The Joint and Several Trustees of the Property ofKarson Oten Fan, Karno (in Bankruptcy) v. Kong Suk Chun and Others

HCMP1101/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1101 OF 2011

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BETWEEN

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Before: Mr Recorder Shieh, SC, in Chambers

Date of Hearing: 24 November 2011

Date of Judgment: 29 November 2011

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J U D G M E N T

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1.Karson Oten Fan, Karno (“the bankrupt”) was a well-known tutor. He was adjudicated bankrupt on 24 November 2010. His trustee in bankruptcy commenced HCMP1101 of 2011 to set aside various transactions named in the originating summons on the ground that they were transactions at an undervalue within the meaning of section 49 of the Bankruptcy Ordinance and as such are void and/or are dispositions with the intent to defraud creditors and are therefore voidable and have been voided pursuant to section 60 of the Conveyancing and Property Ordinance against the trustee in bankruptcy. The originating summons also sought certain declaratory relief that the trustee in bankruptcy had a proprietary or beneficial interest over various properties.

2.The Defendants were the bankrupt’s mother and two companies in which the 1^st Defendant has an interest.

3.An injunction was granted by Mr Justice Lunn on an ex parte basis on 13 June 2011 restraining the Defendants from disposing of their property up to various aggregate values.  The injunction also included ancillary orders for disclosure in paragraphs 8 and 9.  The injunction was continued by Mr Justice Yam on 17 June 2011 with variations.

4.After extensions of time, the 1^st Defendant, on behalf of all Defendants, filed an affirmation on 16 September 2011.  The affirmation was said to be in compliance with the disclosure requirement in Mr Justice Lunn’s order as varied by Mr Justice Yam’s order, as well as being an affirmation in opposition to the Plaintiff’s evidence in the substantive originating summons.

5.By summons dated 24 October 2011, the Plaintiff asked for, among other things, a variation of the injunction by adding certain subparagraphs to the disclosure order in paragraph 9.  It was supported by the third affirmation of Chan Ho-yin. 

6.When the summons came before me on 3 November, the Defendants sought an adjournment on the ground that the time between the summons and the hearing date was too short and the Defendants intended to file evidence.  In the words of counsel then representing the Defendants at paragraph 17 of her skeleton argument then placed before me, it was said:

“The Defendants also intend to challenge the Plaintiff’s allegation that they have failed to comply with the existing disclosure requirements under the injunction order by filing D1’s first affirmation dated 16 September which explains and accounts for each of the transactions specified under the eight subparagraphs under paragraphs 8 to 9 of the injunction order. The Defendants would seek leave to file an affirmation to respond to the factual allegations made by the Plaintiff in Chan’s third affidavit.”

So that is what was said before me as to the Defendants’ intention. It was on that basis that I acceded to the request and adjourned the matter to 24 November and gave leave for evidence and skeleton arguments to be filed.

7.On 9 November the Plaintiff offered to revise the terms of the variation summons and set out the proposed terms. No affidavit evidence was filed by the Defendants whether by the deadline, 10 November, or at all.  On 17 November 2011 the Defendants applied by summons to delete paragraphs 8 and 9 of the injunction.  I shall call this “the Deletion Summons”.  This was on the basis that those paragraphs should not have been inserted in the first place.  On the same day the Plaintiff filed Chan Ho‑yin’s fifth affidavit to explain further the need for the proposed variation.

8.In support of the Deletion Summons, Mr Mike Lui, in a persuasive address for the Defendants, full of enthusiasm and conviction, submitted that in the circumstances of this case the court had no jurisdiction to make the disclosure orders in paragraphs 8 and 9 in Mr Justice Lunn’s order.  As I understand it, his submissions are to the following effect:

(i) there is a distinction between Mareva injunctions on the one hand and injunctions to preserve assets belonging to the Plaintiff on the other. Mareva injunctions are in aid of an in personam claim, typically a debt or damages claim. The effect is not to create a security interest in favour of the Plaintiff, who is neither a secured creditor nor a judgment creditor. Jurisdiction to order disclosure in aid of Mareva injunctions is limited to ordering disclosure of existing assets rather than ordering a Defendant to explain or account for what had happened to assets which he had received at an earlier point in time.

(ii) In a case where the claim is proprietary in nature (say in a fraud claim, where the Plaintiff claims that the recipient of property holds the property on constructive trust for him) injunctions are granted not as Mareva injunctions but really as property preservation orders preserving the Plaintiff’s own property. The applicable principles are not the principles of good arguable case, etc., as in Mareva injunctions, but principles applicable to interlocutory injunctions, namely those in American Cyanamid.

(iii) However, even in a case where an injunction is granted in a proprietary claim, the court has no jurisdiction to order a Defendant to make a historical account of what had happened to certain properties since their receipt. There is a difference between a proprietary claim and a tracing claim. Any order for such an historical account can only be made at the interlocutory stage in a case where a tracing claim has already been made, but not in a case where only a proprietary claim is made (even though a Plaintiff in a proprietary claim may, if he succeeds after trial, be entitled to trace (see Mr Lui’s skeleton at paragraph 28).

(iv) According to the case of Bekhor v Bilton [1981] 1 QB 923:

“A disclosure order cannot be used to establish whether a Defendant has acted in breach of a court order.”

(v) In response to the oft-cited case of A v C [1981] 1 QB 956, it is only authority in support of the proposition that the court has jurisdiction to make a disclosure order in aid of a tracing claim. Insofar as cases in textbooks have interpreted that case - in other words, A v C - as authority for the proposition that a disclosure order can be made at an interlocutory stage to help a Plaintiff who had merely asserted (but not yet proved) a proprietary claim to trace, they are wrong.

(vi) A power to help a Plaintiff who had merely asserted a proprietary claim to trace at an interlocutory stage is objectionable in principle because it is a fishing exercise.

(vii) In the present case, even though the Originating Summons did assert a proprietary claim, it is not a tracing claim. There is therefore no jurisdiction to make a disclosure order asking for an historical account. In any event, the injunction was initially sought before Mr Justice Lunn as a mere Mareva injunction, and hence one is “stuck” with a Mareva injunction, and having sought the injunction before Mr Justice Lunn as a Mareva injunction and having got it as a Mareva injunction, the Plaintiff is guilty of material non‑disclosure in not addressing Mr Justice Lunn on the law about the permissible ambit of disclosure orders in the case of “mere” Mareva injunctions as opposed to in the case of proprietary injunctions.

9.Ms Yiu, for the Plaintiff, in an equally enthusiastic address, submitted as follows:

(i) A v C is authority for the proposition which most cases in textbooks cited for, namely that in the context of a proprietary claim, the court has jurisdiction to order disclosure to ascertain the whereabouts of a missing trust fund and to enable the Plaintiff to trace property acquired by the Defendant.

(ii) There is no basis to draw a distinction between a proprietary claim and a tracing claim. If the jurisdiction to order disclosure or explanation is constrained in the way suggested by the Defendants, that would render the injunction toothless.

(iii) In a number of cases the court has made disclosure orders where the claim is merely proprietary in nature and where there is no tracing claim made by the Plaintiff. For example, see the cases of Yau Chiu Wah v Gold Chief Investment Ltd & Another [2002] 2 HKLRD 832 at 840C-D, Bird v Hadkinson [1999] BPIR 653 at 554G-655B and JSC BTA Bank v Mukhtar Ablyazov & Ors [2010] EWHC 2219 (QB). These are respectively in the Plaintiff’s bundle of authorities in tabs 5, 11 and 13.

(iv) Even in the context of a pure Mareva injunction (namely one where the underlying claim is purely in personam) the court still has power to grant an order requiring an historical account of what had happened to a fund since receipt.

10.There are other variants of the arguments and much counter and counter-counter arguments and distinguishing of cases by counsel on both sides, but the above summary I think sufficiently encapsulates the gist of the dispute between the parties.

11.Having considered the rival arguments with some care, I have come to the conclusion that the distinction drawn by Mr Lui is a non‑distinction in the present context.  The high point of Mr Lui’s argument is the fact that in A v C the Plaintiff not only sued “the wrongdoers” but was able to take action against a third party bank against whom the Plaintiff was able to take action because the Plaintiff was able to gather evidence and information that the funds had gone into an account held with it.  Mr Lui called this claim, namely the claim against the bank, a “tracing” claim.  I understand this to mean a claim not against the initial recipients or the primary wrongdoers, but against somebody who subsequently came into possession of the assets or their traceable equivalent.

12.I fail to see the difference between a case:  (i) where the Plaintiff makes a proprietary claim against the initial recipient/primary wrongdoer; and (ii) where he makes a claim against a subsequent recipient or an innocent recipient following a process of tracing.  As Lord Millett famously said in the leading case of Foskett v McKeown cited by Ms Yiu at paragraph 11 of her supplemental submissions, [2001] 1 AC 102 at 128D‑E:

“Tracing is neither a claim nor a remedy. It is merely the process by which a claimant demonstrates what has happened to his property, identifies its proceeds and the persons who have handled or received them and justifies his claim that the proceeds can properly be regarded as representing his property. Tracing is also distinct from claiming. It identifies the traceable proceeds of the claimant’s property. It enables the claimant to substitute the traceable proceeds for the original asset as the subject matter of his claim, but it does not affect or establish his claim.”

13.Therefore, whether one is suing the primary wrongdoer/initial recipient or a subsequent recipient or an innocent recipient holding the traceable proceeds, the nature of the claim is the same.  It is a claim to assert the proprietary right of the Plaintiff.  The fact that the Plaintiff came to sue a Defendant as a result of an exercise of “tracing” is, in my view, immaterial.

14.Mr Lui’s citation from Professor Smith’s book on tracing did not take his point any further.  In fact, at pages 12 and 13 of Professor Lionel Smith’s book on the Law of Tracing, the author cited from the case of Boscawen v Bajwa [1996] 1 WLR 328, which made a similar point as Lord Millett did in Foskett, namely that:

“Tracing, properly so-called, is neither a claim nor a remedy, but a process.

15.If the court’s jurisdiction to grant disclosure orders were to turn on whether or not the Plaintiff has sufficient materials in its hands to mount a “tracing” claim, it would greatly diminish the power of the court to protect and preserve assets belonging to the Plaintiff.  It also depends on the fortuity of whether or not the Plaintiff happened to possess information enabling it to “trace” the assets beyond the initial recipient/wrongdoer and beyond its original form and to make a “tracing” claim (which is a misnomer in the first place and which, as I said before, I take to mean a claim against a subsequent recipient as a matter of shorthand form).

16.Mr Lui criticised a disclosure order in the absence of a tracing claim as fishing.  I disagree.  By the time a claim came to be made, the Plaintiff already has material showing that property belonging to him in equity has been received by a wrongdoer/recipient, and any disclosure is not to fish out a cause of action or a new claim.  It is simply to find out where his property has gone.

17.Insofar as it is feared that disclosure orders may be oppressively or indiscriminately sought, that is not an objection that goes to jurisdiction.  Courts are, of course, very much alive to the risk that disclosure orders (or indeed Mareva injunctions or injunctions restraining the disposal of assets) could be sought by Plaintiffs or insolvency practitioners in an oppressive manner, whether due to overzealousness or a misguided conception of their role, but these are all matters which go to discretion, and they must turn on the facts of individual cases, and cannot form the basis of a knockout blow in terms of jurisdiction.

18.Even though Mr Lui is correct that in cases such as Bird v Hadkinson and JSC Bank, the making of the disclosure order simply formed part of the background to the decision and the cases did not turn on the correctness of the making of the disclosure itself, the fact that the disclosure orders in those cases seem to have been sought and obtained in a number of cases without controversy does suggest that rather convincing and obvious arguments would have to be advanced to persuade me that in all those cases, judges and counsel have all overlooked the current point.  I am not so persuaded.

19.As to the Defendants’ reliance on Bekhor v Bilton, I do not believe that the case stands in the way of making a disclosure order in a case like the present.  Bekhor v Bilton was a pure in personam claim for the recovery of a loan.  All that mattered for the purpose of freezing assets is to know the current assets of the Defendant.  The proposed disclosure order in that case which was sought related to seeking a historical account of the Defendant’s assets at various dates.  Such an order could not possibly relate to current assets, and it could only go towards the question of whether or not certain assets had been disposed of or changed in breach of the court order or an undertaking not to dispose of assets.  It was held that the court could not make an order which was designed to establish the extent of breach of injunction by the Defendant.  The case has nothing to do with disclosure orders in the context of a proprietary claim to ascertain the whereabouts of the Plaintiff’s property.

20.But Mr Lui says that notwithstanding all the above, what the Plaintiff has set out to obtain is a Mareva injunction operating in personam and not an injunction to preserve assets belonging to the bankrupt, and, having got a Mareva injunction, one is “stuck” with a Mareva injunction and cannot rely on the law and learning applicable to injunctions to preserve assets.  Coupled with that, Mr Lui says that there has been material non‑disclosure because counsel did not make submissions to Mr Justice Lunn on the circumstances as to which disclosure orders can be made in respect of various categories of claims.

21.It is correct that in the affirmation in support of the application before Mr Justice Lunn and the skeleton arguments before him, the language of Mareva injunction has been used.  Also, the test of good arguable case has been used.  If the application had been for an injunction to preserve one’s own assets, it is arguable that the threshold would have been lower, namely of the American Cyanamid variety.

22.However, the affirmation in support and also the skeleton argument equally contain references which suggest that the application is for an injunction to preserve the bankrupt’s property.  For example, at paragraph 66 of Chan Ho‑yin’s first affirmation, which led the application for the injunction, he said:

“There is a real risk that the intended Defendants will further transfer or dissipate the assets of the bankrupt.”

He also referred to the intended Defendants disposing of assets which should have been the property or the assets of the bankrupt. Counsel’s skeleton argument also contained similar references. For example, paragraph 43 of Ms Yiu’s skeleton argument contained references to risk of dissipation of the bankrupt’s assets, and that was under the heading of “Balance of Convenience”.

23.In my view, this is an area bedevilled with loose terminology.  We have seen examples of references to a “tracing claim”, which is one example of loose terminology.  The loose use of the Mareva injunction terminology is another example of loose phrases being thrown about. In fact, there is no magic in the name Mareva injunction.  Mareva happened to be the name of the case where the injunction was first granted.  The injunction could well be called any name in the earlier stages of its jurisprudence where judges had granted an injunction of that sort.  In form, such an injunction is simply an injunction restraining a defendant from dealing with or disposing of certain property.  Practitioners very often indiscriminately refer to all such restraining orders as Mareva injunctions without distinguishing whether one is making it in an in personam claim or a proprietary claim.  Textbooks sometimes make similar bland categorisation.

24.One must therefore look at the substance, rather than form or terminology.  The originating summons in this case plainly sought various orders of a proprietary nature.  Declarations of constructive trust and beneficial interest are sought.  The draft originating summons had been placed before Mr Justice Lunn, and he could not have missed that.

25.Given that a proprietary claim had been made in the originating summons, it must follow that any injunction restraining disposal of assets must be in aid of that relief, rather than some lesser in personam relief.  I find it difficult to see how it can reasonably be interpreted that a plaintiff, having started off with a big claim for property, would somehow inexplicably fall down one level and be content to ask for what Mr Lui called “the weaker mere in personam Mareva relief”.

26.It is true that the language of good arguable case is used, which is more apt for an injunction in aid of an in personam Mareva injunction, but that has caused no prejudice in the present case, because the threshold that the Plaintiff undertook had actually been a higher one.  The judge has not been led into granting an injunction on a threshold which could not have been met had the correct threshold been put forward.  The reverse is true.

27.I therefore do not accept the submission that the plaintiff had only got a “mere Mareva injunction” and is therefore somehow stuck with it.  In any event, to say that someone is stuck with something is a relatively unattractive submission.  It means that “Whatever you want to do with it, you can’t, Judge.”  I do not regard it as necessary to refer to any counter‑argument about the availability of disclosure orders.  Having now been referred by counsel to the authorities, I regard the point as reasonably well established, and there is no need for counsel to play devil’s advocate before Mr Justice Lunn, and therefore I do not believe that there had been any material non-disclosure.  The Plaintiff cannot be criticised for not realising that Mr Lui is going to take the point that is now being taken.

28.As a matter of completeness, I would say that insofar as there is any material non-disclosure (and I say once again I do not think there is) in not raising the argument about the availability of disclosure orders in different types of claims, as a matter of discretion I would not set aside the order on this ground because of the clear need on the facts of this case for disclosure to ascertain the whereabouts of property.  Even if I were to set aside the ex parte order for disclosure, I have an undoubted discretion to regrant. The principles on discharge and regrant of Mareva injunctions are well known, and I need only refer to Standard Chartered Securities v Arthur Lai and Others [1993] HKC 375, which contained a handy summary of the cases.  The case of Brinks Mat v Elcombe is also relevant.

29.In my view, even though on an extremely technical level it can be said that there is no affidavit explaining “the non-disclosure” about the arguments, it is obvious that the Plaintiff has taken the view that the arguments now raised by Mr Lui are not relevant.  The point now having been raised has turned out not to be a good point, and in my view, even if it had been raised before Mr Justice Lunn, it would have made no difference.  The facts are such that they are predominantly in favour of a disclosure order.  I would therefore have exercised my discretion to regrant even if there had been material non-disclosure and even if I had been inclined to discharge it, which I have not.

30.Again for the sake of completeness, I did not decide this case on the ground of the “carving-up” principle submitted by Ms Yiu.  The point about “carving-up” arose out of the case of Motorola Credit Corporation v Uzan and Others cited by Ms Yiu at paragraph 18 of her skeleton argument.  According to Ms Yiu, in that case a worldwide freezing order was made against the Defendants.  As part of the worldwide freezing order the Defendants were ordered to provide information about all their assets worldwide to the claimants.  The Defendants applied to have the worldwide freezing order discharged and sought a stay of the disclosure order.  Mr Justice David Steel refused the application for a stay, and the Court of Appeal observed that:

“It is prima facie inappropriate to carve the order up in the way the Defendants ask the court to do so so as to allow what might be described as the restraints to stand, but the mandatory requirements for disclosure to be put on hold.”

31.The point has no application in our case.  In the Motorola case the application for stay was not made on any substantive or jurisdiction grounds. It was purely made on the ground that an application is pending to set aside the substantive freezing order.  The application in the present case to delete the relevant paragraph is made on the ground of jurisdiction. If it can be shown that the order was indeed made for want of jurisdiction and those paragraphs should go.  It was as simple as that.

32.In the end, the point does not matter, because I have decided that there is nothing in the point about jurisdiction.

33.Because of the conclusions above, I do not need to deal with Ms Yiu’s submission that even in the event of an in personam claim where the injunction is of a true Mareva nature, there is still jurisdiction to make a disclosure order. Nothing that I have said should be read as commenting on that submission.

34.Having dealt with the objection to jurisdiction, I now proceed to deal with the variation summons.  The latest form of the variations sought by the Plaintiff is contained in a letter dated 9 November, which is in bundle C, page 2109.  Ms Yiu submitted that the Defendants’ disclosure had not been satisfactory, and in a case where there is a failure to provide information, orders can be made for further information.  In paragraph 20 she cited the case of Dadourian Group v Simms (No.2) [2007] 2 All ER 329 at 335, where Arden LJ said:

“A freezing order is an important tool in the court’s armoury for the purpose of doing justice between the parties, or more precisely for the purpose of preventing or policing the disposition of assets which would inhibit the enforcement of an order. In the normal situation, failures to provide information about assets subject to a freezing order can be enforced by orders for further information. Litigants who are the subject of an order to produce further information will generally produce it to the best of their ability. But that is not always the case, and the court will in particular be astute to identify those defendants who are deliberately concealing assets. In some situations, a party who obtains a freezing order will have little option but to bring contempt proceedings to ensure that the order is properly observed. As already explained, litigants who do not properly comply with orders made by the court to provide affidavits or information will be aware that the court may punish them for contempt because of the penal notice attached to the order.”

35.The Dadourian case is also cited with approval and applied by Mr Justice Stone in the case of Akai Holdings Limited v Christopher Ho Wing On HCCL37/2005 and HCCL40/2005 at paragraph 52. 

36.Mr Lui opposes the proposed variation.  He argued at paragraph 31 of his skeleton that the Plaintiff is embarking on a fishing expedition in the proposed variation.  He relied on various phrases in the fifth affidavit of Chan Ho-yin in support of the variations to the effect that the trustee in bankruptcy wanted simply to ascertain whether there had been any dissipation of the missing funds.  For this purpose, the references to “missing funds” refers to a sum of about $11 million which, according to Chan Ho-yin’s third affidavit at paragraphs 52 to 53, the whereabouts of which could not be ascertained on the basis of information supplied by the Defendants so far. Mr Lui submitted that if the Plaintiff is not satisfied with the truthfulness of the disclosure made by the Defendants, the proper course is to apply for cross‑examination and not for an order for disclosure or enhanced disclosure or more specific disclosure, and he relied on Bekhor v Bilton again.

37.In my judgment, where a Defendant has made unsatisfactory disclosure pursuant to an initial disclosure order, the court has jurisdiction to order further or more specific information.  Mr Lui submitted there is a difference between a case where a Defendant gives some ambiguous or half‑baked answer and a case where a Defendant gives an answer which the Plaintiff does not believe.  In the former case, an order for further or more specific disclosure may be warranted, but in the latter case, the Plaintiff’s remedy is an order for cross‑examination.

38.I reject this without hesitation.  The line between these two categories is illusory.  Take, for example, what if a Defendant gives an answer which is prima facie incredible (so that one may say the Plaintiff is not believing him) but which appears to be based on a misapprehension of what the order really requires (which may suggest that this is a case which is not about a lying Defendant but about a Defendant which needs further clarification).  Is it a case of lying, disbelieving, or is it a case where the Defendant needs to be told more clearly?  And one may ask rhetorically what the value of cross-examination is going to be in the absence of primary documentation properly disclosed by the Defendants.  Anyone who has an iota of forensic experience will know about the shortcomings of interlocutory cross-examination.  It gives a Plaintiff no joy whatsoever in being able to cross-examine a witness to tears and have him or her disbelieved.  Of course, we all know witnesses do not break down in the witness‑box, and the last thing they would do is to confess and to produce more information upon cross‑examination. All the Plaintiff wants are hard documents and information.  That can only be achieved by an order for more specific disclosure so that the Defendant can be under no illusion and no excuse as to what precisely is required of the Defendant.

39.On the facts of the present case, I am satisfied that the Defendants have indeed made unsatisfactory disclosure in the first round of disclosure, and that further and more specific disclosure orders are needed.  Two non‑exhaustive examples will suffice. 

40.First there is the missing 11 million that I have referred to earlier.  The matter is made all the more egregious by the fact that on the previous occasion when this matter came before me, the Defendants asked for an adjournment on the basis that they wished to file evidence in response to Chan Ho-yin’s third affidavit, but when the matter came back this time, they did not file ANY evidence in response to Mr Chan’s third affidavit.

41.Mr Lui, in a forensic document, namely his skeleton argument, explained the matter at paragraph 7.4 on the basis that having decided to issue the Deletion Summons, the Defendants chose not to incur further costs in preparing an affirmation in opposition despite the indulgence from this court of seven days for them to do so.

42.While I of course accept that these are the instructions which Mr Lui has received, the hard fact is that the Defendants have not even gone on oath to say this is why they have not filed any evidence.  Anyway, even if they had gone on oath to say so, I would have no hesitation in rejecting that as a completely disingenuous and insufficient reason.  There is no certainty that the Defendants will win in the deletion summons.  There is no order that the deletion summons be dealt with separately as some kind of preliminary issue. Therefore, the Defendants can be under no disillusion that in this hearing, the Deletion Summons and the substantive Variation Summons will be dealt with in one go, yet the Defendants decided not to file any evidence to explain the matters in Chan’s third affidavit.

43.Even without drawing any positive conclusions from this about what has gone on in the Defendants’ camp, I can at least take note of the fact that the Defendants have had all the opportunity in the world to file explanatory affidavit about, among other things, the missing 11 million, and have decided not to do so, without any explanation put before me. 

44.Second, there is the question of the adequacy of the accounting exercise performed by the Defendants in response to the initial order for disclosure made by Mr Justice Lunn.  The order required accounts for various payments.  One would have expected a compliant affirmation to provide a detailed description about the bank accounts into which any payment was made and as to what had happened to the funds in the account, and if the suggestion is that somehow funds have been mixed, disclosure should be made about the underlying bank statements so that one can see how much is mixed.  Mixing funds with one dollar is different from mixing funds with millions of dollars, and insofar as the Defendants find it difficult to conduct any tracing exercise, applying the usual rules about tracing, at least the primary documents should be disclosed so that any claims for inability to trace can be properly verified.  One would at least expect primary documentary evidence such as bank statements and management accounts to be produced.

45.Instead, audited financial statements were produced, plus a few selective disclosures in Madam Kong’s first affidavit.  The distinct impression one gets from the 1^st Defendant’s affirmation is that the deponent can be very eloquent and detailed when it comes to things that she wishes to talk about and which she can take the lead with some sort of air of authority, but in terms of hard financial data and primary contemporaneous documentation, the disclosure left much to be desired, put most mildly.  It is well known that audited accounts are not particularly informative about movements of particular items of bank payments and cash, and yet the Defendants dealt with the disclosure obligation as if production of audited accounts would suffice, which is not the case.

46.The Defendants had not filed any evidence, despite having had every opportunity to do so, that they are somehow mistaken as to the nature of the disclosure obligation and that somehow they thought accounts means producing audited accounts.  I must therefore proceed on the basis that there was no explanation for the quality of disclosure made by the Defendants so far.

47.In these circumstances, and in the exercise of my discretion, it seems to me that further disclosure orders such as those sought by the Plaintiff under the variation summons are amply justified.  For the avoidance of doubt, I accept Ms Yiu’s submissions at paragraph 27 of her submissions as to the need for further disclosure orders.  It would be time consuming to reorder the Defendants to do what they are required to do or to give them one further chance to redeem themselves when there was no evidence from them that in the first round, they did not know what they were supposed to do, and that they should be given one more chance to put it right.  Given the lack of explanation as to the state of disclosure, I think I am amply justified in ordering further and more specific disclosure.

48.Apart from the jurisdiction point (which goes to the Deletion Summons which I have already dealt with), the fishing point (which was mounted as a point of principle) and a further point about the time frame of disclosure about the 2^nd Defendant’s management account (see below), no particular submission has been made to me about the detailed wording of the individual paragraphs.  I have therefore made my order on the basis of the broad shape of the submissions that have been put before me.  In other words, no detailed blue-pencilling exercise or critique has been attempted to be made on the particular wording of individual paragraphs. 

49.Even though I would have made the order without taking into account the forensic conduct of the Defendant, the case in favour of the variation becomes even stronger when one takes into account the way in which the Defendants had progressed the matter.

50.There had been, on the evidence, initial disinclination in fixing a hearing date, and as late as a few weeks ago the Defendants were still making a big issue out of the desire to file evidence to explain themselves, yet they had issued a Deletion Summons; and not only that, they refrained from filing any explanatory evidence.

51.It is correct that if an order is made without jurisdiction it should go, but it is equally correct, and more pertinent in this context, that an order, once made, has to be complied with. 

52.The Defendants’ conduct does not instil any confidence in their sincerity or willingness to be forthcoming with disclosure.

53.I should add this.  This is not an application to set aside the injunction on the ground of lack of merit.  It is therefore not necessary for me to go into the detailed evidence of the underlying claims and defence.  This is confirmed by paragraph 6 of Mr Lui’s skeleton argument, where the Defendants contended that this court does not have to rule on the merits of the Plaintiff’s case or the Defendants’ defence.

54.However, the Defendants maintain that the merits are still relevant to a limited extent to the question of whether the Draconian relief now sought should be granted. Three points were made:

(i) that the trustee in bankruptcy had retracted its assertion of shamness by accepting the deductibility of certain expenses;

(ii) that this retraction had compromised the merits of the trustee in bankruptcy’s case; and

(iii) the allegation that the trustee in bankruptcy had devised a scheme in 2005 to channel his assets to Golden Gainer and the Defendants is absurd.

55.Having considered the totality of the evidence and submissions, I do not think that the above submissions have any significant impact on the merits of the Plaintiff’s case.  The fact that the Plaintiff had accepted the deductibility of certain items of expenses does not amount to a retraction or concession as to the merits of the case.  On a broadbrush basis, it may well be said that even if all the shares and assets had remained with the bankrupt, he may still have to incur legitimate expenses to carry out his tutoring activities, and that the trustee in bankruptcy was simply acting as a matter of fairness to take account of the obvious.

56.As to whether the bankrupt would have gone to the length of taking steps to channel away his assets upon receipt of complaints from King’s Glory (his then employer), upon reviewing the argument as well as the judgment of Deputy Judge To (as he then was), I do not think that the point is such a knockout blow against the probability that the bankrupt would, upon receiving complaint letters, begin to take steps to reorganise his financial affairs.  King’s Glory was his then employer, but they relied on him as their star tutor.  The fact that in the face of complaints they continued or even renewed their relationship does not detract from the stark fact of the timing when payments of funds to Golden Gainer began.

57.There are two qualifications to what I have said.  First, even under the revised order, the Plaintiff is seeking disclosure of management accounts and bank statements of the 2^nd Defendant since incorporation.  By way of background, prior to November 2005, the bankrupt’s then employer, King’s Glory, used to pay his commission to the bankrupt’s account.  From November 2005 onwards, King’s Glory began to deposit those commissions into Golden Gainer’s account.  The 2^nd Defendant was incorporated on 13 July 2005.  Certain payments were made by Golden Gainer to the 2^nd Defendant.  Golden Gainer was dissolved in May 2009.  The first payment to the 2^nd Defendant by Golden Gainer, on the face of the evidence so far, was made in September 2006.  See the 1^st Defendant’s affidavit paragraph 80.

58.I can understand why the Plaintiff may wish to see bank statements and management accounts and the like in order to ascertain what had happened to funds after they had been received by the 2^nd Defendant, but insofar as the Plaintiff seeks documents at an earlier point in time, I think that it does amount to some sort of fishing.  For example, it has been said that the various payments by Golden Gainer to the 2^nd Defendant now in evidence are all upon the mere say‑so of the 1^st Defendant and the trustee in bankruptcy wishes to see whether there are other earlier payments made by Golden Gainer to the 2^nd Defendant.

59.But Golden Gainer is not a defendant.  The 2^nd Defendant is a defendant.  It is one thing for the Plaintiff to be able to say “the 2^nd Defendant had received X dollars on this day, and I want to see what happened to this money since then.”  It is quite another thing for the Plaintiff to say “I do not know whether the 2^nd Defendant had received anything from Golden Gainer at an earlier point in time, and I want to find that out.”  The latter purpose is an attempt to fish for a cause of action against the 2^nd Defendant which is currently unknown, namely earlier receipt of particular properties.

60.An originating summons of the present type is not a free-for-all to provide a basis for the trustee in bankruptcy to conduct some kind of general investigation or general audit.  Cases containing statements about disclosure orders in aid of a claim or disclosure orders to aid a plaintiff in tracing have to be read in context.  The premise of all those cases is that a claim has to be made and then a disclosure order can then be made to aid that claim. There may or may not be other ways for the trustee in bankruptcy to find out about the affairs of the bankrupt and entities associated with him.  As far as this case is concerned, I am of the view that disclosure orders going back to the date of incorporation of the 2^nd Defendant are not in aid of the preservation order that has been granted or of the claim that has been made.

61.I would be prepared to make an order in terms of the revised proposed order as set out in the letter dated 9 November 2011, but with a substitution of the month of “September 2006” instead of “date of incorporation” in subparagraph (7) and subparagraph (8).

62.As a matter of completeness, similar submissions or objections have not been raised about the revised order about the 3^rd Defendant, which is understandable because on the evidence, the time gap between the incorporation of the 3^rd Defendant and the first activity relevant to the present case was very close.  In any event, no objection has been raised by Mr Lui on a similar basis as the point as applicable to the 2^nd Defendant.

63.Secondly, the Plaintiff sought an unless order.  I do not see the justification for the time being.  There may be legitimate reasons for thinking that the Defendants are engaging in gamesmanship, but procedural fairness requires that an unless order should not be ordered in the first instance when the injunction has only just been granted.

64.That said, the Defendants have not sought to produce any evidence of oppression or that there were voluminous documents stored in warehouses which would take ages to retrieve.  There may be some documents, but nothing to suggest that they are not readily manageable.  This is despite having the opportunity to do so and explain themselves.  The Defendants also have not produced any evidence that, for example, requisite documents and bank statements have somehow been destroyed (given that the activities were less than seven years ago, I would have been surprised if they had been).  There is no suggestion, for example, that they had to take a long time to write to the banks to obtain back copies or microfilms.

65.I therefore do not believe that the Defendants, on the basis of the present material before me, would have any difficulty in making the requisite disclosure within the original time frame allowed by the initial timetable in the original Variation Summons, which I have worked out to be about one month and one week.

66.Giving the Defendants one last chance of indulgence, I would allow time to run from today.  That is, assuming that they have done absolutely nothing to prepare for the Variation Summons.  I would therefore order that the Defendants should make disclosure, as per the 9 November 2011 letter that I have referred to with the amendment that I have made about September 2006, by 4 pm on 6 January 2012.  That would have given the Defendants ample time to comply.

(Submissions on costs)

67.I am not going to give an elaborate judgment on the various outstanding issues of costs.  In relation to the application for lifting of the Legal Aid stay, Ms Yiu asks for costs of and occasioned by that summons to be paid forthwith by the Defendants, to which there is no opposition.  Therefore I order that the costs of and occasioned by the application to lift the Legal Aid stay be paid by the Defendants forthwith on a party and party basis.

68.In relation to the Variation Summons and the Deletion Summons, Ms Yiu sought an order that the costs of and occasioned by those summonses, and that includes the costs of and occasioned by the adjournment last time, be paid forthwith on an indemnity basis.  I am well aware of the law relating to indemnity costs, and I am fully aware that indemnity costs are nowadays awarded perhaps more liberally than in the old days of OTV v Coopers and Lybrand in 1990. 

69.Be that as it may, I do not believe that on the facts of this case, the indignation of the court is such as to warrant an indemnity costs order. However, to mark the court’s relative displeasure at the way the matter has been conducted and also that the whole saga seems to have been a relatively unnecessary discourse in the general progress of the matter, I do not see why the Plaintiff should have to wait until the end of the matter to get its costs.

70.Therefore, the order I would make is an order that the Plaintiff is to have its costs of and occasioned by the Variation Summons and the Deletion Summons taxed on a party and party basis to be paid forthwith.  And just for the avoidance of doubt, I have not taken into account any suggestion from the Bar table that the trustee in bankruptcy is somehow funding this matter of its own resources.  There is simply no evidence of any funding arrangements put before me, and I will ignore that.

Ms Elsie Yiu, instructed by Messrs Deacons, for the Plaintiff

Mr Mike Lui, instructed by Messrs Winston Chu & Co, for the 1st to 3rd Defendants