XCHRX THE REPUBLIC NATIONAL BANK OF NEW YORK v. CHEUNG TZE KEUNG AND OTHERS

HCA7228/91

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7228 OF 1991

----------------------

-----------------------

-------------------------

J U D G M E N T

-------------------------

The application

1. This is an application to vary the terms of a Mareva injunction in order to permit the transfer of funds from solicitors who formerly acted for the first defendant to an interest-bearing account in the name of solicitors now acting for him. There is no issue about that particular variation and I shall make an order accordingly. It is the second part of the first defendant's application that is opposed. He asks for the injunction to be varied to permit him to draw funds for legal costs incurred in criminal and civil proceedings in which he has been and is still involved.

The background

2. In September 1991 there was a robbery at Kai Tak Airport in the course of which banknotes belonging to the plaintiff worth almost HK$167 million were stolen. The first defendant's wife worked at the time for the security company which was delivering the notes; she is the second defendant in these proceedings. She and the first defendant were arrested, as were a number of others, and charged with the theft of these notes.

3. In the same month, September 1991, the plaintiff instituted proceedings for the recovery from the defendants of the sums allegedly stolen, and they obtained a Mareva injunction by which the defendants were enjoined from disposing of assets within the jurisdiction up to the sum of $166 million. A number of assets were specifically identified, in particular, properties owned by the first defendant, or by the first and second defendants jointly, or with others. The terms of the original orders permitted the expenditure of $50,000 on legal expenses and not more than $20,000 per month on normal living expenses.

4. As far as the criminal proceedings in Hong Kong are concerned, the first defendant was convicted of the robbery by a jury but after a retrial was acquitted on the judge's direction. The second defendant was also acquitted.

5. There followed a number of applications to vary the injunction. In January 1992, liberty was granted to sell one of the properties in order to discharge the outstanding mortgages, and a similar order was made in May 1992, and it was further ordered then that the proceeds of sale were to be paid into an interest-bearing account in the name of the solicitors then acting for the defendants. Later that year, liberty was granted to spend more sums on defending the civil proceedings, and then in November 1992, liberty was granted to withdraw $1.827 million to pay for defending the criminal proceedings. In 1993 the defendants were given liberty to sell another flat and the proceeds were again brought into the hands of solicitors acting for the defendants. A further order to release funds to the tune of $575,000 was made in June 1995.

6. The solicitors now acting for the first defendant are the fourth firm to act since proceedings were instituted.

Recent developments

7. There have been two significant developments this year :

(1) The first defendant was apprehended on the Mainland in about January 1998 and has since been tried in relation to a series of offences. Those proceedings have been the subject of widespread publicity in Hong Kong, and the first defendant has only last week been sentenced to death in relation to those offences. The summons in this matter was issued on 7th October 1998, in other words before the outcome of those proceedings was known.

(2) In May 1998, the plaintiff obtained judgment on its claim against the first defendant on the footing that the first defendant was in breach of an unless order. The unless order was made on 20th May 1998 requiring a list of documents to be filed by 23rd May, but no list was filed. The plaintiff has since obtained a garnishee order in respect of the funds which are the subject to this application.

8. On 15th September 1998, the solicitors now acting for the first defendant filed an application to set aside that judgment. No date has been fixed for the hearing of that application. Those acting for the first defendant say that the failure to file the list was not contumelious but because the first defendant was at all material times in custody on the Mainland and that it was impossible for them to obtain appropriate instructions, and that in any event, it would appear that the order was obtained prematurely, in other words, before the expiry of the time limit set by the order of 20th May.

Proposed use of funds

9. I am told that as at 31st July 1998 there remained in the interest-bearing account in the hands of the solicitors the sum of $1,853,447.46, though no doubt with the passage of time and the accrual of interest, that sum is now greater. The defendants' solicitor, Mr Tang, says that the first defendant has the following incurred and prospective costs to meet :

(1) The cost of seeking to set aside the judgment already entered. It is intended to instruct senior counsel and junior counsel whose brief fees alone would be $375,000. Mr Tang has spent 110 hours in handling this case on its civil side, preparing the applications to set aside and attending hearings in connection with that application. At $3,750 per hour, the cost of this work amounts to $412,000.

(2) Then there is the cost of the criminal proceedings on the Mainland. Mr Tang affirms that he has thus far spent 200 hours of work since 16th October 1998 on instructing lawyers on the Mainland alone. In addition he spent 30 hours in legal research in Hong Kong in connection with the same proceedings. At $4,000 per hour, that all amounts to almost $1 million. The charges for the Mainland lawyers would be about $200,000.

10. Notice of change of solicitors was filed on 4th August 1998. All in all the first defendant is said to require slightly in excess of $2 million for his fees; more, that is, than the balance in the interest-bearing account in the name of the former solicitors.

11. I do not know, for I have not been told by the evidence placed before me, whether any costs were paid on account, and if not, what arrangement was made for the payment of fees and whether Mr Tang simply expected fees ultimately to be made available from the monies in this particular fund.

The plaintiff's stand

12. The plaintiff objects to the release of any further monies, save, so it would appear from the first skeleton argument which was presented to me, for the cost of junior counsel on the application to set aside, say $120,000.

13. The plaintiff makes the point that it has already obtained judgment, and that there is already a garnishee order in its favour in respect of the fund from which it is sought to obtain monies for the pending and existing civil and criminal litigation; but further, and in particular, that there is strong cause to suspect that the first defendant has vast assets inside and out of the jurisdiction. It has no hard evidence in the sense of evidence which would be cogent admissible evidence in proceedings. Until recent reports of the sentences meted out by the Guangzhou courts against the first defendant, the evidence upon which the plaintiff relied was to the following effect, namely :

(1) that the Guangdong Security Bureau has issued a statement reported in the newspaper that it has seized $40 million in Yuan and Hong Kong dollars from the first defendant and his gang, and that the first defendant received over $738 million as his share relating to two kidnappings,

(2) it has been reported in August 1998 in local newspapers that the second defendant and others, as well as the first defendant's mother, were arrested in Hong Kong on money laundering charges, and that assets in the sum of HK$160 million had been seized. And there had been other newspaper reports speaking about vast assets said to have been laundered by the first defendant. I am told by Ms Yip today that the particular proceedings against the second defendant have been set aside or discharged.

14. Then it is pointed out that at the time of the Hong Kong criminal proceedings, the first defendant deposited the sum of $500,000 bail, and after his acquittal that was retrieved by him and apparently dissipated rather than returned to the enjoined funds, and it is said on the first defendant's behalf, that that money was dissipated in lieu of the $20,000 permitted by the terms of the injunction.

15. On and after 13th October 1998 Hong Kong newspapers have been swamped with reports of the court proceedings in Guangzhou and the orders there made. These include reports that the court has ordered the confiscation of Yuan 662 million in assets allegedly belonging to the defendants.

16. The funds in the account which is the subject of this application are apparently now an amalgam of funds belonging to the first and second defendants, and there is no analysis before me about the beneficial ownership of those funds as between the two defendants.

The law

17. Although there is judgment in favour of the plaintiff, nonetheless the plaintiff is not in as advantageous position in this application as it would be if the judgment were not the subject of an application to set aside. The chances of a successful application to set aside cannot, it seems to me, be wholly discounted, but it is not necessary nor desirable for me to go into the merits of that application.

18. Where a defendant satisfies a court that the asset which he seeks to use for the discharge of current obligations is his only available asset, or the only asset which he can reasonably be expected to use for the intended purpose or to which he can gain access, then a court is likely to permit him to do so. But if he has two or more funds, one containing, for example, a smaller amount and the other a very substantial amount, then the whole point of a defendant choosing this smaller amount "might be to prevent the money on that account from being available to satisfy a judgment in the pending proceedings, and if that were the case, the defendant will not have discharged the burden upon him to satisfy a court that the money is required for a purpose which does not conflict with the policy underlying a Mareva injunction". (See Goff, J. (as he then was) in A v. C [1981] 1 QB 961.) That is but one consideration, and the court is not constrained to refuse the application just because there are or might be other assets. (See Campbell Mussels and Others v. Thompson and Others Law Society's Gazette 25th July 1984, page 2140.)

19. The principle upon which the court should act on an application for variation is discussed in Gee 4th Ed. Mareva Injunctions and Anton Piller Relief at page 320 :

" In exercising discretion whether or not to grant an application to vary an injunction the court acts in accordance with what is just and convenient. The principles which apply in considering whether to grant a variation are the same as those which apply when considering whether or not to grant Mareva relief. The application to vary is simply the converse of an application for an injunction. So the mere fact that the defendant's purpose in applying for the variation is not to frustrate enforcement of a judgment does not in itself mean that the variation is to be permitted. There may be circumstances which clearly make it unjust that the defendant should be able to use English assets to pay English living expenses and legal costs. This may be particularly so where the amount caught within the jurisdiction is unlikely to be enough to satisfy a future judgment."

The lacuna

20. Ms Yip, on behalf of the first defendant, has addressed the central suggestion that the defendant is or appears to be, or may well be in possession of such vast assets not hitherto disclosed to the court, nor disclosed now by his wife in a recent affirmation filed by her. Ms Yip emphasizes the fact that the reports upon which the plaintiff appears to rely are no more than newspaper reports and not the kind of evidence upon which a court should arrive at its conclusions. On its face, what she says is, with respect, clearly sensible. But in the particular circumstances of this case, that cannot be said to be the long and the short of the matter. The proceedings in Guangzhou are not proceedings of some obscure case of interest. They are proceedings which have, as their hallmarks for present purposes, reports of convictions for kidnapping for vast sums of money and the alleged orders of a court in Guangzhou in respect of very substantial assets said to be in the possession of the defendants. Now the solicitors presently appearing on this application on behalf of the first defendant have acted for him for some months, have been to Guangzhou, are closely involved in proceedings there and are in regular communication with the lawyers acting for the first defendant in those very proceedings. There is not yet available to this court any judgment issued by the court on the Mainland, and the people in Hong Kong best placed to say what judgment there has been, for what offences the defendant has been convicted, what orders have been made, and what assets are the subject of the orders, are the defendant's solicitors themselves, and the fact that they say that they have not been able to take instructions for the purpose of the civil proceedings does not derogate from that fact. Yet it is noteworthy that in none of the affidavits filed thus far - when it must be clear that these questions would be of some importance to the present proceedings in so far as they relate to whether the first defendant or his wife have been frank about his assets, and whether he still has other assets - there is not a word informing the court about these matters, or saying what the defendant says about them, save for a bald denial by the wife who says that newspaper reports are untrue.

21. Accordingly, I had to ask counsel this morning what the position was in relation to the proceedings in Guangzhou, what orders had been made and in respect of what assets, and it is perfectly clear from her response that it is indeed the case that the first defendant has been convicted for kidnapping offences amongst others, and that a confiscation order has been made by a Mainland court in relation to very significant sums allegedly belonging to the defendant. She has, however, no instructions whether the assets are said to belong to her client and she has no instructions what assets they are said to be.

22. And so it cannot be said that the plaintiff is in truth relying on mere newspaper reports which are self evidently lacking in support. The fact is that the defendant has indeed been convicted for an offence of kidnapping involving the taking of ransom, and the fact is that the defendant is the subject of an order for the confiscation of substantial assets.

23. I think in the circumstances that it is incumbent on those acting for the first defendant to place a full picture before the court, and they have not done so. There is good reason in the circumstances to believe that the first defendant's wife has not been frank when she says in her recent affidavit that "the first defendant did not own or possess any assets other than those listed, and that since October 1991, he has not acquired assets of significant value in Hong Kong or elsewhere".

Conclusion

24. In the dramatic circumstances which now face the first defendant, he can hardly be expected to deal with the matter, and I, of course, do not hold against him for not doing so. But where there is acceptable material which gives cause to suspect that the applicant, or his wife on his behalf, have not been frank, and that there may well be very substantial assets not disclosed, then the burden to show that the fund which is the subject of this application is truly required is not discharged. I am not therefore to prepared to grant the variation to the extent sought. But that is not to say that I will release none of the sums.

25. The first defendant has been sentenced to death and in these wholly exceptional circumstances, I am not prepared to put the first defendant or his advisers to further proof whilst there is an urgent and immediate need of sums to pursue such avenues as are available to tackle a question of such immense gravity. I intend to release the sum of HK$250,000 for this particular purpose and to require that the sums be accounted for in due course by those acting for the first defendant.

26. It is said by Mr Smith that the court is precluded from releasing sums in relation to the criminal proceedings in Guangzhou in that there is a garnishee order in place and that to order release of funds in connection with proceedings other than the civil proceedings from which that garnishee order emerges, is not within the power of the court. I think, however, that the matter can be dealt with by a variation of the garnishee order which will preserve in the plaintiff's favour as at the date of that order the debt due from the garnishee to the first defendant save for such sum not exceeding $250,000 as might be expended upon that part of the proceedings in Guangzhou relating to any appeal from the defendant's convictions and sentences imposed by that court in November 1998.

27. Accordingly, I will make the following orders.

(1) The previous orders recited in the summons in paragraph 1 are varied

(i) by the addition of the new sub-paragraph 1(l) as drafted in the summons;

(ii) by the addition of a new sub-paragraph 1(m) that the solicitors acting for the first defendant be permitted to disburse from the said fund on behalf of the first defendant, a sum not exceeding HK$250,000 for the purpose only of pursuing an appeal against conviction and sentence imposed against the first defendant in criminal proceedings on the Mainland and directly related purposes;

(iii) by the addition of sub-paragraph 1(n) that the first defendant's solicitors do provide to the plaintiff's solicitors, upon request, a statement of account disclosing the disbursements made for the purpose aforesaid and supporting invoices and receipts.

(2) I shall also order that the garnishee order of 28th July 1998 be varied to except from the attachment therein recited a sum not exceeding $250,000 for expenditure upon the purpose aforesaid.