An extract from The Asset Tracing and Recovery Review, 8th Edition

Seizure and evidence

i Securing assets and proceeds

With respect to civil matters, there are several forms of interim relief available in Hong Kong to prevent the dissipation of assets by, and to seek discovery from, those alleged to be involved in fraud.

Mareva injunction

A Mareva injunction is a court order preventing a defendant from dealing with, moving or disposing of his or her assets. In other words, the defendant's assets are frozen such that any attempt to transfer or dissipate those assets would violate the court's order, subject to contempt-of-court penalties. The order is also binding on third parties to the extent that any third party who is served with the order and subsequently assists the defendant in moving his or her assets will also be in contempt of court. Thus, in practice, Mareva injunction orders are routinely served on banks at which defendants maintain accounts, which results in the banks taking immediate steps to freeze the accounts.

The Mareva injunction also requires the defendant to make disclosures regarding all owned assets and may, in certain circumstances, require third parties, such as banks, to disclose information relating to a defendant's assets held by them. Because of the considerable restriction such an injunction places on a defendant, there are several hurdles a plaintiff must overcome before securing such an injunction. Among these are that the plaintiff establish:

  1. a good arguable case on the underlying merits of the action;
  2. that the defendant has assets within the jurisdiction;
  3. that there is a real risk that the defendant will dissipate the assets; and
  4. that the balance of convenience is in favour of granting the application.

Mareva injunction applications may initially be made ex parte, but ultimately the defendant will have an opportunity to challenge and set aside an order. Where an application for a Mareva injunction is made ex parte, the plaintiff has an obligation to make full and frank disclosure to the court of all relevant material facts, including those not in his or her favour. A failure to make full and frank disclosure may result in the injunction being discharged. Plaintiffs seeking a Mareva injunction must also give an undertaking to pay to the defendant any damages the defendant might suffer from the injunction should it later transpire that the injunction should not have been granted. The court may also require the plaintiff to fortify this undertaking by making a payment into court or providing some other type of security (such as a bank guarantee). Hong Kong judges may grant a Mareva injunction in support of proceedings outside Hong Kong, and, in certain narrow circumstances, a worldwide Mareva injunction that applies to assets located both in and beyond Hong Kong.

Anton Piller order

Where a plaintiff is concerned that a defendant may hide or destroy evidence, he or she may seek an injunction requiring the defendant to permit the plaintiff to enter the defendant's premises to enable the inspection, seizure and removal of documents relating to the underlying matter. This injunction is historically known as an Anton Piller order, and is aimed at preventing the destruction of evidence. The plaintiff must establish that:

  1. there is a strong prima facie case for a cause of action;
  2. the potential or actual damage to the plaintiff must be very serious;
  3. there must be clear evidence that the defendant possesses the items at issue; and
  4. there is a real likelihood (more than a mere possibility) that a defendant might destroy the material.

As with the Mareva injunction, the application may be made ex parte with full and frank disclosure, but is subject to the defendant's later opportunity to move to set aside the order.

Prohibition against debtors leaving Hong Kong

Pursuant to Order 44A of the Rules of the High Court, a plaintiff or holder of a judgment in its favour (a judgment creditor) may apply ex parte to the court for an order prohibiting a debtor from leaving Hong Kong, thus ensuring the debtor cannot escape to a more judgment-proof jurisdiction. The court will grant the application only where the prohibition is reasonably and properly conducive to the enforcement of a judgment involving money or property. If the judgment amount is still to be assessed or property is to be delivered, the court will make the order only where there is probable cause for believing the debtor is about to leave Hong Kong and that enforcement will thereafter be impeded.

Interim attachment of property

Order 44A also provides for the interim attachment of property of a defendant where a defendant, with intent to obstruct or delay the execution of a judgment, is about to dispose of property. In such a circumstance, the plaintiff may apply to the court for an order requiring the defendant to provide security sufficient to satisfy any judgment that may be rendered against him or her in the action. Failing provision of such security, the court may direct any property of the defendant to be attached as security.

Appointment of a receiver or provisional liquidator

Where just and convenient, the Hong Kong court may appoint a receiver to recover and protect assets that defendants obtain in connection with fraudulent activity. The receiver may then realise and distribute the assets among victims of the fraud. Similarly, in circumstances where fraud was perpetrated through a company that was, or has now become, insolvent by way of the fraud, the court may appoint a provisional liquidator to preserve that company's assets pending the determination of a winding-up petition against the company.

ii Obtaining evidence

Prior to securing assets and proceeds, potential plaintiffs in civil proceedings may need more information and evidence about the assets and proceeds before bringing an action. Plaintiffs seeking information on assets of a putative defendant may do well by searching public resources such as land, companies, business, trademark and vehicle registries as part of their investigative efforts.

In addition, Hong Kong's Rules of the High Court provide statutory rules on discovery and inspection of records for parties to a proceeding. In general, this encompasses documents that are or have been in the parties' possession, custody or power relating to the matters in question. Parties are to serve lists of such documents within 14 days of the close of pleadings in the action. Outside these statutory rules, the court may also, upon application, make other discovery orders. A few of these orders, briefly described below, are often key to fraud actions in particular, as they seek information from third parties who may have evidence about a wrongdoer or the wrongdoer's assets that would be otherwise unavailable.

Norwich Pharmacal order

Before an action is commenced, a proposed plaintiff may seek a Norwich Pharmacal order from the court to obtain documents from an innocent party that unknowingly facilitated or was caught up in the wrongdoing of others. Such orders are often employed to identify wrongdoers previously unknown to the plaintiff, obtain evidence in support of proposed proceedings against wrongdoers or identify assets belonging to wrongdoers. For example, an innocent third party (such as a bank) may hold funds derived from fraud, and a Norwich Pharmacal order may require that third party reveal from whom the funds were obtained, and any documentation evidencing that transfer. The plaintiff may then take this information and

use it as a basis of a cause of action against a defendant he or she can now identify. To obtain such an order, the proposed plaintiff must establish that:

  1. there is a prima facie case against the unknown alleged wrongdoer;
  2. the target of the order was involved in some way in the matter;
  3. the target of the order must be the only practical source of information available;
  4. the target will be compensated for his or her expenses in complying with the order; and
  5. the public interest in disclosure outweighs privacy concerns.
Evidence from banks

A Bankers Trust order is effectively a Norwich Pharmacal order targeted at an innocent third-party bank to provide information that enables tracing of funds that is normally otherwise protected by the bank's duty of confidentiality.

Similarly, under the Evidence Ordinance, a party to a proceeding may apply to the court to order that a bank's books be opened to that party for the purposes of discovery in a matter. There have been occasions where the court has allowed discovery orders to be obtained against banks as part of a Mareva injunction order, specifically in circumstances where the plaintiff maintains that it has a proprietary interest in the funds held in a specific account.

iii Criminal actions

With respect to criminal matters, law enforcement authorities have certain powers to gather evidence and identify, trace and freeze proceeds, while certain other actions to restrain and seize assets lie with the prosecutor.

Evidence gathering

The Hong Kong police force acts pursuant to the Police Force Ordinance with respect to evidence-gathering procedures and seizure of suspected property. Prosecutors are likely to have the benefit of receiving evidence gathered by law enforcement, and in particular circumstances may pursue their own applications to the court for evidence-gathering orders.

Restraint of assets or property

Under the Organized and Serious Crimes Ordinance, a prosecutor may move for the restraint of assets or property to prohibit a defendant that has benefited from an offence specified under the Ordinance – including those arising from fraud – from dealing with any realisable property. Where such a restraint order is in place, the court may appoint a receiver to take possession of any realisable property, or otherwise manage or deal with the property. In addition, an authorised officer may also seize restrained property to prevent its removal from Hong Kong.

Charging order

The Organized and Serious Crimes Ordinance also allows for the prosecutor to apply to the court for a charging order on realisable property that has the effect of securing payment to the government backed by the property charged. Such an application may be made ex parte but is subject to those affected by it applying for its discharge.