Libertarian Investments Ltd v. Thomas Alexej Hall

HCA 2533/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2533 OF 2006

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BETWEEN

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Before : Hon Reyes J in Court

Date of Hearing : 19 December 2007

Date of Judgment : 31 December 2007

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J U D G M E N T

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I. INTRODUCTION

1.Libertarian caused some £13.64 million to be transferred to a BLP account under Hall’s control.  Libertarian claims that Hall held such monies in the BLP account on trust for Libertarian. 

2.According to Libertarian, had Hall executed Libertarian’s instructions, Hall would have purchased TSE shares with such funds.  Indeed, it is Libertarian’s case that Hall told Libertarian that the TSE shares had been purchased. 

3.But Hall denies having acquired the TSE shares for Libertarian.  Hall further says that, save for £5.5 million, he has fully accounted to Libertarian for the funds in the BLP account.

4.In 2006 Libertarian obtained a Mareva injunction against Hall.  The Mareva injunction is essentially in 3 parts.  The first part enjoins Hall from disposing of any funds or property representing the £13.64 transferred into the BLP account.  The second part freezes £21.424 million of Hall’s assets, £21.424 being an estimate of the present value of the TSE shares which Libertarian says Hall ought to have purchased.  The third part requires Hall to disclose information relating to the whereabouts of Hall’s assets and the £13.64 million (including any property purchased with such funds).

5.Libertarian contends that Hall has wilfully breached the Mareva injunction in two principal ways.  First, Libertarian says that Hall has deliberately disposed of monies or other properties in breach of the injunction.  Second, Libertarian alleges that Hall has deliberately failed to make any adequate disclosure of assets.

6.Libertarian seeks by this application to commit Hall for contempt.  Hall says that he has complied with all parts of the Mareva injunction.  The issue is thus whether Libertarian has established contempt beyond a reasonable doubt.  There is no dispute on the applicable standard of proof.

7.A more detailed summary of background facts may be found in Fung J’s Reasons for Decision dated 11 June 2007 in these proceedings.  By that Decision, following an inter partes hearing, Fung J upheld the Mareva injunction.  But Hall having accounted for some of the transferred funds since the issue of the Writ, Fung J reduced the quantum caught by the first part of the injunction from £13.64 to £8.3 million. 

8.I understand from the parties that Hall has since accounted for a further £2 million and so the first part of the Mareva injunction will be commensurately reduced by consent at some future date.  Nonetheless, the second part of the Mareva continues to freeze up to £21.424 million of Hall’s assets.

II. DISCUSSION

A. Libertarian’s specific charges of contempt

9.Libertarian alleges that Hall has disobeyed the first and second part of the Mareva in 4 ways:-

(1)	By paying $7.1 million to Betfair Ltd.
(2)	By paying US$3.5 million to Libertarian pursuant to a Settlement Agreement relating to another dispute between the same parties.
(3)	By paying $90,000 in a Rugby Sevens Charity Auction.
(4)	By failing to disclose his shareholding in Playtech Ltd. and disposing of some 1.67 million shares of that shareholding.

10.Libertarian additionally alleges that Hall has disobeyed the third part of the Mareva by failing to make adequate disclosure in respect of numerous matters.  Those matters principally concern transfers from the BLP account.

B. Alleged breaches of the first and second part of the Mareva

B.1  Payment to Betfair

11.In April 2007 Libertarian learned from Timothy Levene that Hall had paid $7.1 million to Betfair. 

12.Libertarian asserts that such payment constituted a disposition of Hall’s assets (alternatively, of the $13.64 million funds) without the sanction of the Court.

13.Hall, however, says that the $7.1 million paid to Betfair came from an unsecured personal loan of the same amount by his business associate, Christopher Parker.  According to Hall, the $7.1 million was paid to Betfair to stave off court proceedings which Betfair had commenced against him in London.

14.Mr. Barrie Barlow SC (appearing for Libertarian) suggests that Hall’s account of Parker’s loan is suspicious and not to be believed.  Mr. Barlow notes that some of the £13.64 million is known to have been transferred by Hall to Clydesdale Ltd., a company which Parker controls.  Mr. Barlow submits that in reality the “loan” by Parker is simply part of the £13.64 million being used for Hall’s private purposes in breach of the Mareva.

15.In any event, Hall has sworn an affidavit in which he confirms that, prior to being paid over to Betfair, the $7.1 million was transferred by Parker to Hall’s solicitors (Messrs. Kennedys).  This means (Mr. Barlow argues by way of fallback position) that, from the moment when Kennedys received the $7.1 million, such monies were held by Kennedys as Hall’s agent.  Such monies would thus have augmented Hall’s assets and ought to have been disclosed in accordance with the third part of the Mareva.  This was not done and the money (Mr. Barlow reasons) was simply paid over without Court order in breach of the Mareva forbidding disposal of Hall’s assets.

16.Hall and Parker have both sworn affidavits verifying the loan by the latter to the former.  Parker’s affidavit cites chapter and verse as to how the loan monies were  transferred to Kennedys.  No application was made to cross-examine either on their affidavits for the purpose of these proceedings.

17.Further, Mr. Barlow’s suggestion that the $7.1 million loan represented part of the £13.64 million funds transferred to Clydesdale seems to me to be mere speculation.  There is no evidence before me at this stage to show that is the case.

18.Mr. Barlow blames Hall for such lack of evidence.  Mr. Barlow submits that, under the Mareva, it was incumbent upon Hall to say what had become of monies transferred by Hall to Clydesdale.  Hall replies that he is unable to say what Clydesdale did with any monies transferred since that company is not under his control.  Mr. Barlow responds that, at the very least, under the terms of the injunction, Hall ought to have asked Parker what happened to the monies.

19.I am not persuaded by Mr. Barlow’s argument in relation to Clydesdale.  The Mareva requires Hall to say what he did with the $13.64 million or, if any part of such funds remains under his control, to state where such part is now to be found.  It would be oppressive to read the Mareva, in the absence of much clearer words to such effect, as further requiring Hall to state what has become of relevant funds even after he parted with the same to an independent third party.  I do not read the Mareva as imposing any requirement on Hall to ask of third parties, whether or not the latter are business associates, what has become of funds transferred to them.

20.In the premises, I do not think that I can go behind the affidavits of Hall and Parker on the alleged loan.  For the purposes of these interlocutory proceedings, I am unable to accept that Hall’s account of a loan by Parker is otherwise than bona fide.

21.Nor do I accept Mr. Barlow’s fallback position that the loan in Kennedys’ hands must have augmented Hall’s assets.

22.In my view, the correct analysis of the loan monies in Kennedys’ hands is that the funds were impressed with a trust to use the same for paying off Betfair.  This type of trust is sometimes called a Quistclose trust.  If, for some reason, the $7.1 million could not be paid to Betfair, the monies were not for Hall to deal with as he pleased.  On the contrary, the purpose behind the loan having failed, Kennedys and Hall would have been under an obligation to return the monies to Parker.

23.Mr. Barlow argues that, even on a Quistclose analysis, the funds would still have belonged to Hall at law, even though not in equity.  Mr. Barlow contends that the Mareva requires Hall to disclose (and not to dispose of) assets in which he holds the legal title, whether or not he is beneficially entitled to the same.

24.I disagree.  In my view, the Mareva only requires Hall to disclose (and not otherwise deal with) assets in which he is beneficially entitled.  As far as I can see, the Mareva does not bite on assets which Hall holds to the absolute benefit of third parties. 

25.Thus, for instance, the first part of the Mareva enjoins Hall from dealing with:-

“

his own assets, including removing from Hong Kong any of his assets which are within Hong Kong, whether those assets are held in his own name or in the name of a company of which he is beneficially interested or which he is able to control or influence, or whether those assets are solely or jointly owned”.

The emphasis in those words is on Hall’s beneficial ownership, not on any legal title merely held on behalf of others.

26.Similarly, the third part of the Mareva injunction requires identification of assets which are directly held by Hall on his own behalf or indirectly held by others for him.  I do not think that, fairly read, the third part requires disclosure of assets wholly held by Hall on behalf of third parties.  Far clearer wording (with accompanying justification) would be required in the Mareva if it were to be construed as having the wide effect for which Mr. Barlow contends.

27.I do not find this ground of contempt to be established.

B.2  Payment to Libertarian under Settlement Agreement

28.In March 2007 Hall delivered a bank draft for US$3.5 million to Libertarian’s solicitors (Messrs. Haldanes) in payment of the Settlement Agreement.

29.Libertarian asserts that the payment is an unauthorised disposition of Hall’s assets (alternatively, of the $13.64 million funds) without the Court’s sanction.

30.Hall says that the source of the US$3.5 million is an unsecured personal loan from Sagi, a close personal friend.  The loan was made through Value Worth Holdings Ltd., a BVI company controlled by Sagi.

31.Mr. Barlow likewise questions the bona fides of the loan here.  He points to a lack of documentation evidencing the loan.  All that Hall has produced (Mr. Barlow notes) is an agreement which Hall has signed, but the lender has not.  Mr. Barlow submits that the real source of the loan must have been the liquidation by Hall of some asset under his ownership or control.  This could only have been done (Mr. Barlow concludes) in defiance of the first or second part of the Mareva.

32.I am not persuaded by Mr. Barlow’s argument.  The documentation may be scanty.  But the agreement produced could conceivably be the only document evidencing the loan.  This would especially be the case if Sagi were as close a personal friend as Hall suggests him to be on affidavit.  I do not think that I can conclude that the loan is a sham purely because of a paucity of documents.

33.Mr. Barlow accepts that he has no fallback position in relation to the US$3.5 million if I reject his argument relating to Sagi’s loan.  This is because there is a specific exception in the Mareva permitting Hall to pay the Settlement Agreement out of any ready funds among his assets.

34.I do not find this ground of contempt to be established.

B.3  Payment to charity auction

35.This is a trivial ground and can be dealt with quickly.

36.Hall was spotted by a Haldanes’ solicitor bidding $90,000 at a Rugby Sevens auction.  Libertarian claims that this must constitute an unauthorised disposition of $90,000 of Hall’s assets.

37.I disagree.  The evidence is that Hall was making the bid on behalf of ESL, a long-standing sponsor of the Rugby Sevens.  ESL allocates an allowance to its directors for charitable donations on behalf of ESL.  Hall was bidding part of that allowance.  In support, Hall has exhibited an invoice to ESL for the winning bid of $90,000.

38.I do not find this ground of contempt to be established.

B. Non-disclosure and disposition of Playtech shares

39.Libertarian accuses Hall of failing to disclose his Playtech shares in a list of assets made pursuant to the Mareva order.  Further, Libertarian says that Hall wrongly disposed of over a million Playtech shares in June and September 2007.

40.Hall has given details of the history of his Playtech shareholding by affidavit.  The gist of his explanation is that he does not now hold (and at the time of the Mareva did not hold) any beneficial interest in Playtech shares (as opposed to options on Playtech shares).  He made full disclosure of his Playtech options in accordance with the Mareva injunction. But the Mareva did not require him to disclose shares which he merely held as nominee on behalf of others.  The 1.67 million shares sold by him in June 2007 were disposed of on the instruction and on behalf of the beneficial owners of those shares.

41.Mr. Barlow criticises Hall’s explanation as incredible.  He suggests that the relevant Playtech shares actually belong to Hall.  He notes the following in particular:-

(1)	Hall has not produced any share sale agreement in relation to shares said to have been held by him on behalf of Golden Acquila.
(2)	Hall has not even stated who the owners of Golden Acquila are.
(3)	The Declarations of Trust exhibited by Hall in relation to other Playtech shares are undated.
(4)	Hall has not disclosed any written instructions relating to the Playtech shares sold in June 2007.
(5)	Hall has not explained his disposal of Playtech shares in September 2007.

42.I am not persuaded by Mr. Barlow’s submission.

43.First, Hall has produced a Declaration of Trust executed by him in favour of Golden Acquila dated 10 February 2006.  The relevant shares have since been registered in Golden Acquila’s name.  As previously mentioned, the Mareva does not cover assets held by Hall as bare trustee.  The documentation produced is sufficient to rebut any presumption that the shares were held by him both legally and beneficially when the Mareva was first obtained (November 2006).

44.Second, the Mareva does not require Hall to disclose the beneficial owners of Golden Acquila, even on the assumption that he knows who they are.

45.Third, it is correct that the other Declarations of Trust exhibited by Hall are undated.  But it is not uncommon for such documents to be left undated.  I do not think that the Court can infer a lack of bona fides from the mere fact that the Declarations bear no date on their face.

46.Fourth, Hall has disclosed e-mail confirming that sale instructions were given by certain beneficial owners of the Playtech shares sold in June 2007.  Given that the Mareva does not attach to assets held on behalf of others, the question is whether Hall has produced enough evidence to dispel any presumption of beneficial ownership arising from the fact that the Playtech shares sold were registered under his name.  In my view, the confirmations produced, coupled with the Declarations of Trust are ample evidence.

47.Fifth, the allegation of a September 2007 disposal of Playtech shares only appears in the 11th Affirmation of Patrick Rattigan filed on Libertarian’s behalf.  That was supposed to be a reply affidavit which should not have introduced new material.  The allegation does not in fact feature in the Statement and Supplementary Statement on which these contempt proceedings are based.

48.Accordingly, there is strictly no requirement for Hall to answer this fresh allegation. 

49.Nonetheless, it would appear that Hall’s answer is apparent from the evidence already filed by him.  He does not currently own Playtech shares beneficially.  He did not beneficially own shares sold in September 2007.  Insofar as any were held under his name, he could only deal with them in accordance with instructions from the beneficial owners.

50.I do not find this ground of contempt to be established.

C. Alleged breaches of the third part of the Mareva

C.1  Transfer of £1,045,009.40 to Clydesdale

51.This ground concerns a transfer from the BLP account to Clydesdale.  Libertarian’s complaint is that Hall has not said what happened to the funds after transfer to Clydesdale.  Nor has Hall stated why he transferred the funds to Clydesdale. 

52.I have previously considered Libertarian’s criticism in relation to what happened to funds since transfer to Clydesdale.

53.As for Hall’s purpose in making the transfer, I do not think the Mareva requires disclosure of such purpose.  Indeed, I have doubts as to whether the purpose is relevant.  If the BLP funds belonged to Libertarian, then Hall had no good reason for making a transfer to Clydesdale without Libertarian’s authority, whatever purpose Hall may have had in mind. 

54.A key purpose of disclosure is to enable Libertarian to trace funds to which it claims a beneficial entitlement.  Hall has made sufficient disclosure to enable Libertarian to trace to Clydesdale.  Libertarian may (if it chooses) commence proceedings against Clydesdale and it is for Clydesdale by way of defence to explain why Clydesdale should not have to account to Libertarian.

C.2  Transfer of £205,809.34 to Skrine Thomas Sharrock (STS)

55.STS are solicitors.  Hall has said that he transferred the monies to pay off legal fees.

56.Libertarian’s complaint is that Hall has not disclosed who incurred the fees and for what legal services.  Libertarian suggests that supporting invoices should have been (but have not been) produced.

57.I do not think the Mareva requires Hall to explain why funds were transferred to STS.  Again there is sufficient information for Libertarian to trace the monies into STS’ hands, whatever the reason for the payment.

58.It is correct that the Mareva requires the provision of “full documentary evidence”.  But I do not read that term as requiring Hall to produce documents which he does not have.  Nor do I construe that term as requiring Hall to produce irrelevant documentation. 

59.Hall has produced a bank statement and a telegraphic transfer notification in relation to the funds.  I am not sure how the production of invoices from STS (if any exist) can advance matters further.

C.3  Transfer of £11,099.25 to American Express in 2003

60.The complaint is that Hall has failed to produce American Express bank statements evidencing this payment.  Hall says that he has produced such statements as he now has.  He has also exhibited invoices from American Express as well as acknowledgments of receipt.

61.It may be that some statement pages are missing (for example, that evidencing a payment of 5 August 2003).  But Hall says on oath that, for better or worse, after all these years he no longer has the missing pages.

62.I accept Hall’s explanation.  In the circumstances, I am unable to find that disclosure has been inadequate or that this is any sufficient basis for a finding of contempt.

C.4  Transfer of £1,716,403.78 to Hall’s HSBC account

63.The complaint is that Hall has failed to disclose what he has done with the amounts transferred.

64.Hall has produced his HSBC bank statements.  Beyond the information there, Hall says that he has no direct recollection of what he did with the funds over 4 years ago.  He has tried his best to explain on the basis of the bank statements exhibited.  This (Hall says) has not been easy since the funds, once transferred, became mixed with monies already held in his account.

65.Hall says that he could seek records from HSBC for every single transaction on a given statement.  But each transaction record will cost $50.  Given the number of transactions, that would lead to a disproportionate expense which would ironically deplete the funds subject to the Mareva order.  Nonetheless, Hall is prepared to embark on such expenditure if the Court deems it necessary.

66.In my view, there has been substantial compliance with the Mareva order here.  It is not surprising that Hall cannot now remember the background to every transaction in his bank statements. 

67.Further, I doubt the practical utility of obtaining the bank’s transfer records for every event in Hall’s statements.  Contrary to Mr. Barlow’s suggestion, I do not regard Hall’s hesitation over spending $50 per transaction to obtain further records as “in itself contemptuous of the Court”.

C.5  Transfers between Hall’s HSBC accounts

68.Libertarian’s complaint is that two transfers of US$10,000 and US$20,000 respectively in April 2004 are not evidenced by the statements produced.

69.This criticism appears to result from a page being left out of the copy statements provided by Kennedys to Haldanes.  That missing page is the one showing April 2004 transactions.  The page may have been left out inadvertently, possibly during the photocopying process.

70.I do not think that this can be a ground for contempt.

C.6  Payment of £30,009.06 to Betfair in October 2003

71.Hall has said that he used the money for betting.  But Libertarian complains that there are no documents supporting this.  Hall replies that he has produced all documents in his possession.  He does not have printed Betfair financial statements going back to 2003.  On-line statements do not go that far either.

72.I do not think the Mareva requires Hall to produce statements which he no longer has.  It is in any case unclear to me what further documents are supposed to be produced.

C.7  Payment of £10,009.02 to Hall’s father

73.Libertarian’s complaint is of a lack of documentation.

74.Hall has deposed to the payment having been made.  He cannot now recall why.  He has produced a bank statement evidencing the payment.  There are (Hall says) no other documents.

75.I think that there has been sufficient compliance with the Mareva order here.

C.8  Payment of £32,008.79 to Classic Automobiles Worldwide in January 2004

76.The complaint is of a lack of documentation.

77.Hall says he bought a car which he later sold for £12,000.  He cannot find a supporting record.

78.I think that there has been sufficient compliance with the Mareva order here.

C.9  Payment of a total of £130,026.27 to Stephen Hayward in October 2003, January 2004 and April 2004

79.Hall has said that he made these payments to Hayward, a friend, apparently as loans.  He has produced statements evidencing the payments.  He says that there is no other supporting documentation.

80.The complaint is that no explanation has been given for the payments.  Nor has Hall stated what Hayward did with the money. 

81.For similar reasons to those stated in connection with Clydesdale, I do not believe that this ground of contempt is established.  There is ample material for Libertarian to trace into Hayward’s hands whatever the reason for the payments having been made by Hall.

C.10  Payment of £51,008.76 to Helen Chan in June 2004

82.The monies were paid to Chan to purchase a Macau property in the names of Chan and Hall.  Hall has produced the sale and purchase agreements relating to the property.  The proceeds from the eventual sale of the property were deposited into Hall’s HSBC account.  Hall says that he can no longer recall what he did with the proceeds once they became mixed with other monies in his account.  For reasons similar to those stated in Section II.C.4, I do not think that this is a basis for a finding of contempt.

C.11  Payments of £5,543.45 and £8,301.65 to 12Corp.com in June and July 2004

83.The complaint is a lack of documentation.  Mr. Hall has exhibited his bank statements evidencing the payments.  He says that there are no other documents to disclose.  I accept Hall’s explanation.  I do not think that this is a basis for contempt.

C.12  Payment of £210,912.98 to Sport Exchange Clients Ltd. in June 2004

84.Libertarian’s complaint is a lack of documentation.  Hall has exhibited bank statements.  He says that he has no other relevant documents in his possession.  I do not think that the Mareva requires him to go further.

C.13  Transfer of £1,785,089.07 to Hall’s HSBC Account

85.Libertarian’s criticism is a lack of documentation.  For similar reasons to those stated in Section II.C.4 above, I do not think that this is a basis for a finding of contempt.

C.14  Transfer of £404,919.57 to Playtech (Cyprus) in May 2003

86.The criticism is a lack of documentation.

87.Hall paid the monies to enable ESL to acquire rights from Playtech in relation to Live Videostream Gaming.  Hall says that the agreement is confidential.  But he has disclosed some details on affidavit with the permission of ESL and Playtech.  He has also disclosed a public document filed with the London Stock Exchange giving details of the agreement.

88.In my view, there has been substantial compliance by Hall with the Mareva order insofar as disclosure is concerned.

C.15  Transfer of £300,000 to an unspecified Swiss account in April 2004

89.The complaint is that Hall has not stated what happened to the monies after transfer.

90.The monies were transferred to an account controlled by Levene.  Hall has produced a transfer record.  He does not know what Levene did with the monies once transferred.

91.I do not think that the Mareva as drafted requires Hall to inquire of an independent third party what has become of the monies transferred.

C.16  Transfer of £90,008.76 to Clydesdale in June 2004

92.The complaint is similar to that made in Section II.C.1 above.  For similar reasons to those given there, I do not think that this is a basis for a finding of contempt.

C.17  Transfer of £240,000 to Account 22650 in June 2004

93.This was an internal transfer between Hall’s accounts.  It seems to me that Hall has made adequate disclosure in relation to this transfer.

C.18  Interest payment of £547,715.51

94.Hall says that the amount formed part of some £5 million returned to Libertarian in March 2004.  Libertarian disputes this and says the ledgers upon which Hall relies for his contention are “bogus”.

95.The Court has made no finding on the genuineness or otherwise of the ledgers.  For the purposes of these interlocutory contempt proceedings, I do not see how I can come to a finding of contempt purely on the affidavit assertion of one or other party as to the nature of the ledgers.

C.19  Failure to disclose an account with Coutts Bank von Ernst in Zurich

96.Hall denies on oath having any such account.

97.It seems to me that Libertarian’s case for the existence of such account, said to be held jointly by Hall with Parker, is speculative.  I am unable to find contempt on the basis of this allegation.

C.20  Failure to disclose interest in Inchina Ltd. and Growthline Ltd.

98.Hall has disclosed his shareholding in Inchina and (through such shareholding) in Growthline.

99.There is a further allegation that Hall has failed to disclose an interest in Class A Growthline shares held through Jamesteer International Ltd.  However, Hall has stated on oath that the Class A shares are held on behalf of the Levene Family Settlement.  He has exhibited a trust deed in support of this contention.

C.21  Failure to disclose interest in Playtech

100.This has already been considered above.

C.22  Failure to disclose interest in TTG (HK) Ltd., Global Distribution Ltd., Internet Sports Marketing Ltd., Mountain Securities Ltd.

101.Here it seems to me that Hall has given sufficient disclosure.

102.In the case of TTG and its subsidiary Global, Hall has pointed out that he has no beneficial interests. Hall sold his shareholding in TTG to John Dingley in October 2006.  As a result, he ceased to have any beneficial control over TTG or (through TTG) Global.

103.In the case of Internet, Hall has disclosed a Declaration of Trust dated 2 August 2006 in favour of ESL.

104.Mountain, on the other hand, has become dormant without any assets.  The plots of land in Koh Samui which Mountain used to own were transferred to other companies.  Hall disclosed his interests in those other companies.

III. CONCLUSION

105.None of the grounds for committal have been made out to the requisite standard of proof.  I am not persuaded that Hall has wilfully disobeyed the Mareva.

106.The contempt application is dismissed.  There will be an Order Nisi that Libertarian is to pay Hall’s costs of the contempt application.  Such costs are to be taxed, if not agreed.  I do not say “in any event” because I think that the contempt application itself constitutes a discrete event.

Mr Barrie Barlow, SC and Mr Adrian Lai, instructed by Messrs Haldanes, for the Plaintiff

Mr Colin Wright, instructed by Messrs Kennedys, for the Defendant