COSIMO BORRELLI as Trustee of the SFC LITIGATION TRUST v. ALLEN TAK YUEN CHAN

HCMP 2174/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2174 OF 2014

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D E C I S I O N

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INTRODUCTION

1. I have before me an application by the plaintiff by summons dated 16 April 2015 seeking an “unless order” against Hu Liang Mei, Chan Wing Yan Grace and Chan Wing See Joyce (hereinafter collectively referred to as the “Third Parties”) to compel them to comply with a disclosure order made by me on 9 January 2015 (“the Disclosure Order”).

2. The background facts giving rise to the Disclosure Order were set out in my earlier decision given on 9 January 2015 (“the 9 January Decision”) and my further decision given on 23 January 2015 (“the 23 January Decision”), and I shall not repeat them here.

3. By the Disclosure Order, the Third Parties are required to disclose:-

“ how the monies received by them … have been used and expended and the current whereabouts of the monies (or any part thereof) with full particulars and documents in support”.

4. The “monies” received by the Third Parties mentioned in the Disclosure Order refer to the sums of US$1.3 million, US$2.6 million and US$2.6 million (collectively referred to as “the Monies”) transferred from an account of the defendant’s company (Win Fair Holdings Group Limited”) to the bank accounts of Madam Hu, Grace Chan and Joyce Chan respectively at Standard Chartered Bank (“the SCB Accounts”).

5. In compliance, or purported compliance, with the Disclosure Order, Madam Hu, Grace Chan and Joyce Chan each filed an affidavit or affirmation on 22 January 2015, 22 January 2015 and 3 February 2015 respectively, identifying various assets said to have been acquired, as well as various expenditures paid for, through or by the use of the Monies.

6. The plaintiff considered the disclosure made by the Third Parties to be deficient and asked them to remedy the deficiencies by a letter dated 28 January 2015 from Lipman Karas (the plaintiff’s solicitors).  Initially, the Third Parties indicated through their solicitors (Kwok, Ng & Chan) that they needed time to collate information and documents (said to be voluminous) before they could address the plaintiff’s questions.

7. However, in a subsequent letter from Kwok, Ng & Chan dated 12 March 2015, the Third Parties took the position that they had duly complied with the Disclosure Order.

8. On 16 April 2015, the plaintiff issued the present summons to compel the Third Parties to fully comply with the Disclosure Order.

Interpretation of the Disclosure Order

9. The central dispute between the parties, as I understand it from the submissions of Ms Eva Sit (for the plaintiff) and Mr Christopher Chain (for the Third Parties), turns on the question of whether the Disclosure Order requires the Third Parties to provide a historical trail of fund-flow of the Monies from the SCB Accounts.

10. If the Disclosure Order, on its proper interpretation, requires such a historical trail to be provided, it is not in dispute that the Third Parties have failed to comply with it.

11. The principles on how a court order ought to be interpreted do not appear to be in dispute.  In Secretary of State for Business, Innovation and Skills v Feld [2014] 1 WLR 3396, at paragraph 23 per Deputy High Court Judge Edward-Murray, it is said that the starting point is the natural and ordinary meaning of the words used in light of the syntax, context and background in which those words are used.  What additional principles and factors come into play as part of the court’s exercise of interpretation will depend on the nature of the writing to be interpreted and will be highly dependent on the facts of the specific case.

12. In the present case, the context and background of the Disclosure Order can be gathered from the 23 January Decision, where I stated the following at paragraph 9:

“ As mentioned in my earlier decision given on 9 January 2015, I was not prepared to impose a blanket Mareva injunction to cover all the assets of the Third Parties because of the absence of evidence that the Monies or any part thereof were still held by the Third Parties, and what had become of the Monies. I considered that, in fairness to the Third Parties, a more limited form of Mareva injunction should be granted covering only the three specific bank accounts into which the Monies were paid, but I also required the Third Parties to make disclosure of how the Monies received by them had been used and expended and the current whereabouts of the Monies (or any part thereof) with full particulars and documents in support so that the plaintiff could carry out further investigation and, if necessary, apply for further injunctive relief from the court.”

13. The above passage should also be read together with the 9 January Decision, where I stated the following at paragraphs 9 to 12:-

“ 9. The plaintiff’s difficulty, as I see it, is that the transfers were made more than 3 years ago, on 9 June 2011. There is no evidence that any part of the Monies are still held by the Third Parties, or what has become of the Monies. On the other hand, the extended injunction sought by the plaintiff would cover all “properties and assets” of the Third Parties and not just the Monies or assets acquired by or derived from the use of the Monies. While I accept that the court does have jurisdiction to make a wide order in the terms sought, as Mr Justice Ng remarked at paragraph 30 of his judgment in Re Chau Cham Wong Patrick, a Bankrupt: ‘A Mareva injunction should not be granted lightly. The consequences of granting the injunction are such as to put the defendant at a very real disadvantage and in a position from which it may never adequately recover’.

  10.   In the absence of any evidence that the Monies are currently still held by the Third Parties or have been turned into some identifiable assets, it seems to me that the order sought would be far too draconian and cannot be justified.

  11.   I would be prepared, however, to grant a more limited form of Mareva injunction, limited to the 3 identified accounts at SCB into which the Monies were transferred.

  12.   I do not consider it appropriate to order any trial of preliminary issue, but I would hear the parties on the further directions to be given for the disposal of the plaintiff’s summons, and also on the question of whether any ancillary disclosure order should be made against the Third Parties regarding the current whereabouts of the Monies.”

14. In other words, the Disclosure Order was made with the view of achieving a proper balance between on the one hand avoiding the oppression that might be caused to the Third Parties by a wide injunction covering all their “properties and assets” and on the other hand enabling the plaintiff to trace the Monies into assets (if any) currently held by the Third Parties so that the plaintiff could apply for further injunctive relief (if so advised) in respect of such current assets.

15. Mr Chain accepts that the wording of the Disclosure Order is arguably wide enough to mean that a historical trail of fund-flow of the Monies from the SCB Accounts should be provided by the Third Parties.  For my part, I consider that to be the natural and ordinary meaning of the words used in the Disclosure Order.  Even if there should be any doubt about the matter (which I do not think there is), the context and background of the Disclosure Order would, in my view, strongly support the view that it does require the Third Parties to provide a historical trail of fund-flow of the Monies from the SCB Accounts.

16. I should also briefly explain why it is important that the Third Parties should provide such historical trail.  For the plaintiff to be able to apply for further injunctive relief in respect of current assets held by the Third Parties acquired through the use of the Monies, it is obviously necessary or essential that the plaintiff be able to show that the current assets were indeed purchased through the use of the Monies. For example, the defendant in his second affirmation dated 22 January 2015 stated that he had been informed by Madam Hu that out of the US$1.3 million received by her, part of it became two deposits in the total sum of RMB 5 million sitting in a bank account at Agricultural Bank of China Limited.  Madam Hu has now stated, in her 2^nd affirmation dated 2 February 2015, that what the defendant said is incorrect.  In fact, the RMB 5 million went towards the purchase of an insurance policy with ICBC.  Had the plaintiff taken what the defendant said at face value and applied for a further injunction to restrain Madam Hu from disposing of or dealing with the two bank deposits at Agricultural Bank of China Limited, any injunction granted by the court would be wrong (assuming that what Madam Hu says is the correct version, which the court obviously is in no position to determine at this stage).  This clearly demonstrates the importance of the Third Parties providing an accurate historical trail of fund-flow of the Monies from the SCB Accounts with full particulars and supporting documents.

Failure to comply with the Disclosure Order

17. As earlier mentioned, it is not disputed by the Third Parties that they have failed to comply with the Disclosure Order if, on its true interpretation, it requires them to provide a historical trail of fund-flow of the Monies from the SCB Accounts.

18. Ms Sit has highlighted various deficiencies in the disclosure so far made by the Third Parties at paragraphs 20 to 40 of her skeleton submissions dated 9 November 2015 which it is not necessary for me to repeat here.  They have not been answered by Mr Chain on behalf of the Third Parties, and I consider the complaints raised by Ms Sit to be justified on the evidence and materials before me.

19. As regards the court’s jurisdiction to grant an unless order to enforce compliance with a disclosure order made ancillary to a mareva injunction and the rationale behind such jurisdiction, I refer to an earlier decision of this court made in China Metal Recycling (Holdings) Limited (in Provisional Liquidation) and Another v Chun Chi Wai and Others, HCA 1412/2013 (17 November 2014), where the following was stated at paragraphs 51 and 52:-

“ 51. It is not in dispute that the court has jurisdiction to make an “unless” order to ensure compliance with disclosure orders in aid of Mareva injunctions: see JSC BTA Bank v Ablyazov [2013] 2 All ER 414 at paragraphs 146, 149, 165, 183‑188, per Rix LJ. In relation to the exercise of such jurisdiction, the following was said by Rix LJ at paragraph 188:

“ The authorities demonstrate that it is vital for the court, in the interests of justice, to have effective powers, and effective sanctions. Without these, it would be possible for a defendant (or, in a different situation, a claimant) to flout the orders of the court, which are the court’s considered means by which to keep the scales of justice for the parties even. If once it became known that the court was unable or unwilling to maintain the effectiveness of its orders, then it would lose all control over litigation of this kind, with terrible consequences for the administration of justice. Those wrongly accused of fraud would be relieved of a certain amount of inconvenience, but fraudsters would rejoice and hitch a free ride to interminable litigation on the back of ill-gotten gains.”

  52.   As submitted by Mr Coleman, freezing orders are critical weapons in the court’s armoury against fraud, securing the preservation of assets which might otherwise be wrongly dissipated pending judgment, and in appropriate cases, the preservation of evidence, including documentation, and the provision of information to trace the proceeds of fraud: CIBC Mellon Trust Company v Stolzenberg [2003] EWHC 13 at paragraph 103, per Etherton J.  Further, compliance with orders of the court goes to the essence of the rule of law that parties subject to the court’s jurisdiction should comply with court orders.  The gravity of the matter of non‑compliance will increase where the non‑compliance results from a conscious decision: see CIBC Mellon Trust Company v Stolzenberg [2004] EWCA Civ 827 at paragraph 167, per Arden LJ.”

20. In the present case, I consider it to be clear that:-

(1)  the Third Parties have failed to comply with the Disclosure Order;

(2)  their failure to comply with the Disclosure Order is intentional or deliberate; and

(3)  it is well within their powers to fully and properly comply with the Disclosure Order.

21. In these circumstances, it would plainly be correct to make an unless order to compel the Third Parties to comply with the Disclosure Order.

22. As regards the time for compliance, I take into account the fact that the Third Parties have already had 10 months to comply with the Disclosure Order.  Bearing in mind the serious consequence of a failure to comply with the unless order, I am prepared to grant them a further 28 days to comply with it.

Disposition

23. Accordingly, I make an order in terms of paragraphs (1) and (2) of the plaintiff’s summons dated 16 April 2015, save that the time specified in paragraph (2) shall be changed to “unless by 4:00 pm on 10 December 2015”.

24. I shall hear the parties on the question of costs.