Hui Chi Ming v. Koon Wing Yee and Others

HCA1479/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1479 OF 2009

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Before : Hon Poon J in Chambers

Dates of Hearing : 8 and 9 September 2009

Date of Decision : 25 September 2009

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D E C I S I O N

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A.  Applications

1.The plaintiff seeks the continuation of the Mareva injunction granted by Tong J on 25 June 2009 and continued by Recorder Fok, SC on 3 July 2009 until trial or further order and further disclosure in aid of the Mareva injunction.

2.The defendants apply to discharge the Mareva injunction on the grounds of no good arguable case, no real risk of dissipation of assets, delay and material non-disclosure.  They also oppose the application for further discovery, citing the privilege against self-incrimination as the reason.

3.The background circumstances giving rise to these applications may be summarized as follows.

B.  Background circumstances

4.The plaintiff is the chairman and executive director of Sino Union Petroleum & Chemical International Limited, a public listed company in Hong Kong (“the Company”).  A majority shareholder of the Company, he holds more than 344 million shares, which represents approximately 57.22% of the Company’s total issued capital.

5.The 1^st defendant is a businessman, who used to be the chairman of several listed companies.  The 2^nd defendant is a licensed stockbroker and a major shareholder of Cheer Union Securities Ltd, a securities brokerage firm.  Sometime in early 2007, the plaintiff met the 1^st defendant through the 2^nd defendant’s introduction.  How close was the relationship between the plaintiff and the 1^st defendant since then is in dispute.  I will return to it when I consider the question of material non-disclosure.

6.It is the plaintiff’s case that after they were introduced to each other, the 1^st defendant on occasions told the plaintiff that he had incurred substantial loss trading in the Company’s shares and asked the plaintiff to help him out without, however, indicating how.  Then in early March 2009, the 1^st defendant turned up uninvited at the plaintiff’s office and demanded the plaintiff to give him 100 million shares in the Company.  The plaintiff refused.  The 1^st defendant persisted but was unsuccessful.  He then left in fit of pique.

7.In his first affirmation, the plaintiff went on to say : 

“The March Incidents

9.    One afternoon in early March 2009, D1 came to my Office uninvited and demanded that I give him 100 million shares in my Company (‘the Shares’) to tie him over these difficult times.  I rejected this demand outright, telling him that I could not help him and that his difficulties were none of my business.  D1 insisted on my help and even declared that he would repay me double in the future.  I reiterated my stance and apologized.  D1 then left in fit of pique.

10.    Shortly thereafter being an afternoon in or around mid-to-late March 2009, I returned to my Office after lunch and noticed two unknown men waiting in the reception area.  I asked them whom they were looking for, to which one of them replied that they were looking for ‘Mr. X’.  I thereupon invited them to the conference room.  Once inside, one of the men told me that they represented D1 and that they were there to collect the Shares.  The other man left the conference room and returned shortly with another 7 to 8 men, each of whom carried a backpack.  One man identified himself as ‘Dai Huen Gou Dee…’ (who I later learnt is the 4^th Defendant herein Wong Chin Yick (‘D4’)) who spat out in a very loud voice my name in Cantonese….  I told D4 that I did not know him and had no monetary dealings with D1.  I also told them to leave, failing which I would call the police.

11.    D4 became furious and warned me in an aggressive manner that if I ever reported the matter to the police, he would burn down my Office.  At the same time, the group of men forcefully threw down their backpacks on the floor making a loud clatter, thus revealing in no uncertain terms the presence of metal implements inside the backpacks.

12.    Apparently on overhearing the commotion, Mr Ching Man Kee (‘Ching’), a director of my Company, burst into the conference room to find out what was going on.  The group of men then made the same demand of Ching.  Once more I asked the men to leave immediately or else I would call the police.  D4 told me I had three days to make the necessary arrangements or otherwise they would ‘not treat me with courtesy’ and left.  I was terrified for my own personal safety.  I genuinely believed that imminent bodily harm would be inflicted on me or someone close to me unless I yielded to their demand.

13.    D1 returned to my Office the next day accompanied by D2 and told me that D4 had also invested in my Company’s shares and suffered loss such that D4 would also benefit from the Shares which I was asked to hand over.  D1 also said that should I refuse to hand over the Shares, I would suffer enormous consequences and that D4’s gang would ‘do something harmful to me”.  I was given to understand that D4 was associated with a well know triad society in Hong Kong.  I asked D1 whether he could show me records of his losses.  D1 refused and told me to cooperate with him.

14.    D1 told me he would withhold disposal of the Shares for three months but stressed that I must arrange for the transfer of the Shares immediately or else a life will be taken away.  It was made patently clear to me that unless I gave D1 and D4 the Shares, I would suffer grievous bodily harm or be killed.  Further, I had no doubt in my mind that these were not empty threats and that the Defendants were fully capable of carrying them out if I did not yield to their demands, particularly having regard to D4’s involvement.

15.    Under extreme duress and coercion, I had no alternative but to yield to their demand for the Shares.  D1 told me the Shares would be held in the name of the 3^rd Defendant, Chan Kwai Nam (‘D3’), and that D2 and D3 would attend at my Office the next day to complete the formalities.

Purported Share Purchase Agreement

16.    In the evening of the same day, I contacted Zhou Aiguo (‘Zhou’) whom I have known for upwards of 10 years and knew that he held a substantial amount of shares in my Company.  I told him I needed shares in my Company on an urgent basis and offered to buy 100 million shares from Zhou at the price of HK$1.35 per share.  I further told Zhou that he would have to transfer the Shares directly to D1 or his nominee as the transfer had to be effected the next day but I would pay him the purchase price by instalments.  Zhou accepted my offer straightaway and agreed to attend at my Office the next day to transfer the Shares to D1 or his nominee.

17.    On or about 26^th March 2009, a Share Purchase Agreement was executed at my Office by Zhou as Transferor, D3 as Transferee and D2 as Guarantor to effect the purported transfer of the Shares from Zhou to D3 (see pages 12 to 13 of X-1).  The Share Purchase Agreement was prepared by D2.  The consideration for the transfer of the Shares is stated as HK$135 million, which was paid by me as detailed below.  The Shares Purchase Agreement also provided for a lockup period of three months during which D3 could not dispose of the Shares and D2 is said to have given an irrevocable personal guarantee in respect of D3’s obligation.  Bought and Sold Notes were also signed on the same day (see page 14 of X-1).

The April Incidents

18.    I am informed by Zhou and verily believe that D2 contacted Zhou in the afternoon of 2^nd April 2009 requesting a meeting as some signatures were missing.  Zhou agreed and arranged to meet D2 inside a coffee shop at Union Plaza in Shenzhen, PRC.  As soon as Zhou arrived at the coffee shop, he was immediately surrounded by D2 and a group of 5 to 6 men, all of whom behaved in a threatening manner.  D2 made plain to Zhou that he would not be allowed to leave the coffee shop unless he signed a document purporting to acknowledge receipt from D3 of an amount in RMB equivalent to HK$135 million as payment for the Shares.

19.    Zhou, fearing for his life and personal safety, immediately telephoned me and asked me what to do.  Zhou told me over the telephone that he was surrounded by a large group of hostile men and sounded terrified.  I was extremely worried as there was no doubt in my mind that the Defendants would stop at nothing to get what they wanted.   I therefore urged him to sign the Receipt (see page 15 of ‘X-1’) and leave the coffee shop immediately, despite the fact that no consideration for the Shares was ever paid by D3, D1, D2 or D4.  In any event, I considered whether or not Zhou signed the Receipt made little or no practical difference since the transfer of the Shares had been effected. Zhou later told me that he believed he had no alternative but to sign the Receipt and would have done the same even if he had not been able to reach me at the time.

20.    At around 1 pm on 3^rd April 2009, I met D1 and D2 at the Macau Jockey Club in the Shun Tak Centre.  I was accompanied by Ching.  During this evening, D1 said to me now that the matter has been settled we should each go our separate ways.  He also mentioned that he would later give us HK$1.5 million for ‘yum cha’ i.e. as a token of appreciation.  I did not give much thought to this at the time.  Subsequently, I learnt that D2 did in fact leave HK$1.5 million at my Office but I told Ching to take it as I did not want D1’s money.

21.    I later discovered that D1 and D3 had apparently disposed all of the Shares on 3^rd April 2009 for approximately HK$77 million (see pages 16 to 19 at X-1).

Demand for Further Shares

22.    While I was in Indonesia for business on 24^th April 2009, I received a telephone call from my secretary at around 5 p.m. who informed me that D1 and two unknown men had earlier been looking for me in my Office.  Later that evening, I received a telephone call from D4 demanding that I give D1 another 100,000,000 Shares.  I was furious and rejected the demand immediately.

23.    Upon my return to Hong Kong on 25^th April 2009, I received another telephone call from D4 at around 3 p.m. who told me I should obey D1’s directions or else I would be in ‘great trouble’.  I learnt from Ching later on the same day that D4 had also called him demanding that I give D1 another 100,000,000 Shares and that if I did not comply with his request, not only would my reputation be ruined, serious harm would be inflicted on me and my family.

24.    I received another telephone call from D2 in the afternoon on 28^th April 2009 demanding that I meet him and D1 the next day at the Chinese restaurant in Kimberly Hotel, Tsimshatsui.  Initially I declined to do so.  However, D2 threatened that if I did not meet with D1 to try to resolve the matter, D4 would harm me and my family.  In the circumstances, I felt I had no alternative and agreed to meet them.  When I arrived at the Chinese restaurant in Kimberly Hotel at around 1:10 pm on 29^th April 2009, I saw D1, D2, D4 and a big group of unknown men inside a VIP room.  I was taken to another room to discuss with D2 and D1 who demanded that I give them at least 50,000,000 shares in the Company or HK$50,000,000 in cash, failing which D4 and his men, who were in possession of guns and bombs, would make me ‘disappear’.  I was told I had 2 days to make the necessary arrangements.  I was then taken back to the VIP room where I was introduced to a man known as ‘胡子’, who I later learnt was Shum Man Keung (岑文強)(‘Shum’).  According to D2, Shum was a very well known triad member, having previously spent more than 10 years in prison.  I was also told that Shum had no fear, death being no exception.  Before I left, Shum said to me that it was lucky I performed well in front of D1, or else I would have been treated to ‘豬 腳’ meaning I would have been shot but for my cooperation.’

25.    I was thereafter subjected to continuous threats and intimidation from the Defendants including but not limited to: (a) having men carrying my photograph and/or posters containing threatening statements loiter outside my Office; (b) having men follow in Shenzhen; and (c) threatening ‘chop my back and feed me to the sharks’ if I refuse to given them more shares.  Subsequently, the Defendants brought in two men known as Brother Song and Brother Gong, to exert additional pressure on me to comply with D1’s demands.

26.    On 10^th May 2009, D2 asked me to meet with him again at the Royal Garden Hotel in Tsimshatsui East.  D4, Shum, Brother Song and Brother Gong were also present.  D4 declared that in light of the involvement of Brother Song and Brother Gong, I would now have to give them 300 million shares in the Company.  On that occasion, D4 showed me that he was carrying a gun inside his jacket and told me his gun often went off by accident when he was angry.  Shum then pointed at a bag placed immediately beside him and said , ‘We have a lot of guns and you have a lot of money’, and repeated that he and his associates were not afraid of death.  Shum also told me that he had previously robbed a jewellery shop and spent more than 10 years in prison.  He further revealed that he and his associates had actually brought along six to seven guns to the meeting at the Kimberly Hotel on 29^th April 2009.  I was terrified.  I told Brother Gong that I cannot afford to give them 300 million shares and pleaded for a discount.

27.    On 11^th May 2009, Brother Song told me that D4 has agreed to reduce the amount to 220 million shares.  Eventually, it struck me that nothing would prevent the Defendants from making further demands on me in the future even if I were to comply with their request on this occasion.  I therefore decided to report the matter to the relevant authorities and did so respectively on 11^th and 13^th May 2009 (see Records of Interview at pages 20 to 40 of X-1).

Payment of Purchase Price

28.    The purchase price of HK$135 million for the acquisition of the 100 million Shares from Zhou was fully paid by me between 27^th April and 27^th May 2009 in the following manner:-

(1)   three cash instalments aggregating HK$7,060,090: see receipts dated respectively 12^th, 13^th & 25^th May 2009 issued by Zhou at pages 41 to 44 of X-1; and

(2)   24 remittances aggregating RMB112,843,000 made to a PRC bank account nominated by Zhou: see Zhou’s letter dated 15^th April 2009 at page 45 of X-1; Remittance Advices at pages 46 to 69 of X-1; and Receipt dated 28^th May 2009 at page 70 of X-1).”

8.On 16 June 2009, the police arrested the defendants and charged them with conspiracy to blackmail.  They first appeared Mr Henry Mierczak, magistrate, on 19 June 2009 and were refused bail.  On 24 June 2009, they appeared before another magistrate, Ms Bina Chainrai, who granted them bail.  The criminal investigation against the defendants is still going on.

9.On 25 June 2009, the plaintiff commented the present action and obtained the Mareva injunction from Tong J.

10.I now turn to consider if I should continue or discharge the Mareva injunction.

C.  The Mareva injunction

11.It is trite that the plaintiff must first show a good arguable case on his claims and a real risk of dissipation of assets by the defendants.

C.1.   Good arguable case

12.On merits of his claims, I have already set out the plaintiff’s evidence above.

13.Mr Fung, SC, for the plaintiff, submitted that the plaintiff has a clear proprietary claim against the defendants, given that this is a classic case of a resulting trust arising in favour of the plaintiff, who provided the entirety of the monies used as consideration for the transfer of the Shares from Mr Zhou to the 3^rd defendant.  Alternatively, he has a claim for restitution of HK$135 million being the value of the benefit unjustly conferred upon the defendants as a result of the duress, illegitimate coercion and unlawful intimidation exercised upon him at his expense in that the purchase price for the Shares was paid by him.

14.Mr Fung also relied on the fact that the defendants had all been arrested and charged with conspiracy to blackmail to support his contention that the plaintiff has evidently a good arguable case on merits.

15.In the bail application on 19 June 2009, senior counsel for the 1^st defendant submitted to Mr Mierczak that the matter arose out of “a money dispute”.  On 24 June 2009, counsel appearing for one of the defendants submitted to Ms Chainrai that what happened was essentially “a commercial dispute”.  Counsel appearing for others did not disavow these submissions at the time.

16.However, in the present proceedings, none of the defendants, now represented by different counsel, has advanced any defence in their affirmations filed so far.  Because of the parallel criminal proceedings, they all chose to exercise their right to remain silent and to preserve their right against self-incrimination.  In their submissions, their counsel were at pains to stress that they did not seek to advance a positive case on merits.  What they did instead was to attack the credibility of the plaintiff’s evidence and argue that even on his own evidence, he has failed to show a good arguable case.  They took two main points.

17.First, the plaintiff’s evidence is wholly uncorroborated.  For, inexplicably, neither Mr Ching, the Company’s secretary, receptionist or Mr Zhou had filed any affirmation in support.  Despite the Share Purchase Agreement, which is the only documentary evidence adduced by the plaintiff, the fact remains that every statement of threats and duress made by the defendants against him were bare allegations without any supporting evidence.  Mr Wong, SC, for the 1^st defendant, also relied on the observation made by Ms Chainrai in the bail application that the prosecution case rested entirely on the plaintiff’s evidence alone.

18.In my view, it is incorrect to say that the plaintiff’s case is based on his words alone.

19.Both the secretary and the receptionist had identified the defendants in the identification parades held by the police in June 2009 as having been involved in the March Incidents.  Mr Wong submitted that the identification parades are meaningless and have no bearing on the plaintiff’s case because the plaintiff and the 1^st defendant have known each other for a long time and the 1^st defendant is a public figure.  I disagree.  The relationship between the plaintiff and the 1^st defendant and the 1^st defendant being a well-known figure do not detract from the fact that all the defendants had been identified as being involved in the March Incidents when the threats and duress took place.

20.Mr Zhou had given two witness statements dated 9 and 24 June 2009 to the police, detailing what took place during the April Incidents, which corroborated the plaintiff’s version.  Mr Chan, for the 2^nd defendant, asked me to disregard Mr Zhou’s witness statements because the plaintiff has failed to procure him to give evidence on oath by way of affirmation.  Mr Wong further submitted that Mr Zhou was the plaintiff’s associate.  As such, he is not an independent witness.  I disagree.  I fail to see why I should ignore Mr Zhou’s witness statements simply because he did not file any affirmation in these proceedings.  And there is no evidence to support Mr Wong’s submission that he is the plaintiff’s associate.

21.What underlies counsel’s attacks on the identification of the defendants and Mr Zhou’s police statements is the implicit suggestion that these individuals colluded with the plaintiff in making up his case against the defendants.  That suggestion is wholly without any evidential basis.

22.Mr Wong submitted that there is no reason why Mr Ching, who had allegedly witnessed the first of the March Incidents, did not make an affirmation in support.  He asked me to draw the inference that he did not witness that the plaintiff was subject to any duress.  I decline to do so.  It should be borne in mind that the defendants have not put up a positive case that no duress had ever taken place at the time.  In the circumstances, whether or not Mr Ching has filed any affirmation does not really matter.

23.The plaintiff’s case is supported by contemporaneous documents including the Share Purchase Agreement and the remittances.  They showed that it was the plaintiff who paid HK$135 million for the Shares transferred by Mr Zhou to the 3^rd defendant, who later sold them for HK$77 million.  Surely the whole transaction cries out for an explanation why the plaintiff would pay for the Shares at all.  On the evidence before me and in the absence of any explanation given by the defendants, the only explanation is the one proffered by the plaintiff.

24.The second main point that the defendants took in attacking the credibility of the plaintiff’s case concerns the quality of the evidence that he adduced.

25.Their counsel queried if the plaintiff had actually paid for the Shares.  They referred to the remittances and the so-called irregularities therein and argued that it did not show that it was the plaintiff who made them.  I need not dwell on the details.  The plaintiff had sworn on oath that he did pay HK$135 million for the Shares, as confirmed by Mr Zhou in his police statements.  There is simply nothing in the evidence to contradict them.  Indeed, when I pressed Mr Lam, for the 3^rd and 4^th defendants, as to who actually paid for the Shares if it was not the plaintiff, he told me that because of his instructions, he could say no more.

26.Mr Chan submitted that it is simply incredible that the Share Purchase Agreement would be prepared if the March Incidents were the simplest form of blackmail by threat of violence as the plaintiff alleged.  It is even more illogical for the 2^nd defendant to unnecessarily create a paper trail against himself by signing as a guarantor of the Agreement if he was indeed a blackmailer as alleged.  There is no explanation why HK$1.35 per share would appear as the purchase price on the Agreement.  In my view, it is up to the 2^nd defendant to explain why he had prepared and executed the Share Purchase Agreement as he did.  It lies ill in his mouth to say that the plaintiff’s case is dubious when he did not offer any explanation in the first place.

27.Mr Zhou said in his first police statement that in mid-March 2009, he bought 250 million shares of the Company from the plaintiff through the latter’s company at the price of HK$1.2 per share.  Under the Share Purchase Agreement, the price for the Shares was HK$1.35 per share.  Both prices were substantially higher than the then market price of the shares as in March 2009, which was in the region of HK$0.8 per share.  Mr Chan submitted that these matters strongly indicted that the purported transactions between the plaintiff and Mr Zhou were far from being ordinary and at arm’s length.  I only need to say that this is no more than mere speculation.

28.Mr Wong submitted that had the plaintiff’s case been true, it would be ludicrous and against common sense that the 1^st or the 2^nd defendant would give HK$1.5 million to the plaintiff for “yum cha”, that is, as a taken of appreciation on or around 3 April 2009.  Worse still, the plaintiff said that he subsequently learnt that the 2^nd defendant did leave HK$1.5 million at the plaintiff’s office and it is incredible that the plaintiff asked Mr Ching to keep such a large sum of money.  Mr Wong added that Mr Ching did not file any affirmation, giving the irresistible inference that he was unwilling to provide full disclosure on the HK$1.5 million.

29.It should be noted that the defendants have not denied the plaintiff’s evidence concerning the HK$1.5 million.  So whether or not Mr Ching gave any affirmation in support will not take the matter any further.  Further, if the defendant wished to rely on the payment of HK$1.5 million for “yum cha” to attack the plaintiff’s credibility, they should give evidence as to what the payment was really about.  Absent such evidence, it is not sufficient to say that the plaintiff’s version, which is undisputed by them, is odd.

30.Finally, counsel for the defendants all submitted that it is wholly incredible that the plaintiff, who had lost such a huge sum of money, had taken no step at the time, such as reporting to the police or taking legal advice on each occasion before he remitted the funds to Mr Zhou.  I disagree.  On the plaintiff’s case, he was subjected to serious threats of personal safety at the time.  Under such special circumstances, it is not unreasonable for the plaintiff not to take any action for the time being.  When further demands were made in May 2009, which he could not put up with any longer, he immediately reported the matter to the police.  Immediately after their arrest, the plaintiff commenced the present action and obtained the Mareva injunction.  Plainly, the plaintiff took action swiftly when circumstances permitted.

31.Having considered all the evidence in the round, I am satisfied that the plaintiff has a good arguable case on his claims.

C.2.   Risk of dissipation

32.The defendants contended that there is no evidence of any real risk of dissipation.  Mr Fung submitted that the evidence on the defendants’ behaviour disclosing an unacceptably low standard of commercial morality or questionable integrity entitled the court to conclude that there is a sufficient risk : Honsaico Trading Co. v Hong Yiah Seng Co. Ltd [1990] 1 HKLR 235, per Godfrey J (as he then was) at p.240; Standard Chartered Securities v Lai Arthur & Ors [1993] HKC 375, per Woo J (as he then was) at pp.393H–394B.  I agree with Mr Fung.

C.3.   Delay

33.The defendants complained that the plaintiff had been guilty of delay by failing to apply for the Mareav Injunction after he learnt that the Shares had been disposed of by the 3^rd defendant in April 2009.  I disagree.  As noted above, the plaintiff was concerned about his personal safety at the time.  Further, he was specifically asked by the police not to take action when they carried out investigations.  Once after the defendants were arrested in mid-June 2009, he immediately commenced the present action and applied for the Mareva Injunction.  I can see no delay at all.

C.4.   Material non-disclosure

34.On the question of material non-disclosure, it is trite that for the matter to be material, it must be something which would have affected the ex parte Judge’s decision in the weighing exercise when considering whether to grant the Mareva injunction.

35.The defendants relied on essentially two matters.

36.First, they contended that the plaintiff had concealed the fact that he had a much closer relationship with the 1^st defendant.  According to the plaintiff, their relationship had been most casual.  The 1^st defendant disagreed.  He said the plaintiff always greeted him as his mentor.  It was him who introduced the plaintiff to Mr Or Ching Fai, a reputable banker in Hong Kong.  He also introduced Ms Angel Yeung of Jovian Financial Communications Ltd, a public relationship company, to an executive director of the plaintiff’s company.  Since then the plaintiff’s company engaged Jovian on a monthly retainer.  In my view, even if the 1^st defendant’s version is to be accepted, how close he was to the plaintiff is irrelevant to the weighing exercise that the ex parte Judge had to embark.

37.Second, the defendants relied on two loans.

38.The first loan was made on 5 February 2008 for HK$9 million made by Planetic International Limited to one Mr Pun Tak Hung, who is allegedly a nominee of the plaintiff, with the plaintiff as guarantor.  Planetic was connected to the 1^st defendant.  The plaintiff’s case is he did not know Planetic was connected to the 1^st defendant until 31 July 2009 when his second affirmation was filed.  He denied that Pun was his nominee.  There was no need for him to borrow HK$9 million when the value of the plaintiff’s shareholding in the Company was approximately HK$4.3 billion.

39.The second loan was made on 7 August 2008 by the 1^st defendant to a Guo Weihua for HK$20 million.  The 1^st defendant said Guo was and is still the plaintiff’s associate and the loan was guaranteed by the plaintiff depositing his personal cheque of HK$20 million which the 1^st defendant acknowledged by issuing a receipt.  The plaintiff denied that Guo was his nominee.  Again there was no need for him to borrow from the 1^st defendant.  The plaintiff further said he had not seen the loan agreement before.  The cheque that he gave was a blank cheque.  He did not see the receipt for the cheque allegedly issued by the 1^st defendant until he filed the second affirmation.

40.I agree with Mr Fung’s submission that the plaintiff was in no position to anticipate at the ex parte stage that the 1^st defendant would allege that Pun or Guo acted as his nominee for the two loans or that he was the actual borrower.  He cannot be criticised for failing to disclose the loans.

41.For the above reasons, I find no material non-disclosure as alleged.

C.5.   Conclusion

42.I will continue the Mareva injunction until trial or further order.

D.  Discovery in aid of the Mareva injunction

43.To make a Mareva injunction effective, the court has a discretion to order the defendant to make a statement of his assets and to give discovery of documents for the purpose of ascertaining the existence, nature and location of assets, and in case of a proprietary claim, the whereabouts of the missing trust funds.  The primary purpose of the order was to preserve the assets of property which otherwise might be dissipated notwithstanding the injunction : CTO (HK) Ltd v Li Man Chiu & Ors [2002] HKLRD 875, para.10 at p.878F-G.

44.The plaintiff seeks discovery of the whereabouts of the sale proceeds of the Shares, that is, the said sum of HK77 million.  The defendants prayed in aid the privilege against self-incrimination in opposing the application.  The Department has not been informed of the current application.  Their stance over this application is therefore unknown.  The defendants are understandably concerned that if they are to disclose the information sought, such information may be used in furtherance of the on-going police investigation and parallel criminal proceedings, thereby causing prejudice to them.  To address the defendants’ concern, the plaintiff, through Mr Fung, gave an undertaking to the court he would not divulge any information disclosed by the defendants in compliance with the order to the police or the Department of Justice.

45.When a defendant in a civil action invokes the right against self-incrimination to resist the plaintiff’s application for disclosure in aid of a Mareva injunction, the court needs to balance two competing interests between the parties :

(1) on the one hand, the defendant’s interest in exercising the right against self-incrimination at the risk of causing possible injustice to the plaintiff; and

(2) on the other, the plaintiff’s interest in having the disclosure so as to make the Mareva injunction effective and meaningful at the risk of possibly exposing the defendant to criminal investigation or even prosecution based on the materials that he was compelled against his wish to disclose.

46.The court strikes the balance by ordering disclosure while at the same time gives the defendant adequate protection that effectively removes the danger that the material disclosed might be used in furtherance of the criminal proceedings against him : see Istel Ltd v Tully [1993] AC 45, Lord Ackner at p.60G. 

47.In Tully, the adequate protection given to the defendant was a combination of para.33 of the order which read :

“No disclosure made in compliance with paras.18 to 32 inclusive of this order shall be used as evidence in the prosecution of the offence alleged to have been committed by the person required to make that disclosure or by any spouse of that person.”

and a letter from the Crown Prosecution Services, which had notice of but chose not to appear in the proceedings, indicating that they would only use material already obtained or obtained independently of the civil proceedings.  The effect of the letter was that the Crown Prosecution Services did not seek to employ any of the material disclosed by the defendant in compliance with the order.

48.The importance of such an assurance by the prosecuting authority as an essential ingredient of the adequate protection given to the defendant is underlined by Lord Ackner at pp.63F-64A :

“…. I would allow this appeal on the ground that the courts are entitled to substitute some different protection in place of the privilege against self-incrimination, providing that such protection can properly be considered as adequate protection.  I would reject the submission made to the Court of Appeal that so long as the terms of paragraph 33 had been brought to the notice of the prosecution authorities they would be unable to adduce in a criminal court evidence disclosed in compliance with the order.  Not only must the prosecuting authorities have notice of the proposed order but they must unequivocally agree not to make use, directly or indirectly, of material divulged as a result of compliance with the order.  It must remain entirely a matter for the discretion of the prosecuting authorities as to whether they are in a position to and are prepared to give an assurance.  Without such an assurance the court would not be able to provide a substituted protection which was adequate.”

49.This form of protection was adopted by the Hong Kong Court of Appeal in Manufacturer’s Life Insurance Co. of Canada v Harvest Hero International Ltd & Ors [2002] 1 HKLRD 828, per Rogers VP at paras.33-35 at pp.841F-842D.  It is apparent from the judgment of the learned Vice-President that he laid particular importance on the need of an undertaking by the Department of Justice (which was not a party) not to use any matter disclosed as a result of the disclosure order in the criminal prosecution.

50.The main issue here is whether absent any similar assurance or undertaking by the Department of Justice, the plaintiff’s undertaking is adequate protection that safeguards the defendants’ position in the parallel criminal investigation and proceedings.

51.I have since the hearing given further thought to the matter.  Upon reflection, I think the Department of Justice should be informed of this application and be heard if necessary.  In particular, they should be invited to consider if they are prepared not to use any of the material disclosed by the defendants as a result of a disclosure order in the parallel criminal proceedings.

52.I will direct the plaintiff to give notice of this application to the Department of Justice within 7 days.  The parties should then write to the court setting out their proposed directions for future conduct of the application within 21 days thereafter.

E.  COSTS

53.The costs for all the applications before the court will be reserved for the time being.  I will hear the parties in due course.

Mr Daniel R. Fung, S.C., leading Ms Catrian Lam, instructed by  Messrs Peter Cheung & Co., for the Plaintiff

Mr Ronny F.H. Wong, S.C., leading Mr Brian M.W. Wong, instructed by  Messrs Philip K.H. Wong, Kennedy Y.H. Wong & Co.,  for the 1^st Defendant

Mr Isaac Chan, instructed by Messrs Tung, Ng, Tse & Heung,  for the 2^nd Defendant

Mr Osmond Lam, instructed by Messrs Sanny Kwong & Henry Lo,  for the 3^rd and 4^th Defendants