PAUL JOHN PHEBY v. ALOIS PAIER AND OTHERS

HCA 4665/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4665 OF 2002

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J U D G M E N T

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1. The plaintiff by his notice of motion dated 6 February 2003 seeks an order that the 1st defendant be committed to prison for his contempt of court in breaching the order of Suffiad J dated 13 December 2002 as amended by my order dated 20 December 2002. The ground relied on in the notice of motion is as set out in para. 4(C) of his statement dated 13 January 2003 filed and used on the ex parte application made on 30 January 2003 for leave to apply for an order of committal against the 1st defendant. Para. 4(C) of the statement stated as follows :

“ The 1st Defendant's Affidavit dated 19 December 2002 ("Mr. Paier's affidavit") failed to disclose assets up to the sum of US$2.9 million and failed to provide an explanation as to what he has done with the sum of US$2.9 million. The 1st Defendant has objected to provide any disclosure at all in compliance with the Order on the basis that it would incriminate him. Mr. Paier's Affidavit is therefore wholly insufficient."

2. The plaintiff claims against the 1st defendant for an account to him for the sum of US$2.9 million and all profits thereon. His claim is on the basis that in June and July 2002 the 1st defendant made a number of representations to him as pleaded in para. 8 of the amended statement of claim.

3. Briefly, as pleaded, it was represented to him that a state owned enterprise representing the government of the State of Styria in Austria operated an investment incentive scheme intended to promote the establishment of new business enterprises in Styria by providing guarantees to banks for loans of 200% of the working capital invested in new business enterprises started up in Styria. The plaintiff was told that if he invested a substantial sum of US$2-3 million in a joint venture company with the 1st defendant for the purpose of establishing an asset management business in Styria, then the joint venture company would be able to receive the benefits of the scheme. The 2nd defendant was to be used for the purpose of the joint venture.

4. It was also represented to the plaintiff that HSBC bank account opening forms in respect of an account of the 2nd defendant with HSBC, which the plaintiff signed at the 1st defendant's request, were bank mandate documents that would define the bank's authority to allow funds to be transferred from the 2nd defendant's account into which the plaintiff's investment funds would be deposited. The plaintiff was told that if he deposited the sums in US dollars into that account the funds would not be transferable from the 2nd defendant's bank account without the joint signatures of the plaintiff and the 1st defendant.

5. Relying on the 1st defendant's representations and believing that no funds could be transferred without his authorization, the plaintiff transferred a total of US$2.9 million into the 2nd defendant's said account with HSBC. This was paid by way of two sums. The first on 10 June 2002 in the sum of US$1.5 million and the other on 9 July 2002 in the sum of US$1.4 million.

6. The plaintiff later learnt that the 1st defendant's representations were false and made fraudulently. He commenced the action against the 1st defendant as the sole defendant initially and sought a Mareva order against him which was granted by Suffiad J on 13 December 2002. That order was continued by my order made on the return day on 20 December 2002 until trial or further order.

7. By para. 1 of the part of the order dealing with disclosure of information, the 1st defendant was ordered to disclose all his world-wide assets giving the details set out therein. It is also provided that :

“ The Defendant may be entitled to refuse to provide some or all of this information on the grounds that it may incriminate him."

8. The 1st defendant has filed and served an affidavit sworn on 19 December 2002 in purported compliance with the order of Suffiad J. He stated in paras. 4 and 5 as follows :

“ 4. I am further advised by my solicitors that under the terms of the Order I am entitled to object to provide some or all of the information on the grounds that it may incriminate me.

5. In the circumstances, in accordance with the terms of the Order, I object to provide the information ordered to be provided on the grounds that such information may incriminate me."

9. The plaintiff's case is that the objection taken is not well founded and that the 1st defendant has breached the order and that there has been a deliberate and contumelious disobedience to the said orders. Hence, the application by notice of motion to commit the 1st defendant to prison for his contempt.

10. It is clear that by bringing these proceedings for contempt the plaintiff has the obligation to prove that the 1st defendant is guilty of contempt as alleged in the notice of motion. The plaintiff must prove to the criminal standard i.e. beyond reasonable doubt (para. 52/1/16 Hong Kong Civil Procedure 2002).

11. Mr. Barlow, for the plaintiff, submitted that instead of taking the point of privilege against self-incrimination in the contempt proceedings, the 1st defendant ought to have applied to vary or discharge or suspend the order. In the absence of such an application he had to obey it. He could not choose to disobey it.

12. There can be no doubt, of course, that orders of the court must be obeyed. It is the 1st defendant's contention, however, that he has a privilege against self-incrimination which he has asserted. He has raised the point in his affidavit. Although he has not sought to vary or discharge or suspend the order, I see no reason why he cannot raise the point in his defence to the contempt proceedings. He is entitled to raise any defence he sees fit.

13. Section 33 of the Theft Ordinance, Cap. 210 provides that :

“ (1) A person shall not be excused, by reason that to do so may incriminate that person or the wife or husband of that person of an offence under this Ordinance-

(a) from answering any question put to that person in proceedings for the recovery or administration of any property, for the execution of any trust or for an account of any property or dealings with property; or

(b) from complying with any order made in any such proceedings,

but no statement or admission made by a person in answering a question put or complying with an order made as aforesaid shall, in proceedings for an offence under this Ordinance, be admissible in evidence against that person. .... "

14. It is not really disputed by Mr. Thomson, counsel for the 1st defendant, that Section 33 in effect abrogates the privilege against self-incrimination where a person is charged with an offence under the Theft Ordinance. Where a person is charged with an offence under the Theft Ordinance he cannot rely on the privilege against self-incrimination in civil proceedings, as is the case here, for the recovery of property or for an account of any property or dealings with property. "Property" includes money under the Theft Ordinance (Section 5(1)).

15. The evidence shows that the 1st defendant was on 26 January 2003 charged with 6 charges of theft under the Theft Ordinance. As pleaded in the amended statement of claim in para. 14, the plaintiff's case is that the 1st defendant fraudulently caused withdrawals to be made from the 2nd defendant's bank account in US dollars. There were a total of 6 withdrawals between 10 June and 9 July 2002. The 6 charges of theft are all in relation to these 6 withdrawals. If these were the only criminal charges against the 1st defendant then by Section 33 of the Theft Ordinance his privilege against self-incrimination has been abrogated and he would have to comply with the order for disclosure of information or face the consequences for disobedience. Mr. Thomson, however, submitted that it is likely that the 1st defendant may be charged with other offences outside the Theft Ordinance and that he is, therefore, entitled to claim privilege against self-incrimination.

16. As I have said, the evidence shows that on 26 January 2003 the 1st defendant was charged with 6 charges of theft. The second affidavit of Mr. Dundon, the 1st defendant's solicitor, shows that according to the police the 6 charges of theft are "holding charges" and that further or alternative charges may be proffered. There is also the SCMP newspaper report on 30 January 2003 which states as follow :

“ Police have also issued an Interpol alert for an unnamed male associate of Paier, who is believed to have fled Hong Kong. The officer in charge of the investigation, Inspector Jessica Young Ming-sze, refused to provide any details about the fugitive. She said the probe was ongoing and would not expand on the nature of the fraud allegations."

17. Mr. Thomson also pointed out that by the recently amended statement of claim the plaintiff has made allegations against the added 3rd and 4th defendants. Of the 6 withdrawals from the 2nd defendant's bank account the plaintiff has been able to trace 3 of such withdrawals to the equivalent of about US$1.247 million which were paid into an account in Austria of the 3rd defendant's Austrian lawyer which it is alleged that he held as agent or trustee for the 3rd defendant. The amendments to the statement of claim were made recently on 5 March 2003. The recent allegations as pleaded allege that the 3rd defendant received the said funds with knowledge of the facts that the funds did not belong to the 2nd defendant or the 1st defendant and with knowledge of the 3rd defendant and/or the 4th defendant's lack of entitlement to the funds (para. 22 of the amended statement of claim).

18. It is obvious to me on the evidence that the police investigations have not been completed. It is a fact, however, that the 1st defendant is presently facing 6 charges of theft. If those were the only charges that he will face, then the claim to privilege against self-incrimination is not well founded. By Section 33 of the Theft Ordinance that privilege has been abrogated. He is not to be excused from making the disclosure but it cannot be used in the criminal prosecution against him for the theft offences. But the matter does not stop there. In Rank Film Distributors Ltd. and others v. Video Information Centre (A Firm) and others [1982] A.C. 380, it was held, inter alia, that the defendants there were entitled to rely on the privilege against self-incrimination by discovery or by answering interrogatories since if they complied with orders of that nature there was in the circumstances a real and appreciable risk of criminal proceedings for conspiracy to defraud being taken against them. There is, in my view, on the material before me a real and appreciable risk that the 1st defendant will be facing a conspiracy to defraud charge as well which is an offence outside the Theft Ordinance. This is not just a remote or fanciful possibility but a real and appreciable risk.

19. In Khan v. Khan [1982] 1 W.L.R. 513 it was held that it was likely that criminal proceedings would be brought under the Theft Act. It was said there by Stephenson L.J. at page 519 that it was possible that the defendant there may be prosecuted for theft and forgery but that proceedings for theft and forgery would, in his judgment, still be proceedings for an offence under the Theft Act. He came to the view that the criminal proceedings for theft and forgery would be seen to be in substance proceedings for an offence under the Theft Act. He said at page 519 :

“ But if an attempt were made to introduce any statement made by the first defendant in compliance with this order into proceedings for theft and forgery, the court would have to consider the substance of the proceedings and the real reason why he had not been excused from compliance with the order, and then the proceedings would be seen to be in substance proceedings for an offence under the Theft Act, and so he could not have been compelled to incriminate himself except for an offence under that Act. Accordingly, any such statement would not be admissible in evidence against him in the proceedings."

And he said at page 520 :

“ I agree with the judge that "it is unlikely that there will be a charge of forgery," but he does not seem to have had in mind a prosecution charging both theft and forgery. I agree also that it is "often possible to find another offence outside the Theft Act," but I do not see how that stratagem could be prevented from defeating Section 31 by construing the section in a way which ignores or contradicts the reference to "an offence under this Act" where those words first occur in subsection (1). In my opinion Mr. Slowe is right in construing the subsection as restricting its operation to incrimination of offences under the Act as well as to proceedings under the Act. However, where, as here, the substance of any foreseeable proceedings is a prosecution under the Theft Act, Section 31 applies and cannot be defeated."

Section 31 of the Theft Act is equivalent to Section 33 of the Theft Ordinance.

20. Khan v. Khan is, in my view, distinguishable on the facts. Here, in my view, there is a real and appreciable risk that a conspiracy charge will be added. That is clearly a charge outside the Theft Ordinance. I am unable to accept that criminal proceedings for a charge of conspiracy to defraud and theft charges would be seen to be in substance proceedings for an offence under the Theft Ordinance.

21. Mr. Barlow also relied on what Griffiths L.J. said in Khan v. Khan at page 521 :

“ For my part I am quite unable to see how the question of what happened to the money after it had been admittedly paid by the first defendant into his company's account has any bearing upon his guilt of either theft or forgery. The guilt or innocence of the first defendant depends upon the circumstances in which he paid the money to the second defendants, and not upon what happened to the money thereafter.

For the purposes of assisting the plaintiff to trace the money, it is of the utmost importance that the first defendant should be required to swear an affidavit setting out what has become of it since it entered the account of his company. As the first defendant admits that he paid the ?40,000 to the second defendants, any information that he can give about the subsequent whereabouts or use of the money cannot add a pennyweight to the strength of the criminal case against him. Accordingly, in my opinion to require him to swear the affidavit in the form ordered by the judge would not tend to incriminate him either in the sense of setting up a case against him or strengthening an already existing case."

22. However, in this case the situation is different. By para. 1 of the notice of motion the contempt is said to be the 1st defendant's failure to provide full documentary evidence explaining in detail what he has done with the two sums of US$1.5 million and US$1.4 million respectively paid by the plaintiff into the 2nd defendant's bank account. There is no evidence before me in the contempt proceedings that the 1st defendant ever made any admission that he caused to withdraw sums from the 2nd defendant's bank account which had been paid in by the plaintiff. If the 1st defendant were to explain in detail what he had done with the two sums of US$1.5 million and US$1.4 million and whether assets were purchased from those sums and to supply the other information ordered, such information or disclosure may well assist the prosecutor in bringing and pursuing a criminal charge of conspiracy to defraud against the 1st defendant. In my view, Khan v. Khan is distinguishable on its facts.

23. I was also referred by Mr. Thomson to Den Norske Bank A.S.A. v. Antonatos and another [1999] Q.B. 271 where it was held, inter alia, that a witness was entitled to claim the privilege against self-incrimination not merely on the ground that an answer might increase the risk of prosecution, but in respect of any piece of information or evidence on which a prosecuting authority might wish to rely in establishing guilt or in determining whether to prosecute, and that the court should uphold the privilege even if he was acting from mixed motives or mala fide as a result of not fully appreciating the risk.

24. Waller L.J. at pages 285 to 287 helpfully set out the principles summarized in respect of the privilege against self-incrimination which were summarized by Kirby P. in the Australian case of Accident Insurance Mutual Holding Ltd. v. McFadden (1993) 31 N.S.W.L.R. 412.

25. What Waller L.J. said at page 288 is also important :

“ Cockburn C.J. in Reg. v. Boyes (1861) 1 B. & S. 311, 330, as quoted by Staughton L.J. in the Sociedade Nacional case [1991] 2 Q.B. 310, 324, perhaps put the matter most neatly when he said :

“ The court must see, from the circumstances of the case and the nature of the evidence which the witness is called to give, that there is reasonable ground to apprehend danger to the witness from his being compelled to answer. "

Thus, it is not simply the risk of prosecution. A witness is entitled to claim the privilege in relation to any piece of information or evidence on which the prosecution might wish to rely in establishing guilt. And, as it seems to me, it also applies to any piece of information or evidence on which the prosecution would wish to rely in making its decision whether to prosecute or not. "

26. I respectfully adopt the observations made by Waller L.J.

27. It seems to me that the claim to privilege against self-incrimination is well founded. The plaintiff has failed to satisfy me that the 1st defendant is guilty of contempt of court as alleged in the notice of motion and the application is dismissed.