KOMAL PATEL AND OTHERS v. CHRIS AU AND OTHERS

HCA 183/2014 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 183 OF 2014 ________________________ BETWEEN KOMAL PATEL 1st Plaintiff JASON MARK COHEN 2nd Plaintiff HARILAOS APOSTOLIDES 3rd Plaintiff ROCKY CAPE INTERNATIONAL LIMITED 4th Plaintiff and CHRIS AU 1st Defendant HO CHING YI ELSA 2nd Defendant RETRIBUTION LIMITED 3rd Defendant (by Original Action) BETWEEN CHRIS AU Plaintiff and KOMAL PATEL 1st Defendant JASON MARK COHEN 2nd Defendant HARILAOS APOSTOLIDES 3rd Defendant ROCKY CAPE INTERNATIONAL LIMITED 4th Defendant ESSENCE INVESTMENTS LIMITED 5th Defendant YEW KUAN CHEONG 6th Defendant RETRIBUTION LIMITED 7th Defendant (by Counterclaim) ________________________ Before: Hon Zervos J in Chambers Date of Hearing: 27 June 2015 Date of Decision: 7 July 2015 D E C I S I O N This is an application from the 3rd defendant by original action to vary the injunction order dated 11 July 2014. The application is supported by the sixth affirmation of Ms Ho Ching Yi Elsa and the second affidavit of Mr David Vrijmoed. The terms of the order for variation that are sought are as follows which I have highlighted by bold type instead of red as stated therein: “1. Paragraph 1(3)(i) of the injunction order granted by Zervos J on 11 July 2014 as against the 1st, 2nd and 3rd Defendants (“the Injunction Order”) be varied in the following terms, with the amendments highlighted in red :- ‘The 3rd Defendant (by Original Action) must not remove from Hong Kong any of its property or assets, or in any way dispose of or diminish the value of its property up to the amount of the Plaintiffs’ (by Original Action) claim against the 3rd Defendant (namely two-thirds of SGD 11.984 million), or the Plaintiffs’ (by Original Action) property or assets in its hands, including but not limited to:- the funds it holds in its bank account held at DBS Bank numbered 786020573 (Bank Code: 016; Bank swift code: DHBKHKHH; Bank address: G/F, The Center, 99 Queen’s Road Central, Central) (the “DBS Bank Account”) up to the amount of the Plaintiffs’ claim against the 3rd Defendant, namely two-thirds of SGD 11.984 million (ie SGD 7.99 million) the funds it hold in its bank account held at Bank of China numbered 047-886-429 the shares it holds in Kudeta (BVI) Limited’ 2. Exception (1) of the Injunction Order be varied to reflect paragraph (1) above.” The plaintiffs opposed the application and have supported their opposition by the 16th affidavit of Mr Jason Mark Cohen. So far as material the injunction order froze the assets of the 3rd defendant which included the shares held in Kudeta (BVI) Limited and sum of SGD 11.984 million held in a bank account in Hong Kong. The monies in the bank account were part of the proceeds of the sale of shares to L Capital KDT Limited for the acquisition of a 51% stake in Kudeta (BVI) Limited and are at the centre of the dispute between the parties. The plaintiffs’ case is essentially a dispute over the extent of the parties’ respective shareholdings in the 3rd defendant and Kudeta (BVI) Limited and a claim concerning the business profits allegedly misappropriated by the 1st defendant. The 1st defendant denies the plaintiffs’ claim and his case is that the funds are part payment for the purchase of a 35.5% interest in Kudeta (BVI) Limited. As explained in my judgment of 11 July 2014, I froze the amount held in the 3rd defendant’s bank account because there was a risk of dissipation of the property and assets of the company which in my view needed to be protected for the benefit of the parties while awaiting the outcome of this litigation. Mr Douglas Clark, who appeared together with Mr Martin Ho for the 3rd defendant, argued that the plaintiffs’ case at its highest is that they are beneficially entitled to two-thirds of the 3rd defendant and so therefore one-third of the funds should be released. This argument is based on the bare trust document which stated that the 2nd defendant held the shares in the 3rd defendant on trust for the 1st plaintiff, 2nd plaintiff and 1st defendant equally. On the basis of this argument, the funds should be released to the 1st defendant and not the 3rd defendant as submitted. It is noted that the 1st defendant does not make this application. In any event, it is not as simple as suggested because the claim for the plaintiffs covers more than the two-thirds ownership of the 3rd defendant. I therefore agree with the submissions of Mr Barry Hoy for the plaintiffs on this point. In the course of submissions, the position of the 3rd defendant moved away from varying the injunction order to release one-third of the funds held by the 3rd defendant to releasing a reasonable sum to cover the 3rd defendant’s legal fees. Mr Hoy opposed the application on the basis that the 2nd defendant is the alter ego of the 1st defendant and the position she has taken or will take for the 3rd defendant has been or will be to further the interests of the 1st defendant. In addition, he submitted that given the nature of the dispute, the inclusion of the 3rd defendant in these proceedings is in name only and in that sense it is not a disputing party. It has to be recognised that this dispute is mainly between the plaintiffs and the 1st defendant. Mr Hoy questioned the position taken by the 3rd defendant in this dispute and whether it has been to further the interests of the 1st defendant’s case. The fact remains that the 3rd defendant as a separate legal entity is a party to these proceedings. I previously expressed concern about a possible conflict of interest of all three defendants being represented by the same legal representatives. This resulted in the 2nd and 3rd defendants together arranging separate legal representation. The funds of the company have been frozen and there is a dispute as to who is entitled to those funds. There is even doubt as to whether the company has any entitlement to those funds. Whilst the sum of money requested to be released to pay for the legal fees of the 3rd defendant are reasonable, the difficulty I have is whether the 3rd defendant is entitled to use the funds for its own benefit in the payment of legal fees in this action. At the heart of this dispute are the funds and the question as to who is entitled to them. It is on this basis that I cannot grant the variation to the injunction order that is sought by the 3rd defendant. I should also point out that there was a lack of information or reliable information before me as to outstanding legal fees and how legal fees have been paid in the past and on what basis, and whether there are any funds or assets elsewhere that could be called upon by the 3rd defendant. I note that Ms Ho in her 6th affirmation explained that the application was prompted by outstanding legal fees of $7,951,210.36 incurred when all three defendants were represented by the same legal firm and of $651,247.80 incurred when she and the 3rd defendant were previously represented by another legal firm. (Kevin Zervos) Judge of the Court of First Instance High Court Mr Barry Hoy, Robertsons, Solicitors for the plaintiffs Mr Douglas Clark and Mr Martin Ho, instructed by Au & Vrijmoed, for the 3rd defendant