QUESTNET LTD v. KURT GEORGE ROCCO RINCK

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.  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, including account number 82346968, (the Citibank account), which account was in his personal name, and that he held:

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aforesaid account from time to time on trust for the absolute benefit of (QuestNet) until such time as those money are withdrawn, transfer or in whatever way he taken out from the aforesaid account according to the instruction of (QuestNet).”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

2.  QuestNet is one of a number of companies in a group of which QI Limited appears to be the parent.  I shall refer to QI Limited and its subsidiaries as “the Group”.  There is now a dispute between Mr Rinck and QuestNet.  QuestNet by these proceedings seek to recover the trust fund, and other trust funds from Mr Rinck.  Countering this claim, Mr Rinck argues that he is entitled to a sum of approximately US$1.9 million from the Group.  Mr Rinck, if successful in that claim, will seek to setoff any amount due in these proceedings.

3.  Mr Mok does not dispute that Mr Rinck makes that argument nor that he makes a claim for that sum.  He properly makes the point that despite assertions on the part of Mr Rinck, no proceedings have been commenced against QuestNet or QI Limited, or indeed any other company in the Group for the sum for which Mr Rinck claims entitlement.  Mr Mok does not concede entitlement to the sum.  He does not dispute that the Group has retained a sum in the order of that amount.

4.  Mr Rinck also argues, although there is not yet any evidence in support, that he has permitted in his own funds to be intermingled with the trust fund.  The terms of the trust as I have set out above are clear.  Mr Rinck may well have to take the consequences of his own actions in that respect.

5.  On 21 July 2006, Deputy Judge Poon issued a Mareva injunction against Mr Rinck, the restrictions of which included the Citibank account.  It was a term of that order that Mr Rinck must, within 14 days of the date of the order file an affidavit setting out the balances remaining in the various accounts, including the Citibank account, together with an account of his dealings with the accounts and funds since 1 March 2006.  A further Mareva order, in relation to other funds, was made by Sakhrani J. on 1 August 2006.

6.  On 27 July 2006, Mr Rinck made a short affidavit setting out what was said to be the current balances listed in the various accounts the subject of the order, including the Citibank account.  On 4 August 2006, Mr Rinck filed a second affidavit reaffirming the balance in the Citibank account, but now stating that on 30 June 2006, €582,806,000.44 was transferred from the Citibank account to another Citibank account in his personal name, and not subject to the trust.  He did not disclose what had happened to that sum.

7.  Ms Lau correctly accepts that Mr Rinck is in serious default in complying with the requirements of the Mareva injunction made on 21 July 2006.  At 1 p.m. on 15 August 2006, I made an order that Mr Rinck must comply the injunction made on 21 July 2006, within 48 hours, that is no later than 1 p.m. on 17 August 2006.

8.  In his affidavit in support for QuestNet, Mr Bismark asserts, properly condescending to particulars, that Mr Rinck has charged the trust fund in the Citibank account as part of the collateral for advances made to him personally by Citibank.  Ms Lau was obliged to acknowledge that a property owned by a company, wholly owned by Mr Rinck, is charged to Citibank, and although the mortgage is not exhibited, it was not disputed that it would be an all moneys mortgage, and with a personal guarantee by Mr Rinck, would have the effect of charging the trust fund in the Citibank account.

9.  Mr Mok says that first, by charging the trust fund in this way, and secondly by moving the trust fund to his personal account, Mr Rinck has put the trust fund in jeopardy.  In those circumstances Mr Mok seeks an order pursuant to O 29 r 2(3) which provides that:

“Where the right of any party to a specific fund is in dispute in a cause or matter, the Court may, on the application of a party to the cause or matter, order the fund to be paid into Court or otherwise secured.”

It is clear from the use of the word “may”, that the Court has a discretion in the matter.

10.  Ms Lau, while properly acknowledging the strength of QuestNet’s claim in these proceedings, having regard to the terms of the trust document, says that I should not exercise my discretion in favour of QuestNet.  First she says that there has been a material nondisclosure in the affidavits in support, and second that in any event the Group holds more than sufficient funds due to Mr Rinck to give it security for the sum claimed.  Ms Lau says that in reality this application is not a step taken by QuestNet to protect a trust fund in the true sense, but merely to obtain further security for any judgement they might ultimately get.

11.  Mr Mok relies upon the fact that Mr Rinck is in serious breach of his obligation of disclosure under the Mareva injunction, and that, at best, the affidavits that have been filed by him can be described as disingenuous.  He points out that a court has never hesitated to use the strongest powers to protect and preserve a trust fund in interlocutory proceedings: see Commercial Injunctions, Stephen Gee, 2004, para 7.014.

12.  It is undoubtedly right that the court will invariably move without hesitation to preserve a trust fund for beneficiaries.  That is particularly so when the beneficiaries are persons or entities independent of the parties to the litigation or the real dispute between the parties to the litigation, for example when one of the parties to the litigation holds a fund for the benefit of some third-party, and that fund has somehow become part of the litigation.

13.  Here, the trust fund is held for the benefit of QuestNet.  The sum is in reality part of the general funds of QuestNet, and not a sum held for some third party.  Mr Mok was obliged to acknowledge that that was so.  He was unable to say what set this trust fund apart from the general assets of QuestNet.

14.  It is not necessary for me, in the course of this judgement, to determine whether or not there has been a material nondisclosure on the part of Mr Bismark in his affidavit for QuestNet.  The point revolves around whether or not payments made to Mr Rinck, and sums retained by the Group from those payments, are dividends or bonuses.  It has subsequently transpired that the sums have consistently been called dividends by those in the Group, but are now asserted to be bonuses.  All the relevant information is not yet available for me to determine the material nondisclosure point, but it is proper to note that Mr Bismark’s first affidavit, on which the Mareva injunction was based, does not disclose that the payments made were actually termed “dividends” by the Group.

15.  In a subsequent affidavit purporting to clarify the matter Mr Bismark makes a somewhat confusing statement referring to the practice of referring to dividends payments by saying:

“I wish to clarify in relation to my reference to a dividend that for directors we use the term dividends instead of bonus to distinguish between payments received by directors and the general staff.” 

The affidavit goes on to acknowledge that funds from these payments were retained by the parent company, in a subsidiary company.  It is a matter of concern that that affidavit was not drawn to the attention of Sakhrani J on 1 August 2006, when a further Mareva injunction was made in these proceedings.

16.  In exercising my discretion I have regard to the fact that Mr Rinck appears to be in breach of his obligation to retain the trust fund, and that he has put it in jeopardy.  I have regard also to the fact that QuestNet’s parent company admittedly holds substantial funds on behalf of Mr Rinck through which they have more than ample security for the amount they seek to have paid into Court.

17.  Ms Lau is on good ground when she says that as the essence of QuestNet’s complaint is that Mr Rinck is seeking to exercise a self-help remedy, there can be no complaint, because that is precisely what the Group threatened to do against Mr Rinck: see para 4 of Mr Bismark’s second affidavit and Ex JB-12.

18.  Were the beneficiary to the trust fund an entity or person other than QuestNet, I would have no hesitation at all in making the order sought.  But as the effect of the order is merely to give QuestNet additional security for the sum they claim, in circumstances where there is arguably a setoff against funds held by QuestNet’s parent, and having regard to the apparent failure of QuestNet to fully appraise the Court of the nature of the dispute in relation to the funds retained by the parent group, I have decided, in balance, to exercise my discretion against the order sought.

19.  In the alternative, Mr Mok sought to extend the Mareva orders to give security, (in effect), over the property owned by Mr Rinck, through his company.  It follows inevitably from the basis upon which I have refused the order sought, that I am of the view that there is sufficient security for QuestNet in the funds held by the Group for Mr Rinck.

20.  All questions of costs on the application are reserved.