HERBERT SMITH FREEHILLS (a firm) v. CHRIS AU RETRIBUTION LTD

bjbj 3030/2015 [2019] HKCFI 1284 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 3030 OF 2015 ______________ BETWEEN HERBERT SMITH FREEHILLS (a firm) Plaintiff and CHRIS AU 1st Defendant RETRIBUTION LIMITED 2nd Defendant ______________ Before: Deputy High Court Judge Allan Leung in Chambers Date of Hearing: 6 May 2019 Date of Judgment: 23 May 2019 JUDGMENT Introduction By a summons issued on 29 Elsa Ho ( ), the sole director and shareholder of D2, on certain of their affirmations filed in these proceedings; (3) a writ of subpoena duces tecum ( Subpoena ) to be issued to DBS Bank (Hong Kong) Limited ( DBS Bank ) to produce certain documents held in the name of and/or controlled by D2 and more particularly set out in the Schedule of the draft Subpoena. HSF acted for the Defendants in HCA facts and statements below are from HSF s skeleton submissions which are adopted or cited from pleadings and evidence filed by the Defendants in the Underlying Litigation and these proceedings. They should not, therefore, be controversial. However, D2, through Ho in her 3rd e over the beneficial ownership of, among other things, D2 and the funds in its bank accounts. Evidence was filed by the Defendants in the Underlying Litigation to the effect that all the shares in D2 were held on trust by Ho for D1, and all the funds paid into D2 s DBS Bank accounts were held on trust by D2 for D1. The relief sought in the pleadings of the Defendants in the nother company Kudeta BVI. All the affirmations and pleadings filed by the Defendants were verified by statements of truth. HSF s case is that despite their claim in the Underlying Litigation that D1 had a beneficial interest in the shares in D2 and the funds in D2 s account in the Underlying Litigation and having filed evidence to that effect, the Defendants have changed their position. Their evidence in these proceedings regarding D1 s beneficial interest in D2 is inconsistent with the evidence in the & ther solely or jointly owned, giving value, location and details of such assets . The Defendants were also required to provide details of all bank accounts in their name or have an interest or control ; in the name of all Hong Kong and/or foreign companies and/or trusts and/or vehicle over which they have an interest or control . D1 exhibited to his affirmation a list of his assets in Hong Kong, and bank accounts in Hong Kong with a balance of HK$50,000 or more. The list of assets exhibited to he two DBS Bank accounts, D1 specifically identified them as bank accounts in Hong Kong that either belong to [him] or to a company, trust or vehicle which [he has] an interest or control, whether in [his] own name or not and whether solely or jointly owned. In their Amended Defence and Counterclaim dated 20 r pleadings, it was pleaded that all of the SGD 11,984,782.89 in the DBS Bank accounts was entirely held on trust by D2 for D1: [D2] holds the full amounts of SGD11,984,933.50 on trust for [D1] (Amended Defence 106A) the SGD 11,984,782.89 received by [D1], the entirety of which is due to [D1] (Defence and Amended Defence 107) and the sum of SGD11,984,782.89 received by [D2] the entirety of which is due to [D1] (Defence and Amended Defence 155(a)(ii). Relief sought by the Defendants in the Underlying Litigation in respect of the money in D2 s DBS Bank account In their Amended Defence and Counterclaim, D1 counter claimed, among other relief: A declaration that [D2] holds the sum of SGD 11,984,933.50, paid to it by L Capital, on trust for [D1] and An order for payment of the sum of SGD 11,984,933.50 by [D2] to [D1] Evidence in respect of the shares in D2 in the Underlying Litigation The Defendants Amended Defence also pleaded that the entirety of the shares in D2 was held in trust by Ho for D1: [Ho] has been and is the sole director and the sole registered shareholder of [D2], and the sole signatory of [D2 s] bank accounts (Amended Defence 11(b)); at all material times [Ho] held the entire issued shares in [D2] on trust for [D1] (Amended Defence 60E); It is specifically denied that the 1st to 3rd Plaintiffs [in the Underlying Litigation] are beneficial shareholders of [D2] (Amended Defence 7(a)); and At all material times, [D1] held, and still holds, a beneficial interest in [D2] (Amended Defence 10(a)). Relief sought by the Defendants in the Underlying Litigation in respect of the shares in D2 Among other relief, D1 counterclaimed in the Amended Defence: A declaration that the Declaration of Bare Trust [on which the tigation) acquired pursuant to the Declaration of Bare Trust were in turn held on trust for [D1] ; and In the alternative , a declaration that [D1], through [D2], is still a beneficial shareholder in Kudeta BVI Analysis Evidence in these proceedings It is against the background above that HSF contend that the evidence of the Defendants in these proceedings is inconsistent with the evidence in the Underlying Litigation. To put matters in proper context, HSF sought and obtained the Injunction from H e, whether in or outside Hong Kong, whether in his own name or not and whether jointly owned all bank accounts in [D1 s] name or in or over which [D1] has an interest or control any payments of money, properties and any benefits received or to be received by [D1], whether directly or indirectly, and any confirmation of D1 s ownership of assets, either directly or indirectly, contained in any settlement relating to [the Underlying Litigation] DHCJ A mation in support of his second attempt to discharge the Injunction, he deposed to the following: I have some derivative interest in the monies that I paid into [D2] My only interest is my beneficial interest in [D2] I claim a beneficial interest in [D2] ; and Even though I did assert before a beneficial claim to [D2] I am not the sole beneficial owner of [D2]. There are others who are and also claiming to have a beneficial stake in [D2]. HSF contend that while D1 still acknowl 1 asserted that: I disclosed [D2 s two accounts covered by the Injunction] in my 2014 Affirmation as, at that time, I had partial control over [D2] since I represented the interest of various beneficial stakeholders who owned the stake legally held by Ho Since [my resignation], I have no control over the operations of [D2]. I also do not have control over [D2 s two accounts covered by the Injunction] or the funds therein. I am not and have never been a signatory of [D2 s two accounts covered by the Injunction] and I am not and have never been in possession of the online banking passwords and security keys None of the money that has been frozen in [D2 s two accounts covered by the Injunction] pursuant to the Injunction is my money I have not personally paid any of the money into [D2 s two accounts covered by the Injunction], nor have I procured any third parties to do so on my behalf. None of the money frozen in [D2 s two accounts covered by the Injunction] is held by [D2] on trust for me nce in the Underlying Litigation was filed in 2014 and 2016, and we are now in 2019. She also submitted that D1 and D2 are separate legal entities. D2 is no longer indebted to HSF and the dispute is really between HSF and D1. HSF are however linking D1 and D2 together and cherry-picking extracts of statements made by D1, Ho and D2 at different times and occasions out of context. I am unable to agree with her that the inconsistent evidence is due to the change of D1 s position over time. Further, HSF ar cted, as evidenced by the statements made in the affirmations in the Underlying Litigation in respect of D1 s beneficial interest in D2, and his relationship with Ho. Two of D2 s accounts in which D1 is believed to have, or have had interest, are covered by the Injunction, which D2 is seeking to remove from the Injunction. The documents sought by HSF are relevant to the questions to be decided by the Court at the Substantive Hearing. I cannot see how the allegations of D1 having relinquished all his roles and interest in D2, which are contradicted by the inconsistent evidence referred to above, would exonerate D2 from all liability to the relief sought by HSF, if grounds for such relief are made out. I have reviewed and checked the above extracts from the various affirmations filed in the Underlying Litigation. I can find no evidence that HSF cherry-picked the statements out of context as alleged by Ho in her 3rd ficial interest in the shares and bank accounts of D2 is directly relevant to their Charging Order Summons, and D2 s Discharge Summons. HSF s attempts to clarify with the Defendants solicitors the position of D1 s beneficial interest in the shares and bank accounts of D2 and whether, in the light of the evidence filed in these proceedings, D1 has breached any orders was unsuccessful. D2 s solicitors told HSF in their letter of 25 we do not consider that there is any necessity for such disclosure. HSF are concerned that by specifically referring to D1 s legal interest in D2, the question of D1 s beneficial interest in D2, if any, was not addressed. D1 has also failed to comply with DHCJ A r directly or indirectly, contained in any settlement relating to [the Underlying Litigation] . He did not disclose anything. In the light of the conflicting evidence filed in the Underlying Litigation and in proceedings in Singapore, Zervos J decided to refer the matter to the Singaporean Attorney General for possible perjury by D1. It is for the above reasons that HSF are seeking the relief in the Summons. Cross- cretion to permit cross-examination but an applicant is not entitled to this right as of course; (2) the applicant has to establish that in all the circumstances there is good and sufficient reason for the application; (3) where the evidence on the affidavits will result in a final t the discretion should be exercised in favour of permitting cross-examination; (4) what is essential is for the applicant to establish that the proposed cross-examination might be productive of a useful result at the stage that the application is made. ADVANCE \d 2 (emphasis added) (Waters v Malahon Credit Co Ltd [2004] 2 HKC 94, 97B E, per Kwan arging Order Summons as it will help the Court to determine whether a charging order should be granted over the bank accounts and shares of D2, or if the Injunction should be discharged. The Substantive Hearing is effectively final and not interlocutory. It will determine whether HSF or the Defendants are entitled to the shares in D2 and the funds in the accounts with DBS Bank which are covered by the Injunction. Cross-examination of D1 and Ho might therefore produce a useful result. The Court should the urt will not grant an order for cross-examination to gather information which will be used later to impugn the defendant s credit, or to investigate possible dealings in assets that may lead to possible contempt proceedings, or to obtain material to be used in the trial itself: Yau Chiu Wah v Gold Chief Investment [2002] 2 HKLRD 832, at 838G H, 839C D. 26. An order made must be proportionate and just. It could not be undertaken for an ulterior purpose nor be oppressive: Jenington International Inc v Assaubayev [2010] EWHC 2351. 27. The court has to bear in mind the potential wastage of costs, court time, injustice to the defendant and invasion to his privacy in pre judgment cross-examination and that an order for cross-examination is an exceptional step to take: Yau Chiu Wah, at 14(2); Gee on Commercial Injunctions, 6th funds in the DBS Bank accounts, before they could proceed with the cross-examination. The learned Judge in the China Shanshui case cited above granted an order for cross-examination and held that: 37. The cross-examination is to ascertain further information to enable the Plaintiff to identify and recover as many of the Listed Items as possible, to acquire information concerning the missing Listed Items, to inquire into D3 s knowledge of the Plaintiffs operation so as to assist the new Board to conduct the affairs of the Plaintiffs properly, to conduct the Cayman Islands proceedings properly and if possible to recover as many of the Plaintiffs assets now in the hands of D3 or strangers. 38. I am satisfied that this application is made for proper purposes. 62. An order for cross-examination is necessary in the interests of justice. It would involve time and costs but no issue of privacy as the cross-examination is about the Plaintiffs , not D3 s, records and assets. Even if D3 is unable to state the current whereabouts of the Listed Items, cross-examination would still be useful for him to say what the Listed Items comprised, how they might be reconstituted, what became of them and who (apart from himself) was responsible for keeping them. It would make the Orders more effective. The learned Judge also held in paragraph g no legal interest in D2 is evasive as what HSF want to establish is D1 s beneficial interest, if any, in D2 and the funds in its accounts. This is directly relevant to the issues to be decided by the Court at the Substantive Hearing. HSF rely on the evidence of Kathryn Sanger, a partner of the e Underlying Litigation in December 2016 and Jason Cohen s representation to Kathryn Sanger referred to in the preceding paragraph. It is likely that the Defendants have information which should have been disclosed, including whether he did receive any benefit in the settlement of the Underlying Litigation. Such disclosure would lead to fulfillment of the purpose of the DHCJ A Lee s Order. Further, the paucity of the assets disclosed in D1 s 5th ss-examination of D1 and Ho is to ascertain further information to enable the Court to determine if the charging order sought by HSF should be granted, or if the Injunction should be discharged. I agree with HSF s submissions that the Substantive Hearing, which is for the final determination of whether D1 still has interest in D2 ed on D1 s beneficial interests, if any, in D2 and the funds in its account. There will therefore be no issue of privacy. Order for cross-examination For the reasons above, this Court is of the view that an order for cross-examination is necessary and should be made in the interest of justice. I therefore order that D1 do attend before the Judge at the o the [Underlying Litigation] ( Settlement Agreement ), and Payment Records , as defined in the Summons, which include any bank account statements and any instructions, confirmations, and other records of payments relating to all bank accounts held in the name of and/or controlled by [D2], including but not limited to account numbers 78-3193086, 78-6202573 and 78-8520573 with [DBS Bank] from the opening of the accounts to the date of the Order herein inclusive ( Payment Records . 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