RE KIM DOTCOM AND OTHERS

HCMP 116/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 116 OF 2012

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AND

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D E C I S I O N

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1.  This is an application by the 1^st and 2^nd defendants to vary the restraint order granted by Madam Justice Bokhary on 18 January 2012. The original restraint order had since been varied by a series of subsequent court orders. It was last varied by Deputy Judge Chan (as Mr Justice Wilson Chan then was) on 14 November 2016 (‘2012 HK restraint order’).

2.  By way of a summons dated 15 June 2017, the 1^st defendant seeks to release the following sums from the restrained account(s)[1]:

(a)   NZ$960,000[2] to facilitate his relocation to alternative residential accommodation.

(b)   NZ$120,000 being two months’ rental and one month letting fee.

(c)   NZ$150,000 relocation expenses.

(d)   NZ$200,000 contingency/ emergency fund[3].

(e)   The current living expenses of NZ$70,000 be increased to NZ$73,000 per month.

3.  The 1^st and 2^nd defendants also seek the return of certain personal items[4].

4.  The Secretary for Justice (‘SJ’) filed a cross summons dated 30 June 2017 seeking an interim stay or adjournment of the 1^st and 2^nd defendants’ summons pending determination of the application on the merits in the New Zealand High Court  (case no: CIV‑2014‑404‑001272)[5].

5.  In case this court grants the stay or adjournment, the SJ agrees to make a mirror order in Hong Kong to give effect to the prospective order from the New Zealand High Court.

6.  If this court refuses to stay or adjourn, the SJ opposes the variation of the RO.

7.  The SJ however agrees to release rental expenses up to the existing amount for a further two years with relocation costs.  The SJ also agrees an increase in education allowance for two more children of the 1^st defendant.

8.  The SJ further agrees to return the personal items sought by the 1^st and 2^nd defendants.

The background

9.  In 2012, the 1^st defendant and others were arrested in New Zealand pursuant to an indictment issued by a Federal Grand Jury in the United States.  The charges included conspiracy to commit criminal copyright infringement and conspiracy to commit money laundering[6].

10.  The 1^st defendant’s assets in New Zealand was under a restraint order registered in New Zealand pursuant to the Mutual Assistance in Criminal Matters Act 1992 (‘2012 NZ restraint order’).  The original restraint order was issued by the US District Court for the Eastern District of Virginia in 2012.

11.  About the same time in January 2012, the SJ applied to the High Court of Hong Kong for a restraint order against the Hong Kong assets of the 1^st defendant and others[7].  It was granted by Madam Justice Bokhary and varied by subsequent court orders—the 2012 HK restraint order.

12.  In 2014, the film studios (copyright holders) commenced civil proceedings against the 1^st defendant and others in New Zealand. They obtained a freezing order from the New Zealand High Court against all assets of the 1^st defendant and others in New Zealand and in Hong Kong on 25 November 2014 (‘2014 freezing order’)[8].

13.  The 2012 NZ restraint order expired on 18 April 2015.  All assets under that order was made subject to the 2014 freezing order by consent of the parties.

14.  Since the granting of the 2014 freezing order, Madam Justice Courtney of the New Zealand High Court has been dealing with applications for variation of the 2014 freezing order including matters on rent and monthly living expenses[9].

15.  In August 2016, after hearing arguments from parties, Madam Justice Courtney refused the application of the film studios to reduce the monthly living expenses of the 1^st defendant to NZ$10,000.  The judge however made other variation to the 2014 freezing order[10]. The Hong Kong High Court had granted a mirror order giving effect to those variations in November 2016.

The gist of the defendants’ argument

16.  Mr McCoy, SC, for the defendants pointed out the following:

(a)   There are ongoing extradition proceedings in New Zealand against the 1^st defendant.  These proceedings could not be determined in the next two years.  There are also other civil proceedings against the defendants in New Zealand.

(b)   The 1^st defendant urgently needs funds to pay for alternative accommodation in Queenstown.  He needs the fund not later than August 2017 to allow time for negotiation of new tenancy and to deal with any opposition by Motion Picture Association of America (‘MPAA’) in New Zealand[11]. He anticipates that the prospective landlord would demand advance payment of the full term rent given his background[12].  There is expert report on the current market rent.  There is also mechanism to guard against misuse of funds.

(c)   The 1^st defendant also needs to set aside funds for contingent medical expenses as his health has recently deteriorated significantly and he has no insurance for those conditions[13]. It would be undesirable to apply to court on a case by case basis.

17.  In response to the application by the SJ for stay or adjournment, Mr McCoy argues that the issues of forum, efficiency and jurisdiction should have been raised during the hearing before Deputy Judge Chan in December 2015.  This court should not allow the SJ to re‑litigate the issues.

18.  The 1^st defendant and others are accused of committing a worldwide conspiracy.  For this court to rule that one forum is more appropriate than another, in dealing with the restraint orders, would defeat the purpose of cross‑jurisdictional assistance in criminal matters.

19.  Despite the order of Madam Justice Courtney that the quantum of living expenses for the 1^st defendant shall be determined from time to time by the Court in New Zealand, Mr McCoy stresses that this would not preclude an application to vary or rescind the 2014 freezing order.  The 1^st defendant has expressly reserved that right[14].

20.  The advance payment of rent and the contingent funds are issues that have not been decided by the New Zealand High Court.  There is no risk of conflicting court orders.  There should not be any issue of comity.

21.  The build‑in safeguards will prevent any misuse of funds.  There is no need for this court to assess the local conditions in New Zealand.

22.  The only funds available are restrained in Hong Kong.  The Hong Kong High Court should take the lead and deal with the application.  The other parties in the New Zealand civil proceedings could have joined as parties in the present application if they want to.

The gist of SJ’s argument

23.  Mr Walsh, SC, anticipates that the MPAA[15] would oppose the variation proposed by the 1^st defendant in this application.  He argues that it would be more cost effective and expeditious to have the matter heard on the merits by the New Zealand High Court.  There is no need for a contested hearing in Hong Kong as the SJ agrees to a mirror order giving effect to the prospective order of the New Zealand High Court.

24.  Mr Walsh invites this court to stay or adjourn the application, pursuant to the power under O 1B, r 1(2)(b) and (e), pending the outcome of the hearing on the merits in New Zealand.  He invites this court to apply the principle analogous to forum non conveniens[16].

25.  Mr Walsh argues that the New Zealand High Court is the more appropriate forum for the following reasons:

(a)   The Court, with Madam Justice Courtney presiding, had been dealing with applications for variation of the 2012 NZ restraint order and the 2014 freezing order in the past five years.

(b)   The Court is familiar with the issues.  Significant evidence had been adduced in the previous hearings.  The 1^st defendant had been extensively cross‑examined.

(c)   Potential witnesses including the 1^st defendant are resident in New Zealand.

(d)   The Hong Kong High Court has granted a mirror order giving effect to the orders of Madam Justice Courtney made in August 2016.

(e)   There is no personal or juridical disadvantage to the 1^st defendant.

(f)   It is not conclusive that the only funds available are in Hong Kong.

(g)   Madam Justice Courtney has ordered that the living expenses of the 1^st defendant shall be determined by the New Zealand High Court.

(h)   The New Zealand High Court and the other parties of the civil proceedings are not informed of the present application in Hong Kong.

(i)   To have one contested hearing in New Zealand would avoid possible conflicting court orders.

26.  If this court refuses to stay or adjourn the application, Mr Walsh points out the following in opposing the variation:

(a)   The 1^st defendant should be able to find suitable accommodation in Queenstown with the existing NZ$27,000 rental allowance.  The upward adjustment in this application is not justified.

(b)   The renovation work, allegedly planned by the current landlord, has not proceeded since March this year.  There is no reason for the 1^st defendant to terminate the current tenancy before the expiry date on 14 November 2017.

(c)   The medical conditions of the 1^st defendant are continuing problems.

(d)   The car maintenance expenses had been accounted for in the previous court order.

(e)   Family holidays should not be part of the contingent funds.

Forum non conveniens

27.  It is common ground that the assets in Hong Kong are restrained under the 2014 freezing order and the 2012 HK restraint order.

28.  In principle, the defendants may apply to release funds from these assets either in Hong Kong or in New Zealand.  However, there must be a corresponding order from the subsequent court giving effect to the order of the preceding court.  In most cases, the subsequent court dealing with the matter would issue a mirror order giving effect to the order of the preceding court[17]. This is to give due regard to the reasoning of the preceding court and to avoid conflicting orders.

29.  What then is the principle governing the choice of jurisdiction in this situation?  Should the defendants apply for variation in Hong Kong or in New Zealand?

30.  The courts in Hong Kong have consistently adopted the principles, set downby the House of Lordsin Spiliada Maritime Corp v Cansulex Ltd, The Spiliada[18], governing the stay of Hong Kong proceedings by reason of forum non conveniens.

31.  In SPH v SA[19], the Hong Kong Court of Final Appeal adopted those principles as re‑stated by Cheung JA in DGC v SLC[20],  

“1. The single question to be decided is whether there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of an action i.e. in which the action may be tried more suitably for the interests of all the parties and the ends of justice?

2. In order to answer this question, the applicant for the stay has to establish that first, Hong Kong is not the natural or appropriate forum (‘appropriate’ in this context means the forum has the most real and substantial connection with the action) and second, there is another available forum which is clearly or distinctly more appropriate than Hong Kong. Failure by the applicant to establish these two matters at this stage is fatal.

3. If the applicant is able to establish both of these two matters, then the plaintiff in the Hong Kong proceeding has to show that he will be deprived of a legitimate personal or juridical advantage if the action is tried in a forum other than Hong Kong.

4. If the plaintiff is able to establish this, the court will have to balance the advantages of the alternative forum with the disadvantages that the plaintiff may suffer. Deprivation of one or more personal advantages will not necessarily be fatal to the applicant for the stay if he is able to establish to the court’s satisfaction that substantial justice will be done in the available appropriate forum”.

32.  I note that the above authorities concern matrimonial cases.  Our present application concerns variation of a restraint order.  In my judgment, the central issue in both kinds of cases is the choice of jurisdiction to commence proceedings, the same principle should apply.  There is no reason for a different principle in relation to variation of a restraint order.  

33.  The 2014 freezing order has been dealt with by Madam Justice Courtney in the past few years.  The 1^st defendant is resident in New Zealand.  Most prospective witnesses are also resident in New Zealand.  The issues including living expenses and rent have been extensively argued and evidence heard before the Judge who is familiar with the complex background of this case.  The legal teams involved are stationed in New Zealand and ready. Madam Justice Courtney is most appropriate to assess the local conditions and living standard whenever necessary. 

34.  I can see no personal or juridical disadvantage to the 1^st and 2^nd defendants even if the variation is dealt with in New Zealand.

35.  Mr McCoy argues that the issue of living expenses had been dealt with by Deputy Judge Chan in December 2015, the SJ should not be allowed to re‑litigate the issue.

36.  In my view, in December 2015, Deputy Judge Chan had not actually dealt with the application on the merits.  His Lordship correctly gave due regard to the judgment of Madam Justice Courtney given in April and October 2015[21]. Deputy Judge Chan also emphasized the importance of having those issues adjudicated at a hearing attended by all parties concerned.

37.  In the hearing before Deputy Judge Chan in December 2015, the SJ filed evidence to dispute the quantum of specific items.  Deputy Judge Chan decided the case adopting the preceding order of Madam Justice Courtney.  His Lordship saw no need to decide on the merits.  Given this background, it is logical that the SJ invites this court to consider the present application in the perspective of forum non conveniens.

38.  In fact, the 1^st defendant anticipates that there would be opposition of the present application from the MPAA in New Zealand[22].

39.  In my view, it is most appropriate for similar issues of variation be heard before the same court and with all parties present.

40.  It is true that the 1^st defendant had reserved his right to rescind or vary the 2014 freezing order or the 2012 HK restraint order[23]. This however must be subject to the principles of forum non conveniens as stated above.

41.  Mr McCoy pointed out that the judgment of Madam Justice Courtney given on 26 August 2016 only covers ‘living expenses’[24]. He argues that the term ‘living expenses’ does not include rent and contingent funds.  This court is invited to decide issues not before Madam Justice Courtney.

42.  The opening sentence of paragraph 73(c) is important:

“Until further order of the Court the first respondent may not diminish in value, dispose of or otherwise deal with any of the overseas assets referred to in the first respondent’s 5 September 2014 affidavit filed in this proceeding save as provided…(i) In relation to legal expenses…; and (ii) In relation to living expenses…shall be as determined by this Court from time to time”(emphasis added).

43.  Madam Justice Courtney had ordered, in effect, that the Hong Kong funds may not be diminished in value, disposed of or otherwise dealt with, except by order of the New Zealand High Court.

44.  Even accepting the narrow meaning of the term ‘living expenses’, the adjustment of rent and the provision for contingency funds are within the ambit of the order of the New Zealand High Court.

45.  Mr McCoy invited this court to grant an interim order for releasing NZ$648,000 (being two years’ rent based on the current rent allowance) to facilitate negotiation of alternative accommodation by the 1^st defendant during the interim.  While Mr Walsh opposed in principle stressing that this should be dealt with in one‑go in New Zealand, however, the SJ has no objection for the 1^st defendant to continue with the current monthly rent allowance of NZ$27,000.  In the circumstances, I grant an interim order to release NZ$648,000 for two years’ rent to facilitate negotiation of alternative accommodation.

46.  For the reasons above, I agree with Mr Walsh that the application for variation of the 2012 HK restraint order should be stayed until the issues are adjudicated by the New Zealand High Court in due course.  It is in the interest of justice.

47.  Given the above decision, I do not have to consider the objections on the quantum of specific items.

48.  I make the following orders:

(a)   An interim order to give effect to paragraph 45 above.

(b)   I grant the application of the summons filed by the SJ dated 30 June 2017.

(c)   The hearing of paragraphs (2) to (7) of the summons dated 15 June 2017 filed by the 1^st and 2^nd defendants is stayed, with liberty to restore, pending the determination of the New Zealand Court in civil proceeding No. CIV‑2014‑404‑001272 between Twentieth Century Fox Film Corporation and others v Kim Dotcom and others on the merits of the relief sought in the said paragraphs of the summons.

(d)   Applications pursuant to paragraphs (8) and (9) of the summons dated 15 June 2017 filed by the 1^st and 2^nd defendants are granted.

(e)   Costs order nisi of the hearings on 11 and 24 July 2017 be to the SJ.