Grasberg Capital Asia Ltd v. Huchun Joseph Yung

HCMP 727/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 727 OF 2014

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J U D G M E N T

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Introduction

1.This is the hearing of the Plaintiff’s application to commit the Defendant for contempt of court by breaching a Mareva injunction order by failing and/or refusing to disclose all his assets.

2.Chan Ying Lok Samson (“Samson”) and Creative Apex Holdings Limited (“Creative Apex”), of which the Defendant (“Joseph”) is the sole shareholder and director, are the only shareholders of Grasberg Capital Asia Limited (“Grasberg”), each holding one share in the company.  Samson complained that Joseph and others committed a fraud against Grasberg.  On 29 April 2013, Samson, suing on behalf of himself and all other shareholders in Grasberg other than Creative Apex, obtained a Mareva injunction order under an intended action in High Court against Joseph and seven others, not including Grasberg.  Subsequently, in the same capacity, Samson commenced a derivative action against Joseph, Grasberg and seven other defendants in HCA 724/2013 (the “Main Action”).  The Mareva injunction order was continued until trial or further order of the court.

3.On 30 December 2013, Samson secured a resolution in a members’ meeting in the absence of Creative Apex authorising Grasberg to continue the Main Action and another action, HCA 900/2013.  As result, Grasberg became the Plaintiff in this proceeding.

4.On 21 February 2014, Samson applied for leave to issue committal proceedings against Joseph for various breaches of the Mareva injunction order.  On 13 March 2014, this court granted Samson’s application.  On 27 March 2014, pursuant to the leave granted, Grasberg issued an originating summons in this proceeding applying for Joseph’s committal (the “Committal Summons”). 

5.On 15 October 2014, Joseph applied to strike out Grasberg’s Committal Summons on the ground that Grasberg had not obtained leave to issue the Committal Summons (the “Striking Out Summons”).  That application was ordered to be heard immediately before the hearing of the Committal Summons.  On 28 April 2015, I dismissed Joseph’s Striking Out Summons and proceeded to hear the Committal Summons. 

6.The Mareva injunction order consisted of (1) a freezing order restraining the Defendant from removing from Hong Kong any of his assets up to the value of $35 million; and (2) a disclosure order requiring him to disclose in writing at once all his assets of an individual value of $50,000 or more in Hong Kong.  In purported compliance with the disclosure order, Joseph filed his 1^st Affirmation in HCA 724/2013 on 28 June 2013 and gave certain disclosure (the “Disclosure Affirmation”).  Grasberg complained that the disclosure was late, incomplete and that certain assets were not disclosed.  Grasberg’s complaint is contained in the statement filed by Samson and verified by Samson’s affirmation dated 5 September 2013.  In opposition to the committal proceeding, Joseph filed his 1^st Affirmation in HCMP 727/2014 to answer Grasberg’s complaint (the “Opposition Affirmation”).

7.Mr D’Souza, counsel for the Plaintiff, made an offer in his written skeleton submission to purge the contempt and give time to Joseph to give complete disclosure.  Apparently, the offer was not accepted by Joseph.  Before commencement of the hearing, I also renewed the offer.  But Mr Wong, counsel for Joseph, declined after taking instructions.  Mr Wong did not file any written skeleton submission.  He only made oral submissions arguing that Grasberg has failed to discharge its burden of proof and raising Grasberg’s breach of undertaking as a defence.  After a careful review of the arguments and evidence, I am of the opinion that Joseph had no meritorious defence.  He was just adopting the approach of “catch me if you can”.

The disclosure order

8.The disclosure order is in the following terms:

(1) The defendant must inform the plaintiff in writing at once of all his assets of an individual value of HK$50,000 or more in Hong Kong, whether in his own name or not and whether solely or jointly owned, giving the value, location and details of all such assets.  The defendant may be entitled to refuse to provide some or all of this information on the grounds that it may incriminate him.

(2) This information must be confirmed in an affidavit which must be served on the plaintiff’s solicitors within 7 days after this Order has been served on the defendant.

9.The scope of disclosure is very wide and is intended to be wide.  The phrase “all of his assets … in Hong Kong, whether in his own name or not and whether solely or jointly owned” as appearing in the disclosure order and the freezing order is the standard phrase used in a Mareva injunction orders.  A similar phrase, “all their assets and/or funds, whether in their own name or not and whether solely or jointly owned”, was construed by Mummery LJ in the leading case of Federal Bank of Middle East Ltd v Hadkinson [1]as follows:

“In my judgment, the language of the freezing order, read in context and with regard to the object of the order, naturally refers to assets and funds belonging to the defendant and which are and should remain available to satisfy the claim against him.”

In the same case, Nourse LJ went further to hold that the phrase includes assets beneficially held for the defendant.  He said[2]:

“I turn to the expression “his assets/funds” in the context of the order of 1997.  Not only is there nothing in that context to deprive the words of their ordinary meaning; there is everything to confirm it.  First and most significantly, the purpose of every freezing order is to prevent the person against whom it is made from disposing of assets which would otherwise be available to satisfy a judgment against him.  Assets which he holds for the benefit of another are not assets which can be resorted to for that purpose.  So, in the absence of a specific provision to that effect, the order cannot be taken to extend to such assets.  Secondly, both (a) and (b) of paragraph 1.1 of the order of 1997 refer to [his] assets and/or funds “whether in [his] own name or not.”  Those words recognise that assets or funds may be “his” if they are held for the defendant’s benefit by another.  That is a formidable confirmation of the view that, if the order had been intended to extend to assets and funds held by the defendant for the benefit of another, it would have said so.  In my view there is no ambiguity in the order.”

(Emphasis by Mr D’Souza underlined)

It is clear that the disclosure order covers assets in Hong Kong belonging to Joseph including those held for his benefit by another which would be available to satisfy the claim against him.

Time for giving disclosure

10.The order was served on Joseph on 30 April 2013.  Joseph’s Disclosure Affirmation was not filed until 28 June 2013.  He accepted that the deadline for filing the Disclosure Affirmation was 7 May 2013.  He gave the following explanation to justify the late disclosure.  He referred to my order made on 3 May 2013 giving him and the other defendants 28 days to file affirmations in opposition to the injunction order and Grasberg 21 days thereafter to file affirmation in reply.  He said that he was given to understand from his lawyers that at that hearing he was allowed 28 days, ie up to 31 May 2013 to file the Disclosure Affirmation.  Then on 30 May 2013, his solicitors took out another summons to seek an extension of 28 days for filing the Disclosure Affirmation.  He said he “was later informed by [his] lawyers that the said application was allowed … which had the effect of extending the deadline to 1 July 2013”.  Hence, by filing the Disclosure Affirmation on 28 June 2013, he was in time. 

11.There were two matters to be dealt with in these proceedings: disclosure and opposition to the Mareva injunction order. It is incredible that his solicitors could have treated the hearing on 3 May 2013 as extension of time for disclosure.  Even giving him the benefit of doubt as a layman, he might have misunderstood the purpose of the hearing on 3 May 2013. But in respect of the application for extension of time for filing affirmation in opposition to the Mareva injunction order on 30 May 2013, he made a positive assertion against his solicitors for telling him that he had up to 1 July 2013 to file the Disclosure Affirmation.  It is highly incredible that his solicitors would have so misunderstood the court’s order or so misinformed him.  His solicitors have not come up with an affirmation to support him.  It is not his case that this was another misunderstanding.  In any event, it would be too much of a coincidence for one misunderstanding to build on another. Besides, it is highly incredible that his solicitors would have similarly misunderstood the court orders and mis-advised him; or if they did not misunderstand the orders, they would have failed to remind him of the time for filing the Disclosure Affirmation.  His explanation has no ring of truth.  I do not believe him.

12.Anyway, Mr D’Souza, in greatest fairness, is not relying on the lateness to establish contempt.  Grasberg’s substantive complaint is on the deliberate omissions in the Disclosure Affirmation.  Nevertheless, the lateness is part of the total circumstances which I may take into account in assessing the seriousness of the contempt.  Obviously, Grasberg had been disadvantaged by not being able to swiftly carry out measures to preserve assets from being dissipated and from tracing those assets as result of the late disclosure.

13.Grasberg relies on non-disclosure of assets relating to three companies which it says are beneficially held for Joseph: Encap Capital (HK) Limited (“Encap HK”); Encap Capital Limited (“Encap BVI”) and Eureka Group of Companies Limited (“Eureka Group”).

Encap Capital (HK) Limited (“Encap HK”)

14.Encap HK was formerly known as “Good Faith Investments Limited”.  It is a company incorporated in Hong Kong.  According to the Return of Allotment dated 10 January 2013 filed with the Companies Registry, Creative Apex holds 51 million of the 99,999,999 issued shares of this company, which were all allotted for cash and fully paid.  As Joseph is the sole shareholder of Creative Apex, he is the beneficial owner of 51% interest in Encap HK.  This asset has not been disclosed in the Disclosure Affirmation.

15.Joseph does not respond to Grasberg’s complaint about omission of this asset in the Disclosure Affirmation.  He remained silent. He cannot argue, as he did in relation to Encap BVI, that he was not required to make disclosure as it is not a Hong Kong company.  He did not and could not suggest that his interest in Encap HK is less than $50,000.  Encap HK is a cash rich company, having allotted 99,999,999 shares all for cash in January 2013, just three months before the issue of the Disclosure Order.  It is not open to him to argue that by disclosing the fact that he is the sole shareholder of Creative Apex he is deemed to have disclosed all the assets of Creative Apex in Hong Kong.  In fact, all that he said about the assets of Creative Apex is that it had $100,000 cash in its saving account.  Such disclosure is far from being full and honest.  

16.Mr Wong submits that Grasberg bears the burden of proving beyond reasonable doubt that the disclosure is incomplete.  Indeed, Grasberg has to discharge the legal burden of proof.  But in the light of what has been proved and Joseph’s silence, Grasberg has discharged the evidential burden of proof.  It is up to Joseph to answer the Grasberg’s evidence.  In the absence of any answer by Joseph, Grasberg has also satisfied the legal burden of proof.  This breach is deliberate, blatant and unanswered. 

Encap Capital Limited (“Encap BVI”)

17.Encap BVI is a BVI company.  Its name is almost identical with Encap HK, which creates some confusion.  Grasberg has no evidence that Joseph is the shareholder or beneficial owner of this company.  However, this company shares the same address as Grasberg, Creative Apex, Euro Group Express and JP Premier International Holdings Limited which Joseph admittedly has substantial interest in.  Grasberg was able to obtain a bank statement in respect of Encap BVI’s account with Bank of Communications in Hong Kong.  The bank statement shows there were substantial funds in the account.  It shows that a sum of $11 million was transferred into Encap BVI’s bank account on 6 May 2013, a sum of $7 million was transferred out on 9 May 2013 and a sum of $2 million was withdrawn in the form of cash on 13 May 2013. 

18.In the face of Grasberg’s allegation of his beneficial interest in this company, Joseph did not deny.  His response is that as Encap BVI is a BVI company, its shares are not assets in Hong Kong and that the value of the shares is below $50,000.  As for the fund movements mentioned above, Joseph explained that as he had to travel very frequently, he delegated his personal assistant, Elizabeth, to handle his business in Hong Kong and for that purpose left her with some signed blank cheques.  He could not recall the purpose of the transfer of $7 million and mentioned nothing about the other fund movements.  Mr Wong has nothing to add to Joseph’s argument except to repeat that the burden of proof is on Grasberg.

19.In the face of Grasberg’s allegation of his beneficial interest in Encap BVI, Joseph chose not to deny or tender evidence in support of such denial, but to argue that his interest in Encap BVI is not caught by the Disclosure Order as Encap BVI is a foreign company.  He then went on to describe his involvement in the management and control of the business of Encap BVI.  Encap BVI operated at the address which is also the address of his other companies.  In the light of his non-denial, his control over Encap BVI and its address, I draw as the only irresistible inference that Joseph is the owner of or person who has substantial beneficial interest in Encap BVI.

20.It matters not that the shares in Encap BVI are shares of a foreign company because what are caught under the disclosure order are his assets in Hong Kong which would be available to satisfy judgment. Clearly, assets in Hong Kong of a company of which he is the owner or the person who has substantial beneficial interest in are caught under the disclosure order. Thus, the funds in the account of Encap BVI are clearly funds available to him for the satisfaction of Grasberg’s claim against him. 

21.As for Joseph’s assertion that the value of the shares in Encap BVI is below $50,000, not only is that a bald assertion unsupported by any evidence, it is contrary to the cash flow as shown in the bank statement.  The statement shows a maximum balance of more than $12 million, a minimum balance of almost $0.5 million and a closing balance of almost $3 million.  In the light of such cash flow, his assertion is hardly credible and is only to be rejected. 

22.Again, Mr Wong’s argument based on Grasberg’s failure in discharging the burden of proof is only to be dismissed.  While Grasberg bears the legal burden of proof, it has clearly discharged the evidential burden of proof by adducing sufficient evidence on which the inference of Joseph’s beneficial interest in Encap BVI could be drawn and by showing the cash flow in the bank account.  The evidential burden is then shifted to Joseph to prove that he is not interested in the company or that its assets are worth less than $50,000 and he failed to discharge that burden.  The circumstances were such that the breach must have been deliberate.  The contempt based on this non-disclosure is proved beyond reasonable doubt.

Eureka Group of Companies Limited (“Eureka Group”)

23.Grasberg’s case is that Eureka Group is beneficially owned by Joseph.  It does not have direct evidence of Joseph’s interest in this company and is still investigating into the capital structure of this company.  It relies on inferences.  Grasberg happened to have obtained a copy of Eureka Group’s bank statement with Bank of Communications which shows that Eureka Group shares the same address as Creative Apex and Encap HK, Encap BVI and other companies owned by Joseph.  It also shows that on the same day as $7 million was transferred out of Encap BVI’s bank account with Bank of Communications, the same amount was transferred into Eureka Group’s bank account with Bank of Communications.

24.Again, in the face of Grasberg’s assertion of his beneficial interest in Eureka Group, Joseph did not deny.  His only response was a sarcastic one that Eureka Group also shared the same address with Grasberg.  Neither did he deny that $7 million had been transferred from Encap BVI’s bank account to Eureka Group’s bank account.  In the circumstances, I have no difficulty to draw the inference that the said sum of $7 million was transferred from Encap BVI’s bank account to Eureka Group’s Bank account.  From the above factual circumstances, particularly the inter-company transfer of substantial funds from one company proven to be beneficially owned by Joseph to Eureka Group, I draw as the only irresistible inference that Joseph is also the owner of or person beneficially interested in Eureka Group.  Though it is not shown if Eureka Group is a Hong Kong company, its funds in a Hong Kong bank account are clearly assets in Hong Kong available to Joseph for the satisfaction of Grasberg’s claim against him.  Its assets are clearly caught by the disclosure order.  Accordingly, I am also satisfied that he failed to disclose this asset.

Grasberg’s breach of undertaking as a defence

25.Joseph claims he has a valid defence as result of Samson’s or Grasberg’s breach of undertaking given to court at the time of Samson’s application for Mareva injunction order.  He said that he was arrested by the public security authorities in Korea and investigated for embezzling the funds of Grasberg.  He was subsequently discharged without prosecution.  He suggested that his arrest and investigation are evidence of Grasberg’s breach of undertaking.

26.Mr Wong submits that because of Grasberg’s breach, Joseph is discharged of his obligation under the disclosure order.  With respect, Mr Wong’s argument is unsound in law.  A court’s order is made to be complied.  But unlike a contractual obligation, it is imposed by the court and not the parties.  It is only discharged by performance or an order of the court.  It cannot be discharged even by the consent of the parties, let alone the conduct of one of the parties.  The undertaking is given to the court and to be policed by the court.  No breach of undertaking given by the party who obtained the order could, as a matter of law, discharge the order.  If a party is in breach of his undertaking, the remedy available to the innocent party is to bring committal proceedings against the party in breach. Breach of undertaking cannot be a defence.  It may, at best, be a mitigating factor.

Conclusion

27.For the above reasons, I am satisfied that the shares in Encap HK, Encap BVI and Eureka Group are assets belonging to or beneficially owned by Joseph, that there are substantial funds in these companies or the bank accounts of these companies in Hong Kong which are available to him for satisfaction of Grasberg’s claim against him, and he has failed to disclose them.  The circumstances also suggest that the non-disclosure was deliberate.  Joseph had been offered opportunities to purge the contempt but refused.  Such conduct is further proof of his deliberate intention to foul the disclosure order.  I am therefore satisfied that the charge of contempt is proven against him beyond reasonable doubt.

28.Court orders are made to be complied with. Contempt of civil court orders is a serious matter.  Given his “catch me if you can” attitude and the delay in making disclosure, the inference is that the non-disclosure was not technical but deliberate and made with the purpose of defeating the freezing order so as to put his funds beyond the reach of Grasberg, if judgment is obtained against him.  That is an aggravating factor.  If that is the case, custodial sentence is inevitable.  For sentencing and mitigation purpose, it would be in his interest to make full disclosure not only in respect of the assets, particularly the bank accounts, of the three companies in Hong Kong but also the funds in the various accounts already disclosed as at 7 May 2013 to satisfy the court that the delay was not with a view to defeat the freezing order.

Mr Robin D’Souza, instructed by Ho Tse Wai, Philip Li & Partners, for the plaintiff

Mr Damian Wong, instructed by Tam, Pun & Yipp, for the defendant