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HCA 1812/2022
[2024] HKCFI 435
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1812 OF 2022
____________________
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BETWEEN
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CARMON REESTRUTURA-ENGENHARIA E
SERVICOS TÉCNICOS ESPECIAIS(SU) LIMITADA |
Plaintiff |
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and |
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CARMON RESTRUTURA LIMITED |
1st Defendant |
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ANTONIO JOAO CATETE LOPES CUENDA |
2nd Defendant |
____________________
| Before: |
Deputy High Court Judge Le Pichon in Chambers (Open to Public) |
| Date of Hearing: |
29 January 2024 |
| Date of Decision: |
29 January 2024 |
| Date of Reasons for Decision: |
5 February 2024 |
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REASONS FOR DECISION
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1. This was the Plaintiff’s application by an inter partes summons dated 6 November 2023 (“the 2023 Summons”). The application arose out of proprietary injunctions P had obtained in respect of its funds in D1’s account held with DBS Bank (“D1 DBS account”).
2. P’s application is for ancillary disclosure from D2 in respect of assets which represent or are derived from the proceeds of the assets held in the D2’s bank accounts held with Emirates NBD Bank PJSC (referred to as “the 401 account” and “the 402 account”, collectively, “the Emirates Accounts”). Funds in those accounts represent traceable proceeds of funds held in the D1 DBS account. P also sought documents described in the Schedule to the Summons relating the Emirates Accounts.
3. At the conclusion of the hearing, I made an order in terms of the Summons. My reasons appear below.
Background facts
4. The Plaintiff is an Angolan company engaged in construction and civil engineering works in Angola. D1 is a Hong Kong company intended to be a branch/subsidiary of the Plaintiff to facilitate receipts and payments from a business partner.
5. D2 was a Director General and director of the P until August 2022. As a matter of convenience, when D1 was set up, D2 became its sole registered shareholder and director. Pursuant to the P’s instructions, D2 caused D1 to open the D1 DBS account for receipt of funds by D1 on behalf of D2.
6. Between June and August 2022, the relationship between P and D2 deteriorated, with D2 resigning as employee and director on 9 August 2022. However, D2 failed to transfer back to P its shareholding in D1.
7. On 7 December 2022, P was unable to access the D1 DBS account at all as a result of D2 having changed the online banking login details after which D2 caused transfers in excess of USD $22.5 million to be made from the D1 DBS account to various of his personal accounts including the Emirates accounts.
8. When the above came to P’s knowledge, on 28 December 2022, P filed a summons (“the 2022 Summons”) for a Mareva injunction as well as a summons for a bankers books disclosure order (“the 2nd 2022 Summons”).
9. On 30 December 2022, P obtained the following orders from Recorder William Wong SC:
(a) On the 2022 Summons, an injunction order (i) granting a domestic proprietary injunction over the funds held in the D1 DBS account (“the Subject Funds”); (ii) requiring Ds to inform P’s solicitors of the location, nature and value of all assets that represented the proceeds or fruits of the Subject Funds; and (iii) granting a domestic Mareva injunction against D2 to the value of approximately USD 23.7 million (“the 2022 Injunction order”); and
(b) On the 2nd 2022 Summons, a Bankers books order against DBS Bank in respect of the D1 DBS account (“the Bankers books order”).
10. The 2022 Injunction order and the Bankers books order are collectively referred to as “the December 2022 orders”.
11. On 19 January 2023, P obtained a further ex parte injunction order obtaining relief similar to that granted in the 2022 Injunction order but on a worldwide basis (“the January 2023 order”).
12. D2 filed his affidavit on 14 March 2023 (“Cuenda 1st”) purportedly complying with the 2022 Injunction order and the January 2023 order confirming that
(a) approximately USD 1.18 million remained in the D1 DBS account as of the date of Cuenda1st ; and
(b) approximately USD 899,000 (AED 3.3 million) had been transferred from the D1 DBS account to the 401 account and USD 17.4 million had been transferred from the D1 DBS account to the 402 account.
13. On 16 March 2023, Au-Yeung J made 2 orders by consent effectively continuing the 2022 Injunction order and the January 2023 order (collectively “the March 2023 orders”).
14. The 2022 Injunction order, the January 2023 order and the March 2023 orders are collectively referred to as “the Mareva orders”.
15. On 20 July 2023, P applied ex parte to the Dubai International Financial Centre (“DIFC”) Court for a freezing order and obtained the same on 24 July 2023. After hearing the parties on the return date, on 7 September 2023, Justice Wayne Martin continued the freezing order until further order. Appended to that order were the Reasons.
16. In the Reasons at §37, Justice Martin noted that D2’s Dubai legal representatives had served an unsigned witness statement from D2 together with several bank statements including ones relating to the Emirates Accounts. Based on those matters, it was recorded (at §39 of the Reasons) that the statement for the 401 account as of 27 July 2023 showed a balance of AED 82,120,068, and the statement for the 402 account had a balance of approximately USD $848,000 as of late July 2023 (at §§40-41).
17. On the face of the Reasons describing the facts as found by Justice Martin, there appeared to be significant dissipations from the Emirates Accounts since Cuenda 1st was filed[1] as shown in the following table:
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Balance |
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14.3.2023
(per Cuenda 1st) |
14.3.2023
(per Reasons) |
End July 2023 |
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A/c 401 |
AED 3,300,000
(~USD 899,000) |
AED 1,058,415.14 |
AED 82,120,68 |
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A/c 402 |
USD 17,400,000 |
~USD 4,000,000 |
USD 848,046.08 |
Legal principles
18. The principles on ancillary disclosure were considered in Liao Chen Toh v Loyal International Enterprises Co Ltd [2021] HKCFI 164. The following may be highlighted:
(1) The function of ancillary orders in aid of interim orders to preserve assets in which a plaintiff claims to have an equitable proprietary interest and their potentially traceable proceeds is to enable a plaintiff and the court to ascertain at an early stage what (if anything) has happened to the original assets and their potentially traceable proceeds (if any). This is to enable interim preservation orders to be effective (§§17-18).
(2) While a preservation order might be framed along the lines of restraining the disposition of the original assets “and/or their fruits or proceeds (if any)”, such an order would not be able to achieve its objective if neither the court nor the parties are clear as to the identity and whereabouts of the assets sought to be preserved (§20).
(3) It will thus be necessary to ascertain from the defendant and sometimes 3rd parties through compulsory orders what has happened to the original assets and their potentially traceable proceeds. Courts have long recognised these to be strong orders. However, it is said that the courts of equity have “… never hesitated to use the strongest powers to protect and preserve a trust fund in interlocutory proceedings on the basis that if the trust fund disappears by the time the action comes to trial, equity will have been in vain.” (§21).
(4) Such orders serve an important subsidiary purpose: they require clear and precise framing of the injunction order so that the defendants subject to the order and relevant 3rd parties know precisely what they can and cannot do (§22).
(5) The intrusive nature of such orders requires the court to consider carefully potential prejudice caused to the defendants and a fortiori 3rd parties (§24).
(6) While the court’s equitable discretion is wide and flexible, the discretion is a principled one and it must guard against being used as an instrument of oppression, such as, for instance, allowing the plaintiff’s roving enquiry into the defendant’s affairs in search of other potential claims (§26).
Need for ancillary disclosure
19. Ms Natalie So, counsel for P, submitted that even taking Cuenda 1st at face value, it is evident (if not also a necessary inference) from the table[2] that monies have been dissipated from the Emirates Accounts between 14 March 2023 and July 2023. Such dissipations included traceable proceeds of the Subject Funds.
20. If the March 2023 orders are to be effective, ancillary disclosure orders are indispensable. They would enable P to identify the whereabouts of further dissipations from the Emirates Accounts and to trace the Subject Funds misappropriated from the D1 DBS account. Without ancillary disclosure orders, the tracing exercise as regards dissipations from the Emirates accounts would be rendered nugatory.
21. For P to be able to trace those dissipations, it needs to know the exact location and value of those monies. Only D2 has that knowledge given that the Emirates Accounts are his personal accounts. Accordingly, the ancillary disclosure order the 2023 Summons seeks requires D2 to produce information/documents that shed light on dealings with the Emirates Accounts. This would enable P to take further action as may be necessary such as other preservation orders.
22. In addition to an order similar in terms to the orders for ancillary disclosure of 2022 Injunction order and January 2023 order, P seeks production of the documents set out in the Schedule to the 2023 Summons. They are (1) bank statements for the Emirates Accounts; (2) correspondence/communication between D2 and the Emirates Bank; and (3) further bank statements accounts holding traceable proceeds of the Subject Funds.
23. Documents sought under (2) and (3) above are designed to track the fund flow of dissipations from the Emirates Accounts.
D2’s case
(A) Breach of express undertakings
24. In opposing the application, Mr Alan CL To, counsel for D2, referred to the following 2 undertakings[3] in the December 2022 order:
“(6) [P] will not without the leave of the Court begin proceedings against [Ds] in any other jurisdiction or use information obtained as a result of an order of the Court in this jurisdiction for the purpose of civil or criminal proceedings in any other jurisdiction. (“Undertaking 6”)
(7) [P] will not without the leave of the Court seek to enforce this Order outside Hong Kong or seek an order of a similar nature including orders conferring a charge or other security against [Ds] or [Ds’] assets (“Undertaking 7”)”
25. D2 relied heavily on the Decision of DHCJ To in Agritrade Resources Ltd v Ashok Kumar Sahoo [2021] HKCFI 685 and the analysis of those undertakings, in particular, Undertaking 6 in the 2022 Injunction order. Agritrade concerned the plaintiff’s application to vary the undertakings in a worldwide Mareva injunction against the defendant to allow proceedings to be commenced in Singapore. At the hearing, the plaintiff contended that leave was not required so long as the plaintiff did not seek direct enforcement of the injunction in Singapore.
26. In the present case, D2 accepts that the Dubai proceedings did not constitute “enforcement” of the Hong Kong injunction. In other words, D2 accepted that P’s application in Dubai for a freezing order did not constitute a breach of Undertaking 7.
27. As regards Undertaking 6, D2 adopted the Agritrade analysis (at §124) that it imposes a blanket on two activities: (1) commencing proceedings against the defendant in any foreign jurisdictions; and (2) use of information obtained from the injunction order in Hong Kong. The words “begin proceedings” are to be restrictively construed to mean “proceedings in respect of the same subject matter” (§126). To do so against the same defendant in another jurisdiction is potentially oppressive (§127).
28. For the prohibition against use of information, Agritrade accepted that the word “information” must necessarily include all information contained in the affirmations and exhibits filed as well as information disclosed pursuant to any order made in the proceedings (§128).
29. Accordingly, D2 submitted that the fact that P had produced and exhibited Cuenda 1st and the disclosures made in support of its ex parte application in Dubai was in breach of the restriction on use imposed by Undertaking 6. It was further submitted that the fact that the Reasons referred to Cuenda 1st and commented on it was a collateral use of information contrary to Undertaking 6.
30. When considering the validity of the objections based on a breach of Undertaking 6, it is necessary to construe the December 2022 orders (and hence also the March 2023 orders) in their proper context. As earlier noted[4], on 30 December 2022, the Court made not one but two orders, namely the December 2022 orders (comprising the 2022 Injunction order and the Bankers books order). Undertakings 6 and 7 are set out in the Schedule to the 2022 Injunction order, there being before the Court the two summonses referred to in §8 above.
31. The Bankers books order (made by the same judge) recited (inter alia) P’s undertakings, inter alia, that:
“(1) [t]he information obtained pursuant to this Order will not be used for the purpose of proceedings (actual or contemplated) against the Defendants outside Hong Kong unless with leave from the Court.”
32. The Court then ordered that
“(4) The Plaintiff do have leave to use information and documents obtained as a result of this Order for the purpose of proceedings (actual or contemplated):
(i) Against the Defendants in Hong Kong;
(j) Investigating the whereabouts of all or any of the money or assets transferred out of the Carmon HK Account, and the identities and/or wrongdoings of the persons or entities involved in the receipt, handling, transfers or disposals of such money or assets; and/or
(k) Commencing and pursuing new legal proceedings or pursuing existing legal proceedings, whether in Hong Kong or elsewhere, against such persons implicated in any wrongdoings as revealed upon the carrying out of such investigation.
…” (Emphasis added)
33. D2 invited the Court to look exclusively at the 2022 Injunction order that contains Undertaking 6. It was submitted that P should have obtained leave from the Hong Kong court before making its ex parte application in Dubai.
34. But that submission effectively ignores or overlooks the fact that the 2nd 2022 Summons was part and parcel of the application heard by the Court on 30 December 2022 culminating in the 2 orders made on that occasion. In other words, P did obtain the requisite leave to commence proceedings in other jurisdictions on that occasion.
35. The absurdity of D2’s submissions on breaches of Undertaking 6 is patent and requires no further elaboration.
(B) Breach of implied undertaking
36. D2’s fallback position is that
“P is not entitled to rely on the findings or descriptions, or summation of the Dubai Disclosures contained in the Reasons, nor can P rely on any information obtained from the Dubai Disclosures as doing so would be a breach of its implied undertakings to the Dubai courts[5]”.
37. D2 submitted that P’s application relies on the discovery of further transfers of the Subject Funds made by D2. Use of D2’s disclosures made pursuant to the DIFC Court’s orders in the Dubai proceedings without leave of that Court would breach P’s implied undertaking to not use the documents obtained from discovery in the Dubai proceedings in Hong Kong or other actions (“the implied undertaking”).
38. Based on there being an implied undertaking, D2 submitted that P’s application would be unsupported by any evidence and, hence, must be dismissed.
39. The short answer to this submission is that given the terms of paragraph (4) (iii) of the Bankers books order granting express leave to commence/pursue new or existing proceedings in Hong Kong and elsewhere, any implied undertaking (assuming its existence) would have been subsumed or overtaken by the provision granting express leave to commence/pursue proceedings outside Hong Kong.
Conclusion
40. For the reasons set out above, I had no hesitation in granting the relief sought by P’s Summons with costs, and ordered that such costs be summarily assessed. Directions were given at the hearing that regard.
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(Doreen Le Pichon)
Deputy High Court Judge
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Ms Natalie So, instructed by Lau, Horton & Wise LLP, for the Plaintiff
Mr Alan C L To, instructed by Cheung & Liu, for the 1st and 2nd Defendants
[1] This is on the assumption that the information stated in Cuenda 1st is accurate.
[2] See P's written submissions at §20, set out in §17 above.
[3] P gave the same undertakings in the Mareva orders but in the January 2023 order those undertakings were numbered differently i.e. (5) and (6) instead of (6) and (7).
[4] See §9 above.
[5] D2’s written submissions at §7.
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