Aleksandr Narimanovich Kushaev v. Greenly Holdings Ltd (in Liquidation) and Others

HCA 1022/2019

[2019] HKCFI 2745

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1022 OF 2019

________________________

BETWEEN

________________________

________________________

J U D G M E N T

________________________

1.On 11 June 2019 the plaintiff applied for, and obtained, an ex parte Mareva injunction against each of the 2^nd defendant (“Elias”) and the 3^rd defendant (“Jad”), restraining them from dealing with or otherwise disposing of their assets (worldwide) up to the value of HK$45,419,062.79 (“the Injunction”). The Injunction was continued by the order of Lisa Wong J dated 21 June 2019.

2.The plaintiff has applied to continue the Injunction, and for a disclosure order against Elias and Jad.  Each of Elias and Jad have applied to discharge the Injunction.

A.  BACKGROUND

3.The plaintiff is a Russian national (subject to the possible dispute as to that point by Elias) and the owner of certain television rights. In 2013 he engaged Pierre-Michael Garvin, a wealth planning professional, to set up a structure to hold, license and monetise the television rights.

4.Mr Garvin set up a structure to assist the plaintiff in the management of his personal wealth as well as the television rights.  The primary asset holding vehicle of the structure appears to be a trust known as the Cinque Terre Trust, which apparently was set up in New Zealand and the plaintiff and his family are beneficiaries.

5.In addition the plaintiff and Mr Garvin agreed that the plaintiff would acquire a Hong Kong company to be the licence agent of the television rights.  Mr Garvin reached out to Elias, who he had known since 2007 and who provides trust related services within Hong Kong, to acquire a shelf company in Hong Kong for that purpose.  In late 2013 the 1^st defendant (“Greenly”) was acquired for this purpose.

6.There is no dispute that at all material times Elias was the sole director and the legal shareholder of the single share of Greenly.  There is also no dispute that Elias held the share as a trustee, although there is a dispute as to the identity of the beneficiary of that trust.

7.Greenly’s sole business was to license the television rights.  It had no staff but did have a bank account at The Hongkong and Shanghai Banking Corporation (“Greenly HSBC Account”) into which its revenue was received.  It prepared financial statements which were audited by Hong Kong-based chartered accountants.  I have seen the audited financial statements for the periods ending 31 December 2014, 2015, 2016 which together demonstrate a total revenue of approximately HK$17 million over that period. 

8.According to the plaintiff, Greenly’s business operations appeared to be normal between 2013 and 2017.  Towards the end of 2017 Elias asked Mr Garvin to arrange for the cessation of payments into Greenly HSBC Account because, according to Mr Garvin, HSBC was raising questions as to the source of the funds.  Elias also informed Mr Garvin that Greenly was liable to pay tax of up to HK$26,775,972, and that those funds needed to be held pending the payment of that liability.  Bank statements from HSBC show that on or around 18 December 2017 some HK$2,062,034.50, US$992.20, SGD 230.86, EUR 4,856.995.50 and CHF 650,298.57 (totalling approximately HK$50.8 million) was withdrawn from the Greenly HSBC Account leaving a zero balance in each of those currencies, although the recipient of the amounts paid out is not known.  According to Mr Garvin, he asked for an explanation from Elias who told him that the sum had been remitted to a “client account” and would be held in that account until a final tax assessment of Greenly was completed.  From that conversation Mr Garvin understood that the client account was to be an account controlled by Elias and Jad.

9.Matters did not progress significantly during 2018 although various transfers were made in November 2018 in which apparently EUR 600,000 were paid to an account under the name of “Spectra Global”, which apparently is an account which is not owned or controlled by the plaintiff but to whom the plaintiff authorised funds to be paid.  One of these transfers was made from an account in the name of Jad.

10.Due to concerns as to the whereabouts of the assets of Greenly, Mr Garvin retained the Hong Kong firm of solicitors Robertsons to investigate the affairs of Greenly.  In April 2019 Robertsons discovered that Greenly had been placed in members’ voluntary liquidation and was subsequently dissolved on 5 March 2019.  On 3 December 2018 Elias, in his capacity as the sole director and shareholder of Greenly, had passed a resolution that Greenly’s books and records could be destroyed at the expiration of one month from the date of its dissolution.  It is not known whether the books have in fact been destroyed.

11.In the light of this information, the plaintiff commenced these proceedings and obtained the Injunction on 11 June 2019.

12.Since that date various affirmations have been sworn for the purpose of supporting the Injunction, as well as in support of the application to discharge the Injunction.  In addition a statement of claim and a defence for each defendant has been served.

B.  THE PLAINTIFF’S CONTENTIONS

13.The plaintiff’s claim against Elias is that he held the share in Greenly on trust for the plaintiff. 

14.The affirmation of Mr Garvin explains that Greenly was intended to be a simple vehicle to license the television rights, and it was purchased as an off the shelf company using funds provided by the plaintiff. 

15.On or around 10 November 2013, upon Mr Garvin’s instructions, Elias executed a declaration of trust (“the 2013 Declaration of Trust”) in which he declared that he held the sole issued share in Greenly on behalf of the “Cinque Terre Trust of New Zealand”.  The 2013 Declaration of Trust was a document prepared by Mr Garvin without the assistance of lawyers and it was based on a draft template that either he or Elias had come across on previous occasions.  Elias disputes the authenticity of this document, and contends that it, and his signature upon it, has been forged.

16.Mr Garvin goes on to say that shortly after the execution of the 2013 Declaration of Trust the plaintiff and Mr Garvin agreed amongst themselves that in fact Greenly should remain separate from Cinque Terre Trust, and therefore that Elias should hold the single share not on trust to the Cinque Terre Trust, but on trust for the plaintiff.  Mr Garvin states that he informed Elias of this fact and that Elias was well aware that he was holding the share on trust for the plaintiff.  In this context Mr Garvin identifies one email in which Elias and the plaintiff were copied, and he relies upon this to demonstrate the proposition that Elias knew full well that he was holding the share on trust for the plaintiff.

17.The Trustees of the Cinque Terre Trust have not been identified, and there is no copy of the trust deed available.

18.It has emerged from the evidence of Elias that in fact there is a further declaration of trust (“the 2014 Declaration of Trust”).  In May 2014 Mr Garvin wrote to Elias requesting Elias to issue a declaration of trust of the single share of Greenly in favour of Cinque Terre Trust, and suggested that if Elias needed a template he should let Mr Garvin know.  He stated that the trust should be dated from the date “when we started the relationship of the client”.  Ultimately, on 10 September 2014 the 2014 Declaration of Trust, declaring that Elias held the one share of Greenly on trust for “Cinque Terre Trust of New Zealand” was signed by Elias.  There is no dispute that this was a genuine document which was indeed signed by Elias.

19.In the light of this history the plaintiff contents that the share is held on a resulting trust arising from the payment by the plaintiff for the incorporation of Greenly in 2013.  The plaintiff contends that the 2013 Declaration of Trust and the 2014 Declaration of Trust have no legal effect because:

(1)  A trust has no legal personality and therefore Elias could not hold the share on trust for another trust.  All he could possibly do would be to hold the share on trust for the trustees of the other trust, but that is not what happened.

(2)  In any event the name of the other trust written on each declaration was wrong in that it referred to the “Cinque Terre Trust of New Zealand”, rather than the proper name of the Cinque Terre Trust, which was just “Cinque Terre Trust”.

20.On the basis that Elias holds the share on trust for the plaintiff, it is the plaintiff’s case that Elias has breached that trust because by allowing the dissipation of what appears to be the entire balance of the Greenly HSBC Account for no apparently legitimate reason he has allowed the value of the trust assets to diminish.  As a result it is alleged that Elias is liable to restore the financial position of the trust to what it would have been had he not been guilty of the breach.  The plaintiff relies upon Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 at [87].

21.I note as a side note that in the ex parte application the plaintiff recognised that his claim may fall foul of the rule against reflective loss.  However he sought to circumvent that problem by seeking a declaration that Elias should pay to Greenly any equitable compensation attributable to the dissipation of the assets of Greenly.  That is exactly what has been sought in the Statement of Claim.  In this context the plaintiff relied upon Marex Financial Ltd v Sevilleja [2018] 3 WLR 1412 at 1425B–D per Flaux LJ and Latin American Investments Ltd v Maroil Trading Inc [2017] 2 CLC 45 to support the proposition that seeking such a declaration avoids the problems created by the rule against reflective loss.  Mr Phang, for Elias and Jad, has not taken this point at all in his argument, and I accept that at this stage of proceedings such an approach is correct, because in the light of those cases, particularly when combined with the Hong Kong Court of Appeal case of Joe Zhixiong Zhou v SAIF Partners II LP & anor [2019] HKCA 766 it is certainly arguable on these facts that such an approach is legitimate.

22.Insofar as Jad is concerned, the plaintiff’s claim is based upon dishonest assistance.

23.The statement of claim contends that “Elias and/or Jad caused Greenly to transfer” the HK$50.8 million out of the Greenly HSBC Account. No particulars are given of how Jad is said to have caused that transfer and there is no answer proffered to Jad’s evidence to the effect that whilst he was a signatory to the Greenly HSBC Account from around January 2016 he was removed as an authorised signatory with effect on or about 13 November 2017.

24.It is further pleaded that Jad received a part of the funds forming the transfers of the HK$50.8 million, although it is not pleaded what part he received, and the evidence does not identify that either.  There are two aspects of the evidence which touch upon this:

(1)  Mr Garvin had been told that money had been transferred to a “client account” which he understood to mean a bank account controlled by Elias or Jad; and

(2)  on 7 November 2018 an amount of EUR 200,000 was paid from an account in Jad’s name to Spectra Global, and that amount was said to be a payment in respect of Greenly.  Therefore it is suggested that JAD must have received Greenly’s assets illegitimately in order for him to be able to pay EUR 200,000 back.

25.Other than these points, there is no pleading of the acts stated to constitute assistance, although various matters are pleaded (such as the familial relationship and his involvement in the affairs of Greenly) such as to make his involvement and assistance (if there was any) dishonest.

26.The plaintiff contends that in the light of the above he has a good arguable case on the substantive claim.

27.He further identifies that each of Elias and Jad have limited assets in the jurisdiction and there is a real risk of dissipation.  In this context he suggests that there is clear evidence of a dissipation of HK$50.8 million from Greenly and there has been no credible explanation given for the transfer of that sum.  There is also no credible explanation for the resolution purporting to authorise the destruction of Greenly’s books and records (which the plaintiff notes would in fact put Elias in breach of section 758 of the Companies Ordinance).  He asks the court to take into account that the asset dissipated is cash, which can be easily moved and Elias is in the business of providing trust related services and hence is likely to be experienced in intricate and sophisticated transactions moving large sums of money, possibly internationally.  Insofar as Jad is concerned the plaintiff simply relies upon his relationship with his brother Elias and the acts of assistance which have been alleged against him.

28.Finally the plaintiff suggests that the balance of convenience favours the grant of Mareva relief.

C.  THE DEFENDANTS’ CONTENTIONS

29.Elias and Jad contend that the Injunction should be discharged due to material non-disclosure.  Further they each contended that:

(1)  The plaintiff has failed to establish a good arguable case against each of them.

(2)  There has been substantial delay in the plaintiff’s application and that therefore the plaintiff has failed to establish that there is any real risk of dissipation.

30.Insofar as material non-disclosure is concerned, five allegations are made:

(1)  the failure to disclose the 2014 Declaration of Trust;

(2)  the failure to disclose what are said to be dubious aspects of the plaintiff’s identity;

(3)  the failure to disclose that Elias was entitled to a fee of 10% of the turnover of Greenly, which amount exceeds, or at least partially accounts, for the transfers;

(4)  the failure to disclose the certification by the liquidator of Greenly that the liabilities of Greenly had been completely satisfied, and there was no suggestion that the transfers were unauthorised; and

(5)  the failure to disclose any information concerning the plaintiff’s financial resources to backup his undertaking as to damages.

D.  ANALYSIS

31.I shall first address the various requirements for the plaintiff to establish in order to maintain the Injunction.  It is trite that in this context the plaintiff has to establish:

(1)  a good arguable case against each defendant in respect of the claim;

(2)  that the defendants have no assets, or insufficient assets, within the jurisdiction to satisfy the claim;

(3)  that refusal of the relief sought would involve a real risk of dissipation of the defendants’ assets in such a way that a judgment in favour of the plaintiff’s would go unsatisfied; and

(4)  that it is “just and convenient” to grant the injunctive relief: section 21L(1) of the High Court Ordinance, or to put the matter another way that the “balance of convenience” lies in favour of the grant of an injunction.

D.1  Good arguable case generally

32.Having considered all of the evidence, I am generally satisfied that it is at the very least arguable that something untoward has occurred in the management of Greenly.  I have looked at the bank statements which have been produced for the period from January 2017 through to December 2017 and it is clear that in most months limited withdrawals occur.  The significant withdrawal of HK$50.8 million on 18 December 2017, reducing the balance in the account to zero appears to be unprecedented at least from the bank statements that I have seen.  There appears from the evidence two possible bases for the withdrawal of that amount in December 2017.  The first is a misappropriation of the sums, as alleged by the plaintiff.  The second is the payment of a service fee of 10% of the turnover, as alleged by Elias. 

33.The difficulty with the explanation given by Elias in his 2^nd affirmation is that it is impossible to correlate the various figures that he gives.  On the one hand he seems to contend that there was a tax liability of Greenly of approximately HK$26 million and he seems to suggest that he would himself bear that tax liability.  On the other hand he seems to contend that he was entitled to the full amount of the HK$50.8 million pursuant to his 10% fee entitlement.  I can see no justifiable reason why Elias would be prepared to bear the potential tax liability of a company of which he was expressly only a nominal shareholder and in respect of which he charged fees to be a director and shareholder.

34.In addition I have seen the invoices which Elias rendered in January 2016, through his trust company EE & Partners, including a fee for management services in respect of Greenly for each of 2014 and 2015 in the sum of US$5,000 per annum.  Such invoices are inconsistent with a proposition that in around June 2014 (ie two years before the invoices were rendered), at a face-to-face meeting between Elias and Mr Garvin it was agreed that Elias would be entitled to 10% of Greenly’s turnover.

35.Elias refers to what he describes as an agreed position that he is entitled to 5% of the turnover at least.  In fact that is not an agreed position.  All that has been agreed is that 5% of Greenly’s turnover is to be retained to pay its costs, including Elias’s fees.  That is a very different proposition to Elias being entitled to a total of 5%.  Hence I do not think that this purported agreement assists Elias at this stage either.

36.In the circumstances I am satisfied, at least at a general level, that it is arguable that there has been a misappropriation from Greenly. That misappropriation can only have occurred through the offices of Elias as he was the sole shareholder and the sole director at the relevant time. Indeed there is no suggestion in his evidence that he was not responsible for the payment out of the HK$50.8 million.

37.The more difficult question in my view is whether the plaintiff has a good arguable case that it is him who should be entitled to sue in respect of any misappropriation of the assets of Greenly, or whether it should be some other plaintiff.  The answer to this depends upon an analysis of the arguments surrounding the existence of the trusts.

38.From the documentation which is available the most obvious beneficial owner of the share is the Cinque Terre Trust.  That is the entity (which expression I use in a loose sense) which has been declared as the beneficial owner in both the 2013 Declaration of Trust and the 2014 Declaration of Trust.  Leaving aside for a moment whether the 2013 Declaration of Trust is a forgery or not there is no doubt that Elias considered himself to be holding the single share of Greenly on trust for the Cinque Terre Trust from at least from 10 September 2014.

39.But the plaintiff disclaims the legitimacy of either of those Declarations on the basis that the Cinque Terre Trust is not a legal entity and is in any event wrongly named in those documents.  I have very considerable doubt whether these points are in fact good points. 

40.In my view it is strongly arguable that each Declaration of Trust should be properly construed as creating a trust over the single share in Greenly in favour of the trustees of the Cinque Terre Trust, who would therefore hold that beneficial ownership in their capacity as such trustees, thus holding the beneficial ownership on trust for the beneficiaries of the Cinque Terre Trust. 

41.Mr Garvin has described how the documents emanated from a template and were not prepared with the assistance of lawyers.  They should be read purposively, and whilst it is correct that in many (and probably most) common law jurisdictions a trust is not considered to be a legal entity that is not necessarily the case in every jurisdiction around the world.  I do not find it at all surprising, even for those operating within the global wealth management and fiduciary services industry, that parties may simply express the existence of a trust in favour of another trust, and by that intend little more than that the underlying asset is to be held for the benefit of the ultimate beneficiaries.  Concepts such as precise legal entities do not always feature highly in the minds of businessmen.  Therefore construing the documents purposively I have every suspicion that they do in fact seek to express an intention to hold the single share in Greenly on trust for the ultimate beneficiaries of the Cinque Terre Trust.  

42.Such an approach is consistent with the evidence of Mr Garvin in his 1^st affirmation in which he states that it was shortly after the execution of the 2013 Declaration of Trust that it was agreed between Mr Garvin and the plaintiff that Greenly should remain separate from what he describes as “the Structure”. The Structure to which he is referring is that which he set up in the second half of 2013 on behalf of the plaintiff, involving various entities including asset holding companies and operational companies, with the primary asset holding vehicle being a trust set up in New Zealand known as the Cinque Terre Trust.  Thus it would appear that the immediate intention was that the share in Greenly would indeed be held beneficially by the Cinque Terre Trust, although that intention was subsequently changed.  The wording of the 2013 Declaration of Trust would be consistent with that initial intention.

43.If that were the proper construction of the 2013 Declaration of Trust (assuming it is not of itself a forgery) then it would not be open to the plaintiff and Mr Garvin subsequently to remove the beneficial ownership of the one share of Greenly from the Cinque Terre Trust, irrespective of whether or not the trustees were aware of the declaration.

44.If the 2013 Declaration of Trust is a forgery the same arguments and position applies to the 2014 Declaration of Trust.  I see no material difference between these two documents for that purpose.

45.Insofar as the plaintiff’s proposition that the wrong name was used in the Declarations, I see nothing in that either.  The reference in the documents is clearly a reference to the Cinque Terre Trust, and it makes no difference to that proposition that the words “of New Zealand” have been added.

46.Hence, on the face of the documentation relating to the trust I think that there is some considerable difficulty placed in the path of the plaintiff’s recovery in this action.

47.I turn then to consider his alternative case that there is a resulting trust arising from the proposition that he paid all of the costs for the acquisition of Greenly. Contrary to the proposition of Elias, I am prepared to accept that the evidence contained in Mr Garvin’s 2^nd affirmation at paragraph 16 to the effect that the plaintiff ultimately paid for the establishment of Greenly is sufficient evidence that those sums were indeed paid by the plaintiff.  I am also prepared to accept, although only just, that the payment of fees can give rise to a good arguable case the existence of the resulting trust alleged.  However it seems to me that the proposition remains difficult because there are various other explanations as to why the plaintiff may pay the fees for the establishment of Greenly absent a trust.  The plaintiff may well have paid fees because, for example, he wished to benefit the beneficiaries of the Cinque Terre Trust, who are, I am told, himself and his family.  Thus the payment of the fees does not inevitably establish a resulting trust.

48.One of the reasons why I am prepared to accept this as a good arguable case is because of the surrounding circumstances.  It is clear that the business of Greenly is indeed the exploitation and monetisation of television rights arising out of Russia.  Given that the plaintiff is involved in that business, and apparently has the intellectual property rights in various television series and movies, the exploitation of those rights on his behalf through a company such as Greenly is not exceptional in any sense.  Indeed one would expect the owner of such rights to exploit and monetise them through a company rather than directly, and one would also expect that the owner of the rights would do so through a company of which he was either the legal or beneficial owner.

49.It is also apparent from the evidence of Mr Garvin that precise structures were not necessarily completely formed and had not become rigid in 2013 and 2014.  It appears from his evidence that the situation was somewhat fluid, and at this stage, I do not think it is appropriate to exclude as an arguable the proposition that the Greenly Share was indeed held on trust for the plaintiff.

50.I am also mindful of the payment of EUR 600,000 to the instructions of the plaintiff in 2017. If the plaintiff had no interest in Greenly then it is difficult to see why Greenly would be making these payments to him.  It is of course possible that there are other explanations for these payments, but none has so far been proffered, and in the circumstances, they would seem to support the plaintiff’s propositions, at least to some extent.

51.Finally in this respect I am conscious of the proposition that a good claim should not fail through lack of the right plaintiff.  That proposition is articulated in the Rules of the High Court through Order 15, rule 6.  If it comes to pass that the plaintiff is in fact not the one on whose behalf the share is held on trust, but within his own structures it is another entity (or trustee) that should be the proper plaintiff, that is a matter which can be rectified under the rules.  If the plaintiff chooses not to look into this question carefully and fully, and chooses to maintain his claim as currently articulated, he runs the risk that he will loose on the basis that he is not the correct plaintiff.  But that is a matter for another day.  At present, I am satisfied that he has a good arguable case that he is the correct plaintiff.

D.2  Good arguable case as against Elias

52.The only real point that Elias takes in respect of the good arguable case against him is the proper plaintiff point that I have addressed above.  In the light of my conclusions on that point, I find that there is a good arguable case against Elias.

D.3  Good arguable case against Jad

53.The position insofar as Jad is concerned is very different. The claim against him is simply for dishonest assistance in the manner that I have identified above.

54.I am not satisfied that there is a good arguable case that Jad caused or procured the transfer of the HK$50.8 million from Greenly.  There is no evidential basis upon which that allegation is made and the plaintiff has failed to demonstrate that he has a good arguable case in this respect.  Jad has identified that he ceased to be a signatory on the Greenly HSBC Account in November 2017, and therefore he cannot have been the one who in fact signed the transfers, and there is no evidence or even suggestion that Greenly was operating on his instructions.

55.Insofar as the receipt of funds is concerned, again there is no evidence available to me to back up the assertion that the money went to Jad.  The only proposition which seems to be advanced is that because, on 7 November 2018, EUR 200,000 was transferred to Spectra Global from an account in the name of Jad purportedly in respect of the plaintiff’s entitlement from Greenly Jad must have assisted in Elias’ breach of trust. 

56.In my view the fact of payment from Jad’s account does not begin to support the inference that he must have had the misappropriated funds transferred to him.  He has given evidence that he was asked by his brother to make a transfer on an urgent basis and because his brother was being chased by Mr Garvin but was having difficulties making the transfer through online banking due to the limits on transfers to third parties.  He says that his brother transferred the money to him and he then transferred it on.  The documentary evidence which he has produced is not entirely supportive of this proposition, in that the WhatsApp message only identifies his brother telling him the accounts at Spectra Global to which the money should be paid.  Therefore it does not assist to demonstrate that his brother initially transferred the money to him.  However the burden of proof is not on Jad.  It is for the plaintiff to establish a good arguable case that Jad dishonestly assisted, and the plaintiff has failed to do so based upon anything other than speculation.

57.In all the circumstances I conclude that no good arguable case has been established against Jad and the injunction should be discharged as against him for this reason.  The case is speculative in that there is no solid evidential base to support it.

D.4  Assets in the jurisdiction

58.The plaintiff has satisfied me in relation to this point by reference to Mr Garvin’s 1^st affirmation.  Elias and Jad have not challenged that evidence and therefore I do not deal with the point further.

D.5  Risk of dissipation

59.The plaintiff accepts the burden of producing cogent evidence of the risk of dissipation.  In this context the plaintiff relies upon the dissipation of assets from Greenly as a starting point.  He also refers to promises to pay US$1.2 million, but only EUR 600,000 has been repaid. He also relies upon the voluntary winding up and subsequent dissolution of Greenly together with the resolution that the books and records can be destroyed within one month of the dissolution.  The plaintiff points out that this has all the hallmarks of an attempt to cover up a misappropriation.

60.I am satisfied that on the face of the documentation before me there is cogent evidence that Elias has demonstrated a sufficiently low standard of commercial morality to justify the inference of a risk of dissipation.  Indeed the evidence demonstrates that there has in fact been dissipation of assets.  In circumstances where a defendant is accused of being the perpetrator of a misappropriation, and the evidence appears to support that accusation with some cogency I find it hard to perceive of a clearer case in which a Mareva injunction ought to be issued.

61.Elias relies upon the delay in bringing this action to argue that there is in fact no risk of dissipation.  He says that Mr Garvin was aware of the transfers from the Greenly HSBC Account in late 2017 or early 2018 when he was given the bank statements.  Thus Elias contends that a delay of around 1 ½ years has occurred.  Mr Garvin was aware of the voluntary liquidation of Greenly in or around mid-November 2018 yet the plaintiff still waited for a further seven months before commencing proceedings.  Elias rejects the explanation offered to the ex parte judge that the plaintiff was taking a conciliatory approach towards Elias because the last payment which was made at Mr Garvin’s direction was on 24 November 2018 and still no steps were taken until June 2019.

62.Hence, says Elias, the mere fact of delay is sufficient to negate any risk of dissipation.

63.I do not agree.  A delay in bringing an application for a Mareva may allow a defendant to demonstrate that the monies or assets which are sought to be restrained have not been dissipated throughout the period of delay to demonstrate that the defendant does not have a propensity to effect such dissipation.  That would be particularly the case if a defendant knew of the allegations made against him during that period of delay.  This, amongst other reasons, is the basis for the courts looking at the question of delay when making an assessment of the risk of dissipation.  But it is not the only matter which is relevant.

64.Risk of dissipation can be evidenced in many ways.  If the defendant is shown, by cogent evidence, to be arguably the perpetrator of a misappropriation that in itself, in my view, justifies a conclusion of a risk of dissipation. Of course a court must weigh in the balance of that assessment any period during which the alleged perpetrator has known of the allegations against him but nonetheless not dissipated his own assets so as to render himself judgment proof.  Such a fact may assist the court in certain circumstances to conclude that despite an allegation of misappropriation there is, nonetheless, no real risk of further dissipation by the defendant.  But that is not the case here. What Elias contends is that had he wished to take avoiding action during the period of delay he would have “absconded after receiving the money from the Transfers in December 2017 and never got in touch with Garvin again.”  That is too extreme a position.  The mere fact that he has not absconded does not of itself weigh sufficiently against what I consider to be cogent evidence of actual dissipation.

65.But in any event, the fact of the dissolution of the company and the resolution authorising the destruction of the books and records undermines the proposition that the risk of dissipation has diminished over time.  There remains a concerted effort to cover the tracks of an apparent misappropriation.

66.Therefore I am satisfied that there is a risk of dissipation.

D.6  Balance of convenience

67.Having regard to all of the matters that I have set out above, I am satisfied that the balance of convenience favours the granting of an injunction.  Elias has not demonstrated any sufficient prejudice to outweigh the prejudice which will be suffered by the plaintiff in the event that he is successful in his claim.

E.  CONCLUSION ON THE PLAINTIFF’S SUMMONS

68.In the light of the conclusions that I have reached, and subject to the question of material non-disclosure to which I turn next, I am satisfied that:

(1)  the Injunction should be continued as against Elias; and

(2)  the Injunction should be discontinued as against Jad.

F.  MATERIAL NON-DISCLOSURE

69.The principles relating to the obligation of a plaintiff on an ex parte application to give full and frank disclosure are well known.  I adopt the useful summary contained in Mr Phang’s skeleton argument:

(1)  The duty of the applicant in an ex parte application is to make a full and frank disclosure of all the material facts: Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350 at 1356F–G per Ralph Gibson LJ.

(2)  Material facts mean all facts that are relevant to the weighing operation which the Court has to make in deciding whether or not to grant the order.  The correct test is not simply whether, if the non-disclosure had not occurred, the ex parte judge would nevertheless have made the order, but whether the facts not disclosed, being relevant, should have been in the scales: Citibank NA v Express Ship Management Services Ltd & anor [1987] HKLR 1184 at 1190C–E per Fuad JA (as he then was).

(3)  The test as to materiality is an objective one, and it is not for the applicant or his advisers to decide the question; hence it is no excuse for the applicant subsequently to say that he was genuinely unaware, or did not believe, that the facts were relevant or important.  All matters which are relevant to the “weighing operation” that the court has to make in deciding whether or not to grant the order must be disclosed: New Asia Energy Ltd v Concord Oil (Hong Kong) Ltd [2000] 2 HKC 681 at 685G–I per Keith JA.

(4)  In addition, the plaintiff must identify any defences, which, although not yet taken, would have been available to be taken by the defendant had he been present at the ex parte application, provided that: (1) the defence is one which can reasonably be expected to be raised in due course by the defendant; and (2) the defence is not one which can be dismissed as without substance or importance: New Asia Energy Ltd at 685G–I.

(5)  The duty of making full and frank disclosure is not discharged by making partial disclosure on oath or deposing to half-truths.  The Court is entitled to assume that the applicant acts with utmost good faith, failing which the position of the ex parte judge would be extremely difficult, if not impossible: Guangdong Yuehe Investment Holdings Co Ltd & Another v Hongfan International Ltd (unreported, HCA 391/2017, 3 March 2017) at §11 per Chow J.

(6)  The disclosure should be made in the affidavit (and/or the skeleton submissions) and not in the exhibits.  This is to ensure that the ex parte judge will not overlook the matters which require disclosure, ex parte applications being usually urgent (so the judge usually has little reading time) and ex parte hearings are often short: Tiong King Sing v Sam Boon Peng Yee [2011] 5 HKLRD 651 at §13 per Chung J.

(7)  An applicant has a duty to inform the court as soon as he becomes aware that the court has been misinformed or given incomplete information at the time of the ex parte application: Cargill International Trading Pty Ltd v Loyal Base Development Ltd (unreported, HCCL 12/2015, 24 November 2015) at §50 per Mimmie Chan J.

F.1  The 2014 Declaration of Trust

70.There is no doubt that this was not disclosed.  Mr Garvin describes it as an inadvertent error, made because when he was searching back through his files he came across 2013 Declaration of Trust and, having found that, did not believe there were any further relevant documents in a later stage.

71.The plaintiff contends that failure to disclose the 2014 Declaration of Trust is irrelevant.  First the document is of no legal significance in any event, and secondly it is in exactly the same terms as the 2013 Declaration of Trust and hence would not in any event affect the position as set out in that earlier document.

72.Mr Phang says that it is highly relevant because the mere fact that during 2014 Mr Garvin was concerned to have the Declaration of Trust entered into is inconsistent with the plaintiff’s case that single share of Greeley was held on resulting trust in favour of the plaintiff from the outset.  Therefore he says that the 2014 Declaration of Trust would be highly relevant to the ex parte judge’s consideration of the existence or otherwise of the trust in favour of the plaintiff.

73.I agree with Mr Phang that the 2014 Declaration of Trust is a material document that ought to have been disclosed.  Given the evidence of Mr Garvin that there was a change in position after the signing of the 2013 Declaration of Trust, and a decision not to hold the single share on trust for the Cinque Terre Trust, such that the ex parte judge could ignore 2013 Declaration of Trust and conclude that there was a trust in favour of the plaintiff, it seems to me that it must be relevant to consider that subsequent to that first change of position there appears to have been a yet further change of position back to holding the share on trust for the Cinque Terre Trust.

74.However I also accept Mr Garvin’s evidence that the non-disclosure was inadvertent.  In all the circumstances, having regard to the inadvertence of non-disclosure, and what I considered to be the overall merits of the case in relation to both the proper plaintiff and the misappropriation in my view it is appropriate to set aside, but re-grant the injunction notwithstanding this non-disclosure.

F.2  Dubious aspect of the plaintiff’s identity

75.In this context Elias relies upon essentially four matters he says would have been material to the ex parte judge but which were not disclosed.  The plaintiff is said to be a Russian national, and yet:

(1)  his address is stated to be a hotel address in Dubai;

(2)  he executed the 1^st affidavit in Italy;

(3)  he has exhibited a heavily redacted passport which redacted nationality and signature and is in any event a passport from St Kitts and Nevis; and

(4)  online searches against his name have identified that he is a producer of various television series and film but those do not correspond to the ones which have been licensed to Greenly.

76.I do not agree that these matters give rise to a material non-disclosure.  The hotel in Dubai has, as many hotels do, residences attached to it and I do not consider it to be particularly material if a person chooses to operate from a residence in Dubai rather than anywhere else.  The fact that an affidavit was sworn in Italy is neither here nor there and I do not see that the redactions of the passport have any great significance either. Nor does the fact that an online search has not demonstrated a link between programmes produced by the plaintiff and programs licensed to Greenly.

77.I accept that because of the trust arrangements which I have referred to above all of these points may give rise to a greater difficulty for the plaintiff ultimately to succeed in his case.  The less transparent he is as to his private arrangements the greater the difficulty that he will face. But I do not believe that any of the matters alleged to be a material non-disclosure in this context are in fact material.  The problems which the plaintiff may face with his trust arguments have been adequately disclosed and therefore I reject the proposition of Elias in this respect.

F.3  The 10% fee

78.It is said by Elias that the plaintiff failed to identify that there had been a prior agreement made in 2014 by which Elias was entitled to take 10% of the turnover of Greenly.  The plaintiff on the other hand, contends that he is not obliged to anticipate new and previously unheard of defences which have no foundation.

79.In my view there was no material non-disclosure.  There is nothing suggesting that plaintiff, who denies the agreement, could have anticipated that Elias would make this point in his defence.  I accept that this assumes that the plaintiff’s evidence is correct that he did not know about it.  But for these purposes, given that I can find no reference to the alleged agreement in the documentary evidence, and that for reasons that I have set out above the defence has certain difficulties in any event, I am prepared to accept that the plaintiff did not know about it. Therefore I do not find any material non-disclosure in this respect.

F.4  The certification of liquidator

80.The certification of the liquidator was contained in the exhibits attached to Mr Garvin’s 1^st affirmation. However it was not specifically drawn to the attention of the ex parte judge.  Elias contends that it is highly material because it would weigh in the balance whether the alleged misappropriation occurred.

81.I do not consider it to be particularly material, although I accept that it would have been better had it been drawn specifically to the attention of the judge.  I am conscious that defendants facing a Mareva injunction often seek to take every small issue with the disclosure in an attempt to demonstrate a material non-disclosure in order to avoid the consequences of what they might otherwise not have a defence to.  In my view this is an example of such a point.  Overall I do not believe that the certification of the liquidator in circumstances where there was a members’ voluntary liquidation operating through the sole shareholder and sole director who is alleged to be the perpetrator of the misappropriation in the first place is a material factor and therefore I do not accept that this is a material non-disclosure notwithstanding that I think it might have been better had it been brought to the attention of the judge.

F.5  The plaintiff’s financial resources

82.I do not believe that there has been a non-disclosure.  As pointed out by the plaintiff all the departures from the standard form of Mareva injunctions were drawn to the attention of the experienced ex parte judge by way of a document prepared in “track changes”.  She confirmed that she had read the ex parte skeleton and the affidavits in support.  She knew that the plaintiff did not reside in Hong Kong, was a Russian national and that there was no evidence that the plaintiff had assets within the jurisdiction.  It is also clear from the transcript that the ex parte judge reviewed the draft order and was satisfied with the changes which had been made from the standard form.

83.In those circumstances I do not believe it is open to Elias to contend that the judge was in any way misled.  He may not like the decision which the judge took on the basis of the information which she was provided with, but that is a very different proposition to an allegation of making a material non-disclosure.  In my view there has been no material non-disclosure.

G.  ANCILLARY DISCLOSURE AND VARIATION

84.It appears to be accepted by all parties that ancillary disclosure will stand or fall with the grant of the Injunction.  Therefore disclosure should be ordered against Elias but not against Jad.

85.Elias seeks a variation to allow for living expenses, business expenses and legal fees.  On the face of it I accept that such a variation should be made, although unless Elias is trading as a sole trader there should not be any allowance for business expenses.  No submissions have been made as to the amounts of any such variation and in the circumstances the parties will have to apply separately or reach agreement.  I would urge the parties to be sensible in the amounts and suggest that it ought to be possible to reach agreement as to the appropriate variations.  If the parties are unable to reach agreement then the court will decide the amount of the exceptions.

H.  DISPOSITION

86.In all the circumstances:

(1)  I discharge the Injunction against Jad.

(2)  I discharge, but re-grant, the Injunction against Elias and will vary that Injunction in order to facilitate living expenses, legal expenses and possibly business expenses to the extent that sensible exceptions cannot be agreed by the parties.

87.As to costs, I order, on a nisi basis:

(1)  the plaintiff is to pay Jad’s costs of the Injunction and the application to discharge to be taxed if not agreed; and

(2)  the plaintiff’s costs as against Elias to be costs in the cause.

88.If any party wishes to seek a variation of the costs order it shall do so within 7 days and there will be a right of reply 7 days thereafter.  Costs will be decided on paper.

Mr David Chen, instructed by Robertsons, for the plaintiff

Mr Roger Phang and Mr Jeff Chan, instructed by Swartz, Binnersley & Associates, for the 2^nd defendant and by Chui & Lau Solicitors, for the 3^rd defendant