HARVEY RIVER ESTATE PTY LTD AND ANOTHER v. ANNE PATRICIA LARTER (GENERL PARTNER IN THE SPORTS TRADING CLUB PARTNERSHIP) AND OTHERS

HCCL 14/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 14 OF 2015

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REASONS FOR DECISION

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(in respect of the 2^nd to 4^th defendants’ Summons dated 15 December 2015)

1.  On 29 October 2015, Deputy High Court Judge Seagroatt granted a worldwide mareva injunction order (“the Ex Parte Order”) against the defendants freezing their assets up to the limit of AU$11,567,600.  The judge also made an order requiring the defendants to make disclosure of information, including information as to “what has become of the funds referred to and described in the first sentence of paragraph 8 of the Affidavit of Kenneth Edward Gamble detailing the amount of such funds, where such funds or parts thereof are currently held, and to the extent that any sum has been spent or dissipated, how and to whom it has been paid, the reason for payment, exhibiting all relevant invoices, receipts, bank statements and other documents relevant thereto” (hereinafter referred to as “the Disclosure Order”).

2.  The Ex Parte Order was continued by Deputy High Court Judge Seagroatt on 13 November 2015.  I pause to note that, on that occasion, the 2^nd defendant was represented by counsel, whereas the 1^st and 3^rd to 6^th defendants were absent.

3.  The information sought under the Disclosure Order relates to the total sum of approximately AU$9,176,000 which the plaintiffs (being a group of 132 investors) say they have “loaned” to STC Australia.  The plaintiffs say that they are the victims of a fraudulent scheme pursuant to which they made the said loans.  The plaintiffs have commenced proceedings in Australia against 12 defendants, including the 6 defendants in the present action, to recover their losses.

4.  The present action was commenced in aid of the Australian proceedings pursuant to section 21M of the High Court Ordinance, Cap 4.

5.  On 15 December 2015 (a little short of 7 weeks after the date on which the Ex Parte Order was first granted), the 2^nd to 4^th defendants issued the present summons seeking a variation of the Ex Parte Order so that funds in their bank accounts with HSBC frozen by the Ex Parte Order may be used for “legal advice and representation”.  The amounts sought by the 2^nd to 4^th defendants come to the total sum of HK$1,080,000.  In addition, each of them seeks an order permitting them to draw a further monthly sum of HK$50,000 for payment of legal advice and representation.

6.  As mentioned in paragraphs 22 and 23 of the first affidavit of Brooke Holden filed on 15 December 2015 on behalf of the 2^nd to 4^th defendants in support of this application, the said total sum of HK$1,080,000 represents (i) costs already incurred and invoiced, (ii) fees incurred but not yet invoiced up to and including 14 December 2015, and (iii) an estimate of fees to be incurred up to and including 18 December 2015 (ie today).

7.  The principles for an application of this nature, where a defendant asks the court to make an order releasing funds frozen by a mareva injunction to permit him to pay legal costs and expenses, being funds against which a proprietary claim is advanced by the plaintiff, are not in dispute.  They were set out in the judgment of Au J in Wharf Ltd v Lau Yuen How [2010] 1 HKLRD 783 at paragraph 13, as follows:-

“ The principles applicable to the release of funds to pay legal costs from an injunction involving proprietary claims are well settled. It is an exercise of discretion which involves a 2-stage process:

(a) First, the defendant applying for the release of funds has to demonstrate with full and frank evidence that there are no alternative funds or assets available to him which can be used to pay his legal expenses other than the assets in respect of which the plaintiff brings the proprietary claim. If the defendant fails in this first hurdle, the Court needs not consider the 2^nd stage and the application should be dismissed.

(b) Secondly, once the first hurdle is cleared, the Court in the exercise of its discretion will engage in a balancing exercise to weigh the potential injustice to the plaintiff if releasing the funds against the possible injustice to the defendant of depriving him of the opportunity to have legal assistance in advancing what may eventually turn out to be a successful defence.   This process is a ‘careful and anxious judgment’, and the court is entitled to look at all relevant circumstances, and in particular, to weigh the relative strengths of the plaintiff’s proprietary claim in the funds and the defendant’s defence to that claim.  In relation to this, it is not sufficient for a defendant to merely establish that he has no other funds, for even so, he must also show that there is an arguable case for his having recourse to the funds in question, failing which, he has not right to use the money.  As Millet LJ (as he then was) said in Ostrich, infra, ‘[n]o man has a right to use somebody else’s money, for the purpose of defending himself against legal proceedings’.”

8.  The plaintiffs oppose the present application, and further submit that the hearing of this application should be adjourned to a date to be fixed because, amongst other things:-

(1) The plaintiffs have not had sufficient time to put in all relevant evidence which they wish to rely upon to oppose the application.

(2) The plaintiffs have made a fresh application against HSBC for disclosure of further information which, once available, would support the plaintiffs’ proprietary claims;

(3) The 2^nd to 4^th defendants have failed to comply with the Disclosure Order and the plaintiffs have made an application for a Hadkinson Order that the 2^nd to 4^th defendants be barred from being heard in relation to the present summons until such time as they have complied with the Disclosure Order.

9.  The plaintiffs also say there can be no urgency in the present application, the 2^nd and 4^th defendants having waited for nearly 7 weeks before taking out the summons.

10.  On behalf of the 2^nd to 4^th defendants, Ms Holden strongly presses the point that the 2^nd to 4^th defendants have no other available funds or assets to enable them to obtain legal advice and representation, and it would be most unfair not to release funds frozen by the Ex Parte Order which they genuinely need to advance what may ultimately be a successful defence.

11.  As I see the matter at the present stage, there are serious and substantial disputes on:-

(1) whether the plaintiffs’ proprietary claims would extend to all the monies in the three HSBC accounts frozen by the Ex Parte Order or to only part of those monies;

(2) whether the 2^nd to 4^th defendants have demonstrated with full and frank evidence that there are no alternative funds or assets available to them which can be used to pay their legal expenses other than the assets in respect of which the plaintiffs bring the proprietary claims;

(3) whether the 2^nd to 4^th defendants have fully complied with the Disclosure Order; and

(4) the relative strengths of the plaintiffs’ proprietary claims in the monies in the HSBC accounts and the 2^nd to 4^th defendants’ defence to those claims.

12.  It would not be satisfactory for me to determine the present application now on the basis of incomplete evidence when I am aware that the plaintiffs have not been given full opportunity to adduce all relevant evidence which they wish to rely upon.

13.  On the other hand, I am keenly aware of the injustice which could arise to simply adjourn the present application, in light of what Ms Holden has informed the court, namely, that if the 2^nd to 4^th defendants’ application is not granted today, it is mostly likely that her firm will have to apply to cease to act for the 2^nd to 4^th defendants soon.

14.  The legal costs which the 2^nd to 4^th defendants have already incurred to date are, in a sense, water under the bridge.  As pointed out by Mr Johnstone for the plaintiffs, the 2^nd to 4^th defendants’ solicitors (Messrs Gall) have taken the risk of acting for them without costs on account.

15.  In order to ensure that the least injustice would result to either party in the circumstances, I originally thought that a compromise solution might be for me to adjourn the hearing of the present application subject to a limited variation of the Ex Parte Order, namely, a reasonable sum for the further costs which may be incurred by the 2^nd to 4^th defendants to (i) pursue the present application at the next substantive hearing, and (ii) resist the plaintiffs’ application for a Hadkinson Order should be released to them.  In this regard, I have in mind that the two applications ought to be fixed to be heard by the same judge on the same date, and it would be up to the judge to decide whether to hear the two applications one after the other or at the same time.  In this way, the 2^nd to 4^th defendants will have a chance to persuade the court on the next occasion that their application ought to be fully acceded to, whilst the amounts to be released to them now would be modest and limited.

16.  However, Ms Holden has told me that her estimate of the legal costs that may be incurred by the 2^nd to 4^th defendants in respect of (i) and (ii) above would be approximately HK$1.6 million, which is far above what I had in mind and would be willing to consider.  The figure that I had in mind is in the region of HK$200,000 to HK$250,000.  In the circumstances, it would be quite pointless for me to permit a sum of between HK$200,000 and HK$250,000 to be released to the 2^nd to 4^th defendants because that would be wholly insufficient to enable the 2^nd to 4^th defendants to pursue the present application at the next substantive hearing.

17.  In all the circumstances, I consider that I ought to simply adjourn the hearing of the present application to a date to be fixed.  I shall hear the parties on the further directions to be given for the conduct of the two applications and on the question of costs.