HYUNDAI MERCHANT MARINE (HONG KONG) LTD v. MA CHUN KIT AND OTHERS

HCA 619/2016

[2019] HKCFI 1057

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 619 OF 2016

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D E C I S I O N

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1.  This is a summons by D1 (“Ma”) to vary the Mareva injunction order so as to release funds for:

(1)   His legal costs in this action; and

(2)   Paying contribution to the Director of Legal Aid (“DLA”) for his criminal trial in a related matter.

Background

2.  The brief background to this case can be found in A Chan J’s judgment in HCMP 1115/2017 dated 1 February 2018 at §§4-13.  I respectfully extract the salient facts below.

3.  Ma used to work for the plaintiff, (“Hyundai Marine”).  He first joined the company in 1992 as an Accounts Clerk. He was promoted gradually and became its Deputy General Manager (Accounting) until he was summarily dismissed on 4 March 2016. At that time, he was earning a monthly salary of HK$37,900.

4.  It is the case of Hyundai Marine that, for 7 years between 2009 and 2016, by 262 transactions, Ma caused a total sum equivalent to HK$387,655,303.70 (“the Sum”) to be wrongfully transferred from his employer’s accounts to his own.  Hyundai Marine asserts, amongst others, a proprietary claim over the Sum.

5.  In Ma’s Amended Defence, it was pleaded that the money which made up the Sum was transferred with the knowledge, consent and authorization of Hyundai Marine pursuant to an “Agreed Arrangement” devised to overcome foreign exchange control of the Mainland. Such Arrangement was required due to the need of Hyundai Marine to make payments to service providers in the Mainland.

6.  Hyundai Marine says that the Agreed Arrangement was entirely a fiction created by Ma.

7.  The matter was reported to the police by Hyundai Marine.  Ma is now facing prosecution in the Court of First Instance on 2 counts of theft. The subject matter is essentially the same as in the present civil action. 

8.  On 10 March 2016, upon Hyundai Marine’s ex parte application, the court granted an injunction in this action restraining Ma from disposing of his assets. The order was subsequently varied several times to its current version dated 6 October 2017. It is a worldwide Mareva injunction which freezes the bank accounts of Ma and his landed properties up to the value of HK$387,655,303.70.  The order includes the usual ancillary disclosure order; and makes provisions for monetary exceptions in respect of, amongst others, Ma’s legal costs up to HK$100,000. 

9.  The total assets which Ma has disclosed pursuant to the Mareva injunction order amounted to about HK$53.3 million. One could immediately note the contrast with the modest salary which he used to receive.

10.  Ma’s girlfriend and his parents had subsequently been joined in this action on the basis that a total sum of about HK$25.76 million wrongfully taken from Hyundai Marine was transferred by Ma to them.

11.  The action against the girlfriend and Ma’s father had been discontinued. Ma’s step-mother remains as D4.

12.  On 1 February 2018, Ma was found guilty of contempt of court in HCMP 1115/2017 in breaching the Mareva injunction by disposing of assets in the amount of over HK$3 million.  On 9 February 2018, he was sentenced to imprisonment for 4 months.

Previous application for variation of the Mareva injunction

13.  Ma did not apply to discharge or vary the Mareva injunction order until 27 December 2017 when he took out a summons to vary the provision for his legal costs from HK$100,000 to HK$800,000 (“the First Summons”). The First Summons has never been set down for argument.

Present application for variation of the Mareva injunction

14.  The criminal case was originally fixed for trial to commence in October 2018 with 22 days reserved.  At the pre-trial review before Remedios J in August 2018, the trial was vacated for Ma to seek legal representation and Ma’s bail was revoked.  He has since remained in custody.  No trial date has yet been fixed but it is expected to be towards the end of 2019.

15.  After yet another mention hearing before Remedios J, Ma finally applied for legal aid.  DLA granted legal aid provided that Ma made contribution in the sum of HK$2,989,000 (“the Contribution”).

16.  Ma thus took out the present (second) summons on 17 January 2019 for variation of the Mareva injunction order so as to release the same amount of HK$800,000 for the Contribution and this civil action.  He claimed to have borrowed some money from his sister to resume his legal representation to a limited extent.  He claimed that part of the frozen assets included proceeds of his gambling over the years.  The balance in all bank accounts frozen under the Mareva injunction order amounts to HK$1,600,000.  Ma suggested that one or more car parks may have to be sold.

17.  Hyundai Marine disputed the amount of cash balance and said it was only HK$500,000.  Its grounds in opposition are that: (a) there is no breakdown as to the $800,000 legal costs; (b) Ma has failed to vouch that he has no alternative sources of funding; (c) Ma has failed to particularize the source of money for his gambling; and (d) Releasing funds would create greater injustice to Hyundai Marine than to Ma.

Legal principles

18.  In dealing with a defendant’s application to release assets subject to a Mareva injunction for legal expenses, a distinction has to be drawn between a situation where the plaintiff has made a proprietary claim over the assets and a non-proprietary claim.  In respect of a proprietary claim, the court will adopt a more stringent test since it would be clearly unsatisfactory for the defendant to be granted recourse to the plaintiff’s assets for the purpose of defending himself against the plaintiff’s claim to those assets. 

19.  The court will adopt a two-stage test:

(a)   The defendant has to demonstrate with full and frank evidence that there are no other available assets that can be used to pay his legal expenses.  If he fails at this hurdle, then the application will be dismissed.

(b)   If the defendant succeeds in demonstrating the lack of other available assets, the court must balance the potential injustice to the plaintiff of releasing the assets against the potential injustice to the defendant of depriving him of legal assistance to advance what may ultimately be a successful defence. The 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 to the assets and the defendant’s defence to that claim.

See a recent statement of principle in Hong Kong Life Insurance Limited v Fung Siu Cheung Michael & ors (unreported, HCA 1164/2012, 21 February 2014) at §§32-33, B Chu J, following Wharf Ltd v Lau Yuen How [2010] 1 HKLRD 783, §13, Au J (as he then was).

20.  Further, the defendant has to condescend upon particulars for the purpose of demonstrating that he has an arguable case for denying that the assets belong to the plaintiff: Classroom Investments Inc v HK Wanshitaiping Investment and Management Ltd & ors, unreported, HCMP 577/2016, 10 June 2016, §24, M Chan J.

Whether Ma has demonstrated that he has no other available assets

21.  Being in custody since February 2018, Ma no longer has an income. He claims to have no other assets under $50,000 or over (Ma-7^th)[1]. In 2016/17, he had borrowed $2,500,000 from a Mr Mak, who had mortgaged his own flat to make a loan to Ma.  Mr Mak is no longer able to lend Ma any further money.  Ma has to borrow from his sister to fund his legal representation for the present application.  He did vouch that he has no other financial sources in Ma-10^th.

22.  Mr Wong, counsel for Hyundai Marine, draws to the court’s attention the following things:

(a)   The First Summons was not pursued;

(b)   Ma admittedly pursued a lavish lifestyle; and

(c)   Ma’s unsuccessful recovery of debts from his friends was unbelievable.

23.  With regard to point 22(a), the request for release of HK$800,000 for legal costs was first sought by letter dated 18 July 2017 to the Hyundai Marine’s former solicitor (RSRB) before the First Summons was taken out.  Ma’s solicitors requested for the spending limit for 3 civil cases to be increased to HK $700,000 excluding any future legal costs/fees.  This request was repeated in the 2^nd letter in December 2017 to RSRB. In fact, Ma himself stated at §31 of Ma-10^th that the “amount outstanding for my solicitors for the civil cases as of December 2017 is about HK$800,000.00.”

24.  The First Summons was never set down for substantive argument despite directions granted by the court.  Ma explained that it was due to his lack of legal representation. 

25.  This explanation was hard to accept because Ma had borrowed HK$2,500,000 from a Mr Mak for his legal fees in 2016/2017, of which HK$1,500,000 was spent on legal fees including those for the criminal proceedings (§31, Ma-10^th filed on 14 May 2018). This was another HK$300,000 from what was known as the CTB May Accounts which he had spent on legal costs (§91 of Ma-5^th filed in HCMP 1115/2017 on 31 July 2017), being three times as much permitted under the Mareva injunction order.  He had all along been represented until 13 July 2018, for 7 months after he filed the First Summons.  As pointed out by Mr Wong, there was no breakdown of the alleged legal costs and there was not even an assertion by Ma that his previous solicitors sought to exercise a lien on his papers for unpaid fees. 

26.  It was only in Ma-10^th that Ma changed his case to explain that he had spent lot more legal costs after filing of the First Summons on discovery, the contempt proceedings and a separate mortgagee action.  Even so, he still maintained that he had incurred total legal costs of HK$2,300,000 up to December 2017 and the outstanding amount for civil cases was HK$800,000. 

27.  Whilst I accept that HK$100,000 is seriously inadequate for meeting 3 civil claims, for past legal costs incurred up to December 2017, Ma plainly had other available sources of money and he should not be allowed to withdraw from the frozen assets.

28.  For legal costs beyond 2017, he has not explained, eg how has been able to remain represented up to July 2018.  He has not mentioned how much his sister has lent him for the present legal representation or how he dealt with the balance of $1,000,000 borrowed from Mr Mak.

29.  With regard to point 22(b), the lavish lifestyle was described in the judgment of A Chan J in the contempt proceedings, §§51 & 58.  That lifestyle was past irrelevant conduct.  What was relevant, in my view, was that Ma has not given a clear statement of the fund flows, at least in respect of the money that flowed in and out of the CTB May Accounts.

30.  With regard to point 22(c), Ma admitted having friends owe him HK$622,966.08 + HK$75,223.75.  Those debts, when recovered, would have been sufficient to meet the amount sought under the First Summons.  In respect of HK$622,966.08, Ma claimed that his friends were reluctant to repay him as they believed it might cause them trouble in view of Ma’s imprisonment for contempt of court.  In respect of HK$75,223.75, he claimed that his friends were unable to give him a certain date for repayment.

31.  Ma never gave particulars of these friends.  However, practically, with his present condition in custody, it is not realistic to expect him to have access to such funds because they would be subject to the Mareva injunction order as well.

32.  Points (a) and (b) lead to the conclusion that Ma has not made full and frank disclosure of his lack of available means and that is sufficient to dismiss this summons.

Arguable case for denying that the assets belong to the Plaintiff

33.  If I am wrong, I deal with this requirement of showing an arguable case before I weigh the relative justice between the parties.

34.  It sounds strange that, being a sizeable company, the Plaintiff appeared not to have a system of monitoring bank withdrawals by Ma over a period of 7 years in respect of over HK$300 million. 

35.  Ma has filed a set of arguable defence. However, as pointed out by Mr Wong, save for a general averment that sums transferred from the Plaintiff to his bank accounts were forwarded to service providers of the Plaintiff, Ma has not pleaded where each sum had gone.  Nor has he produced any document that could remotely support his general averment.   He has also failed to file witness statements despite the unless order made by Master Ho on 30 April 2018.  Ma is now debarred from adducing any evidence at the trial.  His defence thus appears quite hollow.

36.  The failures regarding pleading, discovery or filing of witness statements occurred at a time when Ma was represented.  He has never asserted any privilege against self-incrimination.  He only now makes a bare assertion that further discovery might prejudice his criminal trial.

37.  Further in his affirmations, Ma claims that part of the money in his bank accounts were from his gambling.  His bank statements revealed a pattern of receiving deposits from casinos in Macao.  He claimed to have received about HK$6.84 million deposits in the Hang Seng Bank account between 2013 and 2015 from gambling; and HK$20.22 million in Bank of China between 2012 and 2016. However, his assertion of making an astronomical income of HK$1,000,000 on average per week from gambling was not supported by documents, save for 3 cheques from MGM in the total sum of HK$7,300,000 in 2013.

38.  Be that as it may, about HK$27 million gambling income was small compared to the HK$387 million allegedly misappropriated. 

39.  All in all, I am not satisfied that Ma has condescended upon particulars to demonstrate that he has an arguable case for denying that the frozen assets belong to Hyundai Marine.

Balancing potential injustice to Hyundai Marine and Ma respectively

40.  If the facts for the 2 counts of theft are similar to those in the present action, I consider that lack of legal representation would prejudice Ma’s ability of defending the charges against him. Findings against Ma in the criminal trial would in turn affect his defence in the present action.

41.  Moreover, when one looks at the situation practically, it is undeniable that Ma has been in custody since February 2018 till now.  He has no income at all and can hardly deploy assets whilst in custody. 

42.  Mr Wong makes 3 points:

(a)   That dismissal of this application would not leave Ma without legal representation in the criminal trial because he would be treated as not having disposal capital and DLA would grant him legal aid;

(b)   Ma has intention to dissipate assets.  He should not be permitted to release the frozen assets whilst “keeping his powder dry” in respect of debts owed to him; and

(c)   There is evidence that the car parks were purchased with Hyundai Marine’s money.

43.  With regard to point (a), I do not think DLA has taken any firm position as Mr Wong submits.  DLA is at liberty to re-assess the position after the handing down of this decision and consider eg whether Ma is employed at the time of the application and whether or not he has made full and frank disclosure of his assets.  I place little weight on point (a).

44.  With regard to point (b), whilst Ma has not given a clear statement of the flow of funds that had passed through his hands after the Mareva injunction order was made, I repeat paragraph 41 above.

45.  With regard to point (c), this is a weighty factor.  The HK$53.3 million worth of assets disclosed by Ma were mostly landed properties.  The Plaintiff has, in §§30-44 of Churng-6^th, purported to correlate (by documents) the sums misappropriated from the Plaintiff with the 5 car parks which Ma had purchased between 2012 and 2015.  Ma has not begun to rebut this.  He should not be allowed to sell the car parks to fund his own criminal trial.

46.  Weighing the matters under this section, releasing assets for Ma to pay his legal costs will cause greater injustice to Hyundai Marine than to Ma.

Conclusion

47.  In summary, Ma has failed to meet the two-stage test for variation of the Mareva injunction order; and failed to show an arguable case for denying the Plaintiff’s interest in the frozen assets.  I therefore dismiss this summons.  Mr Chow does not dispute that this conclusion means that the First Summons should also be dismissed and I so order.

48.  Costs should follow the event and be to the Plaintiff.  I make an order nisi that Ma should pay costs of $250,000 in respect of both summonses for variation.

49.  I thank counsel for their assistance.