QUESTNET LTD v. KURT GEORG ROCCO RINCK AND ANOTHER

HCA 1475/2006

IN THE HIGH COURT OF THE

HONG KONG ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1475 OF 2006

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J U D G M E N T

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1.  This is the plaintiff’s application to commit the 2^nd defendant for contempt of court on account of breaches of a Mareva Injunction Order.  The application is contested primarily on the basis that the 2^nd defendant had not been personally served with the Order and did not have knowledge of it when he did the acts that were complained of. 

The action

2.  The plaintiff is a BVI company registered under Part XI of the Companies Ordinance, cap.32. The 1^st defendant was one of its founders and, until early July 2006, a director and employee of the plaintiff. The 2^nd defendant was between May 1999 and June 2005 the Chief Legal Officer of the plaintiff in charge of the Legal Affairs Department. 

3.  The plaintiff commenced this action against the 1^st defendant on 12 July 2006. The dispute relates to certain funds of the plaintiff that were held by the 1^st defendant on trust. The funds were held in six bank accounts maintained in the 1^st defendant’s name with Citibank, Hong Kong and another bank account also maintained in the 1^st defendant’s name with Dominick Co in Zurich, Switzerland (collectively referred to as “the Trust Accounts”).  The 1^st defendant had made two Declarations of Trust dated 18 November 2003 and 13 December 2005 in respect of the funds in the Citibank Bank account and the Swiss account respectively.

4.  The plaintiff claims that the 1^st defendant had, in breach of his duties as trustee, misappropriated and converted the trust funds to his own personal use.  The acts complained of include, inter alia, the removal on 30 June 2006, of a sum of Euro 582,806.44 from one of the six Citibank accounts into his personal account maintained with Citibank. The sum was then transferred into one of the 1^st defendant’s Swiss accounts with the Dominick Co.  The plaintiff seeks an account of and the return by the 1^st defendant of the trust funds that had been misappropriated and converted, in addition to damages and declaratory and injunctive relief.  Summary judgment was entered against the 1^st defendant on 30 November 2006. 

Mareva Injunction against the 1^st defendant

5.  Shortly after the plaintiff issued the Writ and on 21 July 2006, the plaintiff applied and obtained from Deputy High Court Judge Poon (as he then was) a Mareva Injunction to restrain the 1^st defendant from disposing, transferring or dealing with the trust funds that were initially held by him in the Trust Accounts (“Poon J’s Order”).  The Order further required the 1^st defendant to make disclosure by affidavit of the balances in the Trust Accounts and his dealings with the funds in them since 1 March 2006, including details of every amount withdrawn or transferred and the identity of the recipient of each withdrawal or transfer.

6.  Subsequently, the 1^st defendant made four affirmations purporting to comply with the order for disclosure.  On 16 August 2006, the 1^st defendant made his fourth affirmation, which was filed with the court on 17 August 2006. In it, he disclosed, for the first time, that the sum of Euro 582,806.44, after being transferred into his Swiss bank account, was placed on trust with the 2^nd defendant and the 2^nd defendant had on his instruction paid debts owed to his creditors.  The relevant part of the 1^st defendant’s Fourth Affirmation reads:

“2.    In paragraph 3 of my Second Affirmation dated 4^th August 2006 I stated that on 30^th June 2006 EUR$582,806.44 was transferred into my other Citibank account No.0083084339. I should add that on the same day I transferred the said sum of EUR$582,806.44 into one of my Swiss Bank accounts of Dominic Bank (from my recollection the account No. is 800.782) and thereafter the funds were placed in trust with a person whom I have known to be my ‘lawyer’ but not a solicitor or barrister since first consulting him for advice in a Canadian law firm with an office in Hong Kong from 1991 to now, Mr. W Royce Lane. He has on my instructions debited my ledger with him to pay debts owed to my creditors.”

7.  The 1^st defendant had since left the jurisdiction. On 17 November 2006, Saunders J found him guilty of contempt in that he had before 17 August 2006 failed to make full and proper disclosure as ordered by Poon J’s Order. Sentence has been adjourned pending the execution of a warrant for his arrest. Shortly before Saunders J’s Judgment, the 1^st defendant had written to the Court on 14 November 2006, asserting that the funds he placed with the 2^nd defendant had been returned to him. It is of interest to note from Saunders J’s Judgment that the 1^st defendant had through his legal representatives given repeated assurances that he would pay the money into court, but nothing was ever paid in.

The Mareva Injunction against the 2^nd defendant

8.  In light of the disclosure made by the 1^st defendant in his fourth affirmation, the plaintiff’s solicitor moved for and obtained ex parte on 17 August 2006, a Mareva Injunction against the 2^nd defendant restraining him from dealing with or disposing of his assets and any funds derived from the 1^st defendant up to Euro 582,806.44.

9.  Of particular relevance to this application is paragraph 1(3) of the Order, which provides:

“The Intended 2^nd defendant must not dispose of or deal with or diminish the value of any of the funds derived from, or placed with him by Mr Kurt Georg Rocco Rinck (“Mr Rinck”) or anyone on behalf of Mr Rinck, limited to Euro 582,806.44.”

10.  Paragraph 2 of the order further required the 2^nd defendant to make disclosure in relation to the whereabouts of and his dealings with the Euro 582,806.44.

11.  A copy of the 1st Defendant’s Fourth Affirmation was attached to the ex parte Order. The Order as re-amended on 19 August 2006 was continued by the Order of 1 September 2006. 

12.  On the same day, a prohibition order was also issued against the 2^nd defendant prohibiting him from leaving the jurisdiction.  Since then, the 2^nd defendant has been subject to successive sets of prohibition orders. His first application to discharge the prohibition order was dismissed in February 2008. On 10 June 2008, the 2^nd defendant filed another summons to apply for the discharge of the prohibition order. The determination of the summons is pending.

13.  With leave of the Court granted on 23 August 2006, the 2^nd defendant was joined as a defendant to this action.  

14.  By the order of Master Ho of 23 August 2006, the Mareva Injunction and the prohibition order were permitted to be served on the 2^nd defendant by substituted service.  This was duly done.

15.  On 25 April 2007, Messrs Au Yeung, Cheng Ho & Tin filed a notice to act for the 2^nd defendant. The plaintiff’s solicitors immediately on 26 April 2007 served a copy of the Mareva Injunction on this firm together with the other court documents.

The 1^st contempt proceedings against the 2^nd defendant

16.  On 10 May 2007, the plaintiff commenced contempt proceedings against the 2^nd defendant for failure to comply with the order to make disclosure under the Order dated 17 August 2006.

17.  On 13 June 2007, the 2^nd defendant filed an affidavit, in which he gave an account of his dealings with and the whereabouts of the money that the 1^st defendant had transferred to him.  I shall return to deal with the contents of this affidavit in greater details in the latter part of this Judgment. 

18.  The 2^nd defendant did not, however, attend the hearing of the contempt proceedings. On 15 June 2007, I found him guilty of contempt and adjourned the sentence and further issued a warrant for his arrest.  The warrant was subsequently discharged upon terms.  Sentence is presently adjourned to after the determination of liability in the present contempt proceedings.   

The present contempt proceedings

19.  On 27 June 2007, the plaintiff applied for leave to commence a second set of contempt proceedings against the 2^nd defendant for breaches of the two Mareva Injunctions. Leave was granted on 30 June 2007.  On 4 July 2007, the plaintiff filed the Notice of Motion. The Statement in support of the application and the Notice of Motion were subsequently amended with leave granted on 23 April 2008.

20.  Although the application was initially to commit the 2^nd defendant for contempt of both Poon J’s Order and the Mareva Injunction Order dated 17 August 2006 as re-amended on 19 August 2006 (“the 17-8-2006 Order”), the plaintiff indicated at the commencement of this hearing that it would only pursue the application for contempt of the 17-8-2006 Order. 

21.  With the leave of the court, both Mr Donegan of Messrs Barlow Lyde & Gilbert, the plaintiff’s solicitors, and the 2^nd defendant had been cross-examined at the hearing of the application. 

The plaintiff’s case

22.  The plaintiff’s case is that the 2^nd defendant had disposed of, dealt with and diminished the value of funds that were placed with him by the 1^st defendant, in breach of the terms of and, in particular, paragraph 1(3) of the 17-8-2006 Order.

23.  Specifically, the plaintiff relies on the contents of the 2^nd defendant’s First Affidavit that was filed on 13 June 2007.  The relevant part of the affidavit states:

“7.     … During the first week of July 2006, [the 1^st defendant] called on or about July 08, 2007 and asked if he could place funds in trust with me. I made clear to him that I would not be accepting any of his funds from Citibank Hong Kong, as during my time with the Plaintiff company, I recall advising the company to have officer’s holding company funds, at Citibank to execute a Deed of Trust in favour of the company. He agreed, and said that it was his Euro Monies, which would be coming to me out of his bank account at Switzerland.

Disclosure compliance

7. [sic] On 11 July 2006, Euro funds arrived at my American Dollar bank account at the Kingdom of Bahrain for my personal British Virgin Island (hereinafter referred as “BVI”) Company in the amount of US$737,600.31. Duly annexed is Exhibit Marked “A1” the original edition of the bank statement for my BVI Company, Landbase Corporation. My bank, the Ahli United Bank of Bahrain, confirmed that these funds had come from Switzerland. No longer having any further need for this account, I have since closed my Bahrain account as at the end of February 2007. 

8.     [The 1^st defendant] directed that I disburse funds to his investment project with the A.O.G. Company at Austria. The first disbursement was for US$105,000 on or about 27 July 2006 and again for a further US$100,000 on or about 21 August 2006. Duly annexed, is Exhibit Marked “B1”, consisting of three pages all marked “B1”. Page one is from the Alpha Omega Group of Austria confirming receipt of these funds and page two ad three, is from their bank, confirming the credits to their account.

9. [The 1^st defendant] directed that the remainder of his funds, plus interest, be distributed to himself, at his wife’s bank account with Bank International Indonesia. Accordingly, on or about 28 August 2006 US$535,477.50 was duly disbursed to this account. Duly annexed is Exhibit Marked “C1” consisting of one page from Bank International Indonesia controlled by [the 1^st defendant], but in his wife’s name.” 

24.  In essence, the acts complained of are that the 2^nd defendant had on 11 July 2006 through Landbase Corporation, a BVI company controlled by him, received from the 1^st defendant US$737,600.31, and that out of the money received, the 2^nd defendant had on 27 July and 21 August 2006 paid two sums of US$105,000 and US$100,000 to Alpha Omega Group (AOG) of Austria and on about 28 August 2006, paid US$535,477.50, being the remainder of the funds with interest, to the 1^st defendant’s wife.    It is the plaintiff case that the 2^nd defendant, in transferring these sums to Alpha Omega Group in Austria and the 1^st defendant’s wife, acted in breach of the 17-8-2006 Order. It is also the plaintiff’s case that the only reasonable inference to be drawn on the totality of the evidence is that when the 2^nd defendant dealt with the money on 21 and 28 August 2006, he was well aware of the existence of an order which prohibits him from so doing. Mr Duncan SC who appears for the plaintiff regards the last point as fundamental to the plaintiff’s application.

25.  The plaintiff further says that the 2^nd defendant has failed or refused to return or account to the plaintiff the funds that the 1^st defendant had placed with him. In this regard, the plaintiff relies on a “without prejudice” meeting between the 2^nd defendant and Mr Donegan on 27 November 2006. It was the 2^nd defendant himself who first made reference to this meeting in his Third Affidavit filed in opposition to the present application. The 2^nd defendant had gone into some details of what, according to him, was mentioned and discussed at the meeting, in an effort to dispute that he has been evading service.

The 2^nd defendant’s case

26.  The 2^nd defendant does not dispute the receipt of US$737,600.31 from the 1^st defendant and the payment out of the funds as stated in his First Affidavit. There is therefore no dispute that he had done the acts complained of.

27.  In his third affidavit, the 2^nd defendant said that he was misled by the 1^st defendant into believing that the funds placed on trust with him were the 1^st defendant’s personal funds.  His evidence in cross-examination is that the 1^st defendant had confirmed to him that the money in the Swiss account was the 1^st defendant’s own money and that he himself had further taken the caution of confirming with his bank in Bahrain that the funds that came to his account did come from Swiss account. According to the 2^nd defendant, when he later found out that he had been misled, he was angry and had a heated discussion with the 1^st defendant regarding getting the funds back into court. 

28.   The 2^nd defendant also said in the Third Affidavit that he did not have notice or knowledge of the 17-8-2006 Order or any Mareva injunction order until 25 April 2007. He also complained that the plaintiff had failed to serve the 17-8-2006 Order on him.

29.  In summary, the 2^nd defendant contests the application on the basis that he did not know that the funds he received from the 1^st defendant were trust funds belonging to the plaintiff and that when he paid them out on 21 and 28 August 2006, he did not know or have notice of the 17-8-2006 Order.

Issues

30.  The critical issue in this application is whether the 2^nd defendant knew or had notice of the existence of the 17-8-2006 Order, which prohibits him from dealing with or disposing of any funds that came from the 1^st defendant, when he paid out the sums to AOG of Austria and the 1^st defendant’s wife.  If he did, he would have breached the prohibition imposed by paragraph 1(3) of the 17-8-2006 Order. 

31.  Given that paragraph 1(3) relates to funds derived from or placed by the 1^st defendant and is not confined to trust funds of the plaintiff, whether the 2^nd defendant was at the material time aware that the funds that arrived from the 1^st defendant’s Swiss bank account came from the trust funds in the Trust Accounts is not directly relevant to whether the 2^nd defendant’s acts constitute breaches of the Order.  Even if he did not know, he would still be in breach of paragraph 1(3) if he had notice of the prohibition. 

32.  The burden is on the plaintiff to prove beyond reasonable doubt that the 2^nd defendant at the material time knew or have notice of the existence of the 17-8-2006 Order that prohibits him from dealing with or disposing of funds that came from the 1^st defendant.

Service of the 17-8-2006 Order

33.  The starting point to consider the issue is the service of the Order in question. In this connection, Order 45 rules 5(1) and 7(2), (6) and (7) of Rules of the High Court provide:

“5. Enforcement of judgment to do or abstain from doing any act (O. 45, r. 5)

    (1)   Where-

(a)     …,

(b)     a person disobeys a judgment or order requiring him to abstain from doing an act,

then, subject to the provisions of these rules, the judgment or order may be enforced by one or more of the following means, that is to say-

…

(iii)    an order of committal against that person or, where that person is a body corporate, against any such officer.”

“7. Service of copy of judgment, etc., prerequisite to enforcement under r. 5 (O. 45, r. 7)

   (2)     Subject to Order 24, rule 16(3), Order 26, rule 6(3) and paragraphs (6) and (7) of this rule, an order shall not be enforced under rule 5 unless-

(a)     a copy of the order has been served personally on the person required to do or abstain from doing the act in question, and

(b)     … ”

“(6)   An order requiring a person to abstain from doing an act may be enforced under rule 5 notwithstanding that service of a copy of the order has not been effected in accordance with this rule if the Court is satisfied that, pending such service, the person against whom or against whose property it is sought to enforce the order has had notice thereof either-

(a)     by being present when the order was made, or

(b)     by being notified of the terms of the order, whether by telephone, telegram or otherwise.

(7)     Without prejudice to its powers under Order 65, rule 4, the Court may dispense with service of a copy of an order under this rule if it thinks it just to do so.”

34.  Counsel are in agreement that generally speaking, an injunction should be personally served. It is however not an absolute requirement before it can be enforced by an order of committal. The order may be served by substituted service. Service may even be dispensed with where the court thinks it just to do so. More importantly, an injunction may be enforced by an order of committal if the court is satisfied that the person against whom enforcement is sought had been notified of the terms of the order whether by telephone, telegram or otherwise.

35.  In the present case, the 2^nd defendant had not been personally served with the 17-8-2006 Order. According to the plaintiff, it had since 18 August 2006 taken steps to locate the 2^nd defendant, but had not been successful.  There was only one occasion on 20 January 2007 that a business associate together with an employee of the plaintiff’s associated company saw the 2^nd defendant and his wife and children in Wanchai. There was before that the without prejudice meeting on 27 November 2006 between the 2^nd defendant and Mr Donegan, but the 2^nd defendant had made it a pre-condition of the meeting that there would be no service of process. 

36.  With leave of the Court, substituted service of the Order was effected by: (i) leaving the Order on 23 August 2006 with Messrs Chan, Wong & Lam (“CWL”), who were until 31 August 2006 the 1^st defendant’s solicitors; (ii) advertising a Notice of the Order in The Standard, being an English newspaper published and widely circulated in Hong Kong, on 24 August 2006; and (iii) providing a sealed copy of the Order to the clerk to Master B Kwan on 22 August 2006, whom the 2^nd defendant had contacted on 18 and 22 August 2006.   

37.  Additionally, the plaintiff had taken the following steps to bring to the 2^nd defendant’s notice of the 17-8-2006 Order and the related papers:

(1)   At about 12:11pm on 21 August 2006, Mr Donegan called at the 2^nd defendant New Zealand mobile phone number. The telephone was answered but was cut off when Mr Donegan said “hello”.

(2)   Immediately thereafter, Mr Donegan made a telephone call to the 2^nd defendant’s home in New Zealand and spoke to his wife. Mr Donegan informed her that a prohibition order and a Mareva Injunction had been issued against the 2^nd defendant, restraining him from removing funds received from the 1^st defendant, and they had not been able to contact him. Mrs Lane said she had no knowledge of the matter and she was only able to contact the 2^nd defendant on his mobile number.

(3)   At about 1:03pm in the same afternoon, Mr Donegan sent an email to the 2^nd defendant at Rocky905@hotmail.com (“the hotmail address”), attaching the prohibition order and the Mareva Injunction.

(4)   At about 2:58pm on 22 August 2006, Mr Donegan sent a SMS text message to the 2^nd defendant at his New Zealand mobile phone number, giving notice of the prohibition order and the Mareva Injunction. The message specifically pointed out that the 2^nd defendant was restrained from dealing with any funds received from the 1^st defendant. The 2^nd defendant was further asked to nominate a time and place for effecting personal service of the Orders.

38.  Mr Leung who appears for the 2^nd defendant accepts that as a matter of law, the fact that the 17-8-2006 Order was not personally served on the 2^nd defendant is not fatal. He however submits that the substituted service and the other steps taken by the plaintiff have not been effective in bringing notice to the 2^nd defendant and that the 2^nd defendant has not been evading service.

Credibility of the 2^nd defendant

39.  Central to the determination of the issue is the credibility of the 2^nd defendant.  He has made a number of assertions that are in my view inherently improbable and hard to believe.

40.  First, the 2^nd defendant claims that when he dealt with the funds from the 1^st defendant, he was not aware that the 1^st defendant was subject to a Mareva Injunction.  However, the private investigators engaged by the plaintiff had seen him accompanying the 1^st defendant to CWL on a number of occasions between 10 and 16 August 2006. Although he did not accept this happened on a number of occasions, the 2^nd defendant did not deny that he had gone to CWL with the 1^st defendant on more than one occasion. During this period of time, the main matters in this litigation that required the 1^st defendant’s attention were the Mareva Injunction, together with the disclosure order therein, and the plaintiff’s application for the funds to be paid into court.  According to Mr Edward Chan of CWL, on the occasions that the 1^st and 2^nd defendants went to his firm, they had discussions and exchanged views to the extent that, although the firm did not represent the 2^nd defendant, Mr Chan took the view that “he was also a client” and that “an element of joint enterprise existed”, so much so that when asked by the plaintiff’s solicitors in September 2007, he did not feel able to confirm, inter alia, whether the Mareva Injunction and prohibition order that were left with his firm had been forwarded to the 2^nd defendant. It was after he was subpoenaed to testify in this application that Mr Chan informed the plaintiff’s solicitors that he did not forward the papers to the 2^nd defendant or inform him of the same. In light of these matters, it is most unlikely that the existence of the Mareva Injunction against the 1^st defendant would not be made known to the 2^nd defendant, bearing also in mind their close association, a point that I shall elaborate in the latter part of this Judgment.  Further, the 2^nd defendant admitted in cross-examination that he was aware of the plaintiff’s claim against the 1^st defendant and he also knew that the 1^st defendant was required by a court order to make disclosure. He further said that the 1^st defendant had asked him if he could say that he had put money into the 2^nd defendant’s account.  Considering that the disclosure order was part of the Mareva Injunction order, it is inherently improbable that the 2^nd defendant did not know of the Mareva Injunction against the 1^st defendant or would have no knowledge of the prohibition on the 1^st defendant in relation to funds of the plaintiff held by the 1^st defendant on trust.

41.  Second, the 2^nd defendant also claims that when he dealt with the funds on the 1^st defendant’s instruction, he did not know that they were funds of the plaintiff. On the evidence, the 2^nd defendant was at all material times closely associated with the 1^st defendant. They have known each other for a number of years. The 1^st defendant had described the 2^nd defendant as a man he regarded to be his “lawyer” since 1991whereas the 2^nd defendant stated in his affidavits that he was retained by the 1^st defendant to be his business consultant shortly after the commencement of this action.

42.  The two of them had also been in close contact in the period after the Mareva Injunction against the 1^st defendant was issued.  They were observed by the plaintiff’s private investigators to be in each other’s company for many hours. As noted above, they had visited CWL’s office together on a number of occasions. They had also been seen playing pool together. Around midnight on 15 August 2006, the 2^nd defendant went with the 1^st defendant to a storage facility in Kennedy Town and assisted him in removing boxes.  The 2^nd defendant also stayed at the 1^st defendant’s residence at Hong Lok Yuen. The two of them were seen to leave the house in Hong Lok Yuen in the morning of 17 August 2006. They were last seen in the same afternoon leaving Printing House in Central and travelling in the 1^st defendant’s car on which there was a quantity of language, including the 2^nd defendant’s pool cue stick carry bag.

43.  Subsequently in January 2007 when Mr Farbiarz, the business associate of the plaintiff’s holding company, came across him and his family in Wanchai, the 2^nd defendant said that the 1^st defendant had provided for him since the plaintiff had stopped paying his pension and had been taking good care of him financially.  This is consistent with what the 2^nd defendant said to Mr Donegan at the without prejudice meeting in November 2006. According to Mr Donegan, the 2^nd defendant told him the 1^st defendant had given an indemnity to him and that accordingly the 1^st defendant was supporting him financially during his stay in Hong Kong. It is also Mr Donegan’s evidence that the 2^nd defendant further said that if he were to disclose the written instructions given by the 1^st defendant, that would really sink the 1^st defendant. Mr Donegan had not been cross-examined on this aspect of his evidence.  

44.  Most importantly, the 2^nd defendant was present when the 1^st defendant went to CWL on 16 August 2006, when the 1^st defendant made his fourth affirmation. According to the 2^nd defendant’s evidence in cross-examination, during that visit to CWL, the 1^st defendant had asked him if he could say he had transferred money from the Swiss account to the 2^nd defendant, and he gave his agreement to the 1^st defendant saying this in his affirmation. This is a revealing piece of admission because, as the 2^nd defendant knew, the affirmation was in connection with the order of disclosure against the 1^st defendant. Even accepting that prior to this visit, the 2^nd defendant did not know that the funds from the 1^st defendant’s Swiss account were funds of the plaintiff, the 2^nd defendant would by then became alerted and put on enquiry that the funds from the 1^st defendant’s Swiss account were funds of the plaintiff and/or subject matter of the plaintiff’s claim herein. 

45.  This is not to mention that it must strike a reasonable man that it is very odd that the 1^st defendant have to channel funds through the 2^nd defendant to his wife if indeed this were his personal funds. The 2^nd defendant claims to have no knowledge that the 1^st defendant was subject to a Mareva Injunction. If this were true, which I do not accept, then the request and arrangement to remit funds from a Swiss account to a Bahrain corporate bank account for onward transfer to the wife’s bank account in Indonesia would be even odder. Given the 2^nd defendant’s legal background, his previous experience in law enforcement in New Zealand and as the plaintiff’s Chief Legal Adviser together with his knowledge that the 2^nd defendant held funds on trust for the plaintiff and the plaintiff was claiming against the 1^st defendant about the trust funds, he ought reasonably to find the request to place funds with him and the instructions to pay them out highly unusual and to have suspected that the 1^st defendant had something to hide. Having regard to the circumstances analysed above, I find it inherently hard to believe the 2^nd defendant’s assertion that he was misled by the 1^st defendant and that he had no notice that the funds the 1^st defendant passed to him were trust funds of the plaintiff.

46.  At the same time, the 2^nd defendant’s assertion that he had fallen out with the 1^st defendant after he came to know the truth in about September 2006 also does not sit comfortably with several objective facts.  One of which was that in October 2006, the 1^st defendant had endeavoured to make the discharge of the 2^nd defendant’s prohibition order a condition of his paying the Euro funds into court. Another was the fact that as late as November 2006, the 1^st and 2^nd defendants were using the same post box as their correspondence address with the court and the Immigration Department respectively. Thirdly, the 2^nd defendant had told both Mr Donegan and Mr Farbiarz that the 2^nd defendant had been taking care of him financially. Perhaps the most telling objective fact is the 1^st defendant’s statement to Saunders J dated 13 November 2006 in which he said the 2^nd defendant had returned the funds to him, fully accounted for.

47.  Third, it is also the 2^nd defendant’s assertion that he has not been evading service. This is however contradicted by his own conduct. In the first place, after he was stopped by the Immigration officer and told of the prohibition order against him on 18 August 2006, the 2^nd defendant went to the Court to search the court file. He was unable to do as leave had not been granted to add him as a defendant and he was not yet a party. At his request, the Duty Practice Master, Master Kwan, heard him. During the hearing, Master Kwan pointed out that he was subject to a prohibition order and that a Mareva injunction, to say the least, might have been made against him. Master Kwan further asked her clerk to contact the plaintiff’s solicitors to arrange for copies of the documents to be brought to the court for him. When the 2^nd defendant was informed that the documents would be delivered in half an hour, he stated that he was being held in the court like “a sitting duck to receive service”. He later left the court. Then on 22 August 2006, the 2^nd defendant contacted Master Kwan’s clerk again seeking to obtain copies of documents in the court’s file, including the prohibition order and the Mareva Injunction. Although the plaintiff’s solicitors had on the same day provided copies of them to the Master’s clerk for collection by him, the 2^nd defendant did not return to the court to collect them.

48.  It is evident from these incidents that the 2^nd defendant was looking for information about the proceedings and orders involving him, and he was aware that he had become embroiled in this litigation. In this connection, the 2^nd defendant’s evidence that it did not go through his mind that the prohibition order was related to the litigation between the plaintiff and the 1^st defendant is plainly incredible. At the very least, he would have seen that the action number was the same and learnt from the hearing before Master Kwan that the prohibition order was made in the action between the plaintiff and the 1^st defendant. Despite his desire to find out the proceedings and orders against him, the 2^nd defendant did not see fit to contact the plaintiff’s solicitors. It is not disputed that the 2^nd defendant had met and known Mr Donegan before this action and had in May 2006 gone to the office of Messrs Barlow Lyde & Gilbert. And as highlighted by Mr Duncan SC, the reference to “sitting duck” was demonstrative of the 2^nd defendant’s state of mind at the time.

49.  Secondly, when setting up the without prejudice meeting with Mr Donegan, one of the conditions stipulated by the 2^nd defendant was that there would be no service of process.  This is again indicative of the 2^nd defendant’s concern at the relevant time.

50.  The third and the most striking of all is the fact that the 2^nd defendant has all along insisted that the court papers and orders should be served on his address in New Zealand. He has even suggested that the plaintiff should have sought leave to effect service outside jurisdiction. This is despite the fact that he is throughout physically present in Hong Kong. He has also given no reason for insisting on being served at the New Zealand address. If the 2^nd defendant was open and straight and had no intention to evade service of process, as he claims, he would not have requested for service to be effected in such a roundabout way. He could have simply collected the papers and orders from the plaintiff’s solicitors or contact the plaintiff’s solicitors to make arrangement for service in Hong Kong.

51.  I pause here to deal with Mr Leung’s argument that the plaintiff could have served the 2^nd defendant at the 1^st defendant’s residence at Hong Lok Yuen. He had also cross-examined Mr Donegan as to why this was not done since the plaintiff’s investigator believed the 2^nd defendant had lived there. In my view, this does not advance the 2^nd defendant’s case. The evidence of the plaintiff’s private investigator is that the 1^st and 2^nd defendants left the Hong Lok Yuen address in the morning of 17 August 2006 and they were last seen that afternoon in a car loaded with luggage.  In the circumstances, it is understandable that the plaintiff did not effect service at the Hong Lok Yuen address since it is apparently futile.  More fundamentally, it is not the 2^nd defendant’s evidence that he continued to reside at the 1^st defendant’s residence after 17 August 2006 or that documents delivered at that address would be forwarded to him.  It is not his case that the Hong Lok Yuen address is an effective address for service.  It is therefore irrelevant that the plaintiff did not effect service at the Hong Lok Yuen address.

52.  I turn now to the 2^nd defendant’s denial of having knowledge or notice of the 17-8-2006 Order. In relation to the call and SMS text message Mr Donegan made to his New Zealand mobile phone number, the 2^nd defendant’s testimony is that he had by then returned the New Zealand mobile phone to his home in New Zealand because roaming charges were too expensive. However, he only raised this for the first time in his cross-examination notwithstanding that these calls to his New Zealand mobile phone number had been mentioned in the 29^th Affidavit of Li Adrienne May filed on 15 June 2007 in connection with the first set of contempt proceedings.  When cross-examined as to whether his wife had related to him the telephone call of Mr Donegan and the SMS message received on his mobile phone, the 2^nd defendant claimed that she did not. He explained that her first language was not English and that they had not been on very good terms, especially since he was detained in Hong Kong because of this litigation. These are hardly convincing reasons bearing in mind that Mr Donegan’s telephone call and SMS message were made in August 2006, just a few days after the first prohibition order. The fact that his wife was seen accompanying him in Wanchai, Hong Kong in January 2007 also does not support the claim that they have not been on good terms. It is also to be remembered that the 2^nd defendant had, in connection with his first application to discharge the prohibition order, said that his wife had at least until February 2007 helped him to renew medical prescription for him.  It is further irrelevant that English is not the wife’s first language. It would be a simple task to forward the SMS text message to the 2^nd defendant’s mobile number in Hong Kong if indeed the message was received in New Zealand.

53.  As to the email that Mr Donegan sent to the hotmail address on 21 August 2006 attaching the Mareva Injunction order, the 2^nd defendant says he did not receive it. The 2^nd defendant does not dispute that the hotmail address was at the time used by him. It is the email address given in his business card and his calendar. Mr Donegan also communicated with him at the hotmail address when setting up the without prejudice meeting in November 2006. The 2^nd defendant also communicated with his former solicitors, Messrs Au Yeung Cheng Ho & Tin, on this email address. He had further indicated to the solicitors that he downloaded twice every day from this email address.  Although the 2^nd defendant suggested in his cross-examination that he had been using another email address, the undisputed fact is that he responded to Mr Donegan’s emails relating to the without prejudice meeting fairly promptly and within matters of hours. Given the above circumstances, it is too much of a coincidence that the critical email informing him of the Mareva Injunction and attaching the orders were never received by the 2^nd defendant at all.

54.  In short, I do not find the 2^nd defendant a candid or credible witness. His evidence, especially with regard to the aspects outlined above, is unreliable and unconvincing. I do not accept his evidence that when he dealt with the funds transferred to him by the 1^st defendant, he was not aware that the 1^st defendant was subject to a Mareva Injunction. I also do not accept his evidence that he was misled by the 1^st defendant to believe and that he did believe the funds were the personal funds of the 1^st defendant. In addition, I reject his assertion that he has never evaded service of process. I further do not believe his evidence that he did not receive the email sent on 21 August 2006 informing him of the Mareva Injunction and prohibition order, with the orders attached, and/or that the telephone conversation Mr Donegan had with his wife as well as the SMS text message sent on the same day were not brought to his notice.

The 2^nd defendant’s knowledge of the Mareva Injunction

55.  On all the evidence before the court, I am satisfied beyond reasonable doubt that the only and irresistible inference is that when the 2^nd defendant paid out to AOG of Austria and the 1^st defendant’s wife on 21 and 28 August 2006 respectively, he was aware and had notice of the existence of the 17-8-2006 Order that prohibits him from dealing with the funds placed with him by the 1^st defendant. The basis for drawing the inference includes:

(1)     The close relationship between the 1^st and 2^nd defendants. Apart from being close friends, the 2^nd defendant was regarded by the 1^st defendant as his lawyer. The 2^nd defendant also regarded the 1^st defendant as his client under a retainer.

(2)     The close association and contact between the 1^st and 2^nd defendants during July and August 2006. As noted above, the surveillance evidence shows that they had been engaged in social activities together as well as visiting the 1^st defendant’s solicitors in connection with this action.

(3)     The 2^nd defendant’s admission that he knew the 1^st defendant held funds for the plaintiff on trust, that the plaintiff’s claim was related to the trust funds and that the 1^st defendant was subject to a disclosure order relating to the funds. Additionally, I find that the 2^nd defendant must have known that the 1^st defendant was subject to an injunction relating to the trust funds.

(4)     During the occasions when the 2^nd defendant went with the 1^st defendant to the firm, there were discussions about the case. Admittedly, the 1^st defendant had sought the views and advice of the 2^nd defendant in respect of what to be said in his affirmation for complying with the order to make disclosure about the trust funds.

(5)     On 18 August 2006, the 2^nd defendant was aware that the prohibition order was related to the plaintiff’s claim against the 1^st defendant, as evidenced by his exchange with Master Kwan at the hearing that afternoon.

(6)     At the hearing, the 2^nd defendant was alerted that an injunction might have been granted against him.  Accordingly, when he was told by the Master that he would be added as a defendant, the 2^nd defendant would have known that he had become involved in the plaintiff’s claim against the 1^st defendant. He would have readily appreciated the link between the prohibition order and injunction against him and the plaintiff’s claim against the 1^st defendant must be his receipt of funds from the 1^st defendant.   

(7)     Thereafter, the 2^nd defendant had been evading service of the claim and orders made against him.

(8)     The email and SMS text message sent by Mr Donegan would have brought the injunction and prohibition orders to the notice of the 2^nd defendant.

(9)     The 2^nd defendant’s exchanges with Mr Donegan at the without prejudice meeting in November 2006 are consistent with the 2^nd defendant having knowledge of the orders against him.

56.  Further, having regard to his legal training and his experience in law enforcement and as legal adviser, I am satisfied beyond reasonable doubt that he was also aware of the penal consequences of the injunction order against him. Mr Duncan SC submits that if there was any doubt as to the 2^nd defendant’s state of mind, that must be totally erased by the fact that the 2^nd defendant is a sophisticated litigant. I agree.   

Conclusion

57.  For the reasons set out above, I am satisfied beyond reasonable doubt that the 2^nd defendant is guilty of contempt of court in that he had dealt with, disposed of and/or diminished the value of the funds that were placed with him by the 1^st defendant, in breach of the terms of the Order dated 17 August 2006 as re-amended on 19 August 2006 and that he did so with knowledge of the restriction imposed by the said Order.