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HCA 1535 / 2008
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 1535 OF 2008
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BETWEEN
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WHARF LIMITED |
1stPlaintiff |
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WHEELOCK CORPORATE SERVICES LIMITED |
2ndPlaintiff |
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MARCO POLO HOTELS MANAGEMENT LIMITED |
3rdPlaintiff |
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and |
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LAU YUEN HOW |
1stDefendant |
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LIU CHO CHING |
2ndDefendant |
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LAU HEUNG KIU |
3rdDefendant |
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Before: Hon Au J in Chambers
Date of Hearing: 19 January 2010
Date of Decision: 19 January 2010
Date of Reasons for Decision: 21 January 2010
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REASONS FOR DECISION
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A. Introduction
1. This is the application by the 2ndDefendant (Ms Liu) to vary the terms of the Mareva injunction granted against her on 17 August 2008[1]. The injunction restrains her from disposing of, inter alia, the net proceeds (in the sum of about $2 million) of the sale of a residential property (“the Property”) in August 2008. The said proceeds have since been by stakeheld by Ms Liu’s solicitors.
2. Ms Liu’s application is to ask the Court to allow the solicitors to release $1.9 million out of the stakeheld proceeds to enable her to pay for the legal fees to be incurred in her defence of a parallel criminal trial against her (and the other Defendants). The trial has been fixed to commence on 23 February 2010 for 20 days at the District Court.
3. At the end of hearing, I dismiss Ms Liu’s application with reasons to be given later. This is what I do now.
B. Background
4. The background relevant to this application has been helpfully summarized by Hon. Poon J at paragraphs 4 to 8 of his Reasons for Decision dated 3 September 2008 in dismissing Ms Liu’s then applications to (a) stay the proceedings, (b) impose an undertaking on the Plaintiffs and their solicitors not to disclose the materials obtained under these proceedings to the police in their criminal investigations against the Defendants, and (c) vary the Mareva injunction[2].
5. For the present purpose, I therefore hope I can be forgiven in quoting Poon J’s summary as follows:
“3. The plaintiffs all belong to the Wheelock group of companies, providing various services to the group. The 1st plaintiff provides management services; the 2nd plaintiff, management, accounting and taxation services; and the 3rd plaintiff, hotel management services to the hotel business of the group.
4. Prior to 23 July 2008, the 1st plaintiff employed the 1st defendant as its assistant payroll manager. He alone handled the payroll of the senior staff (assistant general manager grade or above) in the Wheelock group.
5. The 2nd defendant is the 1st defendant’s wife. The 3rd defendant is his sister.
6. The plaintiffs’ complaint is this. In July 2008, the plaintiffs discovered that the 1st defendant had between 13 May 2004 and 30 January 2008 falsified documents in 14 bank transactions involving a total of HK$8.5 million and diverted the same to the defendant’s bank accounts. Further, on 30 June 2008, the 1st defendant fraudulently drew a cheque in the sum of HK$659,540 from the 1st plaintiff’s HSBC bank account and made it payable to himself.
7. On 20 July 2008, the plaintiffs reported the matter to the police. The police arrested the 3rd defendant on 24 July 1008 and 1st and 2nd defendants on the following day. Holding charges were then laid against them. The 1st defendant was charged with one count of attempted theft. The 2nd defendant and the 3rd defendant were respectively charged with two counts and one count of dealing with property known or believed to represent proceeds of indictable offence. They were all brought before the magistrate on 26 July 2008. The 1st defendant was refused bail and has since been remanded in custody. The 2nd and 3rd defendants were granted bail. The case was adjourned to 22 September 2008 for mention. In the meantime, the Commercial Crime Bureau is still continuing with the investigation.
8. On 1 August 2008, the 2nd defendant entered into a sale and purchase agreement in respect of a property [i.e., the Property] in Tseung Kwan O that she bought in 2005. What she did alarmed the plaintiffs. On 17 August 2008, they successfully obtained the Mareva injunction against the defendants. Among other things, the defendants were ordered to disclose the their assets of an individual value of HK$50,000 by affidavit within 14 days from the service of the order.
6. To the above summary, I should add the following.
7. Ms Liu is eventually formally prosecuted for three charges of offences of dealing with the following property known or believed to represent the proceeds of indictable offences contrary to ss. 25(1) & (3) of the Organized and Serious Crimes Ordinance (Cap 455), namely:
(1) $106,500 (over the period of 31 October 2001 to 16 January 2002).
(2) $1,758,600 (over the period of 31 January 2002 to 25 July 2008).
(3) The Property.
8. The criminal trial due to commence in February is in relation to the above charges. The suggested $1.9 million legal costs to be incurred are for (a) solicitors fees which are about $488,000, (b) Counsel’s fees (of a Senior Counsel and two junior Counsel) amounting to a total $1.4 million, and (c) miscellaneous charges.
9. At the same time, the Plaintiffs are seeking and asserting in these civil proceedings, inter alia, proprietary claims against the Defendants (including Ms Liu) for the various alleged misappropriated funds, including the tracing of them to, inter alia, the Property and thus the proceeds of sale. The principal bases of the proprietary claims are that the funds were misappropriated by the 1stDefendant in breach of trust and/or his fiduciary duties, and/or that Ms Liu had dishonestly assisted and/or had knowingly assisted the 1stDefendant’s said breaches.
10. From the time of the Mareva injunction to before the present application, under these civil proceedings, Ms Liu had engaged solicitors to prepare and file a total of 5 affirmations for various purposes, and counsel for the appearance before Poon J as mentioned above in support of her then applications.
11. For the present application, Ms Liu is also represented by Counsel, and has also engaged solicitors to prepare 2 substantial affirmations in support thereof.
C. Relevant legal principles
12. The parties are not in dispute as to the relevant applicable principles. They can be summarized as follows.
13. The principles applicable to the release of funds to pay legal costs from an injunction involving proprietary claims are well settled. It is an exercise of discretion which involves a 2-stage process:
(1) First, the defendant applying for the release of funds has to demonstrate with full and frank evidence that there are no alternative funds or assets available to him which can be used to pay his legal expenses other than the assets in respect of which the plaintiff brings the proprietary claim. If the defendant fails in this first hurdle, the Court needs not consider the 2ndstage and the application should be dismissed.
(2) Secondly, once the first hurdle is cleared, the Court in the exercise of its discretion will engage in a balancing exercise to weigh the potential injustice to the plaintiff if releasing the funds against the possible injustice to the defendant of depriving him of the opportunity to have legal assistance in advancing what may eventually turn out to be a successful defence. This process is a “careful and anxious judgment”, and the court is entitled to look at all relevant circumstances, and in particular, to weigh the relative strengths of the plaintiff’s proprietary claim in the funds and the defendant’s defence to that claim. In relation to this, it is not sufficient for a defendant to merely establish that he has no other funds, for even so, he must also show that there is an arguable case for his having recourse to the funds in question, failing which, he has not right to use the money. As Millet LJ (as he then was) said in Ostrich, infra, “[n]o man has a right to use somebody else’s money, for the purpose of defending himself against legal proceedings”.
See: Ostrich Farming Corporation Ltd v Ketchell [1997] EWCA Civ 2953 (10 December 1997), per Roch LJ at page 10[3]; Liu Xian Feng v Liu Bo [2006] 4 HKLRD 33 (CA) at paras 10 & 11 (37B-H) per Le Pichon JA; ...
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