MOTOROLA SOLUTIONS CREDIT COMPANY LLC v. KEMAL UZAN AND OTHERS

HCA 2232/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2232 OF 2013

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Introduction

1. This is my decision in respect of two related applications.  The first is from the plaintiff seeking judgment in default against the 1^st to 7^th defendants for failing to file a defence.[1] The second is from the 2^nd, 3^rd, 4^th, 5^th and 7^th defendants for an extension of time to file a defence and to make application to dispute the jurisdiction and to stay the proceedings.[2]

2. The plaintiff is a company incorporated in the United States of America (US).  The 1^st to 5^th defendants are all members of the Uzan family of Turkey.  It is claimed by the plaintiff that the 6^th and 7^th defendants are close associates of the Uzan family and that the 8^th to 12^th defendants hold property or assets as nominees for the 1^st to 7^th defendants.

3. The Uzans are a wealthy family who have been heavily involved in litigation with the plaintiff and others over the last 10 years. They include the father (the 1^st defendant), his two sons (the 2^nd and 3^rd defendants) and daughter (the 4^th defendant).

4. In litigation in the US it was found that members of the Uzan family and others had perpetrated a large scale fraud on the plaintiff by misappropriating advanced payments in the sum of $1.7 billion made by it to the Turkish telecom company, Telsim, and as part of their scheme they also ensured that the security provided for the advance payments by way of a share pledge was devoid of any value.

5. On 29 January 2002, the plaintiff filed a complaint against a number of defendants, including the 1^st to 6^th defendants, in the US District Court for the Southern District of New York which included allegations of misappropriation and fraud. On 3 July 2003, the court gave judgment against the defendants, including the 1^st to 6^th defendants, ordering them to pay the plaintiff compensatory damages and interest of US$2,132,896,9055.66.  This is referred to as the July 2003 judgment.

6. On 20 June 2006, the US District Court entered a judgment against members of the Uzan family for punitive damages in the sum of US$1 billion, in addition to the compensatory damages. This is referred to as the June 2006 judgment.

7. In another set of proceedings, the US District Court on 25 October 2010 entered judgment against the 7^th defendant in the total sum of US$4,359,619,155.74 inclusive of interest having found that it was the alter ego of the 1^st to 6^th defendants.  This is referred to as the October 2010 judgment.

8. The US judgments are final and conclusive, and not subject to further appeal.

9. The US judgments were domesticated in the United Kingdom (UK).  On 6 December 2004, the English High Court entered judgment against the 2^nd to 4^th defendants in relation to the July 2003 judgment in the amount of US$2,132,896,905.66 plus pre-judgment interest of US$124,561,360.45 and continuing post-judgment interest at 8% per annum and costs of GBP120, 000.  This is referred to as the December 2004 judgment.  On 16 April 2010, the English High Court entered judgment against the 1^st and 3^rd defendants in relation to the July 2003 judgment in the amount of US$2,132,896,905.66 plus pre-judgment interest of US$701,401,686.54 and continuing post-judgment interest at 8% per annum and costs of GBP54,192.56.  This is referred to as the April 2010 judgment.

10. The UK judgments are final and conclusive, and not subject to further appeal.

11. No voluntary recovery has been made under the various judgments obtained in the US and the UK, although the plaintiff has been able to collect funds in part settlement of the judgments through ancillary proceedings in various jurisdictions, including an arbitral settlement with Telsim and the Government of Turkey in relation to this matter where it received US$910 million. The details of the enforcement action taken so far are extensively set out in the affidavit of Mr George Reid Calhoun V dated 14 November 2013. 

12. In his statement, Mr Calhoun notes that several members of the Uzan family have been dealt with for contempt of court in the US and UK for failure to comply with court orders and have had imposed on them in absentia terms of imprisonment. He also notes that various members of the family are either wanted or have been dealt with in absentia in relation to criminal matters in Turkey.  

13. As at 8 November 2013, after allowing for monies collected so far, the plaintiff is owed:

(a) US$2,607,798,489.65 on the UK judgments, with interest continuing to accrue thereon at 8% per annum; and

(b) US$2,653,286,596.23 on the US judgments, with interest continuing to accrue thereon at the statutory rate.

The Hong Kong proceedings

14. Mr Calhoun together with Mr Jules B Kroll, who has also filed an affidavit dated 14 November 2013, provide details of the corporate empire of the Uzans which operates through a web of companies and associates and with particular reference to their associates and assets in Hong Kong.

15. The plaintiff claims that it is entitled to enforce the US judgments and UK judgments in Hong Kong at common law, and as an alternative, it will apply to register the UK judgments under section 4 of the Foreign Judgments (Reciprocal Enforcement) Ordinance, Cap 319.

16. On 15 November 2013, the plaintiff obtained from Deputy High Court Judge Lok an ex parte order for a freezing injunction and leave to serve the intended writ out of jurisdiction by way of email on the 1^st to 7^th defendants. Mr Calhoun in his affidavit explains the difficulties that the plaintiff has had in locating and contacting members of the Uzan family and why substituted service out of the jurisdiction by email is justified in the circumstances. Ms Anita Fong Man Ieng in her affirmation dated 21 November 2013, confirmed that service had been effected on the 1^st to 7^th defendants as ordered.

17. On 18 November 2013, the plaintiff issued a writ against the 12 defendants, claiming the outstanding balance of US$2,607,798,489.65 on the UK judgments as a debt payable by the 1^st to 4^th defendants, or the outstanding balance of US$2,653,286,596.23 on the US judgments as a debt payable by the 1^st to 7^th defendants.

18. On 19 November 2013, the 2^nd defendant received by email the writ.  He appears to be the representative of the Uzan family.  On 2 December 2013, he responded by email, returning the acknowledgement of service and stating that he objected to the service of the writ and that it had not been served in accordance with international requirements.  He also stated that he objected to the enforcement and domestication of the US judgments in Hong Kong and he would contest the proceedings. 

19. In a document dated 30 November 2013, with reference to the Hong Kong court proceedings, the 2^nd defendant in the form of a statement objected to the service of the writ and to the jurisdiction of the court.  I assume this was submitted in the email of 2 December 2013.  He submitted that the US judgments and the UK judgments were in violation of Hong Kong law and unenforceable.  He also submitted that the US judgments included $1 billion in punitive damages which was contrary to public policy in Hong Kong. He claimed that the statements submitted by the plaintiff to the court were untrue and omitted significant evidence and agreements which would lead to a rejection of the judgments and the enforcement of them.  The agreements were a reference to the settlement agreements which were fully disclosed in the affidavit of Mr Calhoun.  The settlements were in part satisfaction of the judgments and did not preclude further recovery action. He also claimed that the plaintiff’s statements contained references to emails which revealed that his private communications had been illegally intercepted. 

20. The 2^nd defendant made a further statement dated 6 December 2013 in which he stated he had lodged a criminal complaint against Mr Kroll, Mr Calhoun, Mr Howard H Stahl and Ms Georgia Vlamis for violating Articles 28 and 30 of the Basic Law and provisions of the Interception of Communications and Surveillance Ordinance, Cap 589, in that, they intercepted communications of HPF Private Investment Fund Company Ltd (the 9^th defendant).  He gives details of the company, submitting it is a corporate citizen of Hong Kong that has had its rights violated by the plaintiff.  The 2^nd defendant submitted the two statements to the court by facsimile transmission and in a response from the court dated 9 December 2013, he was told that if he intended to dispute the action, he should make his application by proper formal inter parte application and that a fax copy was not acceptable.  He was also advised that he should consider seeking legal advice and assistance from a Hong Kong lawyer.  From the contents of the two statements, and the reference to Hong Kong statutory provisions, it would appear he had legal advice or assistance.

21. On 16 December 2013, the 7^th defendant by its director, Mr Andreas Partellas of Cyprus, in similar terms as stated by the 2^nd defendant, objected to service of the writ and that it would contest the proceedings. 

22. At this time, the 2^nd to 5^th and 7^th defendants instructed Hong Kong lawyers who filed an acknowledgment of service for the 2^nd to 5^th defendants on 30 January 2014 and the 7^th defendant on 5 February 2014.

23. The freezing injunction granted by Deputy High Court Judge Lok was ordered to remain in force until trial or further order by the court.  On 18 February 2014, G Lam J appointed receivers over all the assets of the 9^th, 11^th and 12^th defendants.

Default judgment or extension of time?

24. I will describe the 2^nd to 5^th and 7^th defendants as the defendants, unless I make specific reference to a particular defendant. 

25. Mr Simon Westbrook, SC, counsel for the plaintiff, submits that the Uzans have vigorously contested proceedings throughout the world and have a history of seeking to delay and obfuscate the enforcement of judgments against them.

26. Mr Westbrook also makes the point that the Uzans are no strangers to litigation in common law jurisdictions and are familiar with the time limits and procedures set by the courts.  He submits that no proper explanation has been advanced for the delay in filing an acknowledgment of service and the failure to file a defence due on 13 January 2014.  He notes that the application for an extension of time by the defendants was filed on 6 February 2014 and only after the plaintiff applied for default judgment on 4 February 2014.

27. Mr Westbrook argues that it is pointless for the defendants to contest these proceedings as the US judgment has been recognized in various jurisdictions and that no good defence on the merits has been shown either on affidavit or in argument. 

28. Ms Roxanne Ismail, SC, counsel for the defendants, argues that the defendants should not be deprived of the opportunity of contesting these proceedings, given the initial response from the 2^nd defendant that he wished to defend them and that the delay in not filing a defence is not significant.  I should point out that the due date for filing a defence was 13 January 2014 and no defence has been filed in the meantime.  In any event, Ms Ismail argues that if a defence is filed by the defendants, they would be submitting to the jurisdiction which they wish to challenge.  She argues that any step taken in the jurisdiction would mean the defendants are submitting to it and they would lose the right to dispute jurisdiction.[3]

29. Ms Ismail argues that the defendants wish to challenge the jurisdiction on the basis that there is no connection between them and the assets that have been frozen.  She submits that the defendants wish to particularly contest the service, the jurisdiction and the merits of the action.  It is not clear whether the defendants will take further action in relation to these grounds given the qualified remarks that have been made about doing so.  In the summons for an extension of time, it is stated that the defendants apply to file and serve (1) a defence and counterclaim (if any); (2) an application to dispute the jurisdiction (if any); and (3) an application to stay the proceedings (if any).  In the affirmation of Mr Nathan Bradley Simmons, solicitor for the defendants, he states that the extension of time is required to consider and advise on whether to contest the proceedings.  He also notes that the defendants are not in a position to finalise their application as they are awaiting advice from French lawyers as to the legality of service by email and consideration by their solicitors of the relevant papers.

30. Ms Ismail relies on the case of The Decurion [2012] 1 HKLRD 1063 where the Court of Appeal set aside the orders of the court below refusing an extension of time and granting the plaintiff judgment in default.  It was held that in the exercise of the discretion, a court was obliged to look at all relevant matters and consider the overall justice of the case, and not apply a rigidly mechanistic approach, in order to strike a balance between the two principles: that a party should observe procedural rules with judgment entered against him in default; and that a party should not be deprived of an adjudication of the case on its merits unless there had been prejudice to the other party that could not be compensated by costs.  The Court of Appeal noted in that case that the defendants had a substantial defence.  This was a factor that was taken into account.

31. It was argued by Ms Ismail that this was not a case where the 2^nd defendant had done nothing. He had sought to file an acknowledgment of service which was delayed because communications from the court may have misled him. I do not accept that. The 2^nd defendant made it abundantly clear that he was not acknowledging service and was generally challenging the proceedings against him. It was also clear that he was fully conversant with the procedures and legal issues involved.  In any event, the delay in acknowledging service is not the main issue.  It is his failure and that of the other defendants of filing a defence that the plaintiff now seeks judgment in default. 

32. The 2^nd defendant has filed two affirmations in these proceedings.  They contain strong objection to the proceedings and vitriolic condemnation of the US judgment in broad and general terms.  He also affirmed that he did not have any assets of an individual value of HK$10,000 or more in Hong Kong.  I note that the tone and nature of his comments are reflected in affirmations filed by other defendants.

Conclusion

33. Where a defendant has failed to file a defence, the court has discretion to grant an extension of time for the defendant to plead his case when it is just to do so.  As stated by the Court of Appeal in The Decurion, a court in the exercise of this discretion is obliged to look at all relevant matters and consider the overall justice of the case.  This may involve taking into account the nature and merits of the defendant’s case, together with all other relevant matters in considering whether to grant an extension of time in order for him to defend the proceedings.  Given the nature and history of this case, and the plaintiff’s claim, the defendants need to show a good arguable case supported by evidence on the grounds that they wish to challenge the proceedings, which together with other relevant matters, will be taken into account in considering the overall justice of the case.  I propose to adjourn the two summonses to 1 April 2014 and order for the purposes of these applications, that the defendants file and serve by 25 March 2014 the grounds upon which they wish to contest the proceedings and produce evidence by affidavit supporting those grounds, and that the plaintiff file and serve a response to those grounds by 31 March 2014.  On the return date, I will also deal with the plaintiff’s summons with respect to the 1^st and 6^th defendants.