KCMA v. ABC AND OTHERS

HCMC 1/2019

[2019] HKCFI 2873

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MATRIMONIAL CAUSES NO. 1 OF 2019

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D E C I S I O N
(Injunction and Discovery)

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1.  This Court has handed down a decision on W’s Joinder Application on 21 November 2019 (“Joinder Decision”). The present decision is in relation to W’s other remaining two applications in the Summons, namely the Injunction Application and the Discovery Application.  Save as indicated herein, I shall follow the abbreviations in the Joinder Decision.

2.  The brief background of these matrimonial proceedings has been set out in the Joinder Decision and I will not repeat here. For reasons stated in the Joinder Decision, I have ordered that PBB in his capacity as the Trustee of the two US Trusts be joined as 2^nd and 3^rd respondents, and H’s father, K, be joined as the 4^th respondent.

3.  After the submissions in the Joinder Application, legal representative for PBB in his capacity of the Trustee of the Family Trust were released as they had no instructions to participate further in the Injunction Application or in the Discovery Application.

The Injunction Application

Orders sought by W

4.  The orders sought by W in the Summons include the following :

(i)  Restraining H and the Trustee of the US Trusts from making or causing to be made any distribution or withdrawal etc from the US Trusts, Intero, Bremen or any assets held thereunder (“No Withdrawal Order”);

(ii)  Restraining H and K from parting with possession with the Indian Apartment (“No Parting With Possession Order”);

(iii)  Restraining H, the Trustee of the US Trusts, and the Indian Trust, from causing or permitting the addition or exclusion of any beneficiaries to the US Trusts and the Indian Trust (“No Change of Beneficiaries Order”);

(iv)  Restraining H, the Trustee of the US Trusts, and the Indian Trust from varying respectively the governing jurisdiction or place of administration of the trusts (“No Change of Jurisdiction Order”);

(v)  Restraining H, the Trustee of the US Trusts and the Indian Trust from decanting the trusts to any other settlements (“No Decanting Order”);

(vi)  Issuing any further letter of wishes or giving any instructions affecting the present entitlements or expectations of the beneficiaries and disposition of any of the assets under the trusts (“No Letter of Wishes Order”).

Matters leading to the issue of the Injunction Application 

5.  W first sought an injunction in the Notice, which was only against H.  As mentioned in the Joinder Decision, H gave his 1^st Undertaking on 29 August 2017 in writing that he would not personally take steps to change the then status of the US Trusts, save with the agreement of W or with leave of the Court.

6.  W and H appeared to have a different understanding as to what the words “then status” meant.   

7.  W had produced a so called chronology of H’s alleged breaches of the 1^st Undertaking in her 13^th affirmation at the time of her issuing the Summons (“Chronology”)[1], which was later updated and produced in W’s 4^th affirmation filed on 3 September 2019[2] (“Updated Chronology”). 

8.  The Chronology (and in fact also the Updated Chronology) essentially sets out chronologically the various letters between W’s solicitors and H’s solicitors and/or the Trustee.  It would appear that W’s complaint of those matters set out in the Chronology/Updated Chronology was mainly that H had, in breach of the 1^st Undertaking, made unilateral requests to the Trustee for distributions/reimbursement.  As appeared in the Chronology :

(i)  There were mainly two written requests made by H to the Trustee without Ws knowledge or agreement, namely one for reimbursement and one for distribution both on 11 October 2018; 

(ii)  The request made by H on 11 October 2018 for reimbursement was said by H for reimbursement of HKD 1.5m from the Education Trust;

(iii)  As for H’s request for distribution from the Family Trust of USD 250,000 on 11 October 2018, a sum of US$250,000 was sent to H by the Trustee on the basis that H and W were each to receive USD 125,000 for litigation funding.

9.  It was W’s case that it was only at the hearing on 26 October 2018 before Judge Melloy in relation to her application for litigation funding and interim maintenance that she found out H had unilaterally requested for and received a distribution of USD 250,000 from the Trustee for litigation funding (USD125,000 for respectively H and W), notwithstanding she had not agreed to it.  According to W, this led to her issuing the Summons.

10.  W had refused to accept her share of the distribution by the Trustee of USD 125,000 (or HK$975,000) for her litigation funding, but later, as seen in the Melloy Judgment, she was directed by Judge Melloy to accept the same without prejudice to her rights and her position at trial.  

11.  In so far as the Summons was concerned, and the Injunction Application therein, W had attempted to obtain an interim injunction at the resumed hearing before Judge Melloy on 3 December 2018 for interim maintenance based on her complaints in the Chronology. 

12.  As seen in the Melloy Judgment, Judge Melloy referred to a letter from H’s solicitors of 30 November 2018 (“30.11.08 Letter”)[3] and quoted paragraph 13 of that letter in which H’s solicitors had pointed out that, amongst other things (i) there was no evidence from W concerning the change in the status of the beneficiaries or to the trust assets; (ii) the only matter W relied on was the distribution of HK$975,000 each which was made from the accumulated income and not capital and made for the purpose of meeting both parties’ financial needs including litigation funding; (iii) W’s action of filing the BVI Proceedings and the injunction were entirely disproportionate.

13.  Judge Melloy said on the face of it, she tended to agree with the above observations in paragraph 13 of the letter.  She had said she was conscious of the fact that it was W’s case that H had breached the 1^st Undertaking but, she was of the view that W had not made out a prima facie case for an interim injunction of the nature sought[4] which Judge Melloy had described to be very wide terms.  The Judge then accepted the terms of the 2^nd Undertaking from H upon which she discharged the 1^st Undertaking, and the Summons was then transferred up to the High Court and Judge Melloy had also said if W wished to pursue the injunction, she would need to do so in the High Court.

14.  Pursuant to the 2^nd Undertaking, H has undertaken that he will not make or cause to make any distribution from the USD Trusts in his personal capacity (but not in his capacity as director of Bremen and Intero to make follow on investment as may be required or interest distributions pursuant to the directions of the Trustee).

15.  Since the Melloy Judgment and after the transfer up, various affirmations were filed.  The relevant ones placed in the Core Bundle before this Court were (i) H’s 1^st affidavit (ii) W’s 1^st affirmation (iii) H’s 2^nd affidavit (iv) PBB’s affidavit of 21 August 2019 (v) W’s 4^th affirmation and (v) K’s unsworn affidavit.

The basis of W’s Injunction Application

16.  Section 21L of the High Court Ordinance provides that the Court of First Instance may by order whether interlocutory or final grant an injunction in all cases in which it appears to the Court of First Instance to be just or convenient to do.   

17.  An application for injunction may be made under Order 29 rule 1 of RHC and this was the applicable rule stated in the margin of the Summons. 

18.  In W’s 13^th affirmation, she had set out her evidence under the headings “good and arguable case”, “real risk of dissipation” and “balance of convenience”, namely the requirements for a Mareva Injunction.  It thus appeared that she was seeking a Mareva injunction, at least in so far as the No Withdrawal Order and the No Parting With Possession Order (in respect of the Indian Apartment) respectively under paragraphs 2a and 2b of the Summons.  However, in her 4^th affirmation, W then referred to there being all “serious issues to be tried” in relation to the s17 Application and referring to “our assets” and she then seemed to be seeking a proprietary injunction. 

19.  It thus seems what W was seeking was both a proprietary injunction and a Mareva injunction.  As she pointed out, since the transfers of family assets to the US Trust and the transfer of the Indian Property fell within the period of the statutory presumption in section 17(3) of MPPO, the transfers were presumed to have been carried out by H with the intention to defeat W’s claim for ancillary relief and those assets were family assets to which she is entitled to share or have an interest.  Further, W relied on the updated Chronology regarding H’s breaches of his 1^st Undertaking.

Paragraph 2a of the Summons – No Withdrawal Order

20.  Mr Egerton submitted that at the time of the issue of the Injunction Application, W had in fact already issued the BVI Proceedings and she did not disclose those proceedings to Judge Melloy at the hearing on 26 October 2018. 

21.  The BVI Proceedings were commenced by W on 23 October 2018 , ie 3 days prior to the hearing before Judge Melloy, when W issued a Stop Notice in BVI against Intero[5].  Intero was required under the Stop Notice to refrain from taking any of the following steps in relation to the “Stock” (ie the share or shares of Intero registered in the name of H and/or the Family Trust and/or Bremen) without notice to W’s lawyers: (i) the transfer, sale or other dealing with the Stock or the payment out of the income thereof; (ii) the making of any payment by way of a dividend, interest or otherwise in respect of the  Stock, and (iii) registration of any transfer of the Stock[6].  The BVI Proceedings were received by H by way of service upon Intero and Bremen on 8 and 9 November 2018[7].

22.  Although there was no disclosure of the BVI Proceedings at the hearing on 26 October 2018 by W, by the time of the resumed hearing on 3 December 2018 before Judge Melloy, H had notice of the BVI Proceedings as well as the Summons. 

23.  As seen in the Melloy Judgment, and as mentioned earlier, the Judge had quoted paragraph 13 of the 30.11.18 Letter which had in fact referred to the BVI Proceedings, and the Judge was aware that there were BVI Proceedings filed by W although it was not clear whether she was aware of the details.    

24.  In the present case, as said earlier, H had already received by way of service upon Intero and Bremen the BVI Proceedings on 8 or 9 November 2018.  This was before the resumed hearing on 3 December 2018.  There was no sufficient evidence that there was any prejudice suffered by him due to the alleged non-disclosure by W of the same in her supporting affirmation (13^th affirmation) for the Injunction Application.  In fact, H had never issued any summons to discharge his 2^nd Undertaking due to W’s non-disclosure.   

25.  In any event, the present evidence shows that W has a good arguable case in respect of her s17 Application and there is a serious issue to be tried in respect of her claim that those assets transferred by H into the US Trusts are family assets of which she has a share.  There were no submissions made on behalf to H to the contrary in Mr Egerton’s “Note”.

26.  H’s Form Es would appear to indicate that there were insufficient assets within the jurisdiction to satisfy W’s claims in that the majority of the underlying assets held by the US Trusts and the Indian Trust are outside jurisdiction.  In particular, the Promissory Note held by the Family Trust is governed by the law of Nevada, and the 3 pieces of land held by Bremen are in USVI.  It is not clear where the rest of the underlying assets of Intero are sited but both Intero and Bremen are BVI companies.

27.  As for real risk of dissipation, which would be applicable in an application for a Mareva Injunction, Mr Egerton relied on Judge Melloy’s reasons in declining to grant an interim injunction and that a further 10 months had elapsed since the issue of the Summons and the 2^nd Undertaking was in place for some 9 months.  

28.  It was made clear in W’s 4^th affirmation that her complaints of H’s breach of the 1^st Undertaking were:

(i)  the Indian Apartment was transferred by K to the Indian Trust the day after the 1^st Undertaking;

(ii)  As noted in her Updated Chronology, there was never any joint request made to the Trustee for distribution pursuant to the 1^st Undertaking, and that she had not given anyone permission to request for distribution on her behalf;

(iii)  H’s conduct in unilaterally requesting for a distribution and/or reimbursement from the US Trusts was a breach of the 1^st Undertaking and that H’s explanations for his action indicated that he would continue to repeat the same behaviour in future if not restrained;

(iv)  H’s conduct after the 1^st Undertaking in borrowing against assets held in the US Trusts by executing a deed of charge on 1 September 2017 (“Charge Deed”) over his indirect beneficial interest in a fund in exchange of a promissory note of the same date for a loan of US$200,000[8];   

(v)  During the period between the 1^st Undertaking and end of December 2017, there were 3 withdrawals from the Intero’s bank account between October 2017 to December 2017 as set out further below (“3 Withdrawals”);

(vi)  H had a complete free hand, as the Investment Director of the US Trusts, to deal with any and all of the underlying assets of the US Trusts.

29.  In so far as the Indian Apartment was concerned, this was actually not mentioned in the 1^st Undertaking.  W complained that the documents in relation to the Indian Apartment were produced by H on a piece-meal basis[9].

30.  K had produced in his affirmation (which was unsigned and unfiled at the time of the hearing) (i) a transfer deed executed on 12 September 2016 by H in favour of K transferring to K all H’s full share of the Indian Apartment out of natural love and affection (“Transfer Deed”)[10]; and (ii) a trust deed executed by K was settlor and the Indian Trustee as trustee pursuant to which the Indian Apartment was settled into the Indian Trust (“Indian Trust Deed”)[11]. 

31.  Both the Transfer Deed and the Indian Trust Deed had been produced by H but only in his 2^nd Answers of 9 April 2018, which was after the 1^st Undertaking, and it was upon receipt of these documents that W learnt of the exact date when the Indian Apartment was transferred by H into K’s name, and that it was on 30 August 2017, the day after the 1^st Undertaking, that the Indian Apartment was settled by K into the Indian Trust.  

32.  The 3 Withdrawals were also made after the 1^st Undertaking, and were withdrawn by H from Intero’s bank account held at the Standard Chartered Bank.  They were respectively (i) US$208,195 (HK$1,623,921) on 27 October 2017, (ii) US$14,171 (HK$110,533) on 29 November 2017 and (iii) US$354,025 (HK$2,761,395) on 21 December 2017.  It was W’s case that she was only provided by H Intero’s bank statements between January 2016 and December 2017, from which she noted the 3 Withdrawals.  Whether there were other withdrawals after December 2017 was unknown to her.  

33.  H’s explanation was that the 3 Withdrawals were made during the ordinary course of business by Intero.  The amount in (i) was said by H to be for a prior investment commitment which would be of indirect benefit to W and the amount in (iii) was said to be made as an interest payment to the Family Trust from Bremen[12].

34.  W complained it was not clear what investment commitment for the withdrawal of (i) was but said it could be the investment in “Jura Developments” which had been mentioned by H and that he was required to transfer funds of USD1m and an annual salary of USD200,000 to his own brother (the same brother named Protector Committee for the US Trusts”).   However, in response, H said there had not been any investment of USD1m to Jura Developments and that the money was a loan on a commercial basis and that most of that investment had already been recouped by Intero. 

35.  As for withdrawal in (iii), H’s explanation was that it was the interest payable under the Promissory Note by Bremen to the Family Trust.

36.  H had explained in his 1^st affidavit[13] in opposition to W’s supporting 13^th affirmation, that the requests to the Trustee was to make a distribution out of “income” and not “assets” and was thus not a breach of the 1^st Undertaking, and he did not take any steps to change the status of the US Trusts. This was also what was set out in paragraph 13 of the 30.11.18 Letter quoted in the Melloy Judgment.

37.  However, as pointed out by Mr Todd, the so called “income” was the alleged interest payment under the Promissory Note, but such interest payment was premature and in fact reduced the amount of interest capable of being compounded as accrued until the maturity date, and thus reduced the potential value of the Promissory Note, or the asset value of the Family Trust.   

38.  It was also pointed out by Mr Todd that if the amount was not from the asset of the Family Trust, then it must have been from assets of the Education Trust, but the 1^st Undertaking applied to both US Trusts.  Further, the withdrawal of US$ 354,025 mentioned earlier in (iii) was made on 21 December 2017 whereas the distribution of US$125,000 each was according to the Trustee, requested by H in October 2018 and paid in October 2018.  

39.  What W sought for interim injunctive relief in the Notice was essentially 5 out of the 6 orders sought in the Injunction Application in the Summons.  In short, the relief sought in the Notice in connection with the US Trusts were (i) the No Withdrawal Order; (ii) No Change of Jurisdiction Order; (iii) No Change of Jurisdiction Order; (iv) No Decanting Order; and (v) No Letter of Wishes Order.  As said earlier, at the time of the Notice, W did not have a copy of the Transfer Deed of the Indian Property between H and K or the Indian Trust Deed which were only produced by H in his 2^nd Answers of 9 April 2018.  There was thus no injunctive relief claimed in the Notice in respect of the Indian Property.

40.  The purpose of W seeking the interim injunctive relief at the time of the Notice was clearly to try to maintain the then status quo of the trust assets of the US Trusts, and I am of the view that this would also include any accumulations of the assets by way of interest and/or income and/or otherwise.  Further, the proper construction of the 1^st Undertaking must be that the status quo of the trust assets in the US Trusts together with any accumulations including any interest or income would be maintained, and this would include no distributions or no withdrawals in any form without W’s agreement or Court’s leave.  This must have also been H’s own understanding since in his solicitors’ letters to W’s letters, he had sought W’s agreement in requesting for the distribution from the Trustee.  

41.  Even if the 1^st Undertaking was only confined to “assets”, I accept Mr Todd’s argument that that the withdrawals and/or distributions made from the so called “income” to Family Trust in fact came from the assets of Bremen and would still be a breach of the 1^st Undertaking concerning the assets of the Education Trusts.

42.  What the Updated Chronology showed was that there had been unilateral requests by H for distributions resulting in one distribution being made by the Trustee in October 2018 of US$250,000 to H and W as mentioned earlier.  There was also another unilateral request made by H to the Trustee of the Education Trust for reimbursement of HK$1.5m for maintenance for the Children already incurred and paid for by H and that request was being considered by the Trustee when the Summons was issued.  Although it would seem that H did not eventually receive the reimbursement, the fact remained that H did not seek W’s agreement to make that request.  

43.  Having considered all the evidence, and notwithstanding H’s explanations, I am of the view that there had been non-compliance with the 1^st Undertaking on the part of H in relation of the US Trusts, whether in actual terms of the 1^st Undertaking or in spirit, in that after the 1^st Undertaking:

(i)  There had been unilateral requests by H to the Trustee for distributions and/or reimbursements contrary to the 1^st Undertaking;

(ii)  There had been at least 3 Withdrawals from Intero’s bank account;

(iii)  There had been borrowing by H by charging the assets of the US Trusts pursuant to the Charge Deed.

44.  Further, after the 1^st Undertaking, the Indian Apartment was settled into the Indian Trust.  It is also not clear how the Trustee’s legal costs of both the Nevada proceedings and these proceedings are being met, and whether the equivalent of any “Beddoe Order” has been sought.

45.  The present evidence indicated that H has been dealing with the funds of the US Trusts freely and as he likes being the sole “Investment Director”.  Having considered this, and bearing in mind that there has not been full and frank disclosure by H of his finances, notwithstanding that 10 months have elapsed since the issue of the Injunction Application in the Summons, I am satisfied that there remains a real risk of dissipation by H, of the assets and funds of the US Trusts and also the assets and funds of the Indian Trust and/or the Indian Apartment, if not restrained. 

46.  As said earlier, Mr Egerton had referred to the BVI Proceedings.  In H’s 2^nd affidavit in August 2019, his BVI solicitors were however threatening to strike out W’s Stop Notice[14].

47.  The order now sought by W in paragraph 2a of the Summons, namely the injunction in respect of the US Trusts is in fact wider than the orders sought in the Stop Notice in the BVI Proceedings.

48.  As found earlier by this Court, there had been non-compliance of the 1^st Undertaking, and that there had been the settlement of the Indian Property after the 1^st Undertaking, I do not find the 2^nd Undertaking, which only concerned distributions from the US Trusts, to be sufficient.

49.  H works as a “Partner” of an investment management firm.  According to H’s 2^nd Form E of 12 October 2018, his basic monthly income was HK$264,570 plus a housing allowance of HK$65,859 and a discretionary bonus.  On his own case, he was at that time earning at least a monthly income sum of HK$330,429.  As seen in a letter from H to PBB on 15 February 2018, his bonus was over HK$2m for the 2017 calendar year. According to W’s calculations, he was earning on average HK$549,488.

50.  The injunctions sought will not affect H’s income or his other personal assets.

51.  If H were allowed to continue to make unilateral requests for distributions, make withdrawals or borrowings against the funds of the US Trusts and if H succeeded in doing so, such funds would be diminished without W’s knowledge causing prejudice to W’s case.  In any event, if there is any need for H to make any request for distributions or withdrawals from the US Trusts and if W’s consent is unreasonably withheld, he can always seek leave from the Court.

52.  Having considered the circumstances of this case, I am of the view that the balance of convenience lies in favour of granting an injunction, whether Mareva or proprietary, as sought by W against H in respect of the US Trusts.  In any event, it is just and convenient to grant the injunction sought.  I am therefore prepared to grant an order against H in terms of paragraph 2a in the Summons, restraining H in making or causing to be made distributions and/or withdrawals etc save adding after that paragraph the following :

“save for the ordinary and proper expenses which would ordinarily be incurred in the maintenance of the trust assets, and/or save as agreed by [W] or ordered by the Court”.

53.  For the avoidance of doubt, the injunction will include H being restrained from making any unilateral request for any distributions, withdrawals, lending, provision of collateral, borrowing or any forms of extractions from the US Trusts.

54.  Even though the Trustee of the US Trusts are now joined as parties, there are no sufficient grounds as to why an injunction will need to be issued directly against the Trustee.  In particular: -

(1)  W did not seek any injunction originally in the Notice against the Trustee.  It is not clear whether the Trustee was aware of the 1^st Undertaking or the Injunction Application prior to him being properly served on 29 March 2019 and/or 18 April 2019. 

(2)  Save one distribution in October 2018 of USD 125,000 each mentioned earlier, which according to the Trustee was upon a joint request by H and W[15], so far there had been no sufficient evidence that the Trustee had made and would make any distributions without any written requests from H.  In a letter dated 16 May 2018[16], PBB has stated that pursuant to the Trust Agreement, he is authorised to consider “distribution requests” and to make distribution.  There seems no sufficient evidence that the Trustee is likely to make any distributions or withdrawals or extractions of any form from the funds held by the US Trusts, without any written request from H and/or W, save for ordinary proper expenses for the maintenance of the “Trust Property”.

(3)  The Family Trust is a “directed trust” where all investment matters are under the control of the Investment Director, ie H.  The Family Trust only has one bank account (with no investments and nominal cash only) and the shareholding of a limited liability company under the control of the Investment Director. 

(4)  The evidence shows that the Trustee has no independent knowledge of investment activity at the level of the limited liability company or lower-tier companies and that access to investment details is subject to the discretion and control of the Investment Director.

(5)  As said earlier, it is not clear whether the Trustee has obtained any equivalent of a “Beddoe Order” for his legal costs of the Nevada proceedings and these proceedings.  Notwithstanding this, there is at present no sufficient evidence of there being any risk of dissipation by the Trustee of the funds of the US Trusts.

55.  Having considered all the above, I am not prepared to grant an injunction directly against the Trustee at this stage.  Further, in my view, the Trustee, now being a party in the s17 Application will be bound upon due service of the present order upon him. 

Paragraph 2b of the Summons – No Parting with Possession Order

56.  As for paragraph 2b of the Summons in relation to the Indian Apartment, H’s latest proposed undertaking is acceptable to W save that the full address and description should be stated as set out by W.  I will accept this undertaking from H.

57.  As for K, there is no sufficient evidence that K was aware of H’s 1^st Undertaking at the time when K settled the Indian Apartment into the Indian Trust.  In any event, the 1^st Undertaking did not include the Indian Apartment. 

58.  K is one of the 5 beneficiaries of the Indian Trust.  K is not part of the “Protector Committee” under the Indian Trust Deed.  The “Trust Advisor” is K.  Pursuant to clause 15.5, the Protector Committee shall have the right to nominate additional Trust Advisor(s) who shall act along with the Trust Advisor(s) together as Advisory Committee.  Although pursuant to Clause 15.1, the Indian Trustee has to give prior written notice to the Trust Advisor in relation to the sale, assignment or other disposition of any property or any interest in any property forming part of the “Trust Fund”[17], it does not appear under Clause 15.2 that K has any final decision making power in respect of any activities in relation to any investment of the Indian Trust Fund.  

59.  In any event, as K, now a party in there proceedings, will be bound by this Court’s order upon due service of the order (together with H’s undertaking in relation to Indian Apartment) on him, I do not find it necessary at this stage for an injunction to be issued directly against him.

Paragraphs 2c, 2d, 2e and 2f of the Summons

60.  As for paragraphs 2c, 2d, 2e, and 2f of the Summons, there is no evidence whether before or after the 1^st Undertaking, that there has been any change in the class of “Beneficiaries” in the US Trusts, or in the governing jurisdiction or place of administration of the US Trusts after being transferred to Nevada, or any decanting of the US Trusts to any other settlements, or has there been there any sufficient evidence of any further letter of wishes after the 1^st Undertaking.  

61.  I am prepared to accept H’s undertakings in terms of paragraphs 2c, 2d, 2e and 2f of the Summons in lieu of an order made in those terms.  However, there were no particular submissions in Mr Egerton’s “Note” or “Supplemental Note” on these paragraphs and it is not clear whether H is prepared to offer undertakings.  I will give him 21 days to consider, failing which the orders sought by W will be made against H.  I do not see it necessary to make those orders against the Trustee.  In so far as the Indian Trustee or Indian Trust are concerned, they have not been joined nor heard.  I am not prepared to make any orders against them.

The Discovery Application

62.  In relation to the Discovery Application, the orders sought by W against H and the Trustee in the Summons regarding the US Trusts are, amongst other things, the following:

(1)  trust accounts from the inception of the US Trusts;

(2)  audited or unaudited financial statements and management accounts of Bremen and Intero from 2014 to 2018;

(3)  a list of assets ever held and/or still held in the US Trusts whether in the names of the US Trusts, Bremen or Intero, and for bank accounts, a list of authorized signatories and power of attorney given under the account;

(4)  details of transactions of over HK$80,000 in or through which any of the US Trusts’ assets were dealt with;

(5)  documentary evidence of certain withdrawals from Intero’s Standard Chartered Bank Private Bank Portfolio and USD savings account and HKD Savings account from April 2017 – 21 December 2017;

(6)  to account for and provide documentary evidence of the HK$1.5m received from the Education Trust;

(7)  to account for and provide documentary evidence of the US$ 250,000 from the Family Trust;

(8)  to provide all communications between H and the Trustees of the US Trusts concerning certain requests by H made to the Trustee of the Family Trust and a meeting, as set out;

(9)  The creation of the Charge Deed on 1 September 2017.

63.  In relation to the Indian Property, the orders sought by W against H and K in the Discovery Application are, amongst other things, the following:

(1)  the trust accounts of the Indian Trust;

(2)  Documentary evidence of the rental income for the Indian Apartment since 1 August 2016 and all outgoings and expenses.

64.  W’s 13^th affirmation was filed in support of the Injunction Application and the Discovery Application, and she had described the discovery she sought as an “ancillary disclosure order”[18].  There was only one paragraph in her 13^th affirmation in which she said she sought specific discovery with the view to ascertaining the assets which will be covered by the injunction[19]. H had complained that W did not provide any reason for specific discovery.

65.  Subsequently, W filed her 4^th affirmation and she had said therein that there was a questionnaire issued on her behalf about the assets, transactions and accounting of the US Trusts, and that H, as the “Investment Director, should be able to make the disclosure but instead he directed her to the Trustee. 

66.  W had complained that H had refused to provide any straightforward and comprehensive disclosure on Intero and Bremen, and that he had only provided information and documents on a piece meal fashion[20].

67.  Under Order 24 rule 3(1) of RHC, which is applicable to matrimonial proceedings pursuant to rule 3 of MCR, the Court may order specific discovery by any party to a matter to any other party of documents which are or have been in his possession, custody or power relating to any matter in question in the cause or matter.

68.  Mr Todd submitted in his Skeleton Arguments that W “needed” the disclosure set out in the Summons.  There were however no submissions as to why those information/documents sought were said to be in H’s and/or the Trustee’s and/or K’s “possession, custody, or power”, or indeed whether the information/documents had ever existed.

69.  On the other hand, H seemed only to rely on the order of the Nevada Court, in that Mr Egerton in his “Note” submitted that the disclosure by W is subject to the Trustee’s willingness to participate in the proceedings and that due to the order made by the Nevada Court, any request for discovery should be made to the Nevada Court.   

70.  If those information and documents sought by W are relevant to W’s claims for ancillary relief and are in the possession, custody or power of H, I see no reason why W has to go to the Nevada Court to obtain a discovery order against him, since this Court has the jurisdiction in personam against H and to order him to produce the same.

71.  In so far as the US Trusts were concerned, there is however no sufficient evidence that the Trustee had/has in his possession, custody or power the documents sought by W save the “annual report” if and when such has been provided to him by H.  This was referred to in the “footnote” in the “Trust Petition” dated 14 May 2019 presented by the Trustee of the Family Trust to the Nevada Court[21] (“Footnote”).  

72.  According to the Footnote, and according to the Trustee of the Family Trust, the Family Trust owns its own bank account (with no investments and nominal cash only) and the units of a limited liability company under the control of the Investment Director and that the Trustee has no independent knowledge of investment activity at the level of Bremen or lower-ties companies.

73.  Further, according to the Trustee, consistent with the laws creating and governing the directed trusts, the access to investment details is subject to the discretion and control of the Investment Director; and notwithstanding that he is informed and believes that he will receive an annual report from the manager of the limited liability company that provides a beginning and ending value for the units, because the Family Trust is not a US taxpayer, the Trustee does not file a US (or state) tax return and thus does not receive – or need any details of investment.

74.  There was no reference in the Trustee Petition of the Promissory Note but it would appear that the “units in the limited liability company” referred to in the Footnote should be the shareholding of Bremen and/or Intero.

75.  The above evidence shows the Trustee of the US Trusts in fact has very little information, if any on the investment details of the two BVI companies save whatever the Investment Director or H will send him, in an “annual report”.  As mentioned in PBB’s affidavit filed on 21 August 2019, the Trustee’s US lawyers had responded to W’s questionnaire by a letter dated 28 August 2017[22] sending her the limited information the Trustee had in his possession at that time. 

76.  In relation to the Family Trust, the Trustee had replied that for most of the information and documents requested, those were not part of the Trustee’s records.  In relation to the Education Trust, the Trustee had stated that the questions or requests were not to the Trustee and could not be answered by the Trustee.  Even though by now, the Trustee should have received the “annual report” from the two BVI companies provided to him by H, but this could equally be produced by H.

77.  There was no sufficient evidence from W as to why the information/documents she sought in the Disclosure Application against the Trustee were in existence and/or in the Trustee’s possession, custody and power to produce or why it was necessary to make a disclosure order directly against the Trustee.  Having considered the above, I am not prepared to make any disclosure order as sought by W directly against the Trustee of the US Trusts at this stage.

78.  As for H, he was the sole shareholder and director of Intero and Bremen prior to the transfers.  It appears that he has remained the sole director of the two BVI companies even after the relevant dispositions/transfers, at least as at 1 July 2016[23], and there has been no sufficient evidence to say he has since been replaced as the sole director.  It would appear that according to PBB, the two BVI companies would still be under the control of H.  On this basis, and as seen in the Footnote, the accounting and/or financial documents/records if any, all bank account statements or portfolio or fund statements of any assets/investments of those two BVI companies should be in H’s possession, custody and power to produce.  This would include the so called “annual report”.  Further, as H is the “Settlor” of the shares of the two companies into the US Trusts, he must have in his possession, custody and power the details of all injections into the US Trusts and the dates of such injections.

79.  As for the Indian Apartment, K is not the trustee of the Indian Trust and there was no sufficient evidence from W as to why the information/documents she sought in the Disclosure Application were in K’s possession, custody and power to produce. I am not prepared to make any disclosure order directly against K at this stage.  As for H, it seems his position is that he is not aware of there being any trust accounts and he has provided some information on rental and management fees.     

80.  Having regard to the above, I am not prepared to dismiss W’s Discovery Application against H whether in respect of the US Trusts or of the Indian Property.  I propose to adjourn it sine die as after the hearing, H has indicated that he is prepared to provide confirmation in relation to which information/documents are in his possession, custody and power, and W has made some comments on what has been proposed by H.

81.  I will give the parties 21 days to work out an agreed order as to which of the information/documents sought are in H’s possession, custody or power to produce and/or for H to file an affidavit confirming which of the information/documents sought are not in his possession, custody and power to produce and the reasons thereof, failing which or if there is any further dispute, I will direct the Discovery Application to be restored for a 2 hour hearing before this Court. 

Orders

82.  As for the Injunction Application, my order is to the following effect:

(1)  an order in terms of paragraph 2a of the Summons against H, as amended as stated earlier;

(2)  H’s undertaking in respect of paragraph 2b of the Summons accepted;

(3)  H’s undertaking in terms of paragraphs 2c, 2d, 2e and 2f if offered within 21 days will be accepted, failing which, there will be an order in terms of paragraphs 2c, 2d, 2e and 2f after 21 days;

(4)  all orders sought in paragraph 2 of the Summons as against the Trustee and K be dismissed;

(5)  H is to pay W’s costs of and incidental to the Injunction Application to be summarily assessed.  W to submit a Statement of Costs within 14 days and H to lodge his List of Objections within 14 days thereafter. Costs to be paid by H to W within 14 days after summary assessment;

(6)  There be no order as to costs between W and the Trustee and between W and K in respect of the Injunction Application.

83.  I make no costs orders against W in (6) above even though W has failed to obtain an injunction against the Trustee or K.  This is because no substantive submissions were put forward on behalf of the Trustee or on behalf of K in relation to the Injunction Application. 

84.  As for the Discovery Application, this is adjourned sine die with liberty to restore after 21 days and to be fixed for argument for a 2 hour hearing before this Court, if no agreed order is submitted within 21 days from today.  Costs of the Discovery Application be reserved.