AKAI HOLDINGS LTD (IN COMPULSORY LIQUIDATION) AND OTHERS v. HO WING ON, CHRISTOPHER AND OTHERS

HCCL 37/2005 and  HCCL 40/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NOS. 37 AND 40 OF 2005

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(Consolidated)

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J U D G M E N T

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INDEX TO JUDGMENT

	Pages
The application	4-6
The present case: an overview	7-10
Connected applications	10-15
The Mareva application: the evidence	15-16
The Worldwide Mareva application: the Orders sought	16-17
Worldwide Mareva: the constituent elements ‘Good arguable case' Assets within and without the jurisdiction Risk of dissipation	17-3518-2021-2222-35
Balance of convenience (i) As against Mr Ho (ii) As against Grande	35-4535-3737-45
The 'funding issue'	45-54
Mareva relief: Quantum	54-62
Disclosure Orders	62-69
Summary	69-70
Orders to be made	70-72
Drawing of the Order	72-73
Continuation of the present Order for Interim Relief	73

The application

1.    This is the judgment upon the plaintiffs’ application, commenced by summons dated 19 November 2008, for relief by way of Mareva injunction against the 1^st and 2^nd defendants in this consolidated action, and for asset disclosure orders against certain of the defendants ancillary to such injunctive relief.

2.    This is far from the run-of-the-mill type of Mareva application as regularly encountered in the Commercial Court.

3. It is mounted within the context of heavy commercial litigation – this is the third of the so-called major ‘Akai liquidation’ cases to arise out of the liquidation of Akai Holdings Ltd (‘Akai’) on 23 August 2000 – in which proceedings initially were commenced by writs issued in different actions on 7 November 2005, and wherein (consequent upon renewal of the writs and subsequent order for consolidation of these actions) a 282 page Consolidated Points of Claim (consisting of 833 paragraphs plus Glossary and Appendices) on behalf of 17 plaintiffs was first served on 31 March 2008 upon the 20 defendants named therein.

4. Unusually, this Mareva application did not commence life upon an ex parte basis.

5. This was an application which, by summons issued on 11 November 2008, initially was sought ex parte on notice with an estimated time of 2 hours – which application, then attended by Mr Manzoni for the plaintiffs and by Mr Yu SC for the defendants – was refused by this court at the hearing on 18 November 2008.

6. Paragraph 2 of the Order of 18 November 2008 required that the existing ex parte on notice summons be reconstituted as an inter partes application, which thus resulted in issuance on the following day of the instant summons with the determination of which this court now is seized.

7. Argument on this summons between the respective teams of counsel – Mr Leslie Kosmin QC leading Mr Charles Manzoni for the plaintiffs, and Mr Richard Snowden QC leading Mr Godfrey Lam SC and Mr Abraham Chan for the so-called ‘Grande defendants’ (namely D1, D2, D4, D6, D7, D9, D15, D16, D18, D19 and D20) thereafter has been entertained over a period of 5 hearing days, the 2 day hearing immediately prior to Christmas 2008 being adjourned to dates in mid-January 2009 for completion of argument.

8. By reason of this unanticipated adjournment (from 23 December 2008 to 19 January 2009), by Interim Order of 23 December 2008 this Court granted interim Mareva relief solely against the 1^st defendant, Mr Christopher Ho, but equally refused to make any like interim order against the 2^nd defendant, Grande Holdings Limited, a Hong Kong publicly-listed company which in substantial part is beneficially owned by Mr Ho. 

9. A verbatim transcript of the extemporary Ruling delivered by the court in acceding to the plaintiffs’ request for such interim relief has been transcribed and made available to the parties.

10. By paragraph 2 of that Interim Order, the injunctive relief as then granted against Mr Ho was to remain extant until the determination by this court of the substantive Mareva application.

The present case: an overview

11. The Mareva application as now mounted cannot properly be understood absent brief indication of the nature and scope of this litigation, which, as is usual, is girt about with significant volumes of paper.

12. Akai, the 1^st plaintiff, was the holding and controlling company of numerous subsidiaries and associated companies who were principally engaged in the manufacture and worldwide distribution and retailing of consumer electronics; each of the plaintiffs was a company within the so-called ‘Akai Group’ of companies, albeit controlled and ultimately held by Akai.

13. The Grande Holdings Ltd (‘Grande’), the 2^nd defendant, also was the holding and controlling company of a group principally engaged in the manufacture and sale of consumer electronic products; Mr Christopher Ho Wing On (‘Mr Ho’) is and was the majority shareholder, President, Group Chief Executive and a director of Grande.

14. The plaintiffs’ claim is that they suffered loss and damage in the hundreds of millions of dollars as a result of a covert agreement made in November 1999 between Mr James Ting, hitherto Chief Executive and de facto controller of the Akai Group, whereby Mr Ting and the then remaining directors of Akai abdicated their positions, and that Mr Ho, Grande and other Grande defendants (in particular the 7^th defendant, The Grande Group Ltd, the 18^th defendant, Samuel Yuen Kin, and the 19^th defendant, Ruby Lee Yen Kee) took control of Akai and its subsidiaries from Mr James Ting, and in so doing became de facto and/or shadow directors of the plaintiffs, and thereafter proceeded to act with blatant disregard for the interests of Akai and the Akai Group.

15. In particular, it is said that in breach of the fiduciary duties which these defendants thereby had assumed towards Akai and the other plaintiffs, and without any proper authority so to do, through a series of transactions these defendants caused Akai to enter into unauthorized transactions and thus to be divested of all of its remaining valuable assets, and further caused Akai’s corporate opportunities to be redirected to Grande.

16. These transactions are said to constitute void dispositions and fraudulent preferences pursuant to section 182 of the Companies Ordinance, Cap 32, given that, pursuant to section 184(2), Akai’s winding up is deemed to have commenced on 13 January 2000, the date of presentation of the petition (by four creditor banks) for Akai’s winding up, this petition finally having been presented, it is also alleged, only after strenuous efforts made by Mr Ho and Mr Ting to delay this event by means of various cosmetic restructuring proposals.

17. In addition to the loss and damage allegedly caused by the various breaches of fiduciary duty on the part of the 1^st, 2^nd, 7^th, 18^th and 19^th defendants, the other defendants variously are said to have received the property of Akai and the other plaintiffs pursuant to such void transactions, and at times when these defendants were controlled by Mr Ho and Grande; thus it is said that they took such property and assets with full knowledge that such was taken or diverted from the plaintiffs in breach of fiduciary duty, and therefore are liable to account therefor to the plaintiffs as ‘knowing recipients’.

18. It is also alleged that in permitting Mr Ho and Grande to take over Akai, Mr James Ting himself was acting in breach of his fiduciary duty to Akai, that Mr Ho and Grande necessarily were aware of this, and thus that their conduct in the ‘stripping’ of Akai’s assets and its corporate opportunities constituted assisting Mr Ting in his own breach of fiduciary duty, thus making them liable as ‘dishonest assistors’.

19. During argument Mr Kosmin QC expressed this situation rather more graphically: Akai and the other plaintiffs, he said, effectively had been subjected to a “double mugging”, first at the hands of Mr Ting, and thereafter, upon the latter’s departure from the scene, at the hands of Mr Ho and the Grande defendants, who had removed what assets remained after the pillaging that Akai already had received at the hands of Mr Ting.

20. Some idea of the scale of the ‘asset strip’ which Akai suffered in the course of the year 2000, said Mr Kosmin, could be gained from the fact that a document dated 10 December 1999 and entitled ‘Preliminary Information Memorandum’ prepared by the accountants, Ernst & Young, at the specific behest of Mr Ho and Grande, had indicated that it then had recorded assets of US$1,248 million, and yet, when the liquidators of Akai took control consequent upon the winding up order – curiously no Provisional Liquidator appears ever to have been appointed – the only assets remaining and located amounted to US$167,675.

21. On the basis of the foregoing facts the plaintiffs mount various claims for damages and to equitable compensation and/or an account of profits and/or restitution.

22. Equitable compensation is claimed both at a general level in terms of the difference between Akai’ assets prior to the intervention of Mr Ho and those assets remaining as at the date of the winding up order, and also at a specific level, in which each plaintiff which has suffered a loss claims for that loss from the defendants; the account of profits which alternatively is sought is an account of profits made by the defendants resulting from the diversion to them of business properly belonging to Akai; the restitutionary remedies which are pursued are in respect of transactions which are allegedly void pursuant to section 182 of the Companies Ordinance, transactions alleged to be unfair preferences under section 50 of the Bankruptcy Ordinance, and section 266 of the Companies Ordinance – no Validation Order ever having been sought from the court with regard to any of these transactions – and in respect of ‘knowing receipt’.

23. The foregoing is able to provide no more than the intrinsic flavour of this dispute, but suffices, I hope, to place the current Mareva application into broad perspective.

Connected applications

24. At this stage I should also refer briefly to various other applications which also were returnable before the court at these hearings, some of which have infused the present Mareva debate:

(i)  By summons dated 22 December 2008, the ‘Grande defendants’ sought orders for:

  first, security for costs against two tranches of defendants on the basis of certain of these defendants being ordinarily resident out of the jurisdiction and on the further basis of those defendants which were registered Hong Kong companies being unable to pay the defendants’ costs herein; and

  second, that the plaintiffs provide the defendants with copies of Agreements entered into “with regard to their respective funding arrangements to finance their legal costs and disbursements for pursuing this consolidated action up to and including the trial and any appeals” (hereafter ‘the funding application’).

  The security for costs application was dealt with by Consent Summons dated 21^st January 2009, the content of which duly was made an Order of this court.

  As to ‘the funding application’, in itself this was not pursued by Mr Snowden QC, albeit the existence of such funding arrangements (which were not denied by the liquidator plaintiff) was to remain a live issue within the context of the ‘good arguable case’ and the ‘balance of convenience’ elements of the Mareva application.

(ii)  By summons dated 9 December 2008, the ‘Grande defendants’ sought to strike out the Consolidated Points of Claim dated 31 March 2008, and sought dismissal of this action (‘the strike out application’). 

  This strike out application – on the face of the summons taken on all available grounds, but in reality focusing upon the primary stance of Mr Snowden that the pleading, even in amended form, clearly infringed the ‘proper plaintiff/reflective loss principle’ – was taken out but one week prior to the date stipulated by this Court, after the grant of various time extensions, for delivery of the Defence on the part of all 20 defendants to the action herein: aside from the 11 ‘Grande defendants’ which are represented in these proceedings by Baker & McKenzie, the 9 remaining defendants have elected for separate representation (the 3^rd defendant: Stephenson Harwood & Lo, the 5^th defendant: Jennifer Lee & Co, the 8^th and 17^th defendants: Yuen & Partners, the 10^th, 11^th, 12^th, 13^th and 14^th defendants: David Lo & Partners).

  This application to strike out has been adjourned for argument to an available date in June/July 2009, this court having made it clear to Mr Snowden that it was unwilling to entertain such application prior to having sight of the Defence of the Grande defendants, thereby precluding any further delay in the immediate progress of this action, and also enabling the court to gain a fuller appreciation of the wider picture.  With this course Mr Snowden did not disagree, albeit clearly this did not preclude him from referring to his complaints as to the Consolidated Points of Claim (“fundamental structural problems” which, he maintained, Mr Kosmin’s proposed amendments did nothing to ameliorate) during his submission that in terms of the Mareva application there was no ‘good arguable case’ for his clients to meet.

(iii) Plaintiff’s application to amend

  At the commencement of the Mareva application on 22 December 2008, Mr Kosmin had taken took the court at some length through the as then-unamended Consolidated Points of Claim, and, having been apprised of the forthcoming submission by Mr Snowden QC as to the allegedly deficient nature of the pleading due to infringement of the ‘proper plaintiff/no reflective loss’ principle – which he firmly rejected as revelatory of a fundamental misunderstanding of the plaintiffs’ claim in this action (“wholly irrelevant to the restitutionary claims and fraudulent preferences”) – at the same time he had foreshadowed to the court that he foresaw making certain amendments to the Consolidated Points of Claim in light of the recent Court of Final Appeal decision in Waddington Ltd v Playmates & Ors, FACV 15 of 2007, Determination dated 2 September 2008.

  Pursuant to this earlier indication, at the resumed hearing in January of the Mareva application Mr Kosmin produced a draft Amended Consolidated Points of Claim, and formally sought leave (if leave formally were to be required) to file and serve this pleading.  He submitted that the amendments as now sought were limited in scope and few in number, and addressed three distinct matters:

  (a) the introduction of a new cause of action based on equitable fraud, in light of the decision of Owen J of the Supreme Court of Western Australia delivered on 28 October 2008 in The Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9), [2008] WASC 239; the effect of this remedy based on equitable fraud, he submitted, was that all of the transactions and dealings imposed on Akai and the Akai Group from the time when they were controlled by Mr Ho and the Grande Group fell to be set aside against the plaintiffs to the extent that they are parties to the transactions or are in any way affected by them and which, in turn, would entitle the plaintiffs to an account of profits and/or equitable compensation from each of the defendants, and thus to provide the plaintiffs with an ‘umbrella remedy’ against the defendants and a complete answer to the technical ‘transaction by transaction, party by party’ approach to defending this action, which involved the defendants effectively urging the court to adopt an unsatisfactory ‘form over substance’ approach;

  (b)    certain amendments consequential on the decision of the CFA in Waddington, op cit., which held that the ‘disability’ exception (described in Giles v Rhind [2003] Ch 218) to the ‘no reflective loss’ principle was not part of the law of Hong Kong.  These ‘Waddington amendments’, said Mr Kosmin, thus would remove any proprietary claims in respect of ‘Sansui’ and ‘Akai’ trademarks and patents, and ‘Kawa’ trademarks, which pleas formerly were grounded on the disability of the companies concerned, which companies in any event no longer were controlled by Akai, and which instead now are controlled by Grande, and represented claims which under current Hong Kong law it is accepted no longer could be formulated in that fashion;

  (c) specific amendments to individual paragraphs to provide additional particulars, plus correction of typographical errors.

  As earlier indicated, Mr Snowden QC made it clear that these amendments did not address the fundamental concerns he had with this pleading, and I have no doubt that counsel will expand on this theme at the forthcoming hearing of the strike out application.

  In the meantime, however, the draft amendments formally were permitted to be made, without prejudice to the ‘Grande defendants’ right to attack the Consolidated Points of Claim in such amended form at the hearing of the strike out application. 

  I apprehend that this Amended Consolidated Points of Claim, as engrossed in terms of the draft, will be served on the ‘non-Grande defendants’, and that the Defences as filed by all defendants (the court having ordered that the time for so doing now is extended to 15 April 2009) will be directly responsive to this Amended Consolidated Points of Claim.

The Mareva application: the evidence

25. I turn now to consider the application with which this judgment primarily is concerned.

26. On behalf of the plaintiffs, the relevant evidence takes the form of affidavit evidence from Mr Cosimo Borrelli, the lead liquidator in the Hong Kong liquidation of Akai (there are, I understand, parallel liquidation proceedings in Bermuda), whose 7^th, 8^th, 9^th and 10^th affidavits in this litigation are dated respectively 12 November, 21 November, 21 December 2008, and 19 January 2009.

27. On behalf of the defendants, Mr Christopher Ho has sworn two affirmations: the 1^st dated 17 November 2008, and the 2^nd dated 9 December 2008.

28. In reaching my conclusion I have considered the totality of this evidence.

29. In this context I confess that I have been underwhelmed by the nature of the evidence filed by Mr Ho.  I do not wish to be unfair, nor unduly critical, and I bear firmly in mind that care must be exercised in evaluating affidavit evidence absent the opportunity for cross-examination, but nevertheless it strikes me that his two affirmations are ‘thin’ and unsubstantiated by relevant contemporary documentation; perhaps the fairest and most objective comment is that they do noting to inspire confidence.

The Worldwide Mareva application: the Orders sought

30. As indicated at the outset, in these proceedings the plaintiffs seek both worldwide Mareva relief and ancillary Disclosure Orders.

31. The specific injunctive relief as now sought differs substantially from that as originally set out in the ex parte on notice summons dated 11 November 2008 (whereby Mareva relief initially had been sought against the 1^st, 2^nd, 4^th, 6^th, 7^th, 9^th, 15^th, 16^th, 19^th and 20^th defendants) in that the plaintiffs now seek Mareva orders against the 1^st and 2^nd defendants only.

32. As against the 1^st defendant, Mr Ho, and the 2^nd defendant, Grande, the plaintiffs seek to restrain dealings in their worldwide assets up to a maximum (cumulative) value of US$500 million.

33. In this context, Mr Kosmin has made it clear during the December hearing that in this regard his ‘primary target’ was Mr Ho, and that his ‘secondary target’ was Grande, although he subsequently has said that he would have no objection if the court were to apportion the maximum sum of US$500 million between the 1^st and 2^nd defendants.

34. In addition, ancillary disclosure orders are sought by the plaintiffs not only against the ‘injuncted defendants’ (that is, the 1^st and 2^nd defendants), but also against the 4^th, 6th, 7^th, 9^th, 15^th, 16^th and 20^th defendants, which entities are companies said to be owned by Mr Ho, to the effect that they each make disclosure to the plaintiffs of their worldwide assets which have an individual value of US$100,000 or more.

Worldwide Mareva: the constituent elements

35. There is no dispute but that for the grant of Worldwide Mareva relief, there must be demonstrated that (i) there is a ‘good arguable case’ against the defendants in respect of the claim; (ii) that the defendants have no assets or insufficient assets within the jurisdiction to satisfy the claim; (iii) that refusal of the relief sought would involve a ‘real risk’ of dissipation of the defendants’ assets in such a way that a judgment in favour of the plaintiffs would go unsatisfied; and (iv) that it is ‘just and convenient’ so to grant the injunctive relief: section 21L(1) of the High Court Ordinance, Cap 4, otherwise subsumed within the general rubric of the ‘balance of convenience’.

36. Subject to the issue of the whereabouts of assets, the basic principles for the grant of a worldwide Mareva do not differ from those applicable to a purely ‘domestic’ Mareva: in Bank of India v Bhagwandas Kewelam Murjani & Ors [1989] 2 HKLR 318, at 320, Kempster JA put the matter thus:

“Thus, subject to provisos and undertakings apt to allow the defendant to carry on his business and private life in the ordinary way and to limit the effect of the order on third parties outside the jurisdiction, the principles applicable to the grant of an injunction inhibiting the disposal of assets are…equally applicable to the grant of such injunction directed to assets outside it.  We so conclude in the light of the several persuasive authorities decided between June and December 1988 during which the practice in the English Court of Appeal was developed and clarified and, in particular, of Derby & Co Ltd v Weldon (No’s 3 &4) [1989] 2 WLR 412…”

37. Whilst the legal elements necessary to justify the grant of a Mareva excite no controversy, the parties wholly differ upon whether these elements have been shown to exist on the evidence before the court.

38. I deal with each of these issues in the foregoing order.

39. ‘Good arguable case’

39.   The test of ‘good arguable case’ was considered in detail in Ninemia Maritime, op cit.,(at 404) wherein the formulation of Mustill J – upheld on appeal at [1984] 1 All ER 398, at 413 et seq – was that the plaintiff need not go so far as to persuade the judge that he is likely to win, but that a good arguable case is one that is “more than barely capable of serious argument, and yet not necessarily one which the judge believes to have a better than 50% chance of success.”

40. Applying that test to the present case, I have little doubt but that this test is met, subject always to the issue of the quantum of the plaintiffs’ claim – which represented one of the principal arguments of Mr Snowden QC on this issue, who strongly submitted that no only did substantial parts of the Points of Claim infringe the ‘proper plaintiff/reflective loss’ principle (and thus should be struck out on that basis, as would be demonstrated when the application to strike out was heard), but that in any event there was no ‘good arguable case’ for the amount of US$500 million, that the quantum as sought by the plaintiffs in this case was absurdly high and logically indefensible, and at the very most the claim could be in the “low tens of millions”, albeit in his written submission had he managed to reduce it to very substantially less.

41. It seems to me that the ‘quantum aspect’ of the defence argument, which is relevant to several lines of argument, best can be dealt with later in this judgment when I come to consider the issue of the monetary level of any relief that this court may see fit to grant upon this application.

42. I note, also, that whilst I accept that on the face of all the material presently before the court that there is sufficient to underpin the grant of Mareva relief, I do not consider correct the plaintiffs’ submission that the fact that because on 21 December 2007 this court saw fit to grant, upon Mr Borrelli’s paper application, ex parte leave to serve out of the jurisdiction in respect of the 5^th, 8^th, 10^th – 14^th and 17^th defendants is in any way conclusive on this issue, or that it is anything to the immediate point.

43. Be that as it may.  At bottom, the plaintiffs’ case seems to me to satisfy the first criterion for the grant of worldwide Mareva relief and, as put, the broad outline of this case is tolerably clear.

44. To repeat: it is that in taking control of Akai and its subsidiaries, Mr Ho, Grande and others who had assumed the role of de facto or shadow directors of Akai and its subsidiaries – and thus owed fiduciary and statutory duties concomitant with ordinary de jure directors – knew that Akai and its subsidiaries were insolvent or near insolvent, and therefore there should have placed Akai and its subsidiaries into liquidation or provisional liquidation at that time; instead, say the plaintiffs, Mr Ho and the Grande defendants pointedly avoided this obvious course, representing themselves as ‘rescuers’ of Akai and its subsidiaries for the covert purpose of stripping the assets of Akai and its subsidiaries and integrating them into Grande for Grande’s benefit.  Thus, it is said, by procuring Akai’s continued existence outwith any independent governance regime, Mr Ho and the Grande defendants breached their fiduciary duties to Akai and its subsidiaries, and the ultimate effect of this conduct was that by the time that Akai formally was wound up in August 2000, there simply was nothing left in the till.

45. Accordingly, this plaintiffs contend that they are entitled to be restored to their position as at November 1999, that is, at the time that Grande and Mr Ho took over, and at the time that the fiduciary breaches commenced; it follows that the plaintiffs seek either equitable compensation or alternatively an account of profits from the benefits gained by Mr Ho and Grande from their manifold breaches of fiduciary duty, albeit whether this remedy is elected for can only subsequently be determined, and certainly not until after discovery.

46. From that which I have read and heard thus far – admittedly I have not yet entertained Mr Snowden’s strike out argument, which is scheduled for some weeks hence, and thus I have not yet had the advantage of full and detailed argument – I presently do not consider that the alleged ‘lack of proper plaintiff/reflective loss’ argument, which lies at the heart of the defendants’ objections to the ‘good arguable case’, is immediately and obviously fatal to the plaintiffs’ case, and subject always to the issue of quantum, in my judgment for present purposes the requirement of a ‘good arguable case’ is satisfied against both the 1^st and 2^nd defendants, Mr Ho and Grande, whom are the only entities against whom the plaintiffs now seek worldwide Mareva relief.

 Assets within and without the jurisdiction

47. I do not think that the existence of assets within and without the jurisdiction is an issue in this case; in fact, the known circumstances of Mr Ho and Grande appear to make this proposition an obvious one not capable of dissent, and I touch on it briefly only for the sake of completeness.

48. It is known that Mr Ho holds his private assets through opaque corporate structures in differing jurisdictions around the world, and during this hearing reference has been made to a corporate chart (at ‘Annexure D’ to the plaintiffs’ skeleton argument) which is thought to approximate the shareholding structure in various private companies and trusts as at February 2008.

49. The principal jurisdiction involved appears to be the British Virgin Islands – with which, as Mr Kosmin points out, Hong Kong has no reciprocal arrangement for the enforcement of judgments – and through such BVI companies Mr Ho holds significant assets in Canada and the United States.

50. The plaintiffs maintain, in my view not unfairly on the face of the presently available evidence, that there is a high probability that there are insufficient assets within Hong Kong to satisfy any judgment as may be awarded against him in due course.

51. As to the assets of Grande, which I am told by Mr Kosmin fundamentally is a ‘holding company’, once again the most valuable Grande assets are known by the liquidators of Akai to be held through opaque corporate structures incorporated in remote jurisdictions, and thus there equally is a risk that there are insufficient assets in Hong Kong to satisfy any judgment which in due course may be entered against the 2^nd defendant.  In a sense, the issue of ‘risk of dissipation’, to which I now turn, tends to underscore the point in terms of potentially insufficient Grande assets remaining within this jurisdiction, and thereby justifying grant of worldwide Mareva relief.

Risk of dissipation

52. As to applicable principle, the benchmark here is the concept of ‘risk’, and there is no requirement to prove nefarious intent per se: see Kerr LJ in Ninemia Maritime Corporation v Trave Schiffahrtsgesellschaft mbH & Co KG (‘The Niedersachsen’) [1984] 1 All ER 398, at 419f-j:

 “In our view the test is whether, on the assumption that the plaintiff has shown at least a ‘good arguable case’, the court concludes, on the whole of the evidence then before it, that the refusal of a Mareva injunction would involve a real risk that a judgment or award in favour of the plaintiff would remain unsatisfied…”

It is also established that evidence of behaviour on the part of defendant disclosing an “unacceptably low standard of commercial morality” (per Godfrey J in Honsaico Trading Co v Hong Yiah Seng Co Ltd [1990] 1 HKLR 235, at 240 or “questionable integrity” (see Standard Chartered Securities v Lai Arthur & ors [1993] HKC 375) will entitle the court to conclude that there is a sufficient risk to justify the grant of a Mareva injunction; see also Gee, Commercial Injunctions (5^th ed), at 12.040.

53. Moreover, where a good arguable case is established on a claim for fraud or dishonesty, a court more readily may infer a real risk of dissipation: see CAC Brake Co Ltd Zhuhai v Bene Manufacturing Co Ltd & Ors, unrep., 30 April 1998, CACV No 94 of 1998, citing Norwich Union Fire Insurance Society Ltd v Eden, unrep, 25 January 1996, English Court of Appeal), where Phillips LJ (as he then was) stated:

“It seems to me that when the court considers that there is a good arguable case it is at that stage that it considers whether the likelihood of a judgment in favour of the plaintiff is sufficient to justify the grant of Mareva relief.  If it is so satisfied, the question then arises:- if such a Judgment is given, what is the risk that there will be no assets there to satisfy it?  If the judgment in question being considered is a judgment in which allegations of fraud are made, then it seems to me that it is open to the court to conclude from that fact alone that there is a sufficient risk of dissipation of assets to justify the grant of relief…”

54. Once again, underlying legal principles are not in dispute; however, the factual matrix which is said to constitute evidence of such risk has been hotly debated. This element has taken up a good deal of the argument, and for immediate purposes I attempt to do no more than to summarise the opposing contentions.

55. Mr Kosmin says that, when taken as a whole, the evidence before the court abundantly demonstrates conduct on the part of Mr Ho and Grande which is devious and of an unacceptably low standard of commercial morality, and that there must be a real danger that if Mr Ho thought that it was in his best interests so to do that he would not shirk from attempting to defeat the interest of the plaintiffs under any judgment which may be obtained in this action.

56. He asserts that the primary factors demonstrating a risk of dissipation are (a) the underlying facts which give rise to this litigation, which facts have been extensively pleaded in the Amended Consolidated Points of Claim, which point to the covert taking of control of Akai and the clinical ‘asset stripping’ of Akai during the course of 2000; and (b) the actual disposal of assets of Grande during late 2007 and 2008.

57. In the latter regard the liquidators say that they first had learned of the type of conduct which formed the genesis of this application on 22 October 2008, when Mr Ho and the Grande defendants filed a skeleton argument in support of an application for disclosure of transcripts of section 221 examinations undertaken by the liquidators, which skeleton argument had disclosed to the liquidators for the first time the fact that Grande’s interest in the 9^th defendant, TWD Asia Limited and what are known as ‘the Zhongshan companies’, that is, the 10^th – 14^th defendants, had been sold.  This information then stimulated an urgent chain of inquiry, culminating in the discovery that since the commencement of this action there had been a slew of recent, and, so say the liquidators, commercially-unjustifiable disposals, of Grande’s assets amounting to some HK$880 million.

58. These dispositions vary both in size and in potential significance, but they are summarized by the plaintiffs as follows:

(i)    the sale in November 2007 of property owning companies by Grande to a Ho-controlled and partially owned subsidiary called ‘Lafe Corporation Limited’ (‘Lafe’), a company quoted on the Singapore Stock Exchange, at what the plaintiffs say was an undervalue of US$13.972 million;

(ii)  the January 2008 distribution by Grande of its entire shareholding in Lafe (valued by Grande at US$90.8 million) by way of a dividend in specie, the principal beneficiary of which was Mr Ho, who thus ended up holding 52% of Lafe;

(iii)    the sale by Grande in the first half of 2008 of its interest in Zhongshan Kawa Electronics (Group) Co Ltd (‘ZKEG’) for nominal consideration (HK$1,000), either directly or by way of sale of TWD Asia, the holding company for Grande’s interest in ZKEG;

(iv)    the forgiveness, write off or effective assumption by a third party, on unspecified terms, in the first half of 2008, of amounts owing to Grande by ZKEG totalling up to HK$349 million;

(v)  the forgiveness in 2007 of an amount of HK$189 million owed to Grande by Starcom Pacific Trading Ltd (‘Starcom’) for no apparent commercial purpose;

(vi)    the payment of cash dividends totalling HK$115 million since November 2007, the principal beneficiary of which has been Mr Ho, notwithstanding Grande’s “parlous financial position” and the obvious risk of future liability to the plaintiffs arising from these proceedings.

59. In his submissions as to risk of dissipation it is fair to say that Mr Kosmin placed greatest stress on the ‘Lafe distribution’, the sale to ZKEG and the apparent forgiveness of the debt owed to Grande, and the forgiveness of the Starcom debt of US$14.3 million.

60. For the Grande defendants, Mr Snowden had little truck with this approach.

61. He noted that the plaintiffs summarily had abandoned their application for Mareva freezing orders against the 4^th, 6^th, 7^th, 9^th, 15^th, 16^th, and 20^th defendants – which had been their initial stance – and he said that the proper focus of a Mareva injunction is, and can only be, upon the improper dissipation of assets, and that ordinary business dealings, even those which had the practical effect of a substantial depletion of the defendant’s assets, did not amount to a valid basis for the grant of Mareva relief: see Halifax v Chandler [2001] EWCA Civ 1750 at paras 18-20.

62. Real and cogent proof of risk of dissipation was all-important, he maintained, in this regard emphasising the dictum of Mortimer VP in Yau Kwok Chiu v Yau Kwong Ha, CACV 132 of 1999, judgment dated 9 July 1999, wherein the learned judge stated:

“A Mareva type injunction is a draconian order.  It is an order that is usually made in commercial actions but, of course, it is not only available in such actions.  It is, however, made only in very limited circumstances which are well-known.  It is only made in limited circumstances because it is such a drastic order and because it can have a devastating effect upon the person or company restrained.  The primary basis necessary for such an order is that there is evidence of a risk that the defendant will dissipate his or her assets so as to make any judgment a valueless one.  Proof of this risk of dissipation is vital…”

63. Mr Snowden referred also to the established factors relevant to the assessment of risk in any case as adumbrated in the well-known standard text, Gee, Commercial Injunctions (5^th ed), at para 12.039, which factors included the ease or difficulty with which the defendant’s assets could be disposed of or dissipated, the nature and financial standing of the defendant’s business, and the length of time it had been established.  In this connection he made the strong point that Grande is a publicly-listed company in Hong Kong, is internationally known and well-established, and its operations are overseen by a Board of Directors which presently includes a former President of the Law Society of Hong Kong.

64. Mr Snowden also took the opportunity to examine in some detail the 6 transactions which were contended by the plaintiffs to constitute cogent evidence of improper dissipation.

65. He noted, inter alia, that the property sale to Lafe had taken place before the service of the writ in these proceedings, and that there was a clear commercial rationale for this sale, namely that Grande should focus on its core business in consumer electronics, not on property management, whilst the allegation that Grande did not receive fair value for the site simply was bad, given that it had been underpinned by two independent valuations by reputable valuers as at June 2007, and that the Sale and Purchase Agreement of June 2007 was based on those valuations, the difference in value between that and the revaluation as at 31 December 2007 being a function of market movements in both Singapore and Hong Kong; moreover, these transactions had been publicly announced.

66. As to the Lafe dividend distribution in specie, he said that once again the commercial rationale was clear: there were distributable profits, and such distribution would permit Grande shareholders to hold a direct investment in Lafe, which would further Grande’s strategic objective of “re-configuring the operational structure” of the Grande group, which was the evidence on the point put forward by Mr Ho. 

67. Moreover, the distribution as made had been consistent with Grande’s previous dividend policy, the explanation of Mr Ho that this action had resulted in a “clear cut operational structure” clearly was not a lately constructed rationale, having been prominently disclosed in the Chairman’s statement in Grande’s 2007 Annual Report and in the Directors’ Report, and in any event a distribution in specie was not an uncommon commercial practice – Grande had so distributed in respect of Sansui shares in 2001 and 2003.  Nor had this distribution been kept ‘under wraps’: in this regard there had been a Grande public announcement dated 9 January 208, a circular issued by Grande on 17 January 2008, a circular issued by Grande on 22 April 2008 on a management services agreement with Lafe – Grande now was renting its office building in Hong Kong, which hitherto it had owned and which now was owned and managed by Lafe, and it also had been mentioned in the Notes to the 2008 Grande Interim Report dated 17 September 2008.

68. Mr Snowden also put forward persuasive submissions in terms of the other matters prayed in aid by the plaintiffs in terms of risk of dissipation: there had, he said, also been a clear commercial rationale, namely the streamlining of Grande’s business, for the disposal of the TWD shares, whilst the Zhongshan companies were loss-making companies in which Grande had an indirect 50.1% interest, and these losses hitherto had been funded by Grande.  This transaction, he argued, had involved no forgiveness of debts owed to Grande, because, following the disposal, as a purely accounting issue the amount stated to be due from ‘associates’ had been re-classified under the accounting rubric ‘prepayments, deposits and other assets’ in the unaudited 2008 interim report, there had been disclosure to the public in the Grande Interim Report dated 17 September 2008, and indeed the Grande defendants had “directly and frankly informed the court and the liquidators” that TWD Asia no longer was part of the Grande group in the skeleton argument used before Kwan J in the argument seeking disclosure of the section 221 transcripts, thus once again patently demonstrating the lack of any reason or desire to conceal this legitimate transaction.

69. As to the ‘Starcom situation’, Mr Snowden argued that there had been no forgiveness of the HK$189 million debt, and that this ‘debt elimination’ had been the result of a negotiated reduction with Starcom, an independent third party, of HK$112 million from the sale price of a 15% stake in an entity known as Capetronic, which mainly was involved in the manufacture of price-competitive flat panel display products, and that this price reduction had been informed by a significant change in market conditions which had rendered it desirable for Grande to scale back its original business activities in that area of consumer electronics.  Once again, he said, this was entirely consistent with Grande’s position that this transaction “wholly legitimate and reasonable”, and was a transaction of which full disclosure had been made.

70. Similarly, the cash dividends of which complaint was made had been consistent over the years from 2001, all such dividends had been at prudent levels, Grande’s gearing ratio had not been affected by such dividend payments, and a regular dividend policy would strengthen the Grande share price and meet shareholder expectations.  It simply did not follow, leading counsel said, from the fact that Grande, like most substantial commercial enterprises, borrowed to finance its operations, including dividend payments, that such dividends had been paid illegitimately, and it was nonsense for the liquidators now to propose to “allow” Grande to pay cash dividends of up to HK$60 million per year, which was the position the plaintiffs were seeking to achieve, at least on the face of the proposed draft Order.

71. This debate was spirited, and I have not found it easy fairly to resolve.  I bear in mind, as Mr Snowden emphatically pointed out, that save for a clear case of unjustified dealing, it is not the place of the plaintiffs, nor indeed of this court in the exercise of its Mareva jurisdiction, to review or second-guess the merits of past operational commercial activity.

72. I dare say, absent the Lafe distribution in specie, that I should have been rather more ambivalent to the suggestion that the other matters of which complaint now is made (which admittedly arouse suspicion) in themselves necessarily were indicative of a risk of dissipation on the part either of Mr Ho or of Grande – although in this connection I remind myself it is not always easy to separate the interests of these defendants given that it is common ground that Mr Ho is the beneficial owner of 69/70% of Grande, and thus, if he so wishes, ultimately is able practically to ensure that Grande follows whatever course he may desire.

73. However, I have been impressed by the force of Mr Kosmin’s arguments in terms of the ‘Lafe distribution’.

74. There is no dispute but that this distribution, which was characterized merely as a Second Interim Dividend (and thus did not require shareholder approval) occurred, and involved a disposal of the assets of Grande with a book value of HK$708 million.  In principle I decline to ‘second guess’ apparently normal commercial transactions, but I am unable to convince myself that a distribution of this nature in fact can be regarded as a ‘normal’ dividend; whatever may vaguely be said in terms of such distribution having had the “strategic objective of re-configuring the operational structure of the Grande group”, at bottom this was an wholly extraordinary distribution by any standard, which in my view cannot be explained save as a clear indication of an intent to divest Grande, which is a defendant in this action, of a substantial part of its asset base in favour of Lafe, which is not.

75. No Board papers or other material justifying this extraordinary distribution by way of 2^nd interim dividend have been produced to explain how this can have been in the best interests of Grande, given that Lafe appears to have been a significant contributor to the turnover and profit of Grande, there is no obvious commercial rationale for this action, and certainly none has been disclosed by Grande or Mr Ho in the evidence filed herein on behalf of the defendants; in fact, Mr Borrelli has explained (in his 7^th affidavit) that Lafe contributed about 35% of the tangible assets of Grande in 2007, and was so profitable that it was responsible for reducing the loss that the Grande group suffered in 2007.

76. Mr Kosmin also has pointed out that the distribution of Lafe was not foreshadowed when Grande earlier had sold properties to Lafe, and, to the contrary, Grande’s public announcement of the property sale on 29 June 2007 gave precisely the opposite impression in stating therein that “Lafe will remain as a 64.31% owned subsidiary of the Company”.  He further characterized the rationale now put forward regarding the desirability of achieving a “clear cut operational structure” as an ex post facto attempt to justify the unjustifiable, and that had this represented the real explanation, it would have been easy for Mr Ho and other directors of Grande to have said so on affidavit and to have explained this in detail, together with an indication of the considerations which apparently led the Directors of Board of Grande to conclude that this action was commercially sensible and in the best interests of Grande; however such was not forthcoming.

77. Leading counsel further suggested that in any event there is no hint of any justification for the Lafe distribution having been placed before the Board of Grande: within the assembled papers there is evidence only of a circular resolution in writing apparently signed separately by each Board member, which in itself would indicate the absence of any formal Board meeting or explanatory Board paper, whilst the resolution itself fails to identify any reason underpinning its adoption.  Mr Kosmin goes so far as to suggest that on the state of the evidence before the court, it safely can be concluded that on the probabilities the Board of Grande did not consider whether the Lafe distribution was, or was not, in the best interests of Grande, as distinct from the best interests of Mr Ho.

78. Nor, said Mr Kosmin, was it of significance that this transaction was disclosed to the Stock Exchange of Hong Kong.  The short point was that this had to be so under the Listing Rules (Rule 13.45), and indeed it would not have been possible to have achieved this distribution without such disclosure after the event.

79. At the end of the day, therefore, I accept the strong submission made on behalf of the plaintiffs that, when taken at face value, there remains no normal commercial rationale for Grande to distribute Lafe in specie.  As Mr Kosmin has emphasized, a distribution of this type is different in nature, size and substance in comparison with the payment of ordinary periodic cash dividends in normal commercial course.

80. During his submissions Mr Kosmin went on to analyse in some detail the sale of ZKEG (for HK$1,000) and the forgiveness of the debt of HK$349 million – observing that if this sale indeed was a bona fide arm’s length commercial bargain to an independent third party, with a sound commercial rationale from Grande’s perspective, that it would have been easy for Mr Ho to have demonstrated this by means of objective evidence as opposed to mere bare assertion – and he also considered the forgiveness of the ‘Starcom debt’ owing to Grande in the sum of US$14.3 million, noting that this apparently had been agreed to in December 2007, a mere 12 months after a valid and binding contract had been entered into which had obliged Starcom, another hitherto unknown BVI company, to pay that amount over a period of 7 years, as was confirmed by the Notes to the 2006 Grande accounts. 

81. He suggested, once again, that the evidence on this issue as offered by Mr Ho was little more than bare assertion, and that the only document produced to underpin this was a letter from Starcom dated 21 December 2007, which was wholly inadequate to justify the forgiveness by Grande of such a sizeable debt; nor, he said, had there been any disclosure of the reasons underlying such forgiveness, in that no explanation is given in the Grande 2007 accounts for the fact that the amount hitherto due to Grande is shown to have gone from US$189 million to zero, nor had there been any public announcement from Grande in respect of the forgiveness of the Starcom debt, thus providing, he submitted, “another example of an actual asset disposal by Grande for which there is no identifiable commercial benefit and for which no disclosure was made either before or after the transaction”, and thus buttressing his contention as to the risk of dissipation.

82. As earlier intimated, notwithstanding the commercial curiosities inherent within these other transactions which have been prayed in aid by the plaintiffs, and which in themselves may or may not have been sufficient to get them home on ‘risk of dissipation’, in my judgment the Lafe distribution in specie – which was referred to by Mr Snowden, correctly in my view, as the “high watermark” of Mr Kosmin’s case as to risk of dissipation – has driven me to the conclusion that for the purposes of this application the plaintiffs indeed have established such a risk on the part both of Grande and Mr Ho.

83. As to the position of Grande itself, as Mr Kosmin has emphasized he was here not dealing with ‘risk’ but with ‘actualité’, given that the evidence before the court discloses the hard fact that Grande’s assets have been diminished by over HK$1.1 billion during the last twelve months, leaving Grande with, it is thought, net tangible assets of but some US$13 million (not counting intangibles such goodwill and the value of trademarks and so forth).

84. As to the position of Mr Ho, whilst the liquidators have no evidence of Mr Ho having actually disposed of his personal assets, I agree with and accept the submission that the circumstances point to the inevitable conclusion that there is a clear risk that this gentleman will do so; in fact, opined Mr Kosmin, it is not perhaps surprising that the plaintiffs are unaware of any actual dissipation of Mr Ho’s assets given that they appear to be held through opaque chains of private BVI companies, and that to-date Mr Ho has made no disclosure of such holdings.

85. Nevertheless the ineluctable fact remains that in terms of these private BVI companies Mr Ho, as controller and major shareholder, must be regarded effectively as the ‘puppet master’, and that he remains responsible for the conduct of Grande and its subsidiaries.

86. Moreover, the plaintiffs say that Mr Ho appears to have been restructuring his private holdings (the chart produced at ‘Annexure D’ of the plaintiffs’ skeleton argument purporting to demonstrate this assertion), and, as Mr Kosmin has explained, the fact remains that Mr Ho has been responsible for the extraordinary underlying factual matrix which forms the substance of this litigation – hence the contention, which I accept has been established, as to risk of dissipation.

87. Given that this thus represents satisfaction of the third ‘leg’ of the requirement for the imposition of a worldwide Mareva, what therefore is the situation in terms of the overall discretionary weighing exercise which the court must be perform prior to the grant of injunctive relief?

Balance of convenience

(i)  As against Mr Ho

88. The plaintiffs say that there are no circumstances identified on the evidence which would take the case outside the ordinary cases where Mareva relief would follow on a risk of dissipation being demonstrated.

89. Mr Kosmin relies in particular upon Mr Ho’s dominance and direction of the improper transactions which caused the demise of Akai and which form the subject-matter of this action, his lead role in the dissipations as actually have taken place in terms of Grande, his direct and substantial benefit from the misconduct alleged against him taken together with the commensurate detriment to Akai, and to his “continued obstruction” of the liquidators between 2001 and 2007.

90. It is thus said that the totality of the evidence indicates that Mr Ho has engaged in serious misconduct including self-dealing with, and self-benefit from, the Hong Kong assets of Akai and Grande, and that his commercial modus operandi includes the use of complex offshore corporate structures, the creation of documentation of limited and questionable provenance (wrongful backdating of security instruments is alleged), and a disregard of normal standards of corporate governance, including entry into the ‘Lafe transaction’ apparently without contemporaneous Board discussion or professional advice. 

91. In fact, Mr Kosmin says that whatever caution the court may exercise when examining the balance of convenience in respect of Grande, none of these same concerns apply to Mr Ho, and he puts it as high as submitting that there could be no party before the court whose conduct and approach warranted Mareva intervention more than Mr Ho, against whom orders freezing Mr Ho’s assets and ancillary disclosure should follow “as a matter of course”.

92. For his part Mr Snowden strongly resists any order against Mr Ho personally, emphasizing that, putting to one side argument based upon corporate interests (which he does not accept), the plaintiffs have been unable to cite any example of Mr Ho’s personal disposal of assets.  In this regard I think it fair to say that Mr Snowden’s arguments as to quantum, ‘good arguable case’ and the absence of any real identifiable risk of dissipation in turn infuses his argument as to the ‘balance of convenience’.

93. In face of the information placed before the court, and subject to quantum considerations, with which I shortly deal, I am in little doubt, and so hold, that when it comes to Mr Ho a good case has been shown for coming down on the side of the plaintiff liquidators in terms of the balance of convenience, and thus in principle warranting the grant of a Mareva injunction against Mr Ho.

(ii) As against Grande

94.  In terms of the interim Mareva relief granted by this court in December 2008, Grande specifically was excluded from such relief, and the ‘balance of convenience’ argument in the context of Grande continues to pose problems.

95. Mr Kosmin specifically recognizes that as Grande is a listed company, that in principle the court should approach this question with “justifiable caution”, and that such an order against a listed company is “somewhat unusual”.

96. Counsel seeks to overcome the instinctive judicial reluctance thus to interfere with the commercial operations of a public listed company by characterizing Grande as “not a normal” public company but “substantively a private company with a small minority interest and very thinly traded shares” – in fact, Mr Kosmin asserts that by far the greater part of the market in Grande shares is made by Mr Ho personally, given that he has been the buyer of 69% of all Grande shares sold on the HKSE since 1 October 2008, which means that the single event which would have the most dramatic impact on Grande shares would not be Mareva injunctive relief but if Mr Ho himself were to stop buying Grande shares.

97. Mr Kosmin says that Grande effectively is little more than Mr Ho’s private fief, given that he owns some 70% of the issued share capital, and that there is or appears to be only a small public float of some 19%, and even then it is not known what influence if any Mr Ho has over this element of the issued shareholding.

98. In any event, he submits, given that Mr Ho clearly is the sole dominant force and decision maker within Grande, the evidence now before the court tends to confirm an absence of standard modern corporate governance practices or consultative decision making within Grande, and that despite its formal listed status, effectively there is substantive parity of identity between Grande and Mr Ho in just the same manner as there had been between Mr Ting and Akai until November 1999.

99. Nor, it is argued, does the Hong Kong Stock Exchange listing of Grande provide much source of comfort to the plaintiffs, since under the Listing Rules, only transactions involving greater than 25% of the assets, revenue, equity or market capitalization of Grande must be subject to prior announcement and shareholder approval, whilst pursuant to Listing Rules 14.08 and 14.33, other dealings at most would be subject to post-event announcement.

100. Mr Kosmin also forcefully makes the point that the Grande transactions with regard to ZKEG and Starcom serves to demonstrate that Grande has substantial scope to divest itself of assets without disclosure – in the case of ZKEG the disposal was publicized only in the 2008 Interim Report well after the event, whilst in the case of Starcom the release of the debt apparently owing to Grande was not disclosed at all – whilst these transactions further demonstrated the disposal of assets to unknown and undisclosed third parties: for example, there is no evidence provided by Mr Ho of who it is also stands behind Richma, the purchaser of TWD Asia, and Starcom, such lack of disclosure leading to the reasonable inference that both companies are closely associated with Mr Ho.

101. In his submission Mr Kosmin went as far as to suggest that in fact there is parity of interest between Grande’s minority shareholders, Grande’s creditors and the plaintiffs, in that each group would benefit from a restraint on any future dissipation of Grande’s assets, and that the only constituent of Grande who is likely to be disappointed is Mr Ho himself; he further notes that from the time at which this action was disclosed to the HKSE on 21 November 2008, there has been no deterioration of the share price of Grande. 

102. In terms of Mr Ho’s bare assertion in his evidence that after this public announcement Grande had received inquiries from banks, investors and bond holders and a credit insurance company requesting detailed information on the status and effect of the injunction application on Grande’s and Grande’s subsidiaries operations, Mr Kosmin noted that no further evidence as to such inquiries has been adduced, and, perhaps more to the immediate point, no evidence has been adduced from any other director (executive or non-executive) of Grande in opposition to the plaintiffs’ application, which would have been expected from a public listed company faced with an application of this nature.

103. For his part Mr Snowden emphatically rejected the idea of Mareva relief against Grande.

104. He says that to the extent that the grant of a Mareva would inflict hardship on a defendant, this legitimate interest must prevail over that of the plaintiff: see Ninemia Maritime, op cit., at 1426D; Sanshin Trading Co Ltd v Kwok Kwok Yu, CACV 156 of 1990, judgment dated 26 February 1991.

105. He argues that the fact that Grande has a legitimate ongoing business which necessarily must be adversely affected by the injunction must always be an important consideration for the court, both in connection with the question of risk of dissipation and also whether it is ‘just and convenient’ to grant the injunction: see Peter Ho Pui Tsun v Chain Liaison Investment Ltd, HCA 7111 of 1995, judgment dated 2 November 1995.

106. Mr Snowden’s argument is that if and in so far as it became necessary even to consider the ‘balance of convenience’ – and now I have held that it is – such balance lay “overwhelmingly” against the grant of any Mareva relief for any duration. 

107. In this connection he relied on the fact of potential irreparable harm to public shareholders of Grande, who inevitably would suffer a concomitant drop in the value of their shareholding, damage to investor confidence generally, and an overall prejudice which would be extremely difficult, if not impossible, to quantify in terms of damages likely to be suffered by means of the injunction sought.

108. Mr Snowden also focused upon the regime as proposed by the plaintiff liquidators in terms of the draft order as placed before the court, which postulates injunctive relief against both Mr Ho and Grande, and in particular paragraph 8.2 thereof which, under the head of ‘Exceptions to this Order’ states:

“However, for the avoidance of doubt, this Order does prohibit the Injuncted Defendants [D1 and D2] from, and does prohibit the Injuncted Defendants from using their legal or beneficial shareholder equity to cause or procure the underlying companies to:

2.1  declare or distribute dividends, save to the extent already required by law to do so and save that the Second Defendant [Grande] may declare and distribute cash dividends in any one financial year of any amount up to a total of HK$60,000,000 in that financial year;

2.2  charge, mortgage or otherwise encumber any Assets;

2.3  compromise debts owed by existing debtors other than in the ordinary and proper course of business, whether such existing debtors are related parties or not.” (emphasis added)

109. Mr Snowden’s submission is that the italicized phrase posed intrinsic difficulties of interpretation, and that it would be difficult for third parties and financiers who have notice of the injunction readily to ascertain whether a particular Grande transaction would or would not fall within the exception; moreover, that it makes little commercial sense for a company to have to approach a liquidator (or the court) on a continuing basis for approval of major business decisions, particularly where timing may be critical.  He also says, I think, that this position is a fortiori when, as is the case here, the liquidators are funded by unidentified third parties – as to which situation I comment below.

110. In addition, Mr Snowden makes the point that any Mareva relief imposed directly upon Grande inevitably adversely would affect the business relations between Grande and corporate third parties, and “at a stroke” would undermine commercial confidence in the Grande group, at a time of the most adverse credit conditions within the global economy and when confidence of creditors and suppliers is perhaps the most important currency of all.

111. The access to good credit facilities could not be over-emphasised, he said; it was essential for the day-to-day business of Grande, and an injunction imposed against Grande well could trigger an event of default in credit facilities which would seriously prejudice the company; indeed Grande’s public announcement disclosing the existence of the Mareva application already had led to enquiries from numerous banks, and, according to Mr Ho’s evidence on the point, already had affected an intended capital injection and business development exercise of the Grande group.  In fact, a Mareva, if granted against Grande, would affect relationships with customers and suppliers alike, and such damage would be impossible to quantify in purely monetary terms when and if the necessity arose to quantify the harm caused to Grande by grant of such an injunction.

112. Nor, said Mr Snowden, could it realistically be said to be the case that there were insufficient safeguards already in place.  Grande was publicly-listed with substantial assets, and was required under Stock Exchange Rules to give notice of any major transaction; the dealings now complained of by the liquidators in fact had been publicly disclosed, and could have been acted on by the liquidators many months ago, and Grande would continue to make appropriate disclosure as required by its legal obligations.  In any event, the liquidators remained free to apply to this court in respect of any future matter causing concern, and at the end of the day there simply was insufficient justification for what, in truth, would be an extremely intrusive and disruptive regime as now was sought in terms of the liquidators’ application and proposed draft Order.

113. With regard to the position of Grande, I have not found this a straightforward decision in terms fairly of resolving the vital ‘balance of convenience’ issue.

114. I recognize that Mr Kosmin has emphasized that on the face of the proposed Order against Grande itself that no restriction is sought upon Grande trading in ‘the normal course of business’, and that the plaintiffs have a direct interest in the future success of Grande in the conduct of its consumer electronics business, and that it is only dissipation outwith the ordinary course of business with which the plaintiffs are concerned.

115. He says that if Grande approaches the plaintiffs with a proposal for such dealing, then the liquidators assure the court that they will take “a commercial and pragmatic approach to any such proposal” provided that there is a clear and direct benefit for Grande in the proposed transaction, and that if perchance there is dissension on the point, the court then could and should referee the debate.

116. I view this as an unappetizing prospect.  Although Mr Kosmin protests the sentiment, the realpolitic of the current situation is that there is no realistic prospect of the liquidator in this case, who is funded by an unidentified third party or parties, agreeing to any suggestion emanating from Mr Ho or Grande, and certainly it is not the general practice of this court, via the exercise of its Mareva jurisdiction, to involve itself in monitoring the daily commercial activity of a Hong Kong listed company which remains governed by its Board of Directors, and which remains accountable to at least a percentage of the shareholding public.  So I reject this suggestion, soothing though Mr Kosmin made it sound as a possible solution to the dilemma raised if a Mareva were to be granted in specific terms against Grande.

117. At the end of the day, therefore, after attempting to weigh all relevant considerations, in the exercise of my discretion I have concluded that no Mareva relief now is to be granted by this court directly against Grande – which according to Mr Kosmin always has represented his “secondary target” in this application and which apparently already has been divested of a very considerable portion of its assets, leaving it, says Mr Kosmin, only with assets of some US$13 million – and that any ‘solution’, if solution it be, should lie only in a form of restraint upon the activity of Mr Ho, qua majority shareholder, so that he is to be enjoined from utilizing his beneficial interest in Grande in order to force disposal of any of Grande’s assets outwith the normal course of Grande’s business, save where the course of action in question otherwise has been approved by Grande’s Board at a meeting of the Board of Directors formally convened for such purpose; for present purposes I naturally must assume that the Grande directors are attaching themselves diligently to their responsibilities qua directors to act in the best interests of the company, and I confidently anticipate that members of the Grande Board will be reading this judgment. 

118. As an additional safeguard, I would also order that any Board Resolution expressly sanctioning disposal or distribution of Grande assets other than in the ordinary course of Grande’s business must be notified by Mr Ho to the Akai liquidators 14 days in advance of such disposal.  Moreover, if subsequently I were to be told that consequent upon this judgment there have been significant changes made to the composition of the Board, I should make it clear that I would be prepared to revisit the terms of this particular ruling.

119. It follows therefore that I am prepared to order direct Mareva injunctive relief against Mr Ho only, which begs the all-important issue of the quantum of such restriction, the analysis of the figures put forward by the plaintiffs in this case representing the key plank in Mr Snowden’s vigorous opposition to the Mareva relief as now sought.

120. However before turning to quantum, it may be convenient briefly to comment upon an issue which in my mind has weighed heavy on the shoulders of this application, namely the funding of this litigation by an entirely unconnected third party or third parties; this is an issue which in my view infuses not only the exercise of judicial discretion inherent within the grant, or otherwise, of Mareva relief, but also has resonance when consideration is given to the level of monetary relief to be granted on this application.

121. In short, this is an issue which in this context cannot simply be overlooked and dismissed as being of no consequence, much as Mr Kosmin may wish the court to adopt this view.

The ‘funding issue’

122. First the facts, at least as they presently appear.

123. As earlier observed, this is heavy commercial litigation, with costs likely to run, at a conservative estimate, into the tens of millions of dollars at the very least.

124. Clearly, therefore, when Mr Borrelli and his liquidation team came onto the scene upon the formal liquidation of Akai, and found that Akai had been left with assets in the order of some US$167,000, there was no question of mounting this sort of highly expensive claim, either in the present case or, for that matter, in the other significant ‘Akai liquidation cases’.

125. As I understand the situation, the creditor banks of Akai – four of whom had petitioned to put Akai into liquidation, and had rebuffed the efforts of Mr Ting and/or Mr Ho to put off this event via restructuring proposals – were unwilling to fund the litigation necessary to attempt to recoup the huge sums of money which it is alleged were ‘stripped’ from Akai.

126. Thus, it arose – in circumstances I know not – that the liquidators were to be funded in their litigation endeavours by a third party or third parties (again, I know not), who regard this litigation as no more than a speculative commercial venture, with, no doubt, a significant proportion of such sums as and when ultimately recovered to be recouped qua dividend upon this large monetary investment.

127. At face value this course of action appears wholly and unashamedly champertous, save that in this instance I am told that Madam Justice Kwan, the learned Judge in charge of the Companies List of the High Court, in fact granted the liquidators’ application permitting such third party funding to take place, although despite requests I have been shown neither her Order in this regard nor the affidavit evidence which must have been used to back Mr Borrelli’s application; however in this connection it is fair to record that the plaintiffs have made it clear that they are particularly averse to the defendants having sight of any documentation which illuminates this subject, or for that matter which identifies the provider(s) of such funding, and I suspect that they have taken the view, with which in principle I do not demur, that it is wrong for the plaintiffs and the court to be in possession of information when such also is not made available to the defendants.

128. For all practical purposes, therefore, this situation amounts to one of ‘licensed champerty’, the consequence of which is that the liquidators of Akai have been given the ability, in this case and, presumably in the other pieces of the ‘Akai litigation’, to have access to justice which, had such outside third party funding not been available and permitted by the Companies Court so to be utilized, otherwise would have been denied.

129. Whilst I confess that I find this ‘third party venture capital approach’ to litigation wholly unappealing, since it strikes me as potentially giving rise to various significant difficulties, Mr Kosmin has been at pains to point out to the court that this phenomenon is both well-known and accepted within the world of company liquidations; in this connection he has cited no less an authority than Lord Hoffmann in Norglen Ltd (in liquidation) v Reeds Rains Prudential Ltd [1999] 2 AC 1, at 11, wherein his Lordship observed:

“The law is traditionally hostile to the assignment of causes of action in return for a share of the proceeds.  Such transactions were described as champerty (division of the field) and regarded as illegal and unenforceable.  It is unnecessary to examine the reasons: judges said that it would encourage malicious suits, but treating such arrangements as criminal was also, before the introduction of legal aid, an effective way of preventing poor people from obtaining legal redress.  The position of liquidators and trustees in bankruptcy is however quite different.  The courts have recognized that they often have no assets with which to fund litigation and that in such case the only practical way in which they can turn a cause of action into money is to sell it, either for a fixed sum or a share of the proceeds, to someone who is willing to take proceedings in his own name.  In this respect they are of course no different from many other people.  But because trustees and liquidators act on behalf of creditors, the courts have for the past century construed their statutory powers as placing them in a privileged position…”

130. In this connection Mr Kosmin also referred the court to the Australian High Court case of  Campbells Cash and Carry Pty v Fostif Pty Ltd (2006) 229 CLR 386, wherein the majority (Gummow, Hayne and Crennan JJ) surveyed the historical situation and noted (at 428) that “practices no different in substance from some of those condemned so roundly [that is, maintenance and champerty] became commonplace in the law of insolvency…” and thereafter continued, op cit., at 434:

“As Mason P pointed out in the Court of Appeal, many people seek profit from assisting in the processes of litigation.  That a person who hazards funds in litigation wishes to control the litigation is hardly surprising.  That someone seeks out those who may have a claim and excites litigation where otherwise there would be none could be condemned as contrary to public policy only if a general rule against the maintenance of actions were to be adopted.  But that approach has long since been abandoned and the qualification of that rule (by reference to criteria of common interest) proved unsuccessful.  And if the conduct is neither criminal nor tortious, what would be the ultimate foundation for a conclusion not only that maintaining an action (or maintaining an action in return for a share of the proceeds) should be considered as contrary to public policy, but also that the claim that is maintained should not be determined by the court whose jurisdiction otherwise is regularly invoked?”

131. Mr Kosmin noted that both Norglen and Campbells Cash and Carry, op cit., were referred to with apparent approval by the Court of Final Appeal in Unruh v Seeburger (20070 10 HKCFAR 31, albeit the factual context in the latter case was somewhat different.

132. Leading counsel for the plaintiffs strongly submitted that the special position of liquidators in litigation funding arrangements had been recognized for well over 100 years, and that fact that, as in this case, the plaintiffs are in liquidation and only are able to bring this action with the assistance of external third party funding is not a matter which ought to give rise to an “additional hurdle” which the plaintiffs must overcome in order to invoke the court’s Mareva jurisdiction – a factor which is particularly acute when it is alleged in this case that the plaintiffs’ total impecuniosity was the direct result of the allegedly gross misconduct of the defendants in respect of their direction and control of the plaintiffs between November 1999 and August 2000.

133. Mr Kosmin pointed out, also, that there was no evidence whatever to support the suggestion that the substantive proceedings in this action had been brought for a purpose other than to pursue genuine causes of action to recover losses suffered by the plaintiffs, and benefits received by the Grande defendants, as the result of the latters’ control over Akai during November 1999 to August 2000; moreover, he said, the court could not infer any collateral purpose merely because the source of the liquidators’ funds is undisclosed, particularly when the Companies Court expressly had sanctioned the funding arrangements, and where the court had evidence before it from Mr Borrelli that not only were such funding arrangements approved by Kwan J – and also by Akai’s major creditors through its Committee of Inspection – but also that these arrangements are strictly confidential and are subject to legal professional privilege, that it would be inappropriate to fetter the powers of the liquidators as officers of the court, and that through leading counsel Mr Borrelli had been at pains to assure this court that he alone instructed counsel and solicitors, and does not go to the funder for instructions, and that there was no representative of the funder on the Committee of Inspection.

134. That ‘litigation funding’ was, if not the norm, then at the least was not unusual in liquidation situations was accepted by Mr Snowden, who also made it clear to the court that he did not pursue that aspect of his security for costs’ summons dated 22 December 2008 (vide paragraph 24 above) that the defendants should have sight of the relevant Agreement(s) containing these funding arrangements.  Whilst for this reason I do not further consider the ‘funding issue’, including for example the claim of legal professional privilege therefor, I do not wish it to be thought that I necessarily accept all Mr Kosmin’s submissions on the ‘funding issue’: in the circumstances I am simply relieved from the task of sounding to them.

135. However, whilst he chose not to continue with this particular discovery application, Mr Snowden nevertheless insisted that the “champertous dimension” to this action resulting from such funding arrangements necessarily brought with it wholly legitimate concerns as to the risk of wildly inflated claims and unreliable evidence, and that this remained the situation even if (as he now accepted) the funding in question did not amount to champerty of a kind or degree which otherwise would justify a stay of these proceedings.

136. He submitted that the court’s immediate concern lay in assessing the extent to which the Mareva application was properly founded, and that the risk of even moderately “inflamed” claims for damages plainly was relevant here, as did the court’s assessment of the merits of the application depend in large part upon whether and to what extent the plaintiffs had a ‘good arguable claim’.

137. Mr Snowden made it very clear that he was not in the least placated by the statements made on instructions by Mr Kosmin from the Bar at the December 2008 hearing as to the relationship between the liquidators (in particular Mr Borrelli) and the funders, and noted that the precise terms of those statements nowhere are formally recorded, and that that nature of this relationship “remained obscure”, insisting that it would be contrary to common commercial sense if the funders – who appear to be putting out a very great deal of money in the pursuit of this action, including the sum of HK$50 million which presently stood in court as fortification for the undertaking as to damages referable to the interim relief granted by this court as the result of the adjourned hearing of this Mareva application – had not insisted upon a quid pro quo in terms of a critical degree of control and management over this litigation in return for their ongoing financial support.

138. In the course of this submission Mr Snowden made the point that the Australian state jurisdictions appear to be the most advanced in terms of the general practice of ‘litigation funding’, and referred to what is considered to be established practice of litigation funders, as exemplified in the notes of a ‘Funding Industry Presentation’ made by one Mr Patrick Coope, Managing Director of the Australian Litigation Fund at a conference held on 15-17 September 2006, in which Mr Coope acknowledged that in general the ‘funder’ was given influence over the strategic conduct of the litigation and decisions regarding settlement, reserving the right to cease funding at any time at its sole discretion, that the industry preference was to be involved from the start rather than to inherit (and pay for) decisions already made by others, that “the applicant for the funding needs to accept that working with a litigation funder will involve ceding some control over the conduct of the litigation”, absent which it was unlikely that funding would be forthcoming, that funders generally seek to have input into all decisions which need to be made which will have a material effect on either the costs of the litigation or the amount of time taken to get to trial, that monthly meetings often were required to assess progress against detailed time and costs budgets, that it would be “naïve to assume” that unmeritorious claims would not be made with a view to extracting quick settlements from well-resourced defendants, and that funding in the insolvency context was the largest market for this type of activity.

139. Mr Kosmin objected to the court having sight of this particular document on the basis that it had not been adduced on affidavit – which naturally Mr Snowden immediately offered to do – but this is the Commercial Court, and for my part I can see no reason whatever, in face of resolute silence from the plaintiff liquidators in this case as to any detail whatever of their third party funding arrangements, for the court not to have sight of what clearly was a genuine (and wholly informative) conference presentation apparently made by one of the industry leaders.  In this regard it seems to me that Mr Kosmin and his clients cannot have it both ways: they cannot refuse to divulge particular information on the one hand, and yet object to the court having knowledge of, and being educated upon, general ‘funding’ practice on the other.

140. Mr Snowden’s final point of relevance in the Mareva context was that there was on the part of his clients “a further dimension of concern” given the existence of a third party funder(s), in that given the operating imperatives of the funders, it remained highly likely that sensitive commercial information obtained by the plaintiffs as the result of such ancillary discovery orders as also might be made in this application would be required to be disclosed to the funders, who remain unascertained third parties over which the court has no effective control – albeit I note that as from 1 April 2009, and the introduction of the new Civil Procedure Rules, I apprehend that an order for disclosure of the identity of such funders will be possible in the event that a costs’ order is to be sought against them.

141. I have taken the trouble to set out the main parameters of this ‘funding sub-debate’ because I do not consider that this issue can be swept under the carpet and castigated as “fundamentally irrelevant in principle”, as Mr Kosmin has suggested is the case.  If I may be permitted to say so, this court is not known for easily acceding to Mareva applications, and I am bound to say that in this particular instance the ‘funding background’, if I may term it thus, has added a patina to this case and has engendered a significant degree of reflection.

142. Mr Snowden’s legitimate concerns as to confidentiality can, I should have thought, be assuaged by appropriate undertakings extracted from the plaintiffs, but the wider issues raised have provided food for thought, and I have no compunction in stating that the ‘funding issue’ has been in the forefront of my mind first, in the exercise of my discretion in terms of the ‘balance of convenience’ with regard to the relief sought as against Grande, and second, (and as will shortly become apparent), in deciding upon the monetary level at which to pitch the specific Mareva injunctive relief which I have decided to grant directly against the 1^st defendant herein, Mr Ho.

143. It is to this final piece of this jigsaw that I now turn.

Mareva relief: Quantum

144. In my view the issue of the quantum of Akai’s claim – and hence an appropriate figure for such Mareva relief as has been granted – is the most problematic question in this case.

145. Mr Kosmin clearly recognizes this.  He says that it is essential to appreciate that at this stage the plaintiffs’ claim is “substantially unquantified”, and will be capable of accurate quantification only following discovery and expert evidence, in particular as to the value of Akai’s assets in November 1999 when Mr Ho and Grande took control.  Additionally, the question of interest will be another quantum ‘wildcard’, and will very substantially increase (and perhaps even double) the amount which may be awarded to the plaintiffs, particularly if this were to be ordered on the basis, say, of compound interest with quarterly rests.

146. Nevertheless he maintains that for present purposes it is unnecessary to prove a precise quantum figure, and that in any event there is sufficient material before the court to satisfy the court that an order should now be made freezing assets up to US$500 million, notwithstanding that the best evidence currently available is that during the tenure of Mr Ho and the Grande defendants, the value of Akai’s assets as at October/November 1999 dramatically fell from US$1,248 million – as recorded in the December 1999 Preliminary Information Memorandum produced by Ernst & Young at the behest of Mr Ho, and as represented by him to Akai’s bank creditors as accurately stating the position at that time – to the figure discovered upon the liquidators taking control as at 23 August 2000, when all that was remained in the order of some US$167,000.

147. Mr Kosmin submits that the plaintiffs’ “global claim” for equitable compensation wholly is consistent with the principles of equitable compensation outlined by Street J in Re Dawson [1966] 2 NSWR 211, at 215, and that, despite the stringent criticism as to causation that has been aimed at that approach by Mr Snowden at this hearing, it nevertheless remains the plaintiffs’ case that all of the loss and detriment suffered by the plaintiffs from October/November 1999 was relevantly caused by Mr Ho and the misconduct of the Grande defendants.

148. However, Mr Kosmin is realistic enough to concede that for the purposes of any current Mareva relief, the restraint now sought of US$500 million recognizes “the prospect of some inevitable reduction of this amount” following more detailed analysis and expert evidence, although he makes the point that the defendants’ contention that trading losses contributed substantially to the loss suffered by Akai does not avail them, since the hard fact is that Akai and its subsidiaries ought not then to have continued to be in a trading position, and, but for the covert agenda of Mr Ho, Akai probably ought to have been placed in liquidation or provisional liquidation in or around November 1999.

149. As to the proposed figure of US$500 million, I note that at the very outset of this application, Mr Borrelli’s evidence (vide his 7^th Affidavit, at paras 57 and 58) the sum of “at least US$500 million” initially was attributed to the value of the lost patents and trademarks alone, including the ‘Akai’, ‘Sansui’ and ‘Kawa’ trademarks, and the Zhongshan factories, although it is right to record that this approach to quantum now has been substantially modified given the specific objections which then were raised (by Mr Yu SC at the initial ex parte on notice hearing) in terms of the irrecoverability of ‘reflective loss’.

150. Mr Kosmin goes on to submit, without prejudice to Akai’s ‘global claim’, from the full ambit of which he does not shrink, that the Amended Consolidated Points of Claim also identify a number of specific losses (pleaded at paragraph 832.3 onwards) which represent a ‘subset’ of Akai’s ‘global claim’, and that at least for present purposes, the court should be satisfied that US$500 million is a reasonable estimate of the quantum of this ‘global claim’ – although by the same token he accepts that if the Court is not satisfied a Mareva order in the amount claimed is justified, it was clearly open to the court, in the exercise of its discretion, to award such lower figure as it saw fit.

151. In any event, he says that for present purposes the plaintiffs further can point to 10 specific transactions – summarized at ‘Annexure E’ to his written skeleton – that total HK$3,683,985,587 (approximately US$473,009,357) which should assist for the purpose of quantification of “at least part” of the ‘global claim’ by reference to these individual transactions, and he has gone to some length in his written submissions to identify and to narrate these transactions, the most significant of which appear under the following general heads:

Liability to Alpha Capital and Prosperous Finance:	US$50m
Payments to Alpha Capital:	US$5m
Toyo Loan Facility:	US$630m
Lost benefits of Accounts Receivable:	US$178m
Lost cash:	US$1.2m
Proceeds of Sale of Akai Electric Shares:	US$5.2m
Loss of Shareholding in Akai Electric:	US$136m
Loss of Benefit of Property Sales:	US$0.6m

152. In the alternative, Mr Kosmin moots his quantum on the basis of an account of profits, and says that any criticism by the defendants that the plaintiffs have provided inadequate evidence of the value of an account of profits such as to support a Mareva is wholly disingenuous given that Grande has not yet made discovery on the issue, and that the relevant information is exclusively in its possession.

153. He notes that, like equitable compensation, the award of an account of profits is a remedy reflective of the strictness of equity in dealing with an errant fiduciary, and that the principles underpinning this remedy were summarized by the High Court of Australia in Warman International Ltd v Dwyer (1995) 182 CLR 544, at 547, wherein the Court opined (at paragraph 25):

“the assessment of the profit will often be extremely difficult in practice; accordingly it has been said that ‘what will be required on the inquiry…will not be mathematical exactness but only a reasonable approximation’.  What is necessary however is to determine as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of duty…”

154.  Mr Kosmin accepted that if the ‘account of profits’ route were to be elected for by the plaintiffs, the detailed quantification necessarily would be a complex exercise that would involve a detailed forensic analysis of Grande’s financial records that clearly is not possible prior to Grande’s discovery, although he also noted that in his 8^th Affidavit Mr Borrelli had provided and estimate of the profits generated by Grande in a range of between US$233 million to US$268 million, calculations which were based on information published by Grande itself, and which had not sought to be challenged with any contrary evidence.

155. It is this very significant element of quantum which provided Mr Snowden with substantial material for his stringent attack upon the content of the plaintiffs’ case upon this application; in his first skeleton argument filed before this application had commenced in December 2008 he submitted that “for the purposes of the Mareva injunction, the focus of the court should be on the monetary aspect of the plaintiffs’ claim”, and with this theme uppermost in mind Mr Snowden launched his attack on the basis of no ‘good arguable case’ and on the “highly dubious” quantum of losses claimed.

156. This theme is repeated in a further document handed up towards the end of this application, entitled “Summary Response to the Plaintiffs’ Arguments Re Mareva Relief”, which I now have had the opportunity to read in detail.

157. At the outset Mr Snowden makes the point that although his submissions in respect of the Mareva application are distinct from those in respect of his (now forthcoming) strike out application, that of necessity there is some overlap between the two, and further that it is important constantly to bear in mind that whilst in terms of the strike out he bears the burden of making good his contentions – for example, that a specific plea is plainly and obviously demurrable, and thus should be struck from the Claim – that to the contrary in a Mareva application the onus lies on the plaintiffs to establish not only a ‘good arguable case’ for injunctive relief, but a good arguable case for injunctive relief in the amount of US$500 million, which is the figure for which in this application Mr Kosmin now was pressing.

158. Mr Snowden then proceeded to castigate much of the plaintiff’s claims as infringing the ‘proper plaintiff/reflective loss’ principle, a principle, he says, which is “categorical and uncompromising”, and that, simply clothing the claim in different form – vide the recent amendment to plead equitable fraud – certainly does not suffice to circumvent the stringency of this principle.

159.He submitted that the plaintiffs’ evidence and arguments in support thereof sought to justify the “extraordinary quantum of their claim” in a variety of ways, viz., the so-called ‘global claim’, which encompasses the decrease in the Akai assets from US$1,248 million to under US$1 million, reference to the value of the ‘Akai’ and ‘Sansui’ trademarks, some general and “flawed” estimates of an account of profits, and finally, the supposed value of specific claims in relation to the transactions as set out in the plaintiffs’ ‘Annexure E’, and he says that none of these approaches “provides the remotest justification” for the amount of the Mareva relief as now sought in the sum of US%500 million.

160. Indeed, his own response to the plaintiffs’ ‘Annexure E’, which suggests a claim in excess of US$473 million – Mr Snowden’s own ‘Annotated Annexure E’ – succeeds, on his case at least, in reducing the quantum of the plaintiffs’ claim to just under US$7 million, although when pressed by the court on the point Mr Snowden responded that, putting the best blush possible on the plaintiffs’ claim, at its highest this could only be “in the low tens of millions of dollars”.

161. Following from his broad submission that in this case the plaintiffs’ claims were hopelessly inflated – and he made it clear that in this context he certainly did not consider the ‘funding issue’ irrelevant – Mr Snowden’s written and detailed response to each category of the plaintiffs’ claims covers some 26 pages and 107 paragraphs.

162. Given the subject matter and relative urgency of this judgment, the court does not have the luxury of time in which to attempt to evaluate with any degree of precision the argument and counter-argument as to the various heads of loss, which encompass matters as factually diverse, for example, as the loss of the shareholding in Akai Electric (Akai’s Japanese subsidiary) by Serlen [P15] and/or Turdiga [P16] and/or Canicula [P3] by reason of Civil Restructuring proceedings in Japan on 4 July 2001, a claim relating to the loss of ‘Akai’ and ‘Sansui’ and ‘Kawa’ trademarks, and the alleged lost benefits of accounts receivable in terms of an Accounts Receivable Assignment in favour of a company known as ‘Tremendous Springs’.  There is no particular magic in these three examples, save to give an indication of the undoubtedly complex array of quantum claims as now pursued by the plaintiffs.  And in any event, whilst the court has been assisted by receipt of these written submissions, absent specific oral argument upon each these various matters, and absent reference to such documents as exist, it is virtually impossible at this stage to come to a definitive view as to quantum – although, as I have observed, no doubt the court will be in a position better to evaluate the situation once it has heard the detailed strike out submissions, which Mr Snowden has stressed will be pursued not on an arid technical basis but on issues of irreducible principle.

163. Suffice to say that in attempting to adjudicate this Mareva application as fairly as I am able, I have read the submissions on the accumulated quantum material, both for and against, and in the circumstances I consider that for present purposes I have no option but to take a broad view in face of plaintiffs who insist that the elements of their claim are eminently justifiable, and defendants who maintain that by far the greater part of the quantum claimed in this action is simply misguided and wholly untenable, and (I suppose that this is the necessary implication, although it was not put expressly in these terms) that the level of quantum as now claimed may represent an attempt by third party funders to achieve a quick and favourable settlement in what clearly is a highly tendentious case.

164. Accordingly, for the purpose of assessing the level of quantum for the Mareva relief that in principle I have decided to grant, I decline at this stage to become embroiled in detailed analysis of the various claims, and the detailed arguments emanating from each side as to their viability at law – in fact, I find myself reflecting whether, in light of the highly complex facts of this case, that the close legal and factual analysis which will be required to make any such determination actually is achievable at this early interlocutory stage.  However, this exercise must await another day, and, as I have stated, I now simply have to do my best to alight upon an overall figure which I consider appropriate in light of all the evidence before me.

165. I have not found this an easy task, that doing the best that I can in the exercise of my discretion I have concluded that the appropriate sum for which to grant Mareva relief in the Order to be issued against Mr Ho is US$200 million.

166. I recognize, obviously, that this is no more than 40% of the sum for which the plaintiffs were contending on this application, but after a good deal of reflection this is a figure that in all the circumstances strikes me as right or, at the least, not obviously wrong; I confess that in matters such as these I have long ago come to the view that in the making of such decisions stomach remains a valuable adjunct to cerebrum. 

Disclosure Orders

167. Mr Kosmin asks for disclosure orders of all assets with an individual value of US$100,000 or more from Mr Ho, Grande and all the other ‘Grande defendants’.

168. He says that disclosure orders are sought to “render the restraint order effective, or more effective”, in the words of Nicholls LJ (as he then was) in Derby & Co Ltd & Ors v Weldon & Ors [1990] 1 Ch 48, at 60.  He also has referred the court to dicta regarding the rationale and purpose of disclosure orders in A v C [1980] 2 All ER 347, at 351, per Goff J, and Motorola Credit Corporation v Uzan & Ors (No 2) [2004] 1 WLR 113, per Potter LJ, who said, at 146:

“The purpose of disclosure is to make the freezing order effective.  In the ordinary way a defendant is required to disclose all his assets above a certain value.  This is because if he can choose which assets to disclose he is likely to choose those which are the least available or accessible to the claimant for the purposes of execution.  That is what the claimant says the defendants have done in this case.  If there are assets which are more readily available, a claimant is entitled to be told what they are.  In such circumstances a freezing order may be varied, so that particular assets are attached and others are released and, this way, the order may be made more effective…”

169. Mr Kosmin further submits that the orders are necessary in this case not only because the plaintiffs have limited information as to the identity, location and value of the Grande defendants’ assets, but also because the use of certain jurisdictions for the incorporation of subsidiaries, where little information is available, and a Hong Kong judgment would not be directly enforceable through reciprocal legislative arrangements.

170. In this regard in his original skeleton argument he also suggests that the scope and focus of the Order as made could “potentially be refined” following the identification of specific assets of specific defendants, which would reduce its impact on the Grande defendants and third parties, and that it is important that the plaintiffs be put in a position “voluntarily to refine the scope of the Order” so as to protect against future complaints about the impact of the Order on the Grande defendants.

171. To the contrary, Mr Snowden says that there should be no disclosure orders because the request for these should fall with the request for Mareva relief.  He points out that since – as originally was the case – no claim for injunctive relief ultimately was maintained against the 4^th, 6^th, 7^th, 9^th, 15^th, 16^th and 20^th defendants, it followed that no disclosure orders (which are necessarily ancillary to the injunctive relief itself) can be made, and he goes on to submit that any suggestion that these non-injuncted defendants should be required to disclose assets to enable the plaintiffsto make a further Mareva application is “absurd”.

172. He further comments, correctly in my view, that the court must be vigilant in not permitting the Mareva jurisdiction to be used by these ‘third party funded plaintiffs’to obtain security for their claim, and that, notwithstanding the odium currently heaped upon his clients, they should not be treated as de facto judgment debtors.

173. Mr Snowden further notes that the plaintiffs have sought disclosure orders in order to “monitor compliance” with such Mareva relief as may be granted, and asserts, again correctly in my view, that this is an inappropriate basis for applying for disclosure orders, citing the Hong Kong Court of Appeal in RACP Pharmaceutical Holdings Ltd v Li Xiaobo, CACV 139 of 2007, judgment dated 19 September 2007, wherein Le Pichon JA observed that “‘policing’ is not a legitimate purpose for making a disclosure order”, citing in this regard Bekhor & Co Ltd v Bilton [1981] 1 QB 923, at 944G-945D.

174. In terms of developing jurisprudence regarding disclosure orders ancillary to the exercise (or anticipated exercise) of the Mareva jurisdiction, I think it appropriate at this point to add that after the formal conclusion of this hearing – but with reference to a general discussion as to applicable principle as had taken place between Bench and Bar towards the end of the January hearing – the court was sent by the solicitors for the plaintiffs a copy of the transcript of an unreported decision of the Full Court of South Australia in the case of Caboche v Southern Equities Corp Ltd, wherein on 8 March 2001 the Full Court had entertained an appeal from a single judge regarding a Mareva order and with respect to an order requiring three defendants to file affidavits listing their current assets.

175. In particular, the Full Court considered (at paragraph 45 et seq) the issue of the court’s authority to make an order for discovery of assets as an aid to the framing of the terms of an anticipated Mareva order, which apparently had been done in the New South Wales case of Bax Global (Australia) Pty Ltd v Evans (1999) 47 NSWLR 538, per Austin J.

176. In his judgment in Caboche, op cit.,Williams J (with whom Dugghan J agreed) observed as follows, at paras 48-53:

“In my opinion, the appellants are correct in their submission that the exercise of jurisdiction to order an affidavit as to assets at this stage must be linked to an existing Mareva order or one which is at least in contemplation.  Such an affidavit may be of use in providing a starting point for the supervision of the order to ascertain whether it has been breached (see Bekhor v Bilton, at 952).  It will also enable the terms of a proposed order to be more adequately framed in order to avoid embarrassment when in principle the court has reached the conclusion that such an order would be appropriate (see A v C [1981] QB 956, at 959-960).

In addition to these two situations, it would also seem that the court has jurisdiction to go a step further and require an affidavit of assets where the applicant anticipates that the defendant may dispose of assets and requires the affidavit in order better to assess the danger (and of course the consequences of the usual undertaking as to damages which an order would require).  The reasonableness of the applicant’s apprehension will then provide the jurisdictional basis for an affidavit by way of discovery as a first step in the process of seeking a Mareva order (see Australia Competition & Consumer Commission v Top Snack Foods Pty Ltd & Ors, unrep., 16 May 1997, per Tamberlin J).

The Court’s power before final judgment to order affidavits as to assets is not at large although the Court has a broad discretion.  The foundation of the jurisdiction is the need to prevent judgments of the Court from being rendered ineffective in such cases (Bekhor v Bilton, at 941 per Ackner LJ).  Debelle J [the 1^st instance judge from whose decision this appeal lay] asserted in his reasons that the Court will in the exercise of its discretion make such an order when it is just and convenient so to do.  The appellants take issue with the breadth of that statement but his Honour was clearly speaking in the context of promoting the purposes for which a Mareva order may be granted.

Although in his reasons…Debelle J dealt with the question of discovery of assets before resolving the application for a Mareva order it appears from subsequent reasons (concerning the working out of orders under his earlier reasons) that his Honour was then exercising the Court’s power as ancillary to a Mareva order…

In my opinion, the discovery order now under appeal appropriately accompanies the Mareva order in the light of the manipulation of assets and the unsatisfactory answers so far provided by the three personal defendants…”

177. I apprehend that this case subsequently was sent to this court to buttress the suggestion on the part of Mr Kosmin that in principle it was open to the court either to make disclosure orders against defendants to this action against whom no substantive Mareva relief had been sought at this application (ie the ‘Grande defendants’ generally) and/or to make orders against any of the Grande defendants on a purely ‘anticipatory’ basis.  I hope that in so characterizing the general discussion with leading counsel that I have not overstated the thrust of his views which, as I have noted, were expressions of principle made without reference to the decision in Caboche, op cit., which subsequently was located only after the end of this application.

178.  Be that as it may.  By letter dated 22 January 2009, the defendants replied to the reference to Caboche, and refer to the view of Mr Snowden that this decision provides no support for the plaintiffs’ proposition that the court has jurisdiction to, or should, as a matter of practice and discretion, make a disclosure order where either a Mareva is not granted or is granted for some nominal amount (in order, I apprehend, to meet a perceived requirement that an assets disclosure order necessarily must be ancillary to an existing Mareva injunction).

179. In this letter of response Mr Snowden further is reported as maintaining that Caboche is a case where the court had made a Mareva order against a company (CLC) restraining it and its directors from dealing with its assets, save to a limited extent, and that (at paragraphs 45 and 48) the judge had adhered to the “orthodox position” that the power exists to order disclosure in order to ensure that Mareva relief is effective and not oppressive, and that it is readily apparent from the references to Bekhor v Bilton and A v C (which were the cases cited by the Grande defendants on this point) that the real concern justifying the making of disclosure orders in some circumstances is to render a Mareva order workable and fair in order to protect the defendants from oppression and third parties, such as banks, who may be affected by a Mareva, from embarrassment.  He asserts that neither Caboche nor these other cases provide any support for the proposition that disclosure orders can be anticipatorily used to determine the appropriate level of a Mareva or to decide to increase it from a nominal amount.

180. Absent the benefit of oral argument, and further opportunity to consider the potential extension of disclosure orders (which arose only toward the end of this lengthy and detailed application) I am disinclined in this regard to go too far beyond the ‘traditional view’ of the ambit of disclosure orders, although it should not be assumed that in principle this court necessarily is resistant to extending the ‘traditional ambit’ of such orders where an appropriate case is made therefor.  The short point is that in this hearing the issue has not been subject to sufficient focus and consideration by either side and was developed, if ‘developed’ at all, essentially by a side-wind.

181. This begs the question as to such disclosure orders I consider are appropriate in this instance.

182. As to Mr Ho personally, he is to be the subject of direct injunctive relief, and in the circumstances I have little hesitation in ordering that Mr Ho be ordered to make disclosure of those of his assets which in value are in excess of, say, US$50,000, albeit I am prepared to hear argument upon this figure.  It seems to me that if the Mareva relief which I have seen fit to grant against this gentleman is to be effective, that this order necessarily must follow, and that a comprehensive disclosure order is thus required.

183. I so order.

184. As to the 2^nd defendant, Grande itself, no direct Mareva order has been made against it, although it is true that in a sense the form of Mareva relief as now to be granted against Mr Ho – whereby, inter alia, Mr Ho is precluded from exercising his power as majority shareholder to ‘push through’ extraordinary dispositions of Grande assets absent the consent of a duly convened meeting of his Board of Directors, and that Mr Ho is to give the Akai liquidators 14 days advance which of the Resolution to make such disposition – in effect indirectly impleads Grande, and places into stark relief the impact of any such distribution upon its overall asset position.

185. Accordingly, in such circumstances I consider it just and appropriate that Grande itself be ordered to make disclosure of each of its assets to a value in excess of, say, US$50,000, although once again I am prepared to listen to submissions as to the relevant amount.

186. I apprehend that it also will be necessary to include in the order giving effect to this judgment appropriate confidentiality undertakings to be given on behalf of the plaintiffs.

187. For the avoidance of doubt, I decline to accede to Mr Kosmin’s request that disclosure orders be made against the other ‘Grande defendants’, and presently make no order for disclosure of assets against any of these defendants.

188. The other defendants to this action, who rejoice under the title of the ‘non-Grande defendants’, are not of course represented before the court on this application, and naturally no order of any kind is made against any of these persons or entities.

Summary

189. I regret the excessive length of this judgment, but such has been the depth of the material with which the court has been confronted that, even with the considerable assistance of leading counsel and their respective teams, I have not found it easy to attempt comprehensible treatment of this data, and consequential argument, without becoming embroiled in at least some detail in the context of what is very obviously a complex case; indeed, I strongly suspect that this application has done no more than to scrape the surface of the factual matrix as in due course will emerge in evidence at trial.

190. It may assist at this stage, however, to essay a summary of the position consequent on this judgment. 

a.   For present purposes (I bear firmly in mind that I am yet to entertain detailed argument upon the defendants’ strike out) I do not accept the defendants’ contention that the plaintiffs’ Mareva application is “wholly without merit” and that it is founded upon a “profoundly deficient” claim and “an array of misconceived allegations” regarding the conduct of the Grande defendants;

b.   Nor do I accept the assertion that this application is in substance no more than a “tactical ploy” instigated by an unidentified third party funder (or funders) in a bid to exert commercial pressure and to “fish” for documents to which the plaintiffs plainly are not entitled; whilst I can appreciate the temptation to express the position thus in the circumstances, I consider that this is to pitch the case too high;

c.   I decline to accept the defendants’ assertion that the plaintiffs have failed to show a ‘good arguable case’ for any monetary claim, or that no risk of dissipation has been demonstrated;

d.   I decline to accept that it is “plain and obvious” that the ‘balance of convenience’ lies against any form of injunctive relief being granted on this application.

Orders to be made

191. In light of the foregoing (and subject to requisite drafting of the relevant Order), in the exercise of my discretion I therefore consider it appropriate in substance to make the following Orders upon the plaintiffs’ Mareva application commenced by Summons dated 19 November 2008:

i.    As against the 1^st defendant, Mr Ho, that he be enjoined on a worldwide Mareva basis from disposing or dealing with or diminishing the value of any of his assets, whether within or without Hong Kong, up to the value of US$200 million;

ii.   As against the 1^st defendant, Mr Ho, that he be enjoined from using his beneficial shareholder equity within the 2^nd defendant, The Grande Holdings Ltd, so as to cause a disposition of Grande assets other than in the ordinary course of Grande business, save where any such disposition outwith the ordinary course of business expressly is approved by the Board of Directors of Grande, at a Board Meeting formally convened for the purpose, as being in the best interests of Grande, and wherein the liquidator of Akai is given by Mr Ho 14 days’ advance notice of the Resolution to make any such intended disposition;

iii.  As against the 1^st defendant, Mr Ho, that [within 28 days] of the date of the Order as engrossed that he must inform the plaintiffs’ solicitors in writing of all his assets to an individual value of [US$50,000] or more, whether held within or without Hong Kong, whether or not in his own name, and whether solely or jointly held, giving the value, location and details of all such assets, and that the information thus disclosed must be confirmed on affidavit/affirmation [within 21 days] thereafter;

iv.  As against the 2^nd defendant, Grande, that [within 28 days] of the Order as engrossed that it must inform the plaintiffs’ solicitors in writing of all its assets to an individual value of [US$50,000] or more, whether held within or without Hong Kong, whether or not in its own name, and whether solely or jointly held, giving the value, location and details of all such assets, and that the information thus disclosed must be confirmed on affidavit/affirmation by a responsible officer of the company [within 21 days] thereafter;

v.   That in terms of the disclosure orders against the 1^st and 2^nd defendants, there be included within the Order to be engrossed appropriate confidentiality provisions to be agreed between counsel for the plaintiffs and counsel for the defendants, alternatively the terms of which to be decided by the court.

Drawing of the Order

192. The foregoing summary does not, of course, deal with matters of detail ancillary to the substance of the Orders made.

193. I currently have no particular views as to the exceptions to the Mareva relief granted against Mr Ho in terms of the level of expenditure on living expenses, and expenses on legal advice and representation, and I anticipate that counsel will be able to confer (and hopefully agree) on these incidental issues, and also as to the question of the time limits proposed for the disclosure orders (as presently indicated in square brackets), and thereafter that counsel will appear before this court on a short appointment to be fixed in order to secure approval and final settlement of an Order which gives effect to this judgment; such appointment also will enable brief argument upon any point of difference which may arise in terms of collateral detail or in terms of drafting (for example, as to the confidentiality provision to which I have referred in the context of the disclosure order), and also, I remind myself, as to the necessary amount of monetary fortification for the plaintiffs’ undertaking in damages.

194. At the same time I anticipate that I will hear counsel on the issue of costs, both upon the Mareva application and upon the other applications which were listed before the Court, and which have been summarized in the judgment herein (at paragraph 24). 

195. In this regard, it would be of assistance, absent agreement thereon, if counsel would render a short skeleton argument as to costs’ (and as to any other matter in dispute) for the consideration of this court several days prior to the date fixed to obtain the court’s confirmation of the terms of the Order to be engrossed.

Continuation of the present Order for Interim Relief

196. Pending such further hearing and settlement of the Order giving effect to the judgment herein, I order that the existing Interim Order dated 23 December 2008 is to remain in force until further Order.