PROMAIL INTERNATIONAL (HK) LTD (IN LIQUIDATION) v. SHEE YIP SHING

HCA 1774/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1774 OF 2005

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REASONS  FOR  DECISION

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1.  Promail was incorporated in 1999.  Mr Shee was appointed a director in mid-2000.  It is now clear that Promail was established for criminal purposes.  It operated a pyramid selling scheme which was fraudulent.  On 19 December 2000, a Restraint Order was made pursuant to S 15 Organised in Serious Crimes Ordinance Cap 455 restraining dispositions from various bank accounts, including Mr Shee’s accounts.  Police raided the offices of Promail on 20 December 2000 and arrested various people.

2.  Mr Shee, with three others, was charged with an offence of Conspiracy to Defraud.  An order for the winding up of Promail was made on 10 July 2002.  On 4 January 2005, Mr Shee was acquitted of charge, but the other three charged were convicted.  Consequent upon the acquittal the Restraint Order was discharged.  The Liquidators to Promail obtained an injunction against Mr Shee, restraining him from disposing of moneys in his bank accounts.  The injunction gave liberty to Mr Shee to withdraw a monthly sum of $19,600 for his living expenses and a particular sum of $40,000 for legal costs.

3.  On 19 April 2006, Mr Shee filed a summons seeking leave to withdraw $96,000 for medical expenses, $100,000 for legal expenses and a further $50,000 for the expenses of the summons.  On 18 May 2006, the Liquidators filed a summons seeking to vary the injunction so as to discharge Mr Shee’s right to withdraw the periodical sum of $19,600 a month.

4.  Both summonses came before me for decision on 29 August 2006.  Having heard the parties I dismissed Mr Shee’s summons, and granted that of the Liquidators.  I now give my reasons for that decision.

5.  The injunction relates to approximately $5.3 million paid by Promail into certain accounts of Mr Shee.  In a judgement given on 3 August 2005, Kwan J. found that there was a dispute as to the entitlement or ownership of certain funds in Mr Shee’s accounts.  It is upon the basis that there exists a dispute as to the funds that Mr Shee says that he is entitled to withdraw funds for his living and medical expenses.

6.  Mr Shee bases his entitlement to the money on an assertion that he earned a monthly income from Promail of $15,000 per month and in addition was entitled to what he described as a “bonus payment, a commission or rebate”.  In her judgement Kwan J. said:

“Further, on my above analysis, of the amounts identified as payments from (Promail), about $5 million out of the $5.3 million would appear unlikely to have been received due to remuneration.  This would leave about $300,000 which might be attributable to (Mr Shee’s) remuneration for services he provided to (Promail).”

7.  Although Mr Shee was not convicted of the criminal charges, the determination of the allegations against him in these proceedings will be based upon an entirely different standard of proof, that of the balance of probabilities.  It is not appropriate for me to decide that issue in these proceedings, but it is clear that I can say that the evidence points compellingly to the conclusion that Mr Shee had no right at all to be paid the sums that he received.  The evidence is a very strong that the sums are, in all probability, (the appropriate standard of proof), the proceeds of a fraudulent scheme operated by Mr Shee and those persons convicted in the criminal proceedings.  There is a compelling case to say that they were received by Mr Shee, knowingly, as the proceeds of crime.

8.  Mr Shee has asserted that the sums amount to rebates, commissions or bonuses.  He has produced no document demonstrating that he is entitled, by his contract of employment, to such rebates, commissions bonuses.  There are no documents from Promail recording such payments.  Mr Shee has produced no receipts for the payment of these very large sums of a very short period of time.  Promail has no receipts.  He does not explain the absence of any of these documents.  He does not assert that he properly declared the sums as income for tax purposes.  He does not produce income-tax returns showing the declaration of the sums.

9.  The claim made by Promail is a proprietary claim to the sums in the bank accounts.  The law is clear, that directors of a company are treated by equity as if they are trustees of the company’s property under their control, for determining the company’s proprietary interest in its property, transferred wrongly by its directors to a third-party: see Baden v Societe Generale [1993] 1 WLR 509 at 573F.  Having regard to the compelling case against Mr Shee, there is a high likelihood that the court will consider that the state of his knowledge makes it unconscionable for him to retain the benefit of receipt of Promail’s property: see BCCI (Overseas) v Akindele [2000] Lloyds Rep 292, in which case Mr Shee will be held to hold the property on a constructive trust for the benefit of Promail.

10.  The injunction granted is not Mareva relief.  A Mareva injunction is not directed at the sums involved in a proprietary claim, but against the general disposition or dissipation of assets, against which, a plaintiff, who may obtain a judgement in the future, might execute that judgement.  It is because there is no direct proprietary claim to the assets restrained by a Mareva injunction that permission is usually given to the subject of the injunction to withdraw funds for legal expenses.  The court proceeds upon the presumption that the assets belong to the subject of the injunction.

11.  The position is quite different where there is a direct proprietary claim to the assets.  Mr Stephen Gee, in his well-known text, Commercial Injunctions, 5^th Ed,  para 3.029 says:

“When there is a proprietary claim the court may order a fund to be set aside by the defendant which is not subject to the usual liberties inserted into Mareva relief and which will wait the determination of the claim: Polly Peck International plc v Nadir (No 2) [1992] 4 All ER 769 at 784.”

12.  I accept Mr Hill’s submission that the onus is on Mr Shee to show that the liquidator has no beneficial interest in the sum restrained: see Secretary for Justice v Tan Lam Chuen, Promail International (HK) Ltd & Ors CACV 197/2005.  Mr Shee has singularly failed to do so.  The effect of the order he seeks will be to allow someone who has, in all probability, received funds he knows to be the proceeds of crime, and dissipate those funds before the liquidator may recover them the benefit of those defrauded in the crime.

13.  These issues were not placed before me when I made the injunction on 7 October 2005.  At that stage the liquidator was content to allow Mr Shee to make withdrawals from the fund.  The withdrawals Mr Shee has received to date exceed the amount of the monthly salary he asserts he was entitled to, and there remains in his accounts a sum representing the so-called bonuses upon which I find there to be only a barely arguable basis for payment.

14.  For these reasons I refused Mr Shee’s application and granted that of the liquidator.  I made an order that costs on both summonses are to be plaintiff's costs in the cause.