Aleph Fabrizio Kraus, A Minor By Eric George Kraus, His Next Friend and Father v. All Asset Management (Asia) Ltd and Another

HCA 86/2021

[2023] HKCFI 1827

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 86 OF 2021

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DECISION

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BACKGROUND

1.By a Decision handed down on 5 October 2022 (“the Decision”), this Court ordered, inter alia, that:

(1)  Leave be granted to Twenty Two East Limited (in Liquidation), acting through its Joint Liquidators, to be joined as an additional defendant in these proceedings;

(2)  Leave be granted to the plaintiff to amend the Writ of Summons and the Statement of Claim in order to specify “Twenty Two East Limited (in Liquidation)” as a defendant, and to serve the Amended Writ of Summons and Amended Statement of Claim on each of the defendants within 14 days.

2.By Summons filed on 19 October 2022 (“the Leave to Appeal Summons”), the plaintiff applied for leave to appeal.

3.Subsequently, the plaintiff filed another summons on 15 February 2023 (“the Amendment Summons”), and asked for leave, inter alia, to amend the draft Notice of Appeal attached to the Leave to Appeal Summons.

4.I will adopt herein the abbreviations used in the Decision.

THE APPLICABLE LEGAL PRINCIPLES ON LEAVE TO APPEAL

5.The requirement for granting leave to appeal is set out in section 14AA(4) of the High Court Ordinance (Cap 4, Laws of Hong Kong). It is trite that leave to appeal shall not be granted unless the court is satisfied that the intended appeal has a reasonable prospect of success or there is some other reason in the interest of justice why the appeal should be heard.

6.It is also well established that a reasonable prospect of success means an appeal with prospects that are more than fanciful without having to be probable (SMSE v KL [2009] 4 HKLRD 129 at [17]).

THE DRAFT GROUNDS OF APPEAL

Overview

7.I will first of all deal with the draft grounds of appeal attached to the Leave to Appeal Summons.

8.The plaintiff’s draft grounds of appeal have been summarised by Mr William Wong SC (leading Mr Lai Chun Ho and Mr Joshua Yeung) as follows:

(1)  Trusteeship / Duty of Neutrality Ground (Ground 2)[1] – This Court erred in law and/or was plainly wrong in holding that the intended intervener should be joined in the present proceedings, despite the finding that the intended intervener was a bare trustee of the Funds, prior to the transfer of the Funds to IEL;

(2)  Incorrect Party Ground (Ground 1) – Without prejudice to the above, this Court erred in law and/or was plainly wrong in holding that the plaintiff or the 1^st defendant are the proper parties against which the intended intervener should have advanced its claim, when the Funds were transferred to IEL (and not directly to the plaintiff or the 1^st defendant).

Ground 2

9.I will deal with Ground 2 first as this is how the plaintiff argued his case in the application for leave to appeal.

10.The basis of Ground 2 is that this Court has made a finding that the intended intervener was a bare trustee of the Funds prior to the transfer of the Funds to IEL.

11.That is a misunderstanding of the Decision.

12.The relevant paragraphs of the Decision read:

“81. However, it was stated in the affidavit in reply made by one of the joint liquidators of the Intended Intervener that:

‘4. Insofar as the Plaintiff suggests that the Company’s assets were held on trust for [the 2^nd defendant], that mischaracterises our stance. The Company’s position is that it beneficially owned all assets registered in its name. There is no record of the Company ever self-declaring a trust over any of its assets for [the 2^nd defendant] or, indeed, [Father]. For substantially the same reasons, I believe that the Company has a beneficial claim to the Trust Assets that were previously transferred out of the Company’s accounts.’

82. The plaintiff’s counsel urged the Court not to accept this late ‘clarification’ because there is no evidential basis in support.

83. There is indeed force in this submission. I shall take this as a factor which is in favour of the plaintiff. However, this is just one of the matters to be taken into account.”

13.This Court has not made any finding as such.

14.Indeed, throughout the Decision, this Court has repeatedly emphasized that it is not appropriate for the Court to resolve factual disputes in a joinder application: See [58] and [71(1)] of the Decision.

15.I therefore hold the view that Ground 2 has no reasonable prospect of success.

Ground 1

16.Paragraphs 55 and 56 of the Decision read:

“55. It was said that the Intended Intervener actually has no rights against the plaintiff or the 1^st defendant at all because the assets under dispute were transferred from the bank account of the Intended Intervener to IEL, and therefore the proper party to any claim of the Intended Intervener is IEL rather than the plaintiff or the 1^st defendant. That being the case, it is not necessary to join the Intended Intervener herein.

56. As pointed out by Mr Maurellet SC and Mr Chua, this argument seems to be inconsistent with the stance taken by Father and the plaintiff in this action all along. It may be recalled that the whole purpose of this action was to obtain declaratory reliefs so that, inter alia, funds could be released from the Solaris Trust to set up a sub-trust in Aleph’s favour, and it is Father’s stance that such funds were held by the 1^st defendant in the Solaris Trust. On the other hand, I do not think it can be disputed that the Intended Intervener is now claiming that it is entitled to the same (or at least part of the same) funds. That being the case, I cannot see why it can be said that the Intended Intervener has no claim against the plaintiff or the 1^st defendant.” (emphasis added)

17.It is argued on behalf of the plaintiff that the reasons highlighted in the above quoted paragraphs of the Decision “do not stand up to scrutiny”.

18.With greatest respect, I do not agree.

19.As far as the purpose of the present action is concerned, it is now asserted by the plaintiff that it is not part of the plaintiff’s pleaded case that “the plaintiff sought to obtain declaratory reliefs in the present action so that the Funds can be released from the Solaris Trust to create a new sub-trust.”[2]

20.However, it has been pleaded in paragraph 38(2) of the Statement of Claim that:

“By reason of the above, unless and until [Mother] is so constrained:

(1) […]

(2) The 1^st Defendant will not be able to exercise its fiduciary powers and to administer the trust properly, including to release trust funds for Aleph’s benefit, and the trust operation will be paralysed indefinitely.” (emphasis added)

21.I agree with the intended intervener’s submissions that the expression “release trust funds for Aleph’s benefit” clearly shows that the present action was intended for the Funds to be released from the Solaris Trust to set up a sub-trust in Aleph’s favour.

22.The plaintiff further submitted that the Solaris Trust comprises only “1 share in IEL” but not the Funds.

23.This assertion is plainly contrary to the plaintiff’s pleaded case in the Statement of Claim. For example:

(1)  Paragraph 22 thereof pleaded that:

“In 2016, [Father] started to restructure assets held by the 2^nd Defendant pursuant to the Asset Holding Arrangement and to settle the same in his capacity as the ultimate beneficial owner of such assets into the Solaris Trust.” (emphasis added)

(2)  In paragraph 32 (1) thereof, among other things, the following was given as particulars of Mother’s wrongful demand, claims and interference in relation to the Solaris Trust:

“By a letter dated 23 May 2018, [Mother] wrongly held out to the Bank of Singapore that she was the beneficial owner of the funds originally deposited in [the intended intervener’s Bank of Singapore] Account which was subsequently transferred into the Solaris Trust.” (emphasis added)

24.Significantly, one of the material terms of the Solaris Trust as pleaded in paragraph 25(2) of the Statement of Claim is that:

“The initial trust property of fund to be held on trust shall be 1 share in IEL […]. The trust fund would include all property transferred to the trustees to be added to the trust fund [..]” (emphasis added)

25.Furthermore, as pointed out by Mr Jose-Antonio Maurellet SC (leading Mr Cyrus Chua), the reliefs claimed in the Statement of Claim include:

(1)  A declaration that the 1^st defendant is entitled and bound to execute and administer the Trust on the basis that:

(a)  All assets as at the date hereof held by or for the Trust are assets subject to the Trust;

(b)  Mother has no interest, whether actual or potential, direct or indirect, in the Trust or the Trust Assets;

(c)  The sole beneficiaries of the Trust and/or those beneficially interested in the Trust Assets are those persons specified as beneficiaries in the Trust Deed […];

(2)  An injunction to restrain Mother from representing to any third parties in Hong Kong that she has an interest, whether actual or potential, direct or indirect, in the Trust or the Trust Assets.

26.These plainly show that the subject matter of the Solaris Trust is not limited to the 1 share in IEL.

27.The assertion now made by the plaintiff’s counsel is also contradicted by Father’s own evidence:

(1)  In paragraph 27 of Father’s Affirmation filed on 11 February 2021, he stated that:

“From mid-2016, i.e. after I initiated the setting up the Solaris Trust in 2015, I begun the process of transferring the Assets held in the name of [the intended intervener] from its accounts with the ultimate aim of placing them in the trust fund of the Solaris Fund.” (emphasis added)

(2)  In paragraph 30 of the same Affirmation, Father also stated that:

“Prior to [the dissolution of the intended intervener], [the intended intervener]’s account with BoS was closed (on 27 January 2017) and its last remaining assets, which were in its account were transferred to IEL, i.e. they were added to the trust fund of the Solaris Trust since IEL was (and is) owned by the 1^st Defendant as its trustee.” (emphasis added)

(3)  In paragraph 53 of the same Affirmation, Father further alleged that Mother:

“[…] has obtained the BVI Order [pursuant to which the intended intervener has been restored to the BVI register of companies] in order to lay claim to beneficial ownership of the Assets formerly held in the name of [the intended intervener], including those that have been transferred to the trust fund of the Solaris Trust.” (emphasis added)

28.The plaintiff therefore has no reasonable prospect of success on this ground.

THE AMENDMENT SUMMONS

29.The Amendment Summons seeks to add further particulars to support Ground 2 of the draft Notice of Appeal and introduce a new Ground 3.

30.In a gist, in relation to Ground 2, the plaintiff would like the Court to accept that the intended intervener has acknowledged that it is just a bare trustee in respect of the Funds, and therefore, by virtue of the joinder, the Court would be permitting it to breach its duty of neutrality.

31.For Ground 3, the plaintiff alleged that the intended intervener should not be joined as a party herein because it would procure false evidence to be given and this would prejudice the possibility of a fair trial.

32.These new arguments are allegedly supported by various email correspondence exchanged between Father and Mother (“the New Evidence”) after the handing down of the Decision. It is the intention of the plaintiff to apply for leave to adduce the New Evidence for the purpose of the substantive appeal once leave to appeal has been granted.

33.When this Court considers the New Evidence, it should bear in mind what Lam VP (as Lam PJ then was) explained in footnotes 1 and 2 in Man Tin Fook v 梁根林 [2019] HKCA 846:

“1. Procedurally, application for leave to adduce new evidence could not be entertained until after leave to appeal has been granted and it is a matter for the Court of Appeal in deciding whether the new evidence should be admitted. However, an applicant in an application for leave to appeal can support such application by reference to new evidence if he can demonstrate that it is reasonably arguable that the Court of Appeal would grant leave by reference to the criteria in Ladd v Marshall. Thus, a judge (including a first instance judge) processing the application for leave would have to examine if the new evidence could arguably satisfy these criteria. If these criteria are not satisfied, such evidence should be disregarded for the purpose of the application for leave to appeal.

2. For the reasons given in footnote 1, the two summonses are procedurally misconceived. We shall however examine whether the new evidence could arguably be admitted by reference to the criteria of Ladd v Marshall in assessing the merit of the application for leave.”

The New Evidence

34.The new evidence that the plaintiff is minded to adduce on appeal is the email correspondence between Father and Mother in the period between 31 December 2022 and 9 February 2023. It was said that it can be seen from the email correspondence that[3]:

(1)  Mother reported that the Joint Liquidators have asked her to give false evidence;

(2)  Mother asked Father:

(a)  if she should involve the Joint Liquidators in settlement negotiations;

(b)  “on what professional basis” she could refuse to sign the “agreement and witness statement” that the Joint Liquidators wanted her to sign;

(3)  Mother told Father that:

(a)  the Joint Liquidators wanted her “to prepare affidavits and papers as per their requirements”;

(b)  the Joint Liquidators “are insisting that [she] sign an agreement and do undertakings”;

(c)  she was reluctant to cooperate with the Joint Liquidators;

(d)  she “will not support a position which is not true”, and there were “very serious problems with submissions of the Joint Liquidators in HK court” which she wished to correct or stop;

(e)  the Joint Liquidators tried to “manipulate” her and asked her “to sign papers which are not true”;

(f)  although the Joint Liquidators told her that she was the “main creditor” of the intended intervener, they asked her not to “make such a declaration in court”;

(4)  Mother stated her concern that the Joint Liquidators “want to control everything”.

35.The plaintiff’s counsel summed up the correspondence in the following way:

“In other words, the JLs asked, and offered inducement to, [Mother] to swear (falsely) that she was not the beneficial owner of the Funds held on a bare trust by the Intended Intervener. It appears that [Mother] had acceded to such improper inducement: by email dated 24 February 2023, [Mother] confirmed that she has ‘signed the agreement and received [her] first payment’ from the JLs.”[4]

36.It was also alleged by the plaintiff’s counsel that the correspondence shows two things:

“(1) First, the Intended Intervener all along knew that it was a bare trustee of the Funds, and thus, the issuance of the Joinder Application amounts to a knowing breach of the duty of neutrality;

(2) Second, the Intended Intervener had asked [Mother] to give false evidence and to deny that the Intended Intervener was a mere trustee, thereby prejudicing the possibility of a fair trial of the action.”[5]

37.The amendment application is therefore said to be brought to reflect these matters which the plaintiff submitted are sufficient for the Joinder Summons to be dismissed.

Adducing new evidence on appeal – the applicable legal principles

38.The New Evidence only existed after the handing down of the Decision. In Re China Fishery Group Limited [2020] HKCA 169, Au JA had the following to say:

“26. As submitted by Mr Manzoni (together with Ms Elizabeth Cheung) for HSBC, this application is premised solely on the basis that the further evidence relates to events occurring after the September 2018 Hearing. In the premises, the applicable principles are those governing “evidence as to matter which have occurred after the date of the trial or hearing” under Order 59, rule 10(2) of the Rules of the High Court (but not the Ladd v Marshall conditions). These principles can be summarized as follows:

(1) The Court of Appeal has a wide discretion in relation to admitting such fresh evidence but it should always be exercised sparingly with due regard to the need for finality in litigation: Hughes v Singh, The Times, 21 April 1989.

(2) It is impossible to produce an exhaustive list of considerations relevant to the exercise of that discretion, but the following factors will always be material:

(a) the extent to which the fresh evidence may affect the award of damage; the greater the extent the more likely and ready the Court of Appeal should be to admit the evidence;

(b) the time element; it is not necessary that the fresh evidence should emerge before the case would ordinarily reach the Court of Appeal, but the closer to the date of trial the more likely it is that the evidence will be admitted; and

(c) the conduct of the parties: any inequitable conduct on the part of a litigant will plainly be relevant, and other conduct may also be relevant.

(3) The evidence should be admitted in all cases where it would be an affront to one’s sense of fairness not to admit it. In applying that test the court takes into account all the circumstances, before, during and after trial: Hughes v Singh.

(4) The new evidence must substantially affect a basic assumption made at the trial: the matter is one of degree.”

Likelihood of the Court of Appeal granting leave to adduce the New Evidence

39.The Court of Appeal would only grant leave to the plaintiff to adduce the New Evidence if it is satisfied that it would have an important influence on the outcome of the appeal[6], which in turn would depend on the Court’s acceptance that Mother was telling the truth in her emails, inter alia, that the Joint Liquidators had asked her to give false evidence in denying that intended intervener was a bare trustee of the Funds.

40.However, Mother’s allegations had been denied by the Joint Liquidators.[7]

41.There is no way that the Court may resolve factual disputes in a joinder application. Indeed, in the present case, Father himself had, even in his latest affirmation filed in reply for the purpose of the Amendment Summons (Father’s 3^rd Affirmation), attacked Mother’s credibility[8].

42.I therefore take the view that the New Evidence would not have any important influence on the outcome of the appeal as alleged, and that it is not reasonably arguable that the Court of Appeal would grant the plaintiff leave to adduce the New Evidence at the end of the day.

43.Before I leave this topic, I should deal with an assertion of the plaintiff’s counsel that it appears that Mother had acceded to the alleged improper inducement on the part of the Joint Liquidators to give false evidence when she confirmed in her email dated 24 February 2023 that she has “signed the agreement and received [her] first payment”.[9]

44.That email of Mother dated 24 February 2023 was in fact not part of the new evidence which Father is minded to adduce. It was attached to his 3^rd Affirmation which was filed in reply. Father’s purpose of exhibiting that email in his 3^rd Affirmation was simply to demonstrate that Mother’s email account (defined as “Russian Email Account” by the parties) had not been hacked (as alleged by the Joint Liquidators) because she was still using it to send emails to Father in late February 2023.

45.The said email reads:

“Hello Eric Kraus

I am a little drunk from Champagne so maybe my email is not clear. But I am writing this email with good and kind thoughts to you.

Today I have signed the agreement and received my first payment and my future and future of my son is now good and safe. Opening of bank account in Istanbul, payment etc all was instant and I first time in my life experienced how pleasant and friendly people in big business are. On Saturday we are going to Antalya.

Now there is no more any dispute between you and me and I am ready to forget all our past problems […]

Let is never discuss these legal problems again and again and not repeat what has happened in the past. It is all past and finished. We are celebrating start of our new life and I welcome you to be nice and gentle to us. […]”

46.With greatest respect to the plaintiff’s counsel, it is totally groundless for them, merely by reference to the said email as quoted above, to allege that Mother had agreed to give false evidence upon the inducement of the Joint Liquidators.

The amendment application - discussion

47.As the intended intervener’s counsel put it, the plaintiff’s application to amend the Leave to Appeal Summons (hence the new draft grounds of appeal) is (are) entirely parasitic on the New Evidence.

48.Given my view that it is not reasonably arguable that the Court of Appeal would grant leave to the plaintiff to adduce the New Evidence, strictly speaking, I should refuse leave be granted to the plaintiff to amend the Leave to Appeal Summons for the purpose of introducing the aforementioned new draft grounds of appeal, for such new grounds are not reasonably arguable without the New Evidence.

49.However, the plaintiff’s counsel submitted, as a fallback position, that the amendment application should in any event be granted as a matter of case management so the matter can be ventilated at the appellate level as soon as possible, otherwise, it was said, the plaintiff would be compelled to take out a further leave application against this Court’s refusal to grant the amendment application, which would only escalate costs and cause further delay.

50.Although I have some doubt as to whether the plaintiff is required to take out another leave to appeal application before this Court as suggested[10], I agree that the grant of leave to amend the draft grounds of appeal by this Court:

(1)  would not cause any prejudice to the interest of the intended intervener in any way;

(2)  would have the effect of simplifying the procedure such that parties may focus on the real issues which require the Court’s adjudication.

51.I would therefore accede to the request of the plaintiff and grant leave to amend.

DISPOSITION

52.By reasons of the aforesaid:

(1)  I grant leave to the plaintiff to amend the Leave to Appeal Summons under paragraph 2 of the Amendment Summons;

(2)  The plaintiff’s application for leave to appeal is hereby dismissed;

(3)  The plaintiff’s application for extension of time to file and serve Amended Writ of Summons and Amended Statement of Claim pending the disposal of the appeal, or alternatively, stay of proceedings as between the plaintiff and the intended intervener pending the disposal of the appeal, is also dismissed;

(4)  For the avoidance of doubt, the time for the plaintiff to comply with the order made under paragraph 90(2) of the Decision shall be extended to 14 days from the date hereof.[11]

COSTS

53.I make a costs order nisi that the plaintiff shall bear the intended intervener’s costs of the Leave to Appeal Summons and the Amendment Summons (including all costs reserved), with certificate for two counsel.

54.The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on paper) within 14 days hereof.

55.The aforesaid costs shall be summarily assessed in lieu of taxation pursuant to Order 62 rule 9A(1)(a) of the Rules of the High Court. Unless any application for variation of the aforesaid costs order nisi is made within time, Twenty Two East Limited (in Liquidation) shall lodge and serve its statement of costs within 7 days after the expiry of the said 14-day period. The plaintiff shall lodge and serve his statement of objection within 7 days thereafter. Summary assessment of costs will then be conducted on paper (no matter whether the statement of objection is lodged within time) thereafter. The costs assessed shall be payable within 14 days after assessment.

Mr William Wong SC leading Mr Lai Chun Ho and Mr Joshua Yeung, instructed by Oldham, Li & Nie, for the plaintiff

Mr Jose-Antonio Maurellet SC leading Mr Cyrus Chua, instructed by Holman Fenwick Willan, for the intended intervener