Questnet Ltd v. Kurt Georg Rocco Rinck and Another

HCA 1475/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1475 OF 2006

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BETWEEN

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Before : Deputy High Court Judge Saunders in Court

Dates of Hearing : 13 & 15 November 2006

Date of Judgment : 17 November 2006

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J U D G M E N T

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1.QuestNet seeks to have Mr Rinck committed for contempt.  Mr Lane, despite being a party to the proceedings, has not yet been served, and took no part in the proceedings.

Background circumstances:

2.Mr Rinck is a shareholder in, and was formerly a director and employee of, QuestNet.  There is a dispute between Mr Rinck and QuestNet over monies allegedly due by QuestNet to Mr Rinck.  Mr Rinck contends that dividends are due to him by QuestNet, but they have not been paid.  Mr Rinck has not yet issued proceedings in respect of the dividends, either by separate proceedings, or by counterclaim in these proceedings.

3.QuestNet, in these proceedings, sues Mr Rinck for monies they say he owes them, pursuant to certain declarations of trust.

4.On 18 November 2003, Mr Rinck made a declaration of trust in favour of QuestNet in which he declared that he held all monies in certain accounts at Citibank in Hong Kong, including account number 82346968, (the Citibank Account), which was in Mr Rinck’s personal name, and that he held those monies in trust for QuestNet.

5.QuestNet alleges that by a further declaration made on 13 December 2005, Mr Rinck made a declaration of trust in favour of QuestNet, in relation to the Citibank Account funds and in relation to further funds with a bank known as Dominick Bank in Zürich, Switzerland.  In these proceedings Mr Rinck does not admit to having executed the trust declaration of 13 December 2005.

The relevant orders:

6.On 21 July 2006, Deputy Judge Poon issued a Mareva injunction, (the Poon Order).  against Mr Rinck, by which restrictions were imposed on various accounts including the Citibank Account, (the Trust Accounts).  The Poon Order contained the following provision:

“	2.	Disclosure of information
		(1)	[Mr Rinck] must, within 14 days of today, file an affidavit or affirmation setting up the balances remaining in [the Trust Accounts] together with an account of his dealings with the Trust Accounts and funds therein since 1 March 2006, including details of every amount withdrawn or transferred on the identity of the recipient of each withdrawal or transfer.”

Mr Rinck was represented by solicitors and counsel when the order was made at that hearing.

7.On 27 July 2006, Waung J varied the Poon Order requiring that the necessary affidavit must be filed by the close of business on that day, (the Waung Order).

8.On 27 July 2006, Mr Rinck made a short affidavit, (the first affidavit), setting out what was said to be the current balances listed in the various accounts which were the subject of the Poon Order, including the Citibank Account.   On 4 August 2006, Mr Rinck made a second affidavit.  That affidavit asserted to the fact that only two transactions had taken place in the various accounts.  First Mr Rinck said that on 30 June 2006, the sum of €582,806.44 was transferred from the Citibank Account 82346968, to another Citibank account in Mr Rinck’s personal name, account number 0083084339.  Next he said that on the same day a sum of US$7,385.95 was moved, but he said that he had no recollection as to the nature of that sum and was checking with his bankers.

9.QuestNet was not satisfied that the two affidavits complied with the Poon Order.  The matter came before me on 15 August 2006, when I made an order that Mr Rinck must comply with the Poon Order, within 48 hours, that is no later than 1 p.m. on 17 August 2006, (the Saunders Order).  Mr Rinck was represented by solicitors and counsel at that hearing.

10.Mr Rinck responded to the Saunders Order by a fourth affidavit made on 16 August 2006.  In that affidavit Mr Rinck stated, in reference to the transfer of €582,806.44, that he:

“should add that on the same day I transferred the said sum of €582,806.44 into one of my Swiss bank accounts of Dominick Bank (from my recollection the account No. is 800.782) and thereafter the funds were placed in trust with a person whom I have known to be my “lawyer” but not a solicitor or barrister since first consulting him for advice in a Canadian law firm with an office in Hong Kong from 1991 to now, Mr W. Royce Lane.  He has on my instructions debited by ledger with him to pay debts owed to my creditors.”

11.QuestNet was still not satisfied that the affidavits filed by Mr Rinck in response to the three orders complied with those orders.  Consequently on 28 August 2006, QuestNet filed the appropriate Notice of Motion, together with the required Statement and Affidavits in support seeking leave to commit.  On 30 August 2006, I granted leave to proceed with the committal proceedings.

12.Those proceedings came before me for argument on 13 November 2006.  By that time the solicitors acting for Mr Rinck had obtained leave to withdraw, and Mr Rinck neither appeared at, nor was represented before me at that hearing.  On 14 November 2006, my clerk received, by fax, from Mr Rinck, a three-page statement referring to the matters before the court.  Upon my instructions Mr Rinck was informed that a copy of the statement would be given to QuestNet’s solicitors, and that I would hear from QuestNet’s counsel in response to the statement at 10 a.m. on 15 November 2006.  It was plain from the statement sent to the court by Mr Rinck that he was fully aware of the nature of the proceedings before the court.

Do the affidavits filed comply with the orders:

13.Neither the first, second nor the fourth affidavits filed by Mr Rinck properly complied with the Poon Order, as varied.

14.The first affidavit exhibited a bank statement issued by Citibank showing the balances in Citibank Hong Kong, and the Dominick Bank in Zürich.  As at 11 April 2006, in Hong Kong dollars, US dollars, and Euros, the balances totalled some HK$3.5 million.  No reference was made to any transactions having taken place in any of the accounts during the relevant period.

15.The second affidavit referred to certain transactions having taken place in the relevant period, by virtue of which a sum of €582,806.44 had been transferred from the Citibank account, to Mr Rinck’s personal account with Citibank on 30 June 2006.  This affidavit purported to indicate that the total sums held by Mr Rinck were HK$5.8 million.

16.The fourth affidavit disclosed that the sum €582,806.44 had, on 30 June 2006, been transferred from Mr Rinck’s personal account at Citibank to the Dominick Bank in Zürich, and then to the account of Mr Lane from where an undisclosed portion had been applied in payment of Mr Rinck’s creditors.  No particulars were given as to the whereabouts of Mr Lane's account, nor the amounts that had been debited.

17.I am satisfied beyond reasonable doubt that the first affidavit was false or misleading in that, at the time the affidavit was made the Citibank Account did not contain the sums it averred to.  That is plain from the subsequent affidavits.  Those affidavits disclose that withdrawals had been made from the Citibank Account prior to the making of the first affidavit.  Further, it was false and misleading in that it purported to state that the total sums contained in the accounts were HK$3.5 million, when, as disclosed by the second affirmation, the account held sums totalling HK$5.8 million as at 1 March 2006.

18.I am satisfied beyond reasonable doubt that the second affidavit was false or misleading in that it failed to set out properly an account of the dealings of the relevant funds since 1 March 2006.  It gave a false impression that as at 4 August 2006, the date of the second affidavit, the sum of €582,806.44 remained in Mr Rinck’s personal account with Citibank.  That was false as demonstrated by the fourth affidavit, because on 30 June 2006, that sum had been transferred to Mr Rinck’s personal account at the Dominick Bank in Zürich.

19.I am satisfied beyond reasonable doubt that the fourth affidavit was false or misleading in that it failed to give a proper account of the dealings in the sum of €582,806.44 which had been transferred from Mr Rinck’s personal Citibank account, to Mr Lane’s account.  The affidavit disclosed no details as to Mr Lane’s account, neither stating the name of the bank, nor the location of the bank, nor the account number in which the funds were held.  No details were given as to the debts purportedly paid, or the dates, the amounts, nor the identity of the creditors who received payment.  No particulars were given as to any instructions given by Mr Rinck to Mr Lane.  Neither the amount, nor the balance of any remaining sum, nor its whereabouts were stated.

The consequence of the failure to comply with the orders:

20.Mr Rinck’s failure to comply properly with the Orders has had a material effect on the course of the proceedings.  In reliance upon the details in the first affidavit, QuestNet obtained an ex parte Mareva injunction against Mr Rinck from Sakhrani J. on 1 August 2006, in relation to the funds disclosed.  That injunction was limited to the amount disclosed in the first affidavit as purportedly being in the accounts, totalling some HK$3.55 million.  It was necessary for QuestNet to go back to Sakhrani J. on 5 August 2006, following the second affidavit, to increase the extent of the Mareva injunction, having regard to the new information disclosed in that affidavit.

21.Mr Rinck’s failure to make proper disclosure has demonstrably prevented QuestNet from obtaining appropriate restraining orders in relation to funds prima facie held by Mr Rinck in trust for QuestNet.

The absence of Mr Rinck:

22.It is clear that, provided service of all necessary documents has been properly effected or dispensed with, the court may proceed with the hearing despite the absence of the respondent, as the court’s process should not be frustrated by the recalcitrance of the respondent: see Hong Kong Civil Procedure 2006, para 52/6/4.  Further, as Mr Rinck is absent, QuestNet has a duty to bring all relevant matters to the court’s attention, including those in Mr Rinck’s favour.  Mr Maurellet, and those instructing him have properly discharged that duty.

Service of proceedings and orders:

23.The service of the committal proceedings has been properly effected following an order made by Sakhrani J. on 26 September 2006.  That order dispensed with personal service, and permitted substituted service by leaving the Notice of Motion, the Statement under Order 52, and the affidavit in support, with the solicitors then on the record for Mr Rinck, Messers John Pickavant & Co.  That firm was given leave to cease to act on the morning of Friday 10 November 2006.  I am satisfied from having seen a series of e-mail exchanges between those solicitors and Mr Rinck, that Mr Rinck was fully aware of the impending committal proceedings.  That was confirmed by the subsequent statement received by my clerk from Mr Rinck.

24.The Poon Order was made at a time when Mr Rinck was represented by solicitors and counsel, who appeared at the hearing on 21 July 2006, and argued matters on Mr Rinck’s behalf in relation to that Order.  The Order duly contained a Penal Notice.  Service of a sealed copy of the Order was effected by delivering the same to Mr Rinck’s solicitors.  That service has been duly proved.

25.The Waung Order, made on 27 July 2006, varying the Poon order, was made by consent.  The sealed Order did not contain a Penal Notice.  The Saunders Order, made on 15 August 2006, was, like the Poon Order, made at a hearing when Mr Rinck was represented by solicitors and counsel.  The Saunders Order, when sealed, did not contain a Penal Notice.

26.Order 45 R 7 requires there to be personal service of any order upon which an applicant relies for the purposes of contempt proceedings.  It is clear that the Court has power to dispense with the personal service of the orders: see AXA China Region Insurance Co Ltd v Li Yu Ping [2002] 3 HKC 339 (CA) and Excel Noble v Wah Nam [2001] 4 HKC 148 (CA).

27.I am satisfied that this is a proper case to dispense with personal service of the Orders.  It is abundantly clear that Mr Rinck was fully aware of the requirements of all three Orders, and any service point would be one that would be utterly devoid of merit, and merely putting form over substance.

28.Mr Rinck was represented by solicitors and counsel in relation to all three Orders.  By that fact alone he must be taken to be fully aware of the purpose of the Orders and their content.  The three relevant affidavits filed by Mr Rinck all refer to the Orders and are in purported compliance with them.  It would be idle to suggest that Mr Rinck did not know of his obligations pursuant to the various Orders.

29.Having regard to all the circumstances I make an order pursuant to O 45 R 7(7), dispensing with the personal service of the three relevant Orders on Mr Rinck.

The requirement for a Penal Notice:

30.It is correct that the Penal Notice was attached only to the Poon Order and not to the subsequent two Orders.  It is certainly arguable that there is no particular requirement for that course: see Hong Kong Civil Procedure 2006, para 52/2/8.  It would be appropriate, out of an abundance of caution, for solicitors acting in matters where an order with a Penal Notice attached is later varied, to ensure that the Penal Notice is attached to those subsequent orders. 

31.I am satisfied that the court has power to dispense with the requirements of the Penal Notice on the subsequent orders: see Hong Kong Civil Procedure 2006, para 52/2/9.  I accept Mr Maurellet’s submission that there could hardly be a more appropriate case for dispensation than this case.  Mr Rinck was plainly aware of what was required and the consequences of non-compliance.  The subsequent Orders served merely to vary the time for compliance with the Poon Order and did not in any way vary the substance of that Order.

32.In any event, it is plain that having dispensed with personal service of the Waung Order and the Saunders Order, the requirement to endorse those Orders with a Penal Notice must fall away: see AXA China Region Insurance at 355H-356E.

A possible defence: material non-disclosure:

33.To discharge the obligation on QuestNet to put to the court consideration, in the absence of Mr Rinck, any possible defences to the proceedings, Mr Maurellet drew my attention to the contention, continually made by Mr Rinck, that the Poon order, the basis upon which the subsequent orders were obtained, was an order obtained upon the basis of material nondisclosure, and hence ought not to be enforced.  Mr Rinck has contended that there has been a material nondisclosure, in that QuestNet, in obtaining orders against him, failed to properly inform the court that it was withholding dividends from him, and that consequently he was entitled to set-off the dividends due against any funds he might hold for QuestNet.

34.The Poon Order was an order made inter partes.  It is clear from the transcript of the hearing that on 21 July 2006, when that order was made Mr Rinck was represented by solicitors who had instructed capable counsel.  Counsel was duly heard by the court.  The basis upon which Mr Rinck sought to contend that there had been a material nondisclosure was part of Mr Rinck’s counsel’s argument.

35.It is right that, in the affidavits in support of the injunction sought, QuestNet did not specifically refer to the question of dividends.  But the issue of material non-disclosure arises when there are relevant facts which ought to be put before the court to enable it to make its decision, and, in ex parte proceedings, those facts have not been disclosed.  Here all the relevant facts were before the court.  It is irrelevant that QuestNet did not specifically raise the matter.  Mr Rinck himself ventilated the issue through his counsel.  Thus, the court was fully aware of the bases upon which Mr Rinck sought to resist the order.  Quite simply there was no non-disclosure.  The court was fully aware of Mr Rinck’s allegation that he was not being paid his dividends and that he claimed a set-off.

36.The Poon Order was made as a result of an inter partes hearing where Mr Rinck was properly represented.  Those advising him had a full opportunity to draw to the attention of the court all matters considered relevant.  They did so.  There can be no complaint.

The requirements of contempt:

The required intent:

37.It is now clear from the decision of the Court of Appeal in Kao Lee & Yip v Donald Koo & Ors, unreported, CACV 32/2006, 8 November 2006, that proof of an intention to disobey the order is not required.  The court said:

“	25.	….. That passage [from AG v General Times Newspaper Ltd [1992] AC 1919 at 217-18, per Lord Oliver] highlights the following matters: (1) that there is a distinction to be drawn between civil contempt and criminal contempt in relation to the mental element that is required; and (2) that in civil contempt, liability is strict in the sense that an intention to interfere with or impede the administration of justice is not required.
	26.	These were recognised by Ma J (as he then was) in Citybase Property Management Ltd v Kam Kyun Tak [2003] 2 HKC 98 at 103H which the judge below cited in paragraph 12 of his judgement.  He held that proof of an intention to disobey the order is not required.  All that has to be shown is that the alleged contemnor knew the facts which gave rise to the contempt and that the conduct was not accidental.”

38.Mr Rinck has through a series of affidavits purported to comply with the Orders.  He has signally failed to do so.  It is plain on the face of the affidavits, that each gives a little further information, but none goes any real way to properly complying with the Poon Order.  I am satisfied that Mr Rinck has deliberately set about to frustrate the purpose of the Orders obtained by giving as little information as possible.

39.Mr Rinck has been forced, ultimately, to the position in the fourth affidavit where he finally discloses, not only that the funds had been removed from the Citibank and Dominick Bank accounts under his control, but that the funds have been placed in an unknown, unnamed account, in an unknown location, and applied, in part at least, for Mr Rinck’s own personal purposes.

40.It is abundantly clear that not only does Mr Rinck know the whole of the facts, but that he has deliberately chosen not to disclose the whole of the facts to the court, and that his conduct is not accidental.

41.Even if Mr Rinck has filed these affidavits consequent upon bona fide legal advice, that fact will not provide him with a defence: see Re the Mileage Conference Group of the Tie Manufacturers’ Conference Ltd Agreement [1966] 1 WLR 1137 at 1162E-1163A. I am fully aware of the fact that steps taken upon legal advice may however be relevant to penalty.

The burden of proof:

42.The burden of proof is on QuestNet and I am satisfied that it has discharged that burden.  I am satisfied beyond reasonable doubt that Mr Rinck has misled QuestNet and the Court in his first and second affidavits, and that in his fourth affidavit he has failed to properly comply with the Poon Order in that he has failed to give a proper account of his dealings with the relevant funds.

Mr Rinck’s statement:

43.In reaching the conclusion that I have set out above I have had due regard to the statement sent by fax to the court by Mr Rinck on 14 November 2006, and the submissions made on that statement by counsel for QuestNet.

44.The statement does not directly address the issues raised in relation to the contempt, save that Mr Rinck asserts that funds have been returned to him by Mr Lane and that Mr Rinck has now placed the funds with a well-known Indonesian politician, Abdurrahman Wahid, (Gus Dur).

45.Attached to the statement submitted to the court by Mr Rinck is a document which purports to be a certificate signed by Mr Wahid, dated 22 October 2006, in which it is said that Mr Wahid holds US$740,000 in favour of Mr Rinck.  This document had previously been produced to the court in efforts by Mr Rinck to resolve matters.  Assurances had been given by those representing Mr Rinck that the sum would be paid into Court.  Nothing was paid in.

46.The document asserts that:

“Upon completion of our week long Idul fitti national holiday [Mr Wahid] would cause the issuance of a bank draft payable to Mr Rinck’s Hong Kong solicitors, to effect the same being paid into Court.”

The Idul fitti is a public holiday in Indonesia spanning the two days of 6 and 7 December.  There is no explanation as to why the funds cannot now be paid into Court nor why matters must wait until December.

47.In considering whether or not Mr Rinck has committed a contempt of court I have had due regard to the statement and the attached document.  Neither the statement nor the document attached assists Mr Rinck.

The Order:

48.I am satisfied that the defendant, Kurt Georg Rocco Rinck, has been guilty of contempt of court in that he has failed, prior to 17 August 2006, to file an affidavit setting out the balances remaining in the accounts set out in the schedule below as at 21 July 2006, together with an account of his dealings with those accounts and funds therein since 1 March 2006, including details of every amount withdrawn or transferred and the identity of the recipient of each withdrawal or transfer:

Schedule
(1)	Accounts in the name of Kurt Georg Rocco Rinck at Citibank in Hong Kong:-
	12330345, 12330353, 82346968, 19356439, 39052036, & 29342899
(2)	Account number 800777 under Identification #800777 SWATSCHENKO at Dominick Bank in Zürich, Switzerland.

Sentence:

49.As I have recorded Mr Rinck was not present at the hearing, neither was he represented by solicitors or counsel.  In all of the circumstances, while I am satisfied of Mr Rinck’s contempt, I consider that it would be inappropriate to pass sentence without first giving him an opportunity to be heard on the sentence.  A warrant to arrest Mr Rinck shall be issued, and upon arrest he shall be brought before me in order that I may hear him as to sentence.

Costs:

50.Mr Maurellet made an application for gross sum costs, on an indemnity basis, and put before me a schedule of those costs totalling, with the additional appearance on 15 November 2006, $410,913.00.  I have examined the schedule.  The solicitors rates charged are reasonable, and are all within the rates usually allowed on a taxation.  Counsel’s fees are sensible and reasonable.  The account is one which may properly be described as conservative.

51.This is a contempt which is neither technical, nor one which may be categorised as “not serious”. Over a period of time Mr Rinck has deliberately misled QuestNet as to the extent of the funds he held and the location of those funds.  By adopting this device Mr Rinck has successfully removed the funds from Hong Kong, has met his own creditors from the funds, and fails still to disclose the whereabouts of the balance.  As Mr Maurellet correctly points out, had there been proper compliance with the Orders, none of the costs involved in the contempt proceedings would have been incurred, and QuestNet would have been able, as they are entitled, to secure the funds.

52.I am accordingly satisfied that this is a proper case for gross sum costs on an indemnity basis.  Mr Rinck must pay QuestNet’s costs of the proceedings in the sum of $410,913.00 forthwith.

Mr Jose-Antonio Maurellet, instructed by Messrs Barlow Lyde & Gilbert, for the Plaintiff

1^st Defendant in person, absent