

45.  I should mention, firstly, Ma’s case on the disclosure of the Credit Cards.  His evidence is that he was advised by his previous solicitors that the Order did not require him to disclose information concerning his credit cards.  Nevertheless, such information was provided to Hyundai Marine’s solicitors in the Letter at their request.  The Credit Cards were in fact replacements for the 2 cards disclosed in the Letter.  Ma did not notice that the last 4 digits of the Credit Cards were different to the old ones.

46.  To provide a better picture of the Credit Card expenditures, during a period of about 5 months from March to July 2016, Ma had incurred expenditures with the Centurion Card in the total sum of HK$3,882,688.44 and HK$634,090.10 in respect of the Platinum Card.  These Cards were terminated by the issuer in July 2016.

Platinum Card

47.  The lion share of the Platinum expenses, namely, HK$550,306 was paid to CSL for the upkeep and/or termination of Ma’s mobile phone plans.  Ma’s evidence is that he had acquired a large number of auspicious mobile phone numbers from CSL.  The substantial amount paid to CSL was the result of the pre-mature termination of over 100 service contracts required to keep these mobile phone numbers.   With the Order in place, Ma was unable to continue to pay the monthly fees under the contracts.  To avoid the accumulation of outstanding monthly fees, he terminated the contracts before their expiration.  It is contended that such step was reasonable and necessary.

Centurion Card

48.  The Reimbursement Arrangement alleged by Ma is highly relevant to much of the expenditures incurred with the Centurion Card. It should be pointed out that when the court was informed by Mr Mughal at the beginning of the hearing that Ma was not going to give evidence, it was pointed out by the court that there is no independent support or particulars for this Arrangement.

49.  Ma explained the Reimbursement Arrangement as follows.  As a Centurion cardholder and VIP member of various establishments, Ma was entitled to various benefits and privileges.  It was his practice “for several years” to help his friends to purchase various goods and services by using his Centurion Card so as to enjoy the benefits and privileges associated with it and/or his VIP memberships.  Such friends would subsequently reimburse Ma for the expenses that he had incurred on their behalf. 

50.  Out of the Centurion expenditures of some HK$3.88 million, a total of HK$3,597,031.79 was said to have been incurred under the Reimbursement Arrangement.

51.  In respect of the nature of the Centurion expenses, I agree with Mr Wong that they demonstrate an extraordinary lavish lifestyle. Very substantial sums were spent on personal services like massage parlours and night clubs.  One particular night club bill was in the sum of HK$500,000.  On a number of occasions, huge amounts were spent on Chanel boutique. 

Payments made to the Card issuer

52.  According to Annex I, the total payment made for the Credit Cards to their issuer amounted to about HK$1.54 million.  According to Mr Wong[5], the payments shown in the Card statements add up to a figure higher by HK$60,000.  I do not believe that anything turns on that relatively small difference. 

53.  The statements show that the total payment made for the Centurion Card and the Platinum Card was respectively HK$1,242,417.80 and HK$357,498.28.  Hence, there are unpaid outstanding balances in respect of which legal proceedings had been issued against Ma by the Card issuer.

54.  It is important to distinguish between making a “payment” to a shop with a credit card and payment made to the card issuer for having made purchases with the credit card.  The former cannot be regarded as dissipation of assets. 

55.  The legal nature of credit card transactions was explained In re Charge Card Services Ltd [1989] 1 Ch 497, 509C-F, per Browne-Wilkinson VC (as he then was).  It was held that a credit card transaction comprises two separate contracts, one between the card company and the seller to accept the card in payment, and the second contract between the card company and the cardholder which enables the latter to use the card for payment in consideration of his agreement to pay the card company in full.  It follows that each payment by credit card merely represents the increase of an existing debt to the card company.

56.  Ma’s case is that the entirety of the HK$1.54 million (see para 52 above) was attributable to the Reimbursement Arrangement. Given that his friends had repaid him HK$916,950 (see para 16 above), there is an outstanding balance of HK$622,966.08 which his friends are willing to repay after the Chinese New Year.

57.  I shall analyse these Credit Card payments in terms of any breach of the Order in conjunction with items 9 and 10.

Other spending (items 9 and 10)

58.  Item 9 speaks for itself.  In respect of item 10, Ma’s evidence is that these transactions involved purchases of consumer goods and services for himself to maintain the high standard of living which he was accustomed to.  

Analysis

59.  As regards items 9 and 10, Ma accepts that these expenditures constituted breaches of the Restriction on Disposal of Assets.  In his affirmation, Ma had expressed remorse and he is apologetic for such conduct.  In short, the liability for breach of the Order is admitted.  The remaining issue is the appropriate punishment.    

60.  In respect of items 4 to 6, it is contended by Ma that the sum of HK$916,950, which came from his friends under the Reimbursement Arrangement, was not his asset or subject to the Restriction on Disposal of Assets.  It follows that payment of the HK$916,950 out of the May Accounts did not amount to dissipation of his assets or any breach of the Order.

61.  On the other hand, there is no dispute that the sum of HK$622,966.08 was Ma’s asset and the payment of that sum to settle the debts owed under the Credit Cards constituted breaches of the Restriction on Disposal of Assets.  Similar to items 9 and 10, the issue is the appropriate penalty. 

The Reimbursement Arrangement

62.  The dispute over the Credit Card payments is therefore confined to the amount of HK$916,950 (HK$1,539,916.09 – HK$622,966.08). Whether the payment of HK$916,950 was in breach of the Restriction on Disposal of Assets depends on whether it was part of Ma’s assets and the credibility of the evidence on the Reimbursement Arrangement. 

63.  I am unable to accept the Reimbursement Arrangement as true.  The evidence is nothing but a bare assertion.  No particulars whatsoever has been provided.  There is no information even on the number of “friends” involved. 

64.  Further, the Reimbursement Arrangement does not stand up to simple scrutiny.  First, it makes no sense that all the Card payments (the entirety of the HK$1.54 million) were made under the Arrangement because Ma had to be present to sign the bills for his friends.  It is inconceivable that none of the expenses was attributable to him, eg, the night club expenses and those incurred for food and beverage.  There is no suggestion that under the Arrangement Ma’s friends would absorb his share of the expenses.  I cannot accept Mr Mughal’s suggestion, which was not based on any evidence, that Ma might have signed the bills on the next day.  It is not how things are done. 

65.  Secondly, over HK$350,000 of the payments, which went to the Platinum Card account, were mainly for the CSL expenditures (see paras 47 and 53 above).  I fail to see why Ma’s friends had anything to do with such expenses.

66.  Furthermore, despite the committal proceedings, there is no suggestion that Ma had attempted to press his friends for the outstanding payment (HK$622,966.08) or to produce any evidence from any of them to support the Reimbursement Arrangement.  The 26 deposits (see para 16 above) must have a paper trail, but no such document is before the court.  Whilst the burden of proof in this application rests squarely on Hyundai Marine, the failure to produce available evidence speaks to the credibility of the Reimbursement Arrangement.

67.  Having rejected the Reimbursement Arrangement story, the court is left in no doubt that the HK$916,950 was Ma’s asset. Firstly, the money was in his bank account.  Normally, such funds belong to the account holder, and there is no credible evidence to the contrary.  Secondly, Ma was free to use the money as he pleased.  Therefore, the only reasonable inference is that the money belonged to him. 

68.  Finally, I should deal with one particular point made in respect of the CSL payments (see para 47 above).  Mr Mughal submitted that when Ma’s motives and reasons are taken into account, he was in effect avoiding the diminution of his assets by preventing the accumulation of further debts and liabilities to CSL. 

69.  I am unable to agree with Mr Mughal because, like the Credit Cards, failure to service the outstanding payment would normally result in closure of account and legal action by the service provider.  Whilst it would not be a desirable situation, it cannot be equated with diminution of assets.  The proper course was for Ma to negotiate a sensible solution with Hyundai Marine, failing which he might apply to the court.  He was not entitled to take the matter into his own hands in the face of the Order. 

70.  In the premises, there is no doubt that Ma had breached the Restriction on Disposal of Assets in respect of the payment of HK$916,950, and Issues 1 and 2 are both satisfied.

Conclusions

71.  I find that Ma is in breach of the Restriction on Disposal of Assets in respect of items 4 to 6 and 8 to 10.  The hearing of this application shall resume on 9 February 2018, at 2:30 pm, for mitigation and the appropriate order to be made.  All necessary draft orders should be prepared, lodged and served by Hyundai Marine not later than 10:00 am on 7 February 2018.

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