LIBERTARIAN INVESTMENTS LTD v.THOMAS ALEXEJ HALL

HCMP 2250/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2250 OF 2007

(ON APPEAL FROM HCA NO. 2533 OF 2006 )

______________________

______________________

______________________

J U D G M E N T

______________________

1.  On 4 June 2007 (with reasons handed down on 11 June 2007), Fung J continued the interlocutory injunction order granted by Sakhrani J on 16 November 2006 as amended by Deputy High Court Judge Gill on 24 November 2006, with a reduction of the amount from about GBP 13 million to GBP 8 million, said to have been transferred by the defendant from an account maintained by a London firm of solicitors.

2.  Fung J then made an order nisi as to costs. Upon application in writing by the plaintiff on 26 June 2007, Fung J varied the costs order nisi after a hearing on 11 September 2007.

3.  The separated orders, made on 4 June 2007 and 11 September 2007 respectively, were only sealed on 24 October 2007 and served on the defendant on 25 October 2007.

4.  On 25 June 2007, the defendant served on the plaintiff a Notice of Appeal against Fung J’s orders of 4 June 2007 (“the Notice of Appeal”). However, the Notice of Appeal could not be lodged because a sealed copy of the orders was not yet available.

5.  The defendant also appealed against the costs order made on 11 September 2007 by way of a supplemental Notice of Appeal (“the supplemental Notice of Appeal”).

6.  On 8 November 2007, the defendant failed to lodge the sealed copies of the orders of 4 June 2007 and 11 September 2007 with the Notice of Appeal and the supplemental Notice of Appeal because he was out of time, the Notice of Appeal by a few days and the supplemental Notice of Appeal by just one day. The plaintiff refused to consent to an extension of time.

7.  The defendant therefore applies for an extension of time to set down the appeal against the order dated 4 June 2007 and to file and serve the supplemental Notice of Appeal.

8.  The plaintiff objects to an extension of time, not so much on undue or unexplained delay, or on any prejudice, but on the basis of a total lack of merits of the appeal.

9.  The plaintiff, through its counsel Mr Barlow SC, contends that the true reason for the delay was because the defendant’s proposed appeal “is known to be hopeless”. The suggestion is that when the main appeal is hopeless, so must be the appeal against the costs orders.

10.  Mr Barlow SC refers to a decision of Rogers VP made on 3 September 2007 in connection with the defendant’s application to extend time for appealing against a disclosure order of Deputy Judge Gill given on 24 November 2006. Having referred to the lack of merits of the defendant’s proposed appeal, Rogers VP commented at para 4 of his judgment:

“

It is clear that the reason for this belated application for leave to appeal was prompted by the commencement of contempt proceedings and an application for judgment for breach of the order. Whether or not those applications are successful; whether or not the defendant can succeed in showing that he had made full disclosure; and whether or not judgment should be granted on its failure to make (meet) the order are really not matters for me to decide today. I simply have to decide whether leave to appeal should be given and I do not think that this is an appropriate case for me to exercise that discretion”

11.  With respect, I do not see the relevance of Rogers VP’s decision when the issues and the facts relating thereto are completely different from those in the present application.

12.  The primary issues that I have to decide simply are whether Fung J was entitled to conclude as he did that the plaintiff has a good arguable case, and where the balance of convenience lies in the light of the plaintiff’s allegation that there is a real risk of dissipation or secretion of assets so as to render any judgment which the plaintiff may obtain against the defendant nugatory. On the supplemental Notice of Appeal, the issue simply is whether Fung J’s exercise of discretion on costs is completely unsustainable.

13.  I just wish to echo what Lord Diplock said in American Cyanamid Co v Ethicon Ltd [1975] AC 396:

“

It is no part of the court’s function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which calls for detailed argument and mature considerations. These are matters to be dealt with at the trial. One of the reasons for the introduction of the practice of requiring an undertaking as to damages upon the grant of an interlocutory injunction was that ‘it aided the court in doing that which was its great object, viz. abstaining from expressing any opinion upon the merits of the case until the hearing’ Wakefield v Duke of Buccl.eugh (1965) 12 L.T. 268, 269. So unless the material available to the court at the hearing of the application for an interlocutory injunction fails to disclose that the plaintiff has any real prospect of succeeding in his claim for a permanent injunction at the trial, the court should go on to consider whether the balance of convenience lies in favour of granting or refusing the interlocutory relief that is sought.

As to that, the governing principle is that the court should first consider whether, if the plaintiff were to succeed at the trial in establishing his right to a permanent injunction, he would be adequately compensated by an award of damages for the loss he would have sustained as a result of the defendant’s continuing to do what was sought to be enjoined between the time of the application and the time of the trial. If damages in the measure recoverable at common law would be adequate remedy and the defendant would be in a financial position to pay them, no interlocutory injunction should normally be granted, however strong the plaintiff’s claim appeared to be at that stage. If, on the other hand, damages would not provide an adequate remedy for the plaintiff in the event of his succeeding at the trial, the court should then consider whether, on the contrary hypothesis that the defendant were to succeed at the trial in establishing his right to do that which was sought to be enjoined, he would be adequately compensated under the plaintiff’s undertaking as to damages for the loss he would have sustained by being prevented from doing so between the time of the application and the time of the trial. If damages in the measure recoverable under such an undertaking would be an adequate remedy and the plaintiff would be in a financial position to pay them, there would be no reason upon this ground to refuse an interlocutory injunction.”

14.  At the hearing before Fung J, the parties argued on many issues, including whether the funds in question belonged to the plaintiff and whether the plaintiff was entitled to sue. If the plaintiff was entitled to sue, whether and the extent to which the defendant had to account for the money paid and/or the profits from the TSE shares supposed to have been acquired by the defendant for the plaintiff.

15.  There was also the dispute as to the extent of the damages that the plaintiff would be entitled should it be successful. 

16.  There were arguments as to whether there was any operating misrepresentation to induce the plaintiff to transfer fund to a trust account and whether the plaintiff was entitled to seek equitable relief in the light of the defendant’s suggestion that the proposed purchase of the TSE shares was tainted with illegality.

17.  With respect, the parties were attempting to persuade the court to do what Lord Diplock suggested in American Cyanamid (supra)that the court should not do. These issues involved complicated facts and difficult questions of law, both of which called for detailed argument and mature consideration and could only be properly dealt with at the trial and not at the interlocutory stage.

18.  Suffice it to say, on the material before me, that I am satisfied that the plaintiff has a good arguable case against the defendant for breach of trust and a duty to account. The plaintiff is entitled to argue that the extent of its damages arsing out of the defendant’s alleged breach of duty exceeds GBP 21 million.

19.  The plaintiff’s case against the defendant is that the defendant had misappropriated funds from a trust account and had failed to discharge his duties towards the plaintiff, leading to huge losses. On such allegation, including allegation of dishonesty, there is a clear risk of dissipation and any future award of damages to the plaintiff would not be an adequate remedy.

20.  Fung J’s order would of course result in the defendant not being to deal with assets presently under his name. However, such prejudice, if it is a correct term to describe it, is unavoidable in the light of the plaintiff’s allegation.

21.  The defendant’s position is safeguarded. Should he be successful at the trial, not only would he get back all the frozen assets under his name, he would also be entitled to seek from the plaintiff damages against which an undertaking had been given.

22.  In my view, the balance of convenience clearly lies in favour of the plaintiff for the continuation of the injunction order against the defendant, particularly when the plaintiff’s undertaking as to damages was fortified by the payment into court of $5 million.

23.  The defendant recently drew the court’s attention to a settlement agreement whereby the amount transferred out of a trust account maintained by the London firm of solicitors and subjected to Fung J’s order would be reduced to just over GBP 6 million. The defendant further informed the court that the contempt proceeding taken out by the plaintiff for the alleged contravention of the injunction order and the failure to make proper disclosure was dismissed.

24.  The defendant, through his solicitors, also referred to a parallel proceeding in England in which the plaintiff also sought an injunction to restrain the defendant from dealing with his assets.

25.  In one of the affirmations filed in connection with the English proceedings, it transpired that the plaintiff had admitted that due to some miscommunication, the Royal Court of Jersey had dissolved the plaintiff since 1 October 2007.

26.  The defendant suggests that with such dissolution, it might not be possible for the plaintiff to continue or maintain its proceedings against the defendant. In response, the plaintiff’s solicitors points out that the dissolution had in fact been declared void.

27.  I have considered those matters, which no doubt will be properly investigated and adjudicated upon at the appropriate stage. However, I am not persuaded that those matters, either separately or collectively, would tip the balance, on the question of convenience, in favour of the defendant.

28.  I do not agree with Mr Wright’s suggestion that the issues involved in the proposed appeal require a lengthy and time-consuming examination. It is, in my view, just a simple and straightforward case on the question of balance of convenience. The issue clearly favours the plaintiff.

29.  In my view, the defendant’s proposed appeal against the interlocutory injunction order has no reasonable chance of success.

30.  The costs order made on 11 September 2007 is a discretionary order. Fung J was perfectly entitled to make the order as he did and I am not persuaded at all that Judge Fung J’s exercise of discretion was plainly wrong as suggested by Mr Wright.

31.  In the circumstances, the application for an extension of time to set down the appeal against the order dated 4 June 2007 and to file and serve the supplemental Notice of Appeal is dismissed with costs in any event.