Professional Documents
Culture Documents
CACV 207/2017
B 2018 HKCA 370 B
C C
IN THE HIGH COURT OF THE
D HONG KONG SPECIAL ADMINISTRATIVE REGION D
COURT OF APPEAL
E E
CIVIL APPEAL NO 207 OF 2017
F (ON APPEAL FROM HIGH COURT ACTION NO 353 OF 2013) F
G G
_______________________
H H
BETWEEN
I I
SECURITIES AND FUTURES COMMISSION Plaintiff
J and J
O
_______________________ O
P P
Before: Hon Cheung, Yuen and Kwan JJA in Court
Q
Date of Hearing and Judgment: 22 June 2018 Q
Date of Reasons for Judgment: 29 June 2018
R R
_____________________________________
U U
V V
- 2 -
A A
E E
2. This is an appeal by the 1st Defendant (“D1”) against a
F Judgment of DHCJ Francis given on 25 July 2017 in HCA353/2013 (“the F
J
3. At the conclusion of the hearing of the appeal, the appeal was J
dismissed. My reasons appear below.
K K
Background
L L
account jointly with D1. D5 is D1’s cousin who lives overseas. D3-D5
P P
had accounts with CPSL, as did D1 herself.
Q Q
5. In November 2012, the Securities and Futures Commission
R R
(“SFC”) undertook an inspection at the office of CPSL. The SFC says
S
that irregularities were found, in that it was falsely recorded that D1 and S
D3-5 had deposited physical shares with CPSL. When orders were given
T T
1
See para. 10.1 below.
U U
V V
- 3 -
A A
CPSL actually sold were shares belonging to its other clients, but the
D D
proceeds of sale were paid to D1, D3, D4 or D5. Substantial sums were
E allegedly paid into bank accounts of or controlled by D1. E
F F
The SFC action
G G
6.1. On 26 February 2013 the SFC, pursuant to its powers under
H H
the Securities and Futures Ordinance, Cap.571 (“SFO”) issued
I
proceedings against D1-5 in HCA353/2013 (“the SFC action”). CPSL I
was not a party in the SFC action.
J J
Q
directors would fully compensate any clients affected by the Q
misappropriation of client securities;
R R
(3) on 29 November 2012, CPSL appointed JLA Asia Ltd to
S S
investigate into and identify the client securities that had been
T misappropriated; T
U U
V V
- 4 -
A A
I
suffered loss of $160,785,224. I
Q Q
(3) further or alternatively, pursuant to s.213(8) SFO, an order
R
requiring D1 and D2 to pay damages to such persons as the R
Court may direct.
S S
T T
U U
V V
- 5 -
A A
Mareva injunction
B B
C 7.1. The writ in the SFC action was issued on 26 February 2013. C
F F
to the extent that D1 was allowed to spend a necessary and reasonable sum
(not exceeding $100,000) for medical expenses. G
G
by consent between the SFC and D1 (“the consent order”), to the extent
I I
that D1 was allowed to withdraw $100,000 per week as legal costs from
J 9 May 2017 until the total sum withdrawn reaches $4,205,000 or until the J
M M
8. As mentioned earlier, D1 had a securities account with CPSL.
N The balance as at 31 December 2012 was given as $3,361,869.97. Since N
O then, there have been some dividends paid into the account. O
P P
D1’s attempt to withdraw funds from CPSL account
Q Q
9. In 2017, D1 sought to liquidate her CPSL account and to
R withdraw the proceeds. CPSL refused to comply with her request. R
S S
T T
2
Now Poon JA.
U U
V V
- 6 -
A A
D1’s summons
B B
C 10.1. This led to D1’s Summons the final form of which read as C
follows:
D D
SFC action, nor had it commenced any proceedings of its own against the
O O
defendants.
P P
10.3. However it is recorded in DHCJ Francis’s Judgment that:
Q Q
“The subject of jurisdiction [of the court over and the standing
of CPSL as a non-party to the action] formed a not insignificant R
R
part of the written submissions of counsel for each of the
1st defendant and CPSL, however, I need not make any finding
S in this regard as in the event the matter was shortly resolved by, S
at the court’s invitation, CPSL agreeing that it to be made a
party to the 1st defendant’s application pursuant to Order 15,
T T
rule 6(2)(b)(ii). The joinder of CPSL was not opposed (on the
U U
V V
- 7 -
A A
D D
11.1. On 25 July 2017 the judge gave judgment. He focused on
E
two issues: E
F (1) what was the test to be applied when the court considers a F
11.2. In relation to issue (1), the judge applied principles set out in K
K
Hong Kong Life Insurance Ltd v Fung Siu Cheung Michael and others at 3
L L
§§33-34, where the court considered the question whether funds which are
M
the subject of an injunction should be released to a defendant to allow him M
to meet the costs of defending himself in related criminal proceedings. In
N N
that case, B Chu J held that:
O O
(1) where the injunction involves a proprietary claim by the
T T
3
HCA1164/2012, 21 February 2014.
U U
V V
- 8 -
A A
(b) if so, then the court must balance the potential injustice
B B
to the parties respectively, taking all relevant
C circumstances into account, in particular the strength of C
G G
(a) he does not have other assets available to meet the legal
H
expenses, and H
I
(b) the purpose of the application is not to dissipate the I
asset so as to frustrate execution of the judgment by the
J J
plaintiff (“the Non-Proprietary Test”).
K K
DHCJ Francis took the view that D1 had failed even to pass the Non-
Q (c) had failed to disclose the means by which she had acquired Q
S
11.3. As for issue (2), ie whether CPSL had a “claim” against D1 S
U affected clients, it has by the process of subrogation stepped into the shoes U
V V
- 9 -
A A
of those affected clients, and thus became entitled to the relief of restoration
B B
and/or damages sought in the SFC action.
C C
J J
11.5. The judge concluded that:
K K
“whether having regard to the claim as currently formulated and
being pursued by the SFC in the [SFC action] ... which seeks
L relief that might ‘restore’ or make CPSL whole, or the L
prospective claim, proprietary and/or in damages, that CPSL is
very likely to have based on the facts and matters alleged in the
M Statement of Claim of the SFC, it is appropriate that I deal with M
the 1st defendant’s application on the basis that there is a pending
N ‘claim’ such that the principles ... in [Hong Kong Life Insurance N
Ltd ] are applicable”. (Emphasis added).
O O
11.6. In the circumstances and for the reasons given in the
P Judgment, the judge dismissed the Summons with an order that D1 pay 50% P
of CPSL’s costs.
Q Q
- CPSL action S
S
T 12.1. The judge was informed at the hearing that CPSL was T
V V
- 10 -
A A
clients. F
F
H H
12.2. Further on 16 March 2018, CPSL obtained an order that it be
I
joined as intervener in the SFC action limited to receiving notices of I
subsequent applications for variation of the Mareva injunction.
J J
Appeal
K K
paras 2 and 3 of the Summons. Mr Bernard Mak, counsel for CPSL, has
M M
helpfully formulated the submissions of Mr George Chu, counsel for D1,
N as follows: N
O (1) CPSL, not being a party to the SFC action, had no locus standi O
R (2) Even assuming CPSL could intervene in the consent order, the R
judge applied the wrong test and adopted the wrong burden of
S S
proof in determining whether the assets covered by the
T Mareva injunction (as varied by the consent order) should be T
V V
- 11 -
A A
(3) Even assuming that the judge had adopted the correct test, on
B B
the facts of the case, the judge erred in (a) finding that CPSL
C had a proprietary claim and (b) disregarding D1’s “clear C
evidence” that she had no other means to meet the legal costs
D D
of the criminal proceedings, and it was not open to the judge
E to prioritise which assets D1 should dispose of first E
(Ground 3). F
F
G Discussion G
H H
14. In relation to Ground 1, it is incorrect for D1 to characterize
I
the consent order as a private agreement between the SFC and herself, with I
CPSL merely a third party outwith the agreement who must comply with
J J
her instructions to liquidate the securities account.
K K
15.1. In the first place, the consent order sets out only the consent
L reached on the amount of money which D1 may withdraw for her legal L
expenses. The order did not include any consent on the financial resource
M M
for such withdrawal. The SFC has taken a neutral stand in the Summons,
N but it has not at any stage agreed that the securities account should be N
V V
- 12 -
A A
E pursuant to Order 15 rule 6(2)(b)(ii)6 Rules of the High Court that CPSL E
H
of the Mareva injunction. D1 has not appealed that order, thereby H
acknowledging CPSL’s legitimate interests concerning the protected assets.
I I
that has suffered loss, and in those cases, the court considers whether that
N N
party has a proprietary or non-proprietary claim to the assets covered by
O the Mareva injunction when considering whether the defendant should be O
4
See Hong Kong Civil Procedure 2018 vol.1 para.15/6/8 at p.347.
R R
5
See eg Hong Kong Civil Procedure 2018, vol. 1 para.29/1/50.
6
“[A]t any stage of the proceedings in any cause or matter the Court may on such terms as it thinks
S just and … of its own motion … order … to be added as a party … any person between whom and S
any party to the cause or matter there may exist an … issue arising out of or relating to or connected
with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would
T be just and convenient to determine as between him and that party as well as between the parties to T
the cause or matter”.
7
Para. 49.
U U
V V
- 13 -
A A
pursuant to rights given by statute, that the SFC has pleaded that it has not
B B
suffered loss itself, but that others have suffered loss whom the action is
C instituted to recompense: C
I I
The relief sought therefore includes the following8:
J J
“Pursuant to section 213(2)(b) of the SFO, an order requiring the
1st … Defendants to take such steps as the Court may direct,
K including payment of such sum as the Court thinks fit or the K
transfer of any monies or securities to (i) the CPSL Shareholders
and CPSL Directors and/or (ii) the Trustees and/or (iii) CPSL for
L the purpose of restoring the CPSL Shareholders, CPSL Directors L
and/or CPSL to the position in which they were in before the
1st … Defendant’s misappropriation of the Client Securities …”. M
M
(Emphasis added).
N N
18. Therefore it is clear that the Mareva was obtained in the SFC
O
action in order to protect9 (amongst others) CPSL. O
P 19. Pausing here, D1 has sought to argue that CPSL itself has not P
suffered any loss, only its shareholders and/or directors who have, pursuant
Q Q
to the undertaking given to the SFC, set aside cash and/or securities which
R have been utilized to compensate clients. However there is prima facie R
evidence that these cash and/or securities have been provided by way to
S S
T T
8
Paras. (3) and (4).
9
Kanematsu-Gosho (HK) Ltd and Another v Lee Boon-chuen and Others [1986] HKLR 59, 64I
U U
V V
- 14 -
A A
loans to CPSL, and so the entity that has suffered loss is CPSL. I refer to
B B
the document dated 24 November 2017 issued by CPSL’s auditors for the
C years ended 31 December 2012 and 2013, which certified that in 2013, the C
(i) (a) $50m was advanced as loans to CPSL and (b) CPSL itself
E E
paid out internal funds of $20m;
F F
(ii) (a) a further loan of $20m was made to CPSL and (b)
G G
approximately another $70m in securities (either sold or
H
transferred) was made by way of loan to CPSL. H
the day in question, it would not reflect the individual loans which Mr Chu
L L
apparently had in mind.
M M
which it will have to repay. It has therefore suffered loss and will be
P P
seeking set-off, restitution and/or compensation from the assets protected
Q by the Mareva. Q
R R
21. Consequently I cannot see why there should be a different test
S
in the present case. The issue is the same: ie should the protection from S
10
Reply Points of the Appellant/D1, para.6.
U U
V V
- 15 -
A A
or that a matter has been wrongly taken into account or not taken into F
F
account, or the exercise of discretion is plainly wrong.
G G
them here.
J J
disregarded D1’s evidence that she has no other means to meet the legal
L L
costs in the criminal proceedings. However it is clear from the Judgment
M that the judge was well aware of D1’s evidence in this regard. He M
addressed this issue in paras. 40-44 of the Judgment which I will not repeat
N N
here.
O O
24.2. I do not see any ground to disagree with the exercise of his
P P
discretion. Since the purpose of a Mareva injunction is to protect assets,
Q
a judge is entitled to consider whether the variation sought complies with Q
that purpose. Unless there is clear evidence of a falling market, the judge
R R
was entitled to consider that liquid assets such as cash at bank should be
S
used up first, instead of liquidating a securities account. In this S
connection, there was evidence that D1 had quite substantial cash balances
T T
in bank accounts in Singapore, which accounts had not hitherto been
U U
V V
- 16 -
A A
disclosed. It does not assist her case that she claims she “cannot recall”
B B
the numbers of these bank accounts, and that the court has not been
C provided with updated evidence from the banks to which her solicitors had C
E 24.3. Quite apart from cash, the judge took into account the fact that E
D1 and her husband own two properties, one in Hong Kong and one in
F F
Shenzhen. It was disclosed that the Hong Kong property was subject to
G a legal charge, but it would appear that that is not the case for the Shenzhen G
L L
24.4. The judge was also entitled to take into account the fact that
M D1 did not disclose the source(s) of income from which (on her case) she M
Q
the adjournment prior to the second hearing before the judge, when CPSL’s Q
opposition to the proposed variation was made clear to D1.
R R
25.1. Finally it was argued that the judge, in the exercise of his
S S
discretion, should have taken into account the fact that CPSL had not
T asserted a claim to the securities account for many years, and not even T
V V
- 17 -
A A
25.2. That is factually correct, but the judge was entitled to give
B B
these matters relatively little weight. First, the securities account was
C covered by the Mareva injunction already, and as noted above, the SFC C
was not a rival claimant as against CPSL. Second, when D1’s solicitors
D D
asked CPSL for an updated statement of the account, it did not inform
E CPSL that she was intending to liquidate that account in her application for E
G Order G
H H
26. For the reasons set out above, the appeal was dismissed. The
I
SFC did not apply for costs. CPSL applied for a wasted costs order against I
D1’s legal representatives. The court gave directions for written
J J
submissions to be supplied. Upon receiving and considering those
O O
P P
Q Q
T T
U U
V V
- 18 -
A A
Mr Bernard Mak, instructed by Y T Chan & Co, for the Intervener, China
B B
Pacific Securities Limited
C Mr George Chu, instructed by Damien Shea & Co, for the 1st Defendant C
E E
F F
G G
H H
I I
J J
K K
L L
M M
N N
O O
P P
Q Q
R R
S S
T T
U U
V V