AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION) AND OTHERS v. HO WING ON, CHRISTOPHER AND OTHERS

HCCL 37/2005 and
HCCL 40/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 37 OF 2005

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(Consolidated)

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REASONS   FOR   DECISIONS

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The applications

1.  At a hearing on 19 March 2009 three summonses were before this Court:

(i)  Summons dated 17 March 2009 taken out by the 1^st and 2^nd defendants for ‘clarification’ of the Mareva Order dated 17 February 2009;

(ii)  Amended summons dated 6 March 2009 taken out by the 1^st defendant for a stay of execution of a disclosure order pending the hearing of the appeal of the 1^st defendant in CACV 44 of 2009 under Notice of Appeal dated 5 March 2009;

(iii)  Summons dated 17 March 2009 taken out by the plaintiffs for an order for leave to interrogate the 1^st defendant, Mr Ho, alternatively that Mr Ho be cross-examined on oath with regard to two recent transactions which had come to the attention of the liquidators and which, it is said, have raised serious further concerns as to the veracity of Mr Ho and as to the issue of his compliance with the Mareva Order as made against him.

Decisions taken at the hearing on 19 March

2.  The summons at (iii) above was adjourned to a date to be fixed, with costs reserved.

3.  As to the summonses at (i) and (ii) above, at the end of a full day’s hearing each of these applications was dismissed with costs, with brief reasons to be given later.

4.  This I now do.

The procedural background

5.  Over a period of 5 days in late December 2008 and in late January 2009, this court heard an application for an inter partes Mareva injunction and ancillary disclosure orders.

6.  On 9 February 2009, this court delivered its written judgment upon those applications.

7.  That judgment, of some 73 pages speaks for itself; paragraph 91 thereof purports to summarise the substance of the orders the court desired to make “subject to the drafting of the relevant Order”.

8.  In outline, the court granted Mareva relief against the 1^st defendant, Mr Ho, but specifically declined so to do against the 2^nd defendant, The Grande Holdings Limited.

9.  In addition, ‘asset disclosure orders’ were made against both defendants.

10.  Pending formal engrossment of the Order consequent upon this judgment, an existing Interim Order dated 23 December 2008 was declared to remain in force.

11.  Paragraph 193 of this judgment anticipated that as to certain detail (for example, as to acceptable expenditure levels and as to time limits for disclosure orders) and also regarding ‘final settlement’ of the wording of the Order, that counsel would appear at a short appointment which would “enable brief argument upon any point of difference which may arise in terms of collateral detail or in terms of drafting…”; at the same time it was anticipated that counsel would be heard upon the issue of the costs of the application.

12.  This short appointment took place on 17 February 2009: for the plaintiff Mr Dobby of Messrs Lovells, attended, and for the defendant, Mr Abraham Chan, junior counsel to Mr Snowden at the substantive hearing of the Mareva application.

13.  A number of matters of detail were canvassed at this hearing; in particular, the draft Order as proposed by the plaintiff was considered in detail, before being engrossed in the form of the draft, as further amended consequent upon the representations as then were made to the Court on behalf of the parties.

14.  On 5 March 2009 the 1^st defendant filed his Notice of Appeal against the judgment of this court granting Mareva relief against him, the hearing date of which, I now understand, is fixed for 22 July for 2 days; the corporate 2^nd defendant, which is publicly listed in Hong Kong, mounts no appeal against that judgment, wherein no direct injunctive relief was granted against the company, although asset disclosure was ordered.

The ‘clarification summons’ dated 17 March 2009

15.  This application was moved by Mr Snowden QC, who led for the defendants in the Mareva application, and was opposed by Mr Kosmin QC, leading counsel for the liquidator plaintiffs in that application.

16.  Each side furnished useful skeleton arguments, the content of which I shall not rehearse in detail.

17.  The broad thrust of Mr Snowden’s argument was that the Order as engrossed required clarification, and that this application was made pursuant to the express permission granted within the Order to apply to the court at any time for a variation; he said that there was a concern on the part of Mr Ho and Grande that the plaintiff liquidators were “attempting to interpret” parts of the Order in a manner inconsistent with the Judgment which had been given, and thus were “seeking to extend the scope of the Order so as to inhibit dealings by third parties with their own assets” which were not covered by the Order.

18.  Mr Snowden rehearsed the basic principles of the Mareva remedy, and emphasized that relief should not be granted in relation to assets which appeared on their face to belong to a third party unless there is a “good reason” for supposing that such assets “are in truth assets of the defendants”: see SCF v Masri [1985] 1 WLR 876, at 884.

19.  His basic thesis was that the Mareva injunction should respect the fundamental principles of company law that a company is a separate legal entity and that the assets of a company do not belong to the shareholders of the company: see Saloman v Saloman [1897] AC 22 (HL).

20.  Thus, he argued, the assets of a subsidiary company are not to be treated as assets of the parent company, and he noted that the judgment of the court upon the substantive application reflected the underlying intention that Mr Ho should be restrained from taking actions qua shareholder in respect of his beneficial interest in Grande.

21.  Mr Snowden suggested that it was apparent that the liquidators had misinterpreted the Judgment and Order, had “seized upon” the description of certain assets in the Schedules to the Order in order to contend that the Order applied to transactions far beyond its intended scope, and had expressed concern in respect of two specific matters:

(i)  the deposit by way of security in 2008 of share certificates in Sansui Acoustics Research Corporation by Sansui Electric Co Ltd with Sansui Japan; and

(ii)  the apparent agreement of Lafe Corporation Ltd to sell its own shares in Lafe Components Ltd and five other subsidiaries.

22.  Mr Snowden argued that these transactions did not, on their face, fall within the scope of the Order as engrossed, and that there was no proper basis either for the disclosure or for the cross-examination order as now was sought by the liquidators in their summons of 17 March 2009.

23.  He said that if and to the extent that the aim of the liquidators was to seek information concerning dealings by Mr Ho with that which the liquidators mistakenly asserted to be Mr Ho’s assets, then subject to any stay pending appeal, such intrusive orders should not be made until after the defendants had given disclosure of their assets in accordance with the Order as made.

24.  In the disclosure context, Mr Snowden made it plain that the thrust of the present objection and the need for clarification arose from paragraph 6 of the Order, wherein Grande and Mr Ho were required to make disclosure of “all their assets”, that is, assets beneficially owned by them, and not by the plethora of other subsidiary and related companies, and that the terms of the disclosure order as made did not extend to assets of Mr Ho or of Grande in which they had no legal or beneficial interest.

25.  Accordingly, he said, if there was any doubt about the true scope of the disclosure required under paragraph 6 of the Order, such doubt could and should be removed by the insertion of the words suggested in the draft amended Order appended to the summons, and he maintained that the Court now should vary its order in the manner suggested by Mr Ho “so as to put its meaning beyond doubt”.

26.  For the plaintiff liquidator, Mr Kosmin QC had little truck with this argument.

27.  He argued that the Mareva Order itself, which in particular incorporated Schedule 3, a schedule entitled ‘Particular Assets Subject to this Order’, and which delimited the assets of the 1^st and 2^nd defendants, had been the subject of full and detailed argument between the parties, and that there now was no basis for Mr Ho and Grande to seek to rewrite it in what was, he said, an “entirely misconceived application” and one which he characterised as “a blatant attempt to avoid making full and proper disclosure”, and thus to avoid scrutiny in relation to the recent transactions as identified by the plaintiffs.

28.  If this ‘clarification/Order amendment’ application were to be granted, leading counsel submitted – he also made it clear that he did not accept that there was any proper jurisdictional basis for now so doing – this would have the practical effect of materially amending/rewriting the Mareva Order as perfected in a manner inconsistent with the judgment as delivered, and in a way that would significantly and unreasonably limit the terms of the prohibition upon the disposal of assets and avoid making any proper disclosure of the defendants’ respective assets.

29.  It was clear, said Mr Kosmin, that what these defendants now were after was a substantial limitation of the scope of the current disclosure order such that it would apply only to assets directly held, but would not extend to assets held beneficially or by subsidiary companies.

30.  It was also evident, he said, that the Mareva Order as made was designed to prevent Mr Ho from using his legal (that is, direct) or beneficial (that is, indirect) ownership to cause the underlying companies to dispose of their assets, and that the amendments as now proposed to the Order would severely impact upon the scope and effectiveness of that Order.

Basis for decision

31.  I agreed with and accepted Mr Kosmin’s submissions, and accordingly dismissed with costs the application to ‘clarify’ the Order as engrossed.

32.  The Mareva Order, as drafted and thereafter perfected – it must be borne in mind after input and detailed submission from Mr Abraham Chan on behalf of the defendants at the appointment held to finalise the Order subsequent to the Judgment – had attempted to strike a balance between preventing Mr Ho from utilise his complex corporate empire in order to dissipate his assets, howsoever so held, and yet at the same time not to obstruct the conduct of ordinary business.  Nor did I consider that the Order was ambiguous or misleading in light of the Judgment as issued.

33.  In the Judgment (at paragraph 48, page 25) this court specifically had noted:

“It is known that Mr Ho holds his private assets through opaque structures in differing jurisdictions around the world, and during this hearing reference has been made to a corporate chart (at ‘Annexure D’ to the plaintiffs’ skeleton argument) which is thought to approximate the shareholding structure in various private companies and trusts as at February 2008”

and viewed from this perspective, it struck me that Mr Snowden’s invocation of Saloman as a means of precluding inquiry/disclosure was ambitious to say the least, and was not a submission with which I had a great deal of sympathy in the particular circumstances of this case.

34.  Indeed, having regard to the content of ‘Schedule D’, to which diagram/chart considerable attention had been paid by both sides during the hearing, the reductio of Mr Snowden’s argument would have resulted in a disclosure affidavit/affirmation by Mr Ho that contained reference to but one company only, namely, a BVI company at the apex of the corporate structure by the name of “The Ho Family Trust Limited”, which ‘Schedule D’ indicates is 100% held on trust for Mr Ho by Accolade Ltd, and from which all the other corporate entities emanate, whether they be held 100% by The Ho Family Trust Limited or which (save for Sansui Electric Company Ltd at 40%) are held in lesser, albeit majority, percentages in excess of 50%.

35.  At the end of the day, there may well have been some truth in Mr Kosmin’s barb to the effect that this so-called ‘clarification’ application, together with the accompanying application for a stay of execution of the disclosure order pending appeal, represented no more than an attempt by Mr Ho to avoid making the full and proper disclosure which was ordered, and which, I am told, under the timetable as laid down, is due to be made by the beginning of April.

36.  In the event, therefore, I was not minded to accede to the request to modify the terms of the Order as engrossed since I did not consider any amendment as was mooted to be necessary, and accordingly this application immediately was dismissed with costs.

The summons of 6 March 2009 for stay of execution of the disclosure order

37.  This application, as amended, was issued solely on behalf of Mr Ho, the 1^st defendant, paragraph 1 of which requested that execution on paragraph 6 of the Order dated 17 February 2009 be stayed pending the hearing of an appeal in CACV 44 of 2009, to which the 1^st defendant’s Notice of Appeal dated 5 March 2009 refers.

38.  The 2^nd defendant, Grande, makes no application for a stay of execution nor, as I earlier have observed, does it appeal against the disclosure order made against it in the substantive Order of 17 February.

39.  On behalf of the 1^st defendant Mr Snowden pitched his application on three bases:

(i)  First, absent the grant of a stay, the appeal against the disclosure order would be rendered nugatory;

(ii)  Second, the disclosure order severely infringes Mr Ho’s privacy, and that he will suffer loss incapable of damage quantification; and

(iii)  Third, there are good grounds of appeal.

40.  As to the issue of the appeal being rendered nugatory, Mr Snowden cited the observations of Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Ltd [2007] 5 HKC 84, at para 9(1), and noted that in this case the nature of the disclosure order as made was such that Mr Ho’s appeal against it inevitably would be rendered nugatory: the disclosure order was a mandatory order requiring Mr Ho to disclose all of his assets over US$100,000, and, he said, there could be no question of “undoing” such disclosure once it had taken place.

41.  Mr Snowden noted, also, that these are essentially the like circumstances upon which a stay was granted by the court in RACP Pharmaceutical Holdings Ltd v Li Xiaobo, HCA 490 of 2007, unrep., judgment dated 27 June 2007.

42.  Mr Snowden emphasized that this was a meritorious appeal focusing upon the issues of ‘good arguable case’ and quantum’, the grounds of which are set out in some detail in the Notice of Appeal dated 5 March 2009.  In this connection I note that the substance of this appeal would appear to involve essentially the like arguments which are to be harnessed on behalf of Mr Ho and the Grande defendants at the forthcoming strike out application, the hearing of which currently stands adjourned for a date to be fixed.

43.  Mr Snowden further suggested that in any event there was no real urgency for the disclosure as had been ordered, given that the liquidators on their own case had been concerned about the type of conduct leading to the Mareva application since at least September 2008, and that the plaintiffs’ interests were adequately protected by the direct Mareva relief ordered against Mr Ho, which remains in force and against which no application for a stay of execution is mounted.

44.  Accordingly, said leading counsel, these considerations weighed strongly in favour of a stay as now sought.

45.  Mr Kosmin took a firm and wholly contrary view.

46.  In his detailed skeleton argument prepared for this application, he set out the general principles applicable on applications for a stay of execution, and emphasized that the most important consideration was whether there were strong grounds within and supporting the proposed appeal, citing in this context the Court of Appeal decision in World Trade Centre Group Limited v Resourceful River& anr, unrep., judgment dated 12 May 1993, and in particular the observations of Litton JA (as he then was).

47.  He noted that a “merely arguable” appeal would not be sufficient in itself to justify a stay, and that “something more” is required – see, for example, Star Play Development Limited, op cit., – and that to show that an appeal will be rendered nugatory it is at least necessary to demonstrate that the failure to grant a stay would have a serious deleterious effect.

48.  Ultimately, Mr Kosmin said, the court has to embark upon a balancing exercise fundamentally no different from that applied when a stay is sought of a substantive interlocutory injunction pending appeal, although he made the additional point that in the particular case where a disclosure order has been made in aid of a Mareva, prima facie it is inappropriate to stay or to suspend the disclosure order while a challenge to the full freezing order is being considered: see Motorola Credit Corporation v Cem Cegiz Uzan [2002] 2 All ER (Comm) 945, wherein David Steel J at first instance had refused to grant a stay of a disclosure order pending appeal of a substantive Mareva order, and inter alia had observed that it was prima facie inappropriate to ‘carve up’ the Order so as to permit the restraints to stand but for the mandatory requirement for disclosure to be put on hold, and that in his view in these situations, wherein there remained the possibility of a transfer or hiding of funds, “the sooner the matter is clear on paper the better.”

49.  The Court of Appeal in that case upheld the view of David Steel J (at [2002] EWCA Civ 989), Waller LJ noting that the learned judge was right in saying that once it was accepted that a freezing order should continue, “a disclosure provision would be the normal provision so that the freezing order can be properly policed and effective”, and Lord Woolf CJ had agreed, stating that the disclosure order is “intimately involved in the effectiveness of the freezing order”; his Lordship observed (op cit., at para 40) that:

“When dealing with interim applications for stays a broad-brush approach has to be taken, otherwise on the application for a stay the court will be determining the very issues which are to be determined later.  It seems to me that was the approach of David Steel J.  Adopting that approach, it seems to me that, although prejudice would be caused to the defendants in this case, the likelihood is that greater prejudice would be caused to the claimants if we were to interfere with the decision of David Steel J.  Accordingly I would dismiss the appeal.”

50.  Mr Kosmin submitted that the prospects for a successful appeal in this case were “remote”, not least because any such appeal would necessarily involve interference with judicial discretion, and he made the additional observation that it was notable that although Mr Ho now sought a stay of the disclosure order, none of the grounds of appeal advanced by Mr Ho in the Notice of Appeal raised any specific complaint about the discovery order, and nor, for that matter, did it raise any questions of principle in relation to the Mareva order as granted.

51.  In terms of the issue of potential prejudice to Mr Ho, Mr Kosmin argued that the particular terms of the Order, (and in particular paragraph 7 of Schedule 2) had made every effort to ensure that the appeal would not be rendered nugatory, and that it was unlikely that disclosure would be particularly onerous, given that the monetary benchmark had been set at the significant level of US$100,000.  Moreover, any infringement of privacy would be minimal, and in fact there was no evidence whatever before the court as to potential detriment.

Basis of decision

52.  Notwithstanding the skill with which Mr Snowden invested his argument, once again it seemed to me that Mr Kosmin had the better of this particular argument, and accordingly at the conclusion of the hearing this application also was dismissed with costs.

53.  As was indicated to leading counsel during the course of the hearing, originally it had been in my mind to deal with this application by means of an interim stay of but a few days only, thus to permit the 1^st defendant to obtain an urgent hearing before the Court of Appeal in an attempt to request a stay of execution pending resolution of the appeal.

54.  However, as a result of the argument I changed my view.

55.  It struck me that in terms of the balancing exercise required any stay of execution of the disclosure order pending the hearing of the substantive appeal on July 22 this year potentially might enure to the greater detriment of the plaintiff liquidators than would accrue to the detriment of the 1^st defendant.

56.  I bore in mind specifically the necessity for disclosure in order to “give the teeth which are critical to the freezing order” (per Lord Woolf CJ in Motorola Credit Corporation, op cit.), in light of the fact that the judgment under appeal had expressed little doubt but that indeed there was a real risk of dissipation by the 1^st defendant via his complex web of corporate holding structures.

57.  As to the contention that the appeal would be rendered nugatory absent a stay, which often is the best point in applications of this nature, I considered significant in weighing the balance the fact that the terms of this Order, and in particular the terms of paragraph 7 of Schedule 2 – wherein the recipients of the information to be disclosed is expressly limited to 8 specified persons – together with the fact that Mr Borelli of the plaintiffs has undertaken to return or destroy any information provided in the event of a successful appeal (see Borelli 11, para 16), made it unlikely in practical terms that any real prejudice would be suffered by Mr Ho which otherwise could not be compensated in costs.

58.  Accordingly, after considering all the relevant factors, in the exercise of my discretion I came to the view that this application also should not be granted, even on a purely interim basis.