MOTOROLA SOLUTIONS CREDIT CO LLC (formerly known as MOTOROLA CREDIT CORPORATION) v. KEMAL UZAN AND OTHERS

HCA 2232/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2232 OF 2013

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D E C I S I O N

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The application

1. On 3 June 2016, I made a declaration that Motorola is entitled to enforce a US judgment in Hong Kong, and entered judgment against the 1^st to 7^th defendants in the sum of US$1,290,580,663.34. Further orders enabling the enforcement of that judgment were made.  On 17 June 2016, I handed down the reasons for that judgment.

2. As part of that judgment, the usual costs order, namely that the 1^st to 12^th defendants should pay the costs of the action on a party and party basis to be taxed if not agreed was made.  An order in those terms is a joint and several order against all defendants.  Consequently the plaintiff is entitled to enforce the order against any one or all of the defendants. 

3. The 10^th defendant (Ms Kwong) was given leave to apply to vary the costs order in so far as it relates to her.  I heard that argument on 13 July 2016.  This is my decision.

Background

4. The Uzan’s (1^st – 4^th defendants) are international fraudsters on a grand scale.  The remaining defendants, with the exception of the Ms Kwong, are an individual and corporate vehicles who act in accordance with the instructions of the Uzan’s to assist in the concealment of the proceeds of the fraud.  A fraud was perpetrated on Motorola by the Uzan’s which yielded a massive amount, resulting in a judgment for compensatory damages and interest in the United States for a sum in excess of US$2.1 billion in July 2003.  Subsequently the judgment was registered in the United Kingdom.

5. Some recovery has been made in respect of that judgment, and in these proceedings, an action based upon the US judgment, I entered judgment against the 1^st to 7^th and 8^th to 12^th defendants for the sum of US$1,290,580,663.54.

6. Following the discovery by Motorola of the involvement of the 8^th to 12^th defendants as part of a scheme to conceal assets acquired as a result of the fraud, on 15 November 2013, on an ex parte basis, a Mareva injunction was obtained by Motorola against all defendants to protect assets they were alleged to be holding on behalf of the Uzans.

7. By way of a writ with statement of claim attached, substantive proceedings were commenced in Hong Kong on 18 November 2013, to enable recovery of the assets held through the Hong Kong entities and corporate vehicles, and secured by the Mareva injunction.

8. The injunction was continued on 22 November 2013, and again on 24 January 2014, save that on that occasion the injunction was discharged against Ms Kwong upon her undertaking to comply with its terms.

9. On 20 January 2014, Ms Kwong filed a defence to the statement of claim.  That defence asserted that she was a nominee owner of 55% of the shares of the 10^th defendant, and was a director of the 10^th defendant until she resigned on 6 November 2013, with notice of the resignation being filed in the Companies Registry on 20 November 2013.  The defence asserted that she did not personally know any of the 1^st to 7^th defendant’s either individually or collectively and had had no dealings with them.  Importantly, the defence did not state for whom Ms Kwong held the shares or acted as a director.  In that respect it was completely silent.

10. The defence did not admit that Motorola was entitled to enforce the US judgment in Hong Kong under common law and put Motorola to strict proof in respect of the relief sought against Ms Kwong.  The defence did not admit that the United Kingdom judgement could be registered in Hong Kong.

11. It is now accepted by Motorola that Ms Kwong was an innocent nominee in respect of her involvement in the corporate defendant, the 9^th defendant.  It is now accepted that she had been instructed in her capacity as a solicitor for the 8^th, 9^th, 11^th and 12^th defendants, and that she had acted in her personal capacity as a nominee shareholder and director of the 9^th defendant.  The 8^th defendant was also a nominee shareholder and director of the 9^th defendant. 

12. Whilst it is now accepted by Motorola that Ms Kwong was an innocent nominee, the 8^th defendant was complicit in the Uzan’s scheme to conceal their assets.  There is no suggestion that Ms Kwong was aware, at any time, that the 8^th defendant, or the corporate vehicles for whom she acted, were being used by the Uzan’s to conceal assets.  It appears that on the face of the transactions undertaken they could be seen as normal commercial transactions.

13. Subsequently, Ms Kwong unsuccessfully opposed, both on her own behalf and on behalf of the defendants she was instructed to represent, a number of interlocutory applications by Motorola, including applications for discovery, and a request for Further & Better Particulars of her defence.

14. In her dual capacity as a defendant, and as a solicitor for the 8^th, 9^th, 11^th and 12^th defendants, Ms Kwong filed a total of 16 affidavits, 3 at least, of which were in support of her own applications as well as the applications of the 8^th, 9^th, 11^th and 12^th defendants for a stay and leave to appeal against a discovery order made on 24 January 2014.

Discussion

15. Mr Nunn was entitled to say that Ms Kwong was in breach of the discovery order by making only piecemeal and partial discovery.  That is plain from the terms of a decision of Deputy High Court Judge Seagroatt, dated 9 May 2014 in which an order was made that the 8^th defendant should be cross examined on his affidavits in relation to a hearing to continue a Receivership Order that had been made on 18 February 2014.  Ultimately, it was necessary for Ms Kwong herself to be cross-examined on the discovery issue.  The terms of that cross examination provided further justification for the submission.

16. That cross examination was necessitated by Ms Kwong’s actions prior to 4 June 2014, on which date she had issued an interpleader summons in relation to the shares she held.  It is clear from the cross-examination that, as a party in her personal capacity, and as a person who was acting for fellow defendants in her capacity as a solicitor, she had failed to properly discharge her duties, in both capacities, to comply with the discovery order. 

17. The cross-examination did not proceed to a conclusion despite the matters that were disclosed, as arrangements were made for independent parties to go to Ms Kwong’s office to obtain the relevant documents and computer records.

18. I accept that following the issue of the interpleader summons, and the completion of the discovery, Ms Kwong ceased to be personally involved in the matter and Mr Nunn sensibly does not seek costs after the interpleader application, other than those of and occasioned by the cross examination, including the costs of discovery resulting therefrom.

19. All of the costs sought against Ms Kwong now could have been avoided had she immediately, upon receipt of the writ and statement of claim, filed an interpleader summons and taken appropriate steps to secure her files in relation to the defendants for whom she acted as a solicitor.  Instead she elected to engage in the battle by filing a defence in her own right which, while it asserted that she was merely a nominee, put the plaintiff to strict proof of matters pleaded and relief sought.

20. Once she had engaged herself as a defendant, she became a party to the action in her own right, arguing her own case, and resisting the plaintiff’s procedures, in her own capacity as well as that of the clients for whom she continued to act.  That is particularly so in circumstances where the defence failed to explain the details of the party for whom she held the nomination.  Such information was not subject to legal professional privilege and should have been immediately disclosed.

21. By failing to comply with orders, and giving unsatisfactory explanations of for the failure to comply with orders, those advising the plaintiff were entitled to draw the inference that she was doing so to protect not only the position of those she represented, but also her own position.  Unfortunately, having adopted that position she is not entitled, like a nominee bank, who stands aside the proceedings, not becoming involved, to be indemnified for her costs or to be held not liable for any costs.

22. Costs are a matter that is in the discretion of the court.

23. Plainly, in the present circumstances, there is no basis for Ms Kwong to be liable, as are the other defendants, for the costs of the whole matter through to trial.  It would be a harsh and unjust exercise of discretion in the circumstances to impose upon Ms Kwong a joint and several liability for the whole cost of these proceedings.

24. But by engaging in the proceedings in her own capacity, by filing a defence, and by resisting discovery, both initially and by way of appeal, until the interpleader proceedings were filed, Ms Kwong has exposed herself to the risk of costs which, although substantive judgment has not been given against her in the trial, properly fall on her.

25. I am satisfied from having read the cross-examination that that the cross examination was necessitated by Ms Kwong’s actions prior to the interpleader.  The discovery was required in her personal capacity, because of the terms of her defence has filed, as well as that of the clients for whom she acted. 

26. The cross-examination demonstrates that Ms Kwong had made only piecemeal and partial discovery, and failed to discharge her duty in respect of her clients, which in the circumstances include herself, in complying with the orders of discovery.  She must accordingly, at least, share a responsibility for those costs with the defendants for whom she acted.  I note from the documents put before me that she has an indemnity from the 9th defendant.  It will be open to her o pursue that indemnity as she wishes.

27. In reaching my decision in respect of this matter I have borne in mind that, notwithstanding the matters mentioned in §26 above, Motorola has not made an application under the provisions of O 62 r 8for a wasted costs order against a legal representative.

Disposal

28. Recognising that Ms Kwong was throughout a mere nominee, and that no O 62 r 8 application has been made, in the exercise of my discretion I am satisfied that justice will be done if Ms Kwong is ordered to pay the following costs:

(i) The costs of and occasioned by her defence,

(ii) 25% of the costs of occasioned by the application for discovery, including the appeal and the cross-examination following therefrom, the costs of discovery resulting therefrom, and the costs reserved by the order of Deputy High Court judge Seagroatt on 3 July 2014. 

(iii) I direct that the costs arising from the affidavits filed by Ms Kwong shall be limited to the 5^th, 6^th and 7^th affidavits which were filed in support of her own applications as well as those of the 8^th- 9^th, 11 -12^th defendants.

Costs

29. Ms Kwong has been partially successful only in her application to vary the order for costs.  I make an order that each party will bear their own costs of the variation hearing.

The proper course

30. This case provides a salutary lesson to any solicitor, accountant, banker, or any person who agrees to hold shares in a company, or take a directorship in the company as a nominee.  It is for precisely that type of situation that the interpleader procedure exists.  That is plain from the opening words of the Editorial Introduction to the commentary on RHC O 17 in Hong Kong Civil Procedure:

“Interpleader is a proceeding by which a person, from whom two or more persons claim the same property or debt, and who does not himself claim the property or dispute the debt, can protect himself from legal proceedings by calling upon the two claimants to interplead, that is to say, claim against one another, so that the title to the property or debt may be decided by the court.”

31. Where a defendant to an action seeks interpleader relief a Court may stay all further proceedings in the action against that defendant.  It would be unusual for a stay to be refused in the circumstances raised by this case.  Once the stay is granted, the solicitor nominee can stand aside and avoid all further costs.

32. It was not at all surprising that Motorola should have joined Ms Kwong into the proceedings as a defendant.  On the face of the public documents she was a shareholder in, and a director of, the 9^th defendant. 

33. The proper course for a solicitor, acting as nominee shareholder or trustee, to take when faced with proceeding such as these is clear.  The solicitor should immediately file an interpleader summons, and seek to stay the proceedings in so far as they are concerned.  At the same time they should secure all documents held on behalf of the entity for whom they are a nominee or trustee, and secure all computer records that might in any way related to the client. 

34. The plaintiff and client for whom the solicitor acts as nominee should be informed that the documents and computer records will be held, preferably by an independent person, pending further orders of the court, and subject to such arguments as may properly be made in respect of legal professional privilege.  Other solicitors should be instructed to act for the client in the proceedings in future.

35. Had Ms Kwong taken those steps, she would have faced no liability for costs at all.  It was, without any need for hindsight, remarkably foolish for her, in the circumstances, to have accepted instructions to act for the 8^th, 9^th 10^th and 11^th defendants.  Those clients should have been immediately referred to another law firm to act.  The explanation given for not taking that course, that they did not know any other law firms in Hong Kong, is quite unacceptable.  It is a simple matter to refer client to the “Find Legal Service” page of the website of the Law Society of Hong Kong which contains the names and addresses of solicitors, and enables the client to identify the area of practice where assistance is required.  Alternatively, the solicitor should simply refer the client to the Law Society for assistance in finding another solicitor.