Komal Patel and Others v. Chris Au and Others

HCA 183/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 183 OF 2014

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D E C I S I O N

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1.This is an application from the 3^rd defendant by original action to vary the injunction order dated 11 July 2014. The application is supported by the sixth affirmation of Ms Ho Ching Yi Elsa and the second affidavit of Mr David Vrijmoed.

2.The terms of the order for variation that are sought are as follows which I have highlighted by bold type instead of red as stated therein:

“1. Paragraph 1(3)(i) of the injunction order granted by Zervos J on 11 July 2014 as against the 1^st, 2^nd and 3^rd Defendants (“the Injunction Order”) be varied in the following terms, with the amendments highlighted in red :-

‘The 3^rd Defendant (by Original Action) must not remove from Hong Kong any of its property or assets, or in any way dispose of or diminish the value of its property up to the amount of the Plaintiffs’ (by Original Action) claim against the 3^rd Defendant (namely two-thirds of SGD 11.984 million), or the Plaintiffs’ (by Original Action) property or assets in its hands, including but not limited to:-

(i) the funds it holds in its bank account held at DBS Bank numbered 786020573 (Bank Code: 016; Bank swift code: DHBKHKHH; Bank address: G/F, The Center, 99 Queen’s Road Central, Central) (the “DBS Bank Account”) up to the amount of the Plaintiffs’ claim against the 3^rd Defendant, namely two-thirds of SGD 11.984 million (ie SGD 7.99 million)

(ii) the funds it hold in its bank account held at Bank of China numbered 047-886-429

(iii) the shares it holds in Kudeta (BVI) Limited’

2. Exception (1) of the Injunction Order be varied to reflect paragraph (1) above.”

3.The plaintiffs opposed the application and have supported their opposition by the 16^th affidavit of Mr Jason Mark Cohen. 

4.So far as material the injunction order froze the assets of the 3^rd defendant which included the shares held in Kudeta (BVI) Limited and sum of SGD 11.984 million held in a bank account in Hong Kong.  The monies in the bank account were part of the proceeds of the sale of shares to L Capital KDT Limited for the acquisition of a 51% stake in Kudeta (BVI) Limited and are at the centre of the dispute between the parties.  The plaintiffs’ case is essentially a dispute over the extent of the parties’ respective shareholdings in the 3^rd defendant and Kudeta (BVI) Limited and a claim concerning the business profits allegedly misappropriated by the 1^st defendant.  The 1^st defendant denies the plaintiffs’ claim and his case is that the funds are part payment for the purchase of a 35.5% interest in Kudeta (BVI) Limited.

5.As explained in my judgment of 11 July 2014, I froze the amount held in the 3^rd defendant’s bank account because there was a risk of dissipation of the property and assets of the company which in my view needed to be protected for the benefit of the parties while awaiting the outcome of this litigation. 

6.Mr Douglas Clark, who appeared together with Mr Martin Ho for the 3^rd defendant, argued that the plaintiffs’ case at its highest is that they are beneficially entitled to two-thirds of the 3^rd defendant and so therefore one-third of the funds should be released.  This argument is based on the bare trust document which stated that the 2^nd defendant held the shares in the 3^rd defendant on trust for the 1^st plaintiff, 2^nd plaintiff and 1^st defendant equally.  On the basis of this argument, the funds should be released to the 1^st defendant and not the 3^rd defendant as submitted.  It is noted that the 1^st defendant does not make this application.  In any event, it is not as simple as suggested because the claim for the plaintiffs covers more than the two-thirds ownership of the 3^rd defendant.  I therefore agree with the submissions of Mr Barry Hoy for the plaintiffs on this point.

7.In the course of submissions, the position of the 3^rd defendant moved away from varying the injunction order to release one-third of the funds held by the 3^rd defendant to releasing a reasonable sum to cover the 3^rd defendant’s legal fees. Mr Hoy opposed the application on the basis that the 2^nd defendant is the alter ego of the 1^st defendant and the position she has taken or will take for the 3^rd defendant has been or will be to further the interests of the 1^st defendant.  In addition, he submitted that given the nature of the dispute, the inclusion of the 3^rd defendant in these proceedings is in name only and in that sense it is not a disputing party. 

8.It has to be recognised that this dispute is mainly between the plaintiffs and the 1^st defendant.  Mr Hoy questioned the position taken by the 3^rd defendant in this dispute and whether it has been to further the interests of the 1^st defendant’s case.

9.The fact remains that the 3^rd defendant as a separate legal entity is a party to these proceedings.  I previously expressed concern about a possible conflict of interest of all three defendants being represented by the same legal representatives.  This resulted in the 2^nd and 3^rd defendants together arranging separate legal representation.  The funds of the company have been frozen and there is a dispute as to who is entitled to those funds.  There is even doubt as to whether the company has any entitlement to those funds.

10.Whilst the sum of money requested to be released to pay for the legal fees of the 3^rd defendant are reasonable, the difficulty I have is whether the 3^rd defendant is entitled to use the funds for its own benefit in the payment of legal fees in this action.  At the heart of this dispute are the funds and the question as to who is entitled to them.  It is on this basis that I cannot grant the variation to the injunction order that is sought by the 3^rd defendant.

11.I should also point out that there was a lack of information or reliable information before me as to outstanding legal fees and how legal fees have been paid in the past and on what basis, and whether there are any funds or assets elsewhere that could be called upon by the 3^rd defendant.  I note that Ms Ho in her 6^th affirmation explained that the application was prompted by outstanding legal fees of $7,951,210.36 incurred when all three defendants were represented by the same legal firm and of $651,247.80 incurred when she and the 3^rd defendant were previously represented by another legal firm. 

Mr Barry Hoy, Robertsons, Solicitors for the plaintiffs

Mr Douglas Clark and Mr Martin Ho, instructed by Au & Vrijmoed, for the 3^rd defendant