FALCON PRIVATE BANK LTD v. BORRY BERNARD EDOUARD CHARLES LTD AND ANOTHER

HCA 1934/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1934 OF 2011

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BETWEEN
	FALCON PRIVATE BANK LIMITED	Plaintiff
and
	BORRY BERNARD EDOUARD CHARLES LIMITED	1st Defendant
	BORRY BERNARD EDOUARD CHARLES	2nd Defendant
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Before: Mr Recorder Houghton SC in Chambers

Date of Hearing: 21 and 22 January 2014

Date of Decision: 14 March 2014

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D E C I S I O N

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1. There are four summonses before the court.  Chronologically these are the “strike out” summons taken out on behalf of the defendants on 16 January 2012, seeking the striking out of the Statement of Claim.  Secondly, an application brought by the 1^st defendant (“Borry Ltd”) on 21 February 2012, seeking the discharge of a Mareva injunction against it.  Thirdly, there is an application made by the plaintiff (“Falcon”) on 9 December 2013 seeking a stay of proceedings; and fourthly, an application dated 17 January 2014 made by Falcon seeking leave to amend the Statement of Claim.

2. As is perhaps indicated by the above, the matter has been procedurally active since the writ was issued on 10 November 2011, albeit on matters which are, at best, precursors to the main issues, and accordingly, I set out first an overview of the procedural history.

PROCEDURAL BACKGROUND

3. As just recorded, the action commenced with the issue of the writ in November 2011.  The issue of the writ was accompanied by an application made ex parte before DHCJ Queeny Au Yeung  (as she then was) for an injunction against the Borry Ltd enjoining Borry Ltd from disposing of assets up to the value of HK$78 million.  Disclosure orders were also made against both defendants.  The injunction order was extended by Yam J on 18 November 2011.

4. The Statement of Claim was issued on 21 December 2011 and the summons to strike it out ensued on 16 January 2012.  Approximately one month later Borry Ltd issued its summons seeking the discharge of the injunction order.  Interspersed with these summonses were various affidavits made on behalf of the defendants in purported compliance with the orders which had been made for disclosure of assets.  The completeness and veracity of the disclosure was and is the subject of serious criticism by Falcon, and has indeed also been the subject of criticism by the court.

5. The interlocutory wrangling escalated, to a point at which the judge then seised of the matter was asked to recuse himself from further participation.  The judge declined to do so and, on 7 June 2012 dismissed the Borry Ltd application for a discharge of the injunction order.  The judge heard and considered the application to strike out the Statement of Claim, but declined to do so save and except in one, relatively minor respect.

6. The judge gave his reasons for those decisions at some length on 9 July 2012, and subsequently declined to grant leave to appeal to the Court of Appeal.  On 27 November 2012 applications were made on behalf of the defendants to the Court of Appeal for leave to appeal from the decisions below in relation to discharge of the injunction; the strike out; and the application for recusal.  Leave to appeal was refused by a single judge of the Court of Appeal (Yuen JA) on 1 February 2013.  The application for leave to appeal was renewed before the Court of Appeal (in CACV 42/2013), leave was granted, and the appeal allowed in regard to the recusal summons, the discharge summons and the strike out summons on 10 September 2013. 

7. Falcon has sought leave to appeal to the Court of Final Appeal against the decision of the Court of Appeal, and that application is due to be heard in early May this year.

8. On 27 November 2013 Falcon applied for a stay of these proceedings and for a vacation and adjournment of the rehearing of the strike out and discharge summonses.  The applications regarding the strike out and discharge summonses were dismissed (by DHCJ Lok) on 16 December 2013 while the stay application was adjourned for hearing and is now before the court.

FACTUAL BACKGROUND

9. The parties to the litigation are a licensed bank in Switzerland (the plaintiff), a Hong Kong company (the 1^st defendant) and Mr Borry, a Swiss national, who is the sole shareholder and director of the first defendant.  For convenience they will be referred to in this judgement as “Falcon”, “Borry Ltd”; and “Mr Borry” respectively.

10. A key player in the background is an English company called Bawa Financial Ltd (“Bawa”).  Bawa is a company owned or controlled by one John Andreas Morrison (“Morrison”) and one Rafal Brenner (“Brenner”).  Bawa holds an account with Falcon, and in July 2011 deposited with Falcon certain floating‑rate bonds.  Falcon, in turn, placed the bonds with a custodian in Switzerland named SIX SIS AG (“SIX”).

11. The bonds entitled the holders to interest payments only.  However, in error, on 27 September 2011 SIX advised Falcon that there had been a repayment of principal on the bonds, in the amount of US$15,760,320.  That amount was credited into Falcon’s account with SIX, and on 29 September 2011 the same sum was credited by Falcon into the Bawa account after Falcon had notified Bawa of the credit.

12. It seems likely (but nevertheless in issue) that this largesse would not have gone unnoticed by Bawa, Morrison and Brenner, since immediately prior to the deposit the account with Falcon had a credit balance of only approximately US$13,000.  One day after the deposit was made into Bawa’s account, Morrison notified Falcon that a large sum (US$10 million) would be transferred out of the account for purposes of a “private equity placement”.  That sum was transferred into an account held in the name of Borry Ltd with the Standard Chartered Bank in Hong Kong.  A series of other transfers in various currencies to various other recipients were made by Bawa within a short period of time.

13. It was only on 7 October 2011 that SIX notified Falcon that there had been an error and that Bawa were in fact only entitled to payment of interest.  SIX reversed the payment which had been made, and Falcon correspondingly reversed the credit which had been made into the Bawa account. By that time Bawa had disbursed approximately US$11.75 million from the account.  Falcon made attempts (also on 7 October 2011) to cancel the transfer to Borry Ltd’s account with the Standard Chartered Bank in Hong Kong, but was unable to do so since the money had already been credited.

14. Discussions ensued over the next few weeks between Falcon and Bawa and its legal advisers in Switzerland, through which Falcon demanded the return of the monies paid in error, including the US$10 million then in the Standard Chartered Bank.  Borry Ltd did not respond to the requests for repayment.  Against that background Falcon made the ex parte application for an injunction restraining Borry Ltd from disposing of or removing any of its assets within Hong Kong up to the value of HK$78 million.  Disclosure orders were included in the injunction order which was granted.

THE SUMMONSES

15. As referred to above, there are four relevant applications. Falcon’s summons seeking a stay seeks, following the decisions of other courts, now only the stay of the action until 11 May 2014.  This stay is sought to enable Falcon to comply with a “gag order” issued by the State Attorney’s Office III of the Canton of Zürich on 11 November 2013 in connection with criminal proceedings against Morrison and Mr Borry in that jurisdiction.

16. Falcon also issued a summons seeking to make amendments to the Statement of Claim.  Mr Douglas Lam, counsel for Falcon, made it clear in his submission is that the amendments were not intended to “save” the Statement of Claim from the strike out application, and accordingly those amendments can be considered separately.

17. The summons by the defendants to strike out the Statement of Claim is premised on that pleading disclosing no reasonable cause of action; on it being scandalous frivolous or vexatious; or otherwise being an abuse of the process. The summons issued by Borry Ltd seeking the discharge of the injunction order is based upon two grounds, which were set out in counsel’s skeleton (Mr Colin Wright appearing for both defendants) as follows:

“The Plaintiff acted in breach of its duty of full and frank disclosure by misrepresenting the existence of facts which were not supported by the evidence before the Ex parte Judge and by failing to inform the Ex parte Judge of the defences available to the 1st defendant.

The Plaintiff failed to establish a good arguable case against the 1st defendant.”

18. The second of these grounds overlaps with the strike out application, and for that reason it is convenient to consider the strike out application first.

THE STRIKE OUT

Principles

19. There was no apparent disagreement between counsel as to the applicable principles.  As summarised by Mr Wright, in essence, claims with no foundation in law should be struck out, and where the court comes to a conclusion after argument that the case is plainly and obviously one which cannot succeed, then the court should strike out the claim, and should not shirk from doing so simply because the issues are difficult or complicated.

20. Mr Lam referred me to an extract from the decision in Ha Francesca v Tsai Kut Kan [1982] 1 HKC 382 at 392, and to the decision of Recorder Lisa Wong SC in CY Foundation Group Limited v Best Max Holdings Ltd [reference].  Primarily, the question is whether the allegations pleaded in the statement of claim disclose a cause of action, or raise questions that ought to be tried.  In evaluating this, the court will not embark on an assessment of the strength or weakness of a case, because weakness does not provide a basis upon which a claim should be struck out.  A claim will be summarily dismissed only when, in broad terms, its prospects of success are negligible.  In considering this the court will have regard to the fact that, in appropriate circumstances, particularisation of a claim may well be a sufficient remedy for criticisms of the formulation presently pleaded.

21. As was summarised by Fok JA (sitting as an additional judge) in The New China Hong Kong Group Limited (in creditors voluntary liquidation) v Ng Kwai Kai, Kenneth and others (HCA 519/2010; 11 February 2011):

“40 Since the basis of the striking out application was principally that the action is bound to fail, I think it is right to approach the application on the basis of the court must be fully satisfied that there really is no foundation for a particular pleaded claim if it is going to take the course of striking out that claim. The court is not in a position to resolve genuine disputes of fact or to embark on a mini trial based upon affidavit evidence. Whilst the court should be vigilant to prevent any abuse of its process by the continued prosecution of hopeless claims, this does not affect the basic principle that the court should only strike out pleadings in a plain and obvious case.”

22. Fok JA then cited with approval the dictum in Ha Francesca v Tsai Kut Kan that the claim must be “obviously unsustainable, the pleadings unarguably bad, and that it be impossible, not just improbable for the case to succeed…”

23. Also to be borne in mind however, and as was also observed by Fok JA at paragraph 70 of the judgement, is the fact that the plaintiff should know his case, and be in a position to identify the relevant evidence, at the outset of the claim.  Initiating proceedings without a solid foundation, in the hope that “something will turn up” is an abuse of the court’s process.

24. The primary thrust of Mr Wright’s attack on the Statement of Claim relates to the pleaded allegation that Bawa held the principal payment on trust.  This arises in paragraphs 21 to 24 of the pleading, and as originally formulated, this included allegations of both constructive and resulting trusts.  Falcon no longer pursues any assertion of a resulting trust. 

25. There is no dispute that a substantial issue between the parties arises as to whether or not Bawa held the principal payment on constructive trust for Falcon.  However Falcon does not accept that success or failure on this point is determinative of the success or failure of the claims made against the defendants.  In addition to, and separate from the proprietary claims Falcon say that  personal claims against the defendants for conspiracy, unjust enrichment, and money had received have been pleaded.

26. There are two reasons advanced on behalf of the defendants as to why the allegation of a constructive trust against Bawa is “hopeless”; that the proper law to determine the rights of Falcon in respect of the chose in action arising in relation to the credit balance in the relevant accounts is Swiss law, and Swiss law does not recognise a constructive trust; and that a payment made by mistake is a voidable transaction, not void ab initio, meaning that no trust could arise until the voidable transaction had been avoided.  For convenience refer to these as the “Swiss Law Defence”, and the “Timing Argument”.

(a)  Swiss law

27. As to the Swiss law Defence, the defendants have adduced evidence from Mr Michael Kramer to the effect that Swiss law does not recognise the concept of a trust.  Mr Kramer’s affidavit identifies him as a qualified Swiss advocate and set out his view that, under Swiss law, Bawa cannot have held the amount of the principal payment on trust for Falcon because Switzerland does not have its own substantive trust law.  Mr Kramer does identify potential claims by Falcon against Bawa arising in contract, and, non‑contractually as a claim for unjust enrichment by Bawa.  For the latter claim, according to Mr Kramer, Falcon would be required to establish an unlawful act of the injuring party; financial damage to the injured party (Falcon); an adequate causal link between the act and the damage; and fault of the person acting unlawfully.  Where the loss is purely financial Swiss law also requires, it appears, that the injuring party must have breached a rule of law specifically directed to protect the financial property of the injured party.

28. Perhaps unsurprisingly, Mr Kramer does not venture an opinion as to whether Falcon would be able to meet those requirements, but perhaps more importantly, he does not suggest that such a claim would be unsustainable.  In those circumstances, I conclude that the evidence before me indicates Bawa as being at least potentially liable to Falcon either contractually or non-contractually. 

29. The Statement of Claim asserts that Bawa was not entitled to receive the principal payment either contractually or otherwise.  Moreover it is asserted that Bawa knew that the principal payment was made in error and was not a payment to which it was entitled.  Reference to the criminal proceedings in Switzerland, and the indictment against Mr Brenner in particular which has been admitted by him suggests that there will be little contest at trial in regard to these factual issues, or, to put it in the context of the strike out application, it cannot remotely be suggested that these allegations are “obviously unsustainable” or that it will be impossible, not just improbable for the case to succeed”.

30. The Statement of Claim further asserts that it was unconscionable for Bawa to retain or deal with the principal payment other than to repay it to Falcon, categorising this, as would likely be the case under Hong Kong law, as a constructive trust.  Mr Wright on behalf of the defendants has focused attention on that legal categorisation, and Mr Kramer has provided evidence that Swiss law would not so categorise the relevant factual circumstances.  Mr Kramer’s evidence is however far from demonstrating that, in the relevant circumstances, Bawa was able to receive the principal payment free from any contractual or non‑ contractual claims by Falcon. 

31. So far as the court proceedings in Hong Kong are concerned, the legal position as between Bawa and Falcon is of relevance primarily to an analysis of the liability, or otherwise, of the defendants to Falcon.  The Statement of Claim alleges that Borry Ltd received the relevant funds from Bawa as a volunteer, for no consideration, and/or knew that the funds were remitted to its bank “in breach of trust”.  Extensive particulars have been pleaded by Falcon, albeit subject to the caveat that further particularisation might be appropriate after discovery and/or interrogatories.  The particulars lead Falcon to the pleaded assertion that Borry Ltd, through Mr Borry either knew, or at least turned a blind eye to the fact that the remitted funds did not belong to Bawa and had been paid to Borry Ltd “in breach of trust”.

32. The particulars also lead to an assertion by Falcon that Borry Ltd dishonestly assisted Bawa to dissipate the relevant funds, also “in breach of trust”.

33. It may be that the Statement of Claim could more accurately have described the “breach of trust” on the part of Bawa (depending on the facts) as being either a breach of contract, or (perhaps more likely) acts by Bawa which would give rise to a non‑contractual claim under Swiss law entitling Falcon to recover the amount of the unjust enrichment.  The factual foundation for the claim against Borry Ltd (or, as far as relevant Mr Borry) would remain unaltered.

34. So far as the claim against Borry Ltd is made on the basis of a constructive trust, I accept for purposes of the strike out application at least, that the relevant law is Hong Kong law.  Borry Ltd is a Hong Kong company and the funds were received in Hong Kong.  As summarised in Dicey & Morris, Conflict of Laws; 14^th edition, paragraph 34R‑001):

“Rule 230(1) The obligation to restore the benefit of an enrichment obtained at another person’s expense is governed by the proper law of the obligation.”

and the proper law of the obligation is determined:

“(2) … If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs.”

35. In this context Mr Lam refers me to paragraphs 34 to 49 of Dicey & Morris which reads:

“… If it is argued that a defendant, who in a domestic case would be required to hold property on constructive trust, is nevertheless not liable, on the ground that the law of the place of the enrichment or other lex causae, does not recognise the principles of constructive trusteeship, the argument is misconceived. The appropriate analysis is to ask whether, under the lex causae, the defendant owes obligations which would impose on him under that law liability to disgorge a benefit. If so, an English court may hold him liable as constructive trustee when giving remedial effect to the substantive right arising under the lex causae.”

36. For the purposes of a consideration therefore as to whether the Swiss Law Defence is such as to make Falcon’s claim, or any part of it, obviously unsustainable such that it should be struck out, the above indicates to me quite clearly that the claim cannot even remotely be said to be obviously bad or unsustainable.  The claim is not to be struck out on this basis.

(b)  The timing argument

37. This argument, it seems to me, falls away in light of the facts referred to above.  It is premised on a trust arising no earlier than 7 October 2011, the date on which steps were taken by Falcon to “avoid” the transaction by which funds had been credited into Bawa’s account.  However the relevant funds had been transferred out of the Bawa account prior to this date, and the defendants contend therefore that the transfer to Borry Ltd could not have involved trust property.  Correspondingly Borry Ltd could not be liable as a knowing recipient of trust property.

38. Mr Wright placed considerable reliance on the decision of Rimer J in Shalson v Russo [2003] EWHC 1637 in support of the proposition that both the transfer to Bawa and subsequent dealing with the money was valid until such time as the transaction was rescinded.  See for example paragraph 119.  Rimer J cast doubt on a proposition in Westdentsche that properly obtained by fraud under a voidable transaction was held on trust for the defrauded party prior to any rescission.

39. His discussion of the position following a rescission at paragraphs 120‑127 makes it clear however that following rescission of a voidable transaction the property in question would re‑vest in the transferor.  Plainly, if that right can be asserted against the representor, it can be asserted against a third party volunteer who has come into possession of the property.

40. As Mr Lam points out, Shalson was a case involving transfers which were induced fraudulently, and the rescission of those transfers inter partes.  It does not address directly the position of third parties as Borry Ltd may be said to be here.

41. Mr Wright also referred me to an article by Lord Millet in the Law Quarterly Review (1998) and in particular a passage in which Lord Millet discussed the situation in which the plaintiff may have paid away money by a valid payment, fully intending to part with the beneficial interest to the recipient, but in which that intention is vitiated by a factor such as fraud, misrepresentation or mistake.  In such circumstances:

“Pending the plaintiff's election to rescind, the recipient is entitled, and may be bound, to treat the payment as effective. It is well settled that the plaintiff's subsequent rescission does not invalidate or render wrongful transactions which have taken place in the meantime on the faith of the receipt.”

42. Whether Bawa, acting through Morrison and Brenner, were acting “on the faith of the receipt” is, on the evidence presently available, at the least seriously open to doubt.  In the criminal proceedings in Switzerland Brenner admitted facts which included, by way of a short summary, that Falcon:

“… wrongly announced the capital refund… instead of just an interest payment. The accused John Andreas Morrison recognise the mistake, actively and fraudulently encouraged Falcon bank/the injured party in its mistake and deceived it into crediting the payment to [its] account with the injured party. The accused Rafal Brenner actively aided and abetted these acts. The amount received in such fraudulent way was immediately transferred by the accused to different accounts worldwide, in order to prevent the refund of the wrong amount to the injured party. At the same time, the accused prevented the return transaction of the money and concealed its origin. The accused Rafal Brenner acted intentionally or at least tacitly accepted that he aided and abetted the fraudulent acts.”

43. The evidence presently available therefore also gives rise to some doubt as to whether Borry Ltd were acting innocently when they received the funds into the Standard Chartered Bank account.  That of course will be a matter for the trial, not for determination at the current interlocutory stage. For present purposes it suffices to state that, at the lowest, either receipt or retention of the relevant money, knowing that it was the result of a mistaken transfer may well give rise to a constructive trust.  See Westdeutsche Bank v Islington LBC [1996] AC 669 at 715, and Papamichael v National Westminster Bank Plc [2003] 1 Lloyds Rep 341 at 370‑373. That knowledge on the part of Borry Ltd, again putting it at the lowest, may pre-date the date on which the transaction was avoided.  Whether that is so is a matter that can only be determined at trial.

Other matters

44. The defendants refer to various other assertions contained in the Statement of Claim which are said to be susceptible to being struck out. Complaint is made that paragraph 22, containing the allegation that Bawa “well knew” that it was not entitled to receive the monies paid to it by way of the purported principal repayment, is not supported by evidence.  That submission does not appear to take into account the admitted facts in the Swiss criminal proceedings referred to above.  Nor, absent evidence to the contrary, does it suggest that the pleading in any sense could be said to be an abuse of the process.

45. Complaint is also made about paragraphs 26 and 27 of the Statement of Claim in which Falcon assert that Borry Ltd “well knew, or at least turned a blind eye to the fact that the said sum was remitted to the [Standard Chartered Bank] account on the instructions of Bawa in breach of trust.”  This plea, it is said, contains an allegation of dishonesty, but the pleading lacks, in the submission of the defendants, the necessary primary facts which would allow the court to infer knowledge of the breach of trust.

46. The particulars which have been pleaded are lengthy, with the bulk referring to matters of conduct on the part of Borry Ltd and Mr Borry after they had received the funds from Bawa.  It is submitted on behalf of the defendants that the primary facts relied on to show dishonesty must not only be clearly spelled out, they must be contemporaneous with the alleged dishonesty itself. Up to the date of the transfer of the funds to Borry Ltd the particulars alleged simply that Borry Ltd was, apparently, a dormant company with no place of business, no business, operations and, therefore, with no apparent legitimate reason to receive money from Bawa.  In addition it is alleged that Mr Borry is the chairman of one Master Vision Group of Banks, said to be a suspected fraudulent business under investigation by the Hong Kong Police, and the subject of warnings issued by the Hong Kong Monetary Authority and the Lichtenstein Financial Markets Authority.

47. The defendants rely, in this context, on the speech of Lord Millett in Three Rivers District Council v Bank of England (No 3) [2003] 2 AC 1 at 291 said to show that more specific allegations than those pleaded are required.  In my view, that reliance is misplaced.  Lord Millett made it clear that:

“It is well established that fraud or dishonesty… must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence… This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts matters and circumstances which are consistent with negligence do not do so.

It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means ‘dishonestly’ or ‘fraudulently’, it may not be enough to say ‘wilfully’ or ‘recklessly’. Such language is equivocal…

The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient…”

48. The issue between these parties relates primarily to the knowledge of the defendants, and so far as the constructive trust averment is concerned, the way in which that knowledge may be said to have affected the conscience of the defendants.  This factor may have influenced the way in which the defendants framed their requests for further and better particulars of paragraph 26 of the Statement of Claim.  Those requests included a request as to whether the plaintiff intended to allege that Borry Ltd “wilfully and recklessly failed to make such enquiries as an honest and reasonable person would have made in the circumstances”, and if that was not the allegation, then clarification of what was alleged was requested.  To the extent that a wilful and reckless failure was the gist of the pleading, then the request sought details of the circumstances supporting the allegation that an honest and reasonable person would have been put on enquiry that the sum had been remitted in breach of trust; particulars of the enquiries which it is alleged an honest and reasonable person would have made; the facts supporting the allegation that Borry Ltd wilfully failed to make such enquiries; and similar facts in support of any allegation that there was a reckless failure on the part of Borry Ltd.

49. The response to that is lengthy, but at the risk of oversimplification, Falcon allege that the conduct of Mr Borry, and Borry Ltd as his alter ego has been wholly inconsistent with that of honest or bone fide persons receiving the relevant funds as a legitimate investment or for any lawful purpose.  Falcon stated that they intend to rely on the admissions by Brenner in the criminal proceedings in Switzerland including the fabrication, on behalf of Bawa, of an investment contract, the implementation of which involved the transfer of funds to a company known as Sunesko LLC.  In his affidavit evidence Mr Borry has held himself out as the “intake officer” of Sunesko LLC, and also as the “Chief Intake Treasury Officer” of one AMDG Trusts Allianz, the purported counterparty to the allegedly fictitious investment contract for which Sunesko acted as a “front”.

50. Falcon agree or accept in response to the request for particulars that, by the allegation that Borry Ltd turned a blind eye, it was intended to contend that Borry Ltd wilfully and recklessly failed to make such enquiries as an honest and reasonable person would have made in the circumstances.  That is elaborated on in the body of the particulars so as to contend, among much else, that:

“Any honest and reasonable person would have made detailed enquiries so as to ensure that he was not being used as a conduit for the laundering of dissipation of illegitimately or unlawfully obtain property; including:

· details as to the provenance of the said sum;

· given the substantial amount of the said sum, the identity and detailed background of Bawa, being the remit of the said sum;

· details as to the relationship between Bauer, Cisco and AMDG; and

· details as to the investment for which the said sum was remitted.”

51. For my own part I can see nothing wrong in principle in a plaintiff asserting that a defendant was acting dishonestly or unconscionably in dealing with monies received by that defendant on the basis of actions subsequent to the receipt said to be inconsistent with innocent business practice.  In my judgment there is nothing equivocal about what is alleged against the defendants, nor can there be any sensible doubt about the detail of the case which the defendants will be expected to meet at trial.  However, even if I were wrong on that, it seems to me that it would be a matter for further particularisation, not a matter calling for the dismissal of the claim.

52. Similar points are made on behalf of the defendants in regard to paragraphs 28 through to 37, touching on an alleged failure to set out appropriate facts in regard to a claim for money had and received, or for restitution; asserting an absence of evidence as to Mr Borry’s actual knowledge; and asserting a lack of particularisation of the allegation of dishonesty at paragraph 34.  I do not accept that any of these matters, singularly or cumulatively come close to demonstrating that the claim is formulated is sufficiently “bad” as to call for the sanction of striking out.

53. I will mention specifically only the allegations at paragraphs 36 and 37 therefore, in which Falcon allege a conspiracy between Borry Ltd, Mr Borry and Bawa.  Paragraph 36 is part of the proposed amendments and I would have been able to be persuaded that better particularisation of this part of the plaintiff's claim was required had it not been offered via the proposed amendments.  I would not have been minded to strike out in circumstances in which the complaint was as to lack of specificity.  As appears below I am satisfied that the plaintiff's application to amend should be allowed, and accordingly I am of the view that the defendant's complaint as to the lack of a sustainable pleading is not established.

54. For the above reasons I am not persuaded that any part of the plaintiff’s claim is to be struck out and the defendants summons seeking that relief is dismissed. 

THE DISCHARGE SUMMONS

55. As referred to above there are two limbs to this application, one being the alleged failure on the part of Falcon to establish a good arguable case against Borry Ltd.  As will be clear from the rationale given above in the context of the strike out summons, in my judgement the case against Borry Ltd is clear.  While the discussion above focuses on the more developed statement of Falcon’s case set out in the pleading and the particulars (as did the defendant’s submissions), the essential facts underpinning the claim were presented to the judge hearing the ex parte application, and I have no doubt that those facts sufficiently established the necessary good arguable case at that stage.

56. The defendants’ submissions for this summons focused on the alleged failure on the part of Falcon to make full and frank disclosure of all material facts at the ex parte stage, and included a complaint that Falcon positively misrepresented both the factual position, and the availability of defences to Borry Ltd.

The relevant principles

57. Unsurprisingly, these are not in dispute between the parties.  An applicant for an ex parte injunction is strictly required to make a full and fair disclosure of all material facts.  An applicant should err on the side of caution in this regard since materiality is, at the end of the day, a matter to be decided by the court:

“It is the duty of a party asking for an injunction to bring under the notice of the court all facts material to the determination of his right to that injunction; and it is no excuse for him to say that he was not aware of the importance of any facts which he has omitted to bring forward.” (Browne‑Wilkinson J in Thermax Ltd v Schott Industrial Glass Ltd [1981] FSR 289 at 295, citing the decision in Dalglish v Jarvie.)

58. Moreover, the applicant must identify in the course of the application any defences which might be anticipated as being taken and which are not such as can be dismissed as being without substance or importance (see New Asia Energy Ltd v Concorde Oil (Hong Kong) Ltd [2000] 2 HKC 685).

59. Where there has been material non - disclosure, then the court has a discretion which encompasses the discharge of the order obtained ex parte, and the re‑grant of an injunction if a discharge is thought appropriate. Although a matter of discretion, ordinarily, if the court is satisfied that there has been material non‑disclosure, the ex parte order will be discharged.

Misrepresentations

60. There are three such misrepresentations alleged, and in one instance counsel for the plaintiff accepts that the skeleton submission was incorrect. That relates to an assertion that Mr Borry “holds himself out as the chairman of the Master Vision Group of Banks… a suspected fraudulent business under investigation by the Hong Kong police”.  It is accepted that there is no basis for suggesting that Mr Borry has so held himself out.  The position is in fact the reverse; it is the Master Vision Group of Banks (“Master Vision”) that has held out Mr Borry as the Chairman of the Group.

61. The ex parte skeleton submission asserted that Mr Borry was being investigated by both the police and financial authorities in Hong Kong and abroad for fraudulent activities; described him as a “suspected fraudster”; and submitted that “warnings issued by the Hong Kong and Lichtenstein financial authorities suggest that the 2^nd defendant (Mr Borry) operates his apparently fraudulent activities on an international scale”.  It is submitted on behalf of Borry Ltd that these allegations of fraudulent conduct on the part of Mr Borry should not have been made without a solid foundation in the evidence before the ex parte judge.  It is submitted that these are bound to have been influential (material) in the judge’s consideration of the ex parte application.

62. Thirdly the ex parte skeleton is criticised for having contended that the mistaken transmission of funds should have been obvious to Bawa because of “… the fact that the market value of the Bonds was only about US$2.5 million.”  The true position is that the market value was never determined.  Indeed, it is not clear that there is a “market” for such bonds. The evidence filed on behalf of Falcon by Mr Brandle states that the valuation was an estimate based upon the anticipated interest payments over the lifetime of the Structured Note.  Mr Brandle acknowledged in his affidavit that this was an estimate, and potentially inaccurate.

63. This is said to have been an important misstatement because it was a crucial component of the assertion that Bawa was aware of the mistake behind the transfer.

64. In response Mr Lam, while accepting, firstly that the holding out was misdescribed in the skeleton before the ex parte judge, points out that the evidence; specifically the affidavit of Mr Brandle (paragraph 55), correctly summarises the information available at that time, including that the source of information about Mr Borry’s relationship with Master Vision originated from Master Vision not from Mr Borry.

65. So far as the assertions about Mr Borry’s possible involvement in fraudulent activities are concerned, Mr Lam submits that it is wholly incorrect to suggest that there was no evidential foundation before the ex parte judge.  Primarily this was contained in Mr Brandle’s affidavit and its exhibits.  The linkage between Mr Borry and Master Vision has been referred to above.  In addition Mr Brandle referred in his affidavit to a press release of 18 August 2011 issued by the Hong Kong Monetary Authority, describing a website operated by Master Vision as “a suspected fraudulent website” and stating that the matter had been referred to the Hong Kong police force for further investigation.  Mr Brandle referred also to a warning notice issued by the Lichtenstein financial market authority on 25 May 2011 which included a statement that:

“The executive office in Lichtenstein mentioned on the website of Master Vision Group of Banks does not exist and it was not possible to establish a personal contact.”

66. In terms of the valuation of the bonds and, therefore, the extent to which it should have been obvious to Bawa that the transfer was made in error, Mr Lam points to the way in which the valuation was described in Mr Brandle’s affidavit; as an approximate value attributed to the bonds by Falcon.  The context for that valuation is, in my view of significance.  Mr Brandle referred in the same paragraph (paragraph 7) to the fact that the nominal value of the bonds was US$4 billion and that the only other payment made in respect of the bonds to the knowledge of Falcon was an interest payment of approximately US$45,000.

67. In my judgement there is nothing in Borry Ltd’s complaints as to material misrepresentation of the facts.  It is acknowledged that there was an error in the skeleton in identifying the party who did the holding out of Mr Borry as chairman of Master Vision, and it seems clear that the value of the bonds was not a market value, it was an assessed or estimated value.  I do not believe either to be material however. 

68. The relevant fact in regard to Master Vision was the relationship between that group and Mr Borry.  It does not matter which of them held him out as being the chairman, what was of significance was that he was linked by evidence to Master Vision and, as I accept is established by the evidence before the ex parte judge, that Master Vision were suspected by financial authorities of operating fraudulently.

69. As to the basis for valuation of the bonds Mr Brandle’s affidavit made it clear that Morrison of Bawa was advised both by telephone and e‑mail of the payments which were to be made into Bawa’s account which comprised both the erroneous principal payment, and also an interest payment on the bonds in the amount of US$39,010.  The key component, and the truly material element of this is not whether the capital valuation attributed to the bonds was a market value, or value assessed in some other way.  The material fact is that the repayment purported to be a payment of principal, as well as not interest.  It cannot seriously be suggested that Bawa did not know what their entitlement under the bonds, included, and what it did not include as far as principal and interest is concerned.

70. It follows that I am not persuaded that the ex parte injunction should be discharged on the basis of any alleged misrepresentation by Falcon at the ex parte stage.

THE AVAILABLE DEFENCES

71. There are six such purported lines of defence which, according to the defendants, ought to have been pointed out by Falcon to the ex parte judge.  These are:

(1) the Swiss Law Defence;

(2) a defence based on what is described as the rule of banking law that, when bankers make payments at the request of customers within the terms of the mandate, the bank cannot recover the payment from the recipient on discovering that the balance in the customer's account is insufficient to meet the drawing (“the Banking Law Defence”);

(3) the “no trust defence”; being that the sum credited to Bawa’s account was not held on trust for Falcon and, therefore, Falcon cannot bring the claim against Borry Ltd;

(4) a defence that Borry Ltd had no knowledge of the alleged trust and could not therefore itself be liable as a constructive trustee (“the No Knowledge Defence”);

(5) a defence arising from an alleged change of position on the part of Borry Ltd since receipt of payment such that it would be inequitable to require Borry Ltd to repay Falcon (“the Change of Position Defence”); and

(6) a defence based upon the cause of action which Falcon has against SIX in respect of the principal payment such that assertion of a claim against Borry Ltd seeks double recovery (“the Double Recovery Defence”).

72. Certain of these defences have been discussed in the context of the strike out application, and little further need be said.  For present purposes the question is not whether these are defences which are likely to succeed at trial, but rather whether these matters which Falcon ought to have drawn to the attention of the ex parte judge, but did not.  That does require some consideration of the prospects of success, but only to the extent of considering whether the proposed defence is one that could be dismissed as insubstantial.

73. So far as the Swiss Law Defence is concerned, although, for the reasons I have referred to above, I am not persuaded at this interlocutory stage that this is a line of defence which appears likely to succeed, for the purposes of this application I have considered this as being more than insubstantial, and therefore ostensibly a matter that ought to have been placed before the judge at the ex parte hearing if it was one which could reasonably have been expected to be raised in due course.

74. Even so it must be understood in the context of a claim made against a Hong Kong company in relation to assets held in Hong Kong in circumstances in which, at the lowest, questions of a constructive trust under Hong Kong law certainly arise.  It is far from being self evident that a defence to such a claim might arise under Swiss law.

75. The further point made on behalf of Falcon is that this line of defence only emerged some six months after the ex parte order was made.  Mr Lam submits, in my view not unreasonably, that in circumstances in which the defendants themselves did not identify such a defence for some time, it was not unreasonable for Falcon not to have anticipated such a defence at the ex parte stage.  Put another way, I do not believe that this is a defence which a plaintiff could have reasonably expected to be raised had the defendant been present at the injunction application.

76. Turning to the Banking Law Defence Mr Lam submits that while the principle is not disputed, it has no relevance or application to the facts.  The argument, as advanced by Mr Wright on behalf of Borry Ltd is that the relationship between bank and customer is one of debtor and creditor, the customer holding a chose in action providing a right to demand payment from the bank.  A transfer of funds between banks involves a reduction of the rights of the customer of the transferor bank, and a corresponding enhancement of the rights of the customer of the transferee bank.  In circumstances in which a bank makes payment in the mistaken belief that there are sufficient funds in its customer’s account to cover the payment, then the customer becomes overdrawn and is liable to the bank.  In reliance on Chambers v Miller (1862) 13 CB (NS) 125, and by analogy with cheque cases, Mr Wright submits that Falcon's claim is hopeless.  I note that in Chambers v Miller a caveat to the general principle was expressed (by both Erle CJ and Byles J) in regard to circumstances where the customer might have obtained money to which he was not entitled; money paid for example under a mistake of fact.

77. Whether this principle makes Falcon’s claim hopeless or not ultimately is a matter for another day; the question for present purposes is whether this is a line of argument that should have been drawn to the attention of the ex parte judge.  In my view the answer to that question is clearly “no”.  The contention that the principles in relation to cheque payments set out in Chambers v Miller have application to the present facts is not supported by precedent nor, so far as I can see, for present purposes by Chambers v Miller itself.  I have considered the position carefully, but I fail to see how this line of argument precludes a claim made by Falcon.  Mr Lam submits, and I agree, that there is no clear explanation as to why Falcon should be taken to have lost a proprietary claim in equity against Borry Ltd simply because a claim against Bawa could be brought.  In those circumstances I do not think it was incumbent on Falcon to notify the ex parte judge of this potential defence.

78. The No Trust Defence has also been considered in the context of the strike out application.  What was advanced before the ex parte judge by Falcon was that the facts may give rise to a trust.  Reference was made to Westdeutsche and Papamichael in terms that reminded the court that it was the retention or dealing with money paid under a mistake after the recipient became aware of the mistake that was of significance.  That plainly encompasses the corollary that the trust might not arise if the requisite factual circumstances turn out not to exist.  I do not think that Falcon can be said to have failed to draw the attention of the court to such a possibility.

79. The same applies, in my view, to the No Knowledge Defence.  Falcon stated in the skeleton before the ex parte judge that Bawa had refused to disclose the nature and purpose of the transfer to Borry Ltd, and that Borry Ltd had remained silent also on that matter.  Falcon stated explicitly that it was unclear at that stage whether the transfer to Borry Ltd was gratuitous or whether consideration was given.  The skeleton did make submissions as to why it was “highly unlikely” that the transfer to Borry Ltd was one at arm’s length or bona fide, concluding that the circumstances strongly suggested that Borry Ltd would have been aware of the alleged breach of trust by Bawa, and was dishonestly assisting in the dissipation of the money.  It seems to me self‑evident that the ex parte judge would understand from this that the facts found in due course might evidence an entirely innocent course of dealing. 

80. It seems to me that much of Mr Wright’s criticism could have been defected had Falcon’s ex parte skeleton stated that the facts might turn out differently; Borry Ltd may have acted in good faith; and that Falcon may, at some stage, bring a claim against SIX.  I do not think this would have given the ex parte judge any more information than she already had.

81. The practice sometimes adopted of specifically listing possible defences at the ex parte stage is clearly helpful to the court. But where the defence is one arising out of facts not known to the applicant for an ex parte order then a bald statement that the facts might turn out differently is not likely to be helpful.  Where the factual position is uncertain, then it is the duty of the applicant for an ex parte order to make clear the strength or weakness of the evidential basis relied on in the application.  This will extend to presenting known facts which are not consistent with the claim the applicant is asserting or the relief which is sought.  It is not the applicant’s duty to hypothesise on potential alternative facts, however.

82. The submissions made by Mr Wright before me were, in large measure, directed to the balancing exercise which the judge would have undertaken in considering the strength of Falcon’s case, the gist being that matters relied on by Falcon ought not to have weighed with the judge.  Such matters are not relevant to the question whether or not Falcon failed to draw the judge’s attention to relevant matters.

83. The Change of Position Defence is somewhat remarkable.  Mr Wright submits that a defence is available to a person who has received money paid under a mistake of fact if that person’s position has so changed that it would be inequitable to require him to make restitution, in part or in whole.  It is submitted that it was highly probable that Borry Ltd would have so changed its position between the date of the transfer and the date of the application for the ex parte injunction that it would be inequitable to require restitution.  It is submitted further that the possibility of a change of position by Borry Ltd was obvious to Falcon since the whole premise of the application was that Borry Ltd would not retain the transferred funds indefinitely.

84. Almost as remarkable is the Double Recovery Defence.  Borry Ltd point to the fact that Falcon have reserved their rights to make a claim against SIX, and it is submitted that the recovery from SIX would preclude recovery from Borry Ltd.  Clearly it is correct that the court will not grant Falcon relief such as to provide for double recovery, but that could only arise as a defence if recovery against SIX, or any other party, had been made.  The evidence is that there has been no such recovery.

85. Neither the Change of Position Defence nor the Double Recovery Defence are matters of any substance in my judgement.  Falcon are not be criticised for not raising what appear to me to be red herrings before the ex parte judge.

Omission of relevant facts

86. Borry Ltd submits that Falcon failed to disclose to the ex parte judge all relevant factual matters.  Two matters are identified, one being the e‑mail of 29 September 2011 sent by a director of Falcon, one Marc Evequoz to Morrison, advising of the payment which was to be made, the other being the telephone conversation in which the same information was said to have been conveyed to Morrison.  It is suggested that since the e‑mail was drafted by Falcon, but Falcon did not notice that there was an error in that the payment included principal, then it would not have been obvious to Bawa either that there was an error.  The telephone conversation is said to go to the same point.

87. The e‑mail, and the fact that there was a telephone conversation, were both referred to explicitly in Mr Brandle’s affidavit, and the e‑mail was exhibited.  I do not agree that there was any omission, or certainly not one of any significance.

Conclusion on discharge

88. As appears above I am not persuaded that there was a failure or error of any significance in the presentation of evidence and argument before the ex parte judge.  I dismiss the application by Borry Ltd for a discharge of the injunction order.  I would add for completeness however that even if a different view were to be taken of any of the points canvassed on behalf of Borry Ltd such that the injunction ought to have been discharged, then I would have had no hesitation in immediately re‑granting the injunction.  In my view the facts and submissions properly presented to the ex parte judge justified the grant on that occasion, and the further facts before me only serve to reinforce the necessity and appropriateness of the injunction.

THE STAY APPLICATION

89. As summarised above Falcon seek a stay of the proceedings (other than the strike out and discharge applications considered above) until 11 May 2014.  The purpose of this stage is to facilitate compliance with an order issued by the State Attorney’s Office in Zürich on 11 November 2013.

90. The application is opposed by the defendants on the basis that Falcon has failed to establish that the balance of fairness and justice lies in favour of the grant of the temporary stay.  Mr Wright submits that the consequence of granting this stay would be to give Falcon the relief refused by Tang PJ, namely a stay pending the determination of Falcon’s application for leave to appeal to the Court of Final Appeal.

91. Mr Wright points out that the action was commenced over two years ago but has yet to reach the stage at which a Case Management hearing could properly be convened.  Any stay would therefore run contrary to the underlying case management objectives, of ensuring that the case is dealt with as expeditiously as reasonably practicable.

92. It is submitted that Falcon has not demonstrated that the “gag order” issued in Switzerland justifies the grant of a stay.  Falcon’s skeleton does not identify the precise evidence which is enjoined by the Swiss order, and the relevance is therefore speculative.  The suggestion by Falcon that this will inhibit reference to material in the witness statements is, in effect, premature since the proceedings are not at a stage where this will be of any relevance.  Even if the preparation of witness statement was affected by the Swiss order, provision could be made, if required, for supplemental statements at an appropriate stage after May 2014.

93. For its part Falcon, being a Swiss bank and subject to the jurisdiction of the Swiss authorities, is of course anxious to comply with the order which has been made.  The affidavit in support of the application explains that the order has been issued to prevent collusion between Mr Borry and Morrison in the criminal proceedings in Switzerland.  Mr Lam submits that Falcon would be hampered not only in the preparation of witness statements but also in the discovery process by complying with the gag order while at the same time proceeding with the present action.  It is acknowledged that the position could be ameliorated by further rounds of discovery and witness statements after the lifting of the gag order, but submitted that this would be neither desirable nor cost‑effective.

94. The stay would be for a period of approximately two months from the date of this judgement, and thus is a relatively short period.  It is submitted that the stay will be unlikely to cause prejudice to Mr Borry, and indeed Mr Wright points to no such prejudice. 

95. The approach I adopt is to seek to balance the convenience and fairness arising from either granting or not granting a stay as between the parties.  In doing so I seek to arrive at a course of action which will enable the litigation to proceed, so far as possible, in a logical, fair and cost‑effective manner.

96. The action to date, it appears to me will have been relatively expensive given the various interlocutory matters which have called for decision by the court, and in those circumstances the potential additional cost arising if the matter is not stayed weighs more heavily with me than might otherwise be the case.  I take account also of the relative brevity of the stay which is sought, and the inevitable delay which will be occasioned if the discovery or witness statements are to be revisited following the lifting of the Swiss order.  The fair approach it appears to me is for the state to be granted in the terms sought by Falcon.

Amendment of the Statement of Claim

97. Falcon’s summons seeking leave to amend the Statement of Claim was taken out close to the hearing before me, on 17 January 2014.  The application was opposed on behalf of the defendants.  It was submitted that leave to amend should be refused because the amendment failed to plead necessary material facts and was, in effect immaterial.  The reasons advanced on behalf of the defendants were, in effect the same reasons as were advanced in regard to the strikeout application.  It was submitted that the proposed amendments would not materially “improve” the pleading which remained amenable to being struck out.  In those circumstances leave to amend should not be granted.

98. The principles relevant to such an application are well known.  Primarily, amendments should be allowed which are necessary to enable the real questions between the parties to be decided.  Amendments should not ordinarily be refused if the necessity for the amendment arises out of a mistake by the party applying for leave to make the amendment.  Thirdly, lateness in making the application for leave is not a determinative factor in whether or not leave should be granted provided that allowing the amendment will not unduly prejudice the other party.  Fourthly, an appropriate order as to costs may constitute a remedy for prejudice caused by the proposed amendment.

99. As appears above I do not agree with the proposition that the Statement of Claim was deficient as alleged.  The amendments serve to identify better the issues that exist between the parties and facilitate the formulation of an “agenda” for the trial.  The defendants are not prejudiced by the making of the amendments, and will be, in any event, compensated in costs for any consequential amendments to the defence that may be occasioned.

100. Accordingly it is appropriate for me to allow the amendment, subject to the usual order (which out of an abundance of caution I make as an order nisi), that the costs of and occasioned by the amendment be to the defendants.

COSTS

101. I indicated at the conclusion of the hearing that I would deal with costs on the basis of orders nisi which I now do.  In regard to each summons there is no reason advanced, nor does the evidence suggest any circumstances why, costs should not follow the event.

102. It follows that the costs of each of the discharge, strike out and stay summonses are to be to Falcon.

	(Anthony Houghton SC)
	Recorder of the Court of First Instance
	High Court

Mr Douglas Lam, instructed by Lipman Karas, for the plaintiff

Mr Colin Wright, instructed by Stephenson Harwood, for the 1^st and 2^nd defendants

HCA 1934/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1934 OF 2011

____________

BETWEEN
	FALCON PRIVATE BANK LTD	Plaintiff
and
	BORRY BERNARD EDOUARD CHARLES LIMITED	1st Defendant
	BORRY BERNARD EDOUARD CHARLES	2nd Defendant
____________

Before: Deputy High Court Judge Lok in Chambers

Date of Hearing: 16 December 2013

Date of Decision: 16 December 2013

_____________

D E C I S I O N

_____________

1.  This is an application to adjourn the hearing date of the striking out summons and the summons for the discharge of the Mareva injunction fixed before Mr Recorder Houghton on 21 January 2014.

2.  For the purpose of this application, the plaintiff accepts that this court should not make a general order to stay the execution of the judgment of the Court of Appeal pending the appeal to the Court of Final Appeal.  This is a matter for the Court of Appeal.

3.  In such case, the plaintiff only seeks to stay the proceedings herein on the ground of the gagging order issued by the Swiss Authority.  In this regard, the parties may seek to file further evidence about such issue, and so it is not appropriate for me to make a final determination on the matter.

4.  Mr Lam, counsel for the plaintiff, then seeks to vacate the hearing date on 21 January 2014 based on case management consideration.  Mr Lam suggests that two days may not be sufficient for the hearing itself.

5.  However, I am not prepared to vacate the hearing date because such decision may in effect amount to, or may be regarded as, a stay of the execution of the judgment of the Court of Appeal.

6.  Further, I have managed to reserve one more day for the hearing before Mr Recorder Houghton and so this case management consideration is no longer a valid one.

7.  It would be very difficult for the court to find an additional hearing date before 21 January 2014, and so I adjourn the plaintiff’s stay application to be heard by Mr Recorder Houghton on 21 January 2014 together with the summons to discharge the Mareva injunction and to strike out the plaintiff’s claim.

(David Lok) Deputy High Court Judge

Mr Douglas Lam, instructed by Lipman Karas, for the plaintiff

Mr Colin Wright, instructed by Stephenson Harwood, for the 1st and 2nd defendants

HCA 1934/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1934 OF 2011

____________

BETWEEN
	FALCON PRIVATE BANK LTD	Plaintiff
and
	BORRY BERNARD EDOUARD CHARLES LIMITED	1st Defendant
	BORRY BERNARD EDOUARD CHARLES	2nd Defendant

____________

Before: Hon To J in Chambers (Open to Public)

Date of Hearing: 8 August 2013

Date of Decision: 8 August 2013

Date of Reasons for Decision: 8 August 2013

________________________

REASONS FOR DECISION

________________________

 

Introduction

1. This is the adjourned hearing of the plaintiff’s application by summons dated 22 March 2013 seeking to have this action stayed until the final determination of the defendants’ appeal in CACV 42 of 2013 (“Stay Summons”). 

2. The background and the progress of this litigation can be found in the various decisions handed down hitherto, in particular paragraphs 1 to 15 of my decision dated 27 January 2012.  Insofar as is relevant to the present application, the background is as follows. 

3. On 29 September 2011, the plaintiff credited US$15,760,320 into the account of Bawa by mistake.  On the instruction of Bawa, it transferred US$10 million to the account of the 1^st defendant with Standard Chartered Bank in Hong Kong.  The said sum was then dissipated by the 2^nd defendant who is the sole shareholder and director of the 1^st defendant, a HK$10 company.  On 10 November 2011, the plaintiff made an ex parte application before Deputy High Court Judge Au-Yeung, as she then was, and obtained a Mareva injunction order and disclosure order against the 1^st defendant.  The disclosure was never fully complied with and the plaintiff had to seek further orders requiring the defendants to comply with the disclosure order on five occasions.  In January and February 2012 respectively, the defendants took out a summons seeking to strike out the plaintiff’s statement claim and the action (“Strike-out Summons”) and to discharge the Mareva injunction (“Discharge Summons”). 

4. At a hearing on 22 February 2012 in connection with the plaintiff’s application for disclosure, I criticised Mr Wright, counsel for the defendants, of misleading the court.  This led to the defendants issuing a summons on 10 May 2012 seeking my recusal from hearing the Strike-out Summons and Discharge Summons (“Recusal Summons”).  The Strike-out Summons, Discharge Summons, Recusal Summons and some other summonses were heard together on diver occasions in May and June 2012.  On 7 June 2012, I dismissed the Discharge Summons and Recusal Summons but allowed the Strike-out Summons only in respect of one sentence in the pleading (in substance dismissing that summons as well) and ordered costs against the defendants.  Those costs were assessed summarily in the sum of HK$2.94 million.  On 13 November 2012, I dismissed the defendants’ application for leave to appeal my order made on 7 June 2012.

5. On 27 December 2012, the plaintiff filed a summons seeking an unless order for payment of the outstanding costs which have accumulated to over HK$3 million.  The application was heard on 29  January and 4 February 2013.  On 31 January 2013, the defendants filed a summons seeking further and better discovery against the plaintiff (“Further Discovery Summons”), which I refused to hear together with the application for unless order on 4 February 2013 due to insufficient time. On 4 February 2013, I made an order that unless the outstanding costs are paid by 4:00 pm on 25 February 2013, the defendants’ defence be struck out and judgment be entered against them.

6. In the meantime, on 1 February 2013, Yuen JA dismissed the defendants’ application for leave to appeal in HCMP 2693/2012 on paper.  Then on 7 February 2013, the defendants renewed their application for leave to appeal in HCMP 2693/2012 before the Court of Appeal.  On 28 February 2013, in CACV 42/2013, the Court of Appeal granted leave to the defendants to appeal against my dismissal of the Recusal Summons (“Recusal Appeal”) and indicated that if the Recusal Appeal succeeds, my orders made on 7 June 2012 will be set aside and the Strike-out Summons and Discharge Summons will be heard by another judge.

7. In the light of the indication of the Court of Appeal, the plaintiff filed the Stay Summons, seeking a temporary stay of the proceedings until the conclusion of the appeal.  At the time, the defendants’ Further Discovery Summons is still to be heard.

8. At the first hearing of the Stay Summons on 27 March 2013 (“the first hearing”), there were before the court, the 7^th Affidavit of Kelly Naphtali filed by the plaintiff on 22 March 2013 in support of the stay application and the 7^th Affidavit of Malcolm Kemp filed by the defendants on 26 March 2013 in opposition.  Mr Wright, counsel for the defendants, asked for an adjournment to enable further evidence to be filed.  I granted that application, gave consequential directions and ordered an interim stay of the action pending this hearing. 

9. At that first hearing, Mr Wright also objected to my continued conduct of these proceedings at the adjourned hearing on the grounds that the Court of Appeal had granted leave to the defendants to appeal my decision refusing to recuse myself from hearing the defendants’ Strike-out Summons and Discharge Summons.  After hearing counsel’s submission, I rejected Mr Wright’s argument and directed that the adjourned hearing be listed before me.

10. Subsequently, the defendants filed the 8^th Affidavit of Malcolm Kemp on 24 April 2013 and the plaintiff filed the 8^th Affidavit of Kelly Naphtali on 8 May 2013.

11. On 15 July 2013, the defendants’ solicitors, Stephenson Harwood (“SH”), wrote to the plaintiff’s solicitors, Lipman Karas (“LK”), seeking their agreement to have this hearing listed before another judge.  LK did not respond. 

12. Then six days before this hearing, SH wrote an eleven-page letter to this court to renew the defendants’ application for me to recuse myself from this hearing (“Renewed Recusal Application”).  I was not persuaded by the letter and considered it appropriate to deal with the application at the adjourned hearing.

The Renewed Recusal Application

13. At the adjourned hearing, Mr Wright confirmed that the defendants wished to pursue the Renewed Recusal Application made in SH’s letter.  This application is a re-litigation of issues which had been decided at the first hearing and other hearings.  Most of the arguments had been advanced before me at the first hearing and rejected by me.  SH raised five major points. 

14. First, SH focused on my criticism of Mr Wright’s submission as to the meaning of the phrase “possession, custody and control” in the order of Deputy High Court Judge Lok.  They repeated their argument in their earlier letter dated 15 July 2013 on the same issue.  In brief, they argued that at the hearing on 22 February 2012, Mr Wright drew a distinction between (i) the obligation imposed on the defendants by DHCJ Lok’s order to disclose documents in an affidavit and (ii) the ordinary obligation imposed on a party required to give discovery.  It was in that context that Mr Wright argued that the defendants were not required by the terms of the order to disclose any document which they did not have.  At the hearing on 22 February 2012, this was perceived as a very dumb and unarguable point in the light of the terms of the order and the course the defendants took.  The argument was dismissed instantly with the criticism now complained of. 

15. Paragraphs 1 and 2 of DHCJ Lok’s order read as follows:

“1. The 1^st Defendant (acting by a proper officer) and the 2^nd Defendant do within 14 days of the date hereof file a further affidavit in full and proper compliance with paragraph 4 of the Order of the Deputy High Court Judge Au-Yeung dated 10 November 2011, disclosing to the Plaintiff’s solicitors:

(giving certain particulars)

  2.   In the event that the documents referred to in paragraph 1 is not in the possession, custody or control of the 1^st or 2^nd Defendant, the Defendants have to explain and provide the whereabouts of such documents in the affidavits.”

 (My emphasis underlined.)

The Order of the DHCJ Au-Yeung dated 10 November 2011 was the standard form order.  Paragraph 4(3) of that order reads:

“Exhibiting true copies of all supporting documents in the 1^st Defendant’s custody, possession and/or power in respect of the matters in paragraph 4(2) above, including (but not limited to) relevant banking and accounting documents, correspondence, and receipts.” (My emphasis underlined.)

It must be amply clear that by requiring full compliance with paragraph 4 of the order of DHCJ Au-Yeung, paragraph 1 of the order of DHCJ Lok expressly required the defendants to disclose certain documents in their possession, custody or control, and not just documents actually in their physical possession.  Paragraph 2 of the order of DHCJ Lok put the matter beyond doubt by requiring the defendants to explain and provide the whereabouts of such documents if those documents were not in their possession, custody or control.  It was not open to Mr Wright to draw the distinction as he did.  The expression, “possession, custody or control” must be given their time honoured meaning.

16. The defendants did not comply.  But, by their summons dated 17 January 2012, they asked for extension of time to comply with the order of DHCJ Lok because of their concern that the affidavits they serve would be supplied to the Swiss police as result of the order of Sakhrani J.  They wanted to defer disclosure until they had the opportunity to consider the materials presented to Sakhrani J at the ex parte hearing and to challenge that order (see paragraph 24 of my decision dated 27 January 2012).  It must be noted that it was not their case that the documents were not in their possession, custody or control.  But at the hearing on 22 February 2012, counsel turned around to make the above unarguable point.  Hence, the criticism was made.  It was not made as a result of bias whether against the defendants or counsel. 

17. Second, SH argued that I was misled by the plaintiff that the convertible note deposited by Bawa with the plaintiff had a market value of US$2.5 million and as a result wrongly dismissed the defendants’ Strike-out Summons and Discharge Summons; and that the plaintiff concealed the fact that that valuation was not supported by any evidence.  The market value of the convertible note is relevant as to Bawa’s knowledge of the plaintiff’s mistake when its account was credited with US$15,760,320.  I had carefully considered the issue of Bawa’s knowledge of the plaintiff’s mistake in paragraphs 81 to 89 of my decision dated 9 July 2012.  There was a lot of circumstantial evidence pointing to Bawa’s knowledge of the mistake, the least of which was the inference to be drawn from the “market value” of the note as assessed by the plaintiff in September 2011. I have made my decision.  If I was wrong and I say I was not, there is nothing I can do about it now, nor is it a reason that I should recuse myself from hearing the Stay Summons.  Whether I was wrong or likely to be wrong such that leave to appeal my decision in the Discharge Summons and Strike-out Summons should be granted is a matter for the defendants to argue before the Court of Appeal and not before me.

18. Another issue relating to the market value of the note is that SH argued that LK concealed the basis of the calculation, including the assumptions upon which the calculation was based.  SH argued that the information should be made available before the Court of Appeal at the hearing on 20 August 2013. Assuming LK had concealed the basis of the calculation, it is not a reason that I should recuse myself from hearing the Stay Summons.

19. Third, SH argued that a fair-minded and informed individual would conclude from paragraph 6 of my decision dated 27 March 2013 that I have pre-determined the question whether the defendants’ Discovery Summons should be dealt with before the determination of the appeal on 20 August 2013 and hence conclude that I had pre-determined the key issue on the Stay Summons.  I said in paragraph 6 of that decision: 

“6. Furthermore, the Defendants’ insistence to have the present application determined before the appeal was logistically illogical. If the appeal is allowed, the Defendants’ Discharge Summons and Strike Out Summons will be restored and heard de novo by another judge. Then unless and until those summonses are re-determined and in favour of the Plaintiff and not appealed by the Defendants or their appeal is dismissed, there will be no question of further discovery as sought by the Defendants or stay of proceedings as sought by the Plaintiff. The discovery will have to wait until the final re-determination of those two summonses. If the re-determination results in the Plaintiff’s statement of claim being struck out and the action dismissed, any discovery sought by the Defendants will be a waste of time and costs for both parties. Thus, there is no real or useful purpose to be served to have the Plaintiff’s application determined before the hearing of the appeal. The course taken by the Defendants would only generate unnecessary costs. Hitherto, they were unable to pay any costs awarded.”

Such argument is frivolous and vexatious.  There, I was postulating the result of the Recusal Appeal, first one way and then the other to see what would be gained by a determination of the Further Discovery Summons before the hearing of the appeal.  Courts do that every day in deciding whether to grant interlocutory injunctions.  I fail to see any merit in SH’s argument.

20. Fourth, SH referred to S v L CACV 205/2007 in which the Court of Appeal held that the comments made by the judge in an earlier decision in the same action meant that the only available course was for the judge not to hear the case any longer.  SH argued that in view of my comment in paragraphs 22 and 44 of my decision handed down on 21 June 2013, I should recuse myself because a fair-minded and informed individual would conclude that I had pre-determined that the defendants only had a “shadowy” defence. 

21. Such argument is misconceived.  S v L is a decision on its own fact by applying the fair minded and well-informed individual test.  There, the judge drew upon his experience from other cases and made a general comment that it was rational for an expatriate who had been married to a person of Chinese race with connections in the Mainland to fear for his safety.  That comment was what the Court of Appeal found offending. Rogers VP said at paragraph 19:

“19.  …  I have no doubt that any fair reading of the decision of 24 July 2006, with particular reference to, but reading it in its context, paragraph 29, would lead the fair minded and well-informed observer to conclude that the judge considered it rational that an expatriate married to a person of Chinese race, albeit with tenuous connections to the Mainland, should fear for his safety, if not his life, should there be any major disagreement.  This is emphasised by the fact that the judge considered that the fears of the husband should be accommodated.  I would add that the reference to “ a person of Italian extraction” would be understood, in the context, as being to someone of violent criminal tendencies, despite the fact that the reference really would not stand up to any rational analysis.

20.   These matters only have to be stated for it to be appreciated that there is no other course in this case other than for the judge not hear this case any longer.  Not only are there racial implications, but those implications can only be perceived as having been expressed because of the relevance to the parties.  The fair minded and informed observer would conclude that there is a real possibility of bias.”

22. In my decision of 21 June 2013, I was considering the court’s jurisdiction in making unless order to enforce orders for payment of costs in which merit of the parties’ case is one of the necessary factors to be considered in the exercise of that jurisdiction.  My decision was based on the facts of the present case and not by relying on my experience in another case or some general comment.  In fact, it is not uncommon for judges who had granted interlocutory injunctions based on merit of the case to have further conduct of the proceedings including the hearing of the permanent injunction. I do not see how a fair-minded individual would criticise my further conduct of the case. 

23. Fifth, SH argued that in light of the Court of Appeal’s decision in granting leave to appeal my dismissal of the Recusal Summons, the circumstances of present case raise a serious question of whether there is an appearance that I was biased against the defendants.  They therefore argue that I should honour the decision of the Court of Appeal by consulting the Chief Judge in accordance with paragraph 50 of the Guide to Judicial Conduct and recusing myself from hearing the Stay Summons.  Paragraphs 49 and 50 of the Guide to Judicial Conduct are pertinent:

“49. Consideration only needs to be given to the question of disqualification if the circumstances present a real possibility that the apparent bias rule may apply. Judges should not yield to tenuous, trivial or frivolous grounds and should not accede too readily to suggestions of apparent bias. If they do, this would place a burden on a judge’s colleagues and may encourage parties to believe that by seeking disqualification, they may be able to have their case transferred from a judge whom for one reason or another they may wish to avoid.

50.   Where the circumstances do raise a question of apparent bias, a judge may wish to consult colleagues and the Court Leader for their views, and should do so when in doubt.  However, it is the ultimate responsibility of the judge to decide for himself or herself whether disqualification is required.  That decision is made applying the apparent bias test.  The judge must consider the position objectively from the viewpoint of the reasonable, fair-minded and well-informed individual and ask whether such individual would conclude that there is a real possibility that the judge would be biased if he or she were to proceed to hear the case.”

24. It was unfortunate that leave to appeal my dismissal of the Recusal Summons was granted by the Court of Appeal.  I accept that in the light of that decision the circumstances present a real possibility of apparent bias.  It would be prudent for me to consult colleagues and the Chief Judge, but only if I am in doubt.  For reasons as explained in my decision dated 9 July 2012, I am not in doubt.  I had applied the appropriate test in making my decision.  Not with the least disrespect to the Court of Appeal, I am satisfied that if the circumstances of the case were fully understood in their proper context instead of in the context of hearing an application for leave to appeal, the reasonable, fair-minded and well-informed individual would not conclude that there was a real possibility that I would be biased if I were to proceed to hear the case.  It is important in a case like this, the judge should not yield to tenuous, trivial or frivolous grounds and should not accede too readily to suggestions of apparent bias.

25. It is inconceivable that my criticism of counsel could have been taken by the defendants to the length that they took.  In my view, the defendants were searching ingenuously for criticisms in my decision as a “present help in trouble” so as to launch an attack as its best means of defence in a hopeless case.  I echo the observation of Hunter JA relating to material non-disclosure in Wo Fung Paper Making Factory Ltd And Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346 at 357:

“I turn now to the two principles I conceive to be relevant, in relation to non-disclosure. First the court’s power to discharge any order obtained ex parte for material non-disclosure is salutary and necessary. As one of the earlier cases shows, ex parte Polignac [1917] 1 KB 486, it is there for the court’s own protection. It is necessary to prevent its process being abused. Secondly, there is another equally significant principle in this jurisdiction. This is to make sure that the court does not get itself in a position of what might be called “counter-abuse”: where this sort of point is regarded by litigants as “a very present help in trouble”; and where problems arise on the substance to resort to attack as the best method of defence. …

…

… I am happy to adopt the observations of Macdougall, J who at p 1191 says:

“It would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the court have intended to give active encouragement to undeserving defendants to search ingeniously for facts which a plaintiff may innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge [the original order].” ”

(My emphasis underlined.)

In my view, the recusal application is an abuse of process, an attempt to unsaddle a judge whom the defendants think understood the case too thoroughly and wish to avoid.

26. After considering SH’s letter and Mr Wright’s submission and for reasons stated above, I am satisfied that the reasonable, fair-minded and well-informed individual would not conclude that there was a real possibility that I would be biased if I were to proceed to hear the case. Accordingly, I dismiss the application and continue with the hearing of the Stay Summons.

Principles applicable to stay of proceedings

27. The principles upon which the court will grant a stay of proceedings are well-established and conveniently set out by Kwan J, as she then was, in Tan Man Kou and Another v Chime Corporation Ltd and Others (unreported) [2005] HKCU 361, 11 March 2005 at paragraph 14 as follows:

“The correct approach … in an application for a temporary stay of proceedings is ‘to consider the balance of convenience and fairness as between the parties’ … the court should exercise its discretion in such a manner ‘to ensure that its procedures are used in a logical, fair and cost-efficient manner’ … The question at hand is not a question of deprivation of the right of a litigant to proceed altogether, but a question of case management.”

The burden of establishing that the balance is in favour of the grant of stay is of course on the applicant, ie the plaintiff herein.  These principles were followed in post CJR cases (see Lau Pik Ngai v To Chun Fong Albert [2009] HKCU 1290, 28 August 2009, per Marlene Ng DJ).  Thus, the decision is a case management decision to be made by balancing convenience and fairness as between the parties. 

The issue

28. The plaintiff is seeking a temporary stay of the action until the determination of the appeal whereas the defendants are pressing for determination of the Further Discovery Summons before the hearing of the appeal.

29. In view of the indication of the Court of Appeal, a stay of the action pending the outcome of the appeal, which hearing is imminent, has obvious advantage and convenience for both parties.  Counsel have not argued otherwise.  In addition, for the plaintiff, to proceed with the determination of the Further Discovery Summons as insisted by the defendants before the determination of the appeal will only result in further costs being incurred, which in all probabilities will be irrecoverable.

30. The thrust of the defendants’ objection to the stay application as advanced by Kemp in his 8^th Affidavit is that a stay would be highly unfair to the defendants as it prevents the determination of the defendants’ Further Discovery Summons and allows the plaintiff to avoid being required to provide particulars of the statement of claim in response to the defendants’ request for further and better particulars served on 8 February 2013.  The issue, as Mr Wright puts it, is whether the balance of convenience and fairness require the defendants to be given the opportunity to require full compliance by the plaintiff with its discovery obligations in advance of the hearing of their application for leave to appeal listed for hearing before the Court of Appeal on 20 August 2013.  It seems that Mr Wright accepts that the stay would only have an impact on the defendants’ application for leave to appeal in the event that they are unsuccessful in the Recusal Appeal, but not if the Recusal Appeal is allowed.

31. Despite the obvious advantage and convenience of a stay, I think on the facts of this case, fairness as between the parties must override convenience.  In my balancing exercise, I shall focus on the issue of fairness.

The discovery sought in the Further Discovery Summons

32. Two classes of documents are sought under the summons: items (1) to (4) which relate to documents concerning steps taken by the plaintiff against SIX SIS, Bawa, Morrison and Jaeger and/or other entitles or persons to recover the sum of US$15,760,320 mistakenly paid by the plaintiff to Bawa; and item (5) which relates to documents concerning the plaintiff’s commercial calculation of the market value of the note.

33. On the face, it is plainly obvious that steps or proceedings taken by a victim to recover damages from other wrongdoers are irrelevant as to whether the wrongdoer before the court should be ordered to recompense victim, subject to there being no double recovery; or be restrained from disposing of his assets so that after a proper determination of the case there will be assets available for paying damages, if the victim should be successful; or be ordered to disclose the whereabouts of the assets taken from the victim for the purpose of tracing.  However, Kemp sought to justify discovery in paragraph 13 of his 8^th Affidavit as follows:

“The prospect that the Plaintiff would obtain a recovery from a different source in respect of its alleged loss is directly relevant to the balance of convenience and therefore to the question whether the Injunction Order should be discharged. It would be highly unjust if the Plaintiff were able to keep hidden from the Defendants and the Court the steps that it has taken to obtain compensation from an alternative source.”

34. This argument is wholly unmeritorious and is contrary to well established authorities.  In Tang Man Sit v Capacious Investments [1996] 1 All ER 193 at 198-199, the Privy Council held that an action against one defendant is no bar to an action against another.  Kemp’s argument had been advanced by Mr Wright before this court and rejected by me when dismissing the Discharge Summons (see paragraphs 161 and 162 of my decision dated 9 July 2012).  The same argument was repeated by Mr Wright when resisting the plaintiff’s application for unless order in relation to payment of outstanding costs and again rejected.  In paragraph 48 of my decision dated 21 June 2013, I dealt with that argument at greater length.  I said: 

“Next, Mr Wright says that the list of documents contains no documents relating to the steps taken by the Plaintiff to recover from SIX, Bawa and Morrison the amount credited to Bawa’s account as a result of the Plaintiff’s mistake. He argues that rather than candidly disclosing to the court the amount that the Plaintiff expects to recover from SIX, Bawa and Morrison, the Plaintiff instead sought to obtain judgment against the Defendants for the full amount of US$10 million. He argues that the inference to be drawn is that the present application is part of a strategy by the Plaintiff to obtain judgment against the Defendants for the full amount of its claim without a detailed examination of the merits of its case at trial. Similar criticism has been advanced by Mr Wright in a different context and dismissed. It is not for the defendant or wrongdoer to dictate against whom the Plaintiff should pursue his remedy. All evidence suggests that SIX was the victim of a fraud of which at least Morrison and Bawa were parties. While SIX is under a civil liability to indemnify the Plaintiff’s loss, it is up to the Plaintiff and SIX to agree as between themselves the extent of that indemnity. It is also up to them to agree to turn to SIX only as the last resort when the Plaintiff has exhausted all remedies against the Defendants and other parties to the fraud. I was informed by counsel that Bawa was or is in the course of winding up. It is also doubtful if recovery against Morrison and, I should add, Jager would prove to be sufficient to compensate the Plaintiff’s loss. Provided the Plaintiff is not seeking double recovery, there is nothing wrong to seek judgment against the Plaintiff for the entire sum. The 2^nd Defendant has confirmed that the 1^st Defendant has no asset except for the sum of US$2,201.07 in its bank account with SCB HK. As the discovery indicates, any judgment against the Defendants is likely to be empty. In my view, the Plaintiff’s neglect in providing a fuller list of documents weighs little in balancing where the interest of justice lies. The Defendants are only repeating their tactics of resorting to attack as their means of defence in a hopeless situation.”

I adopt that paragraph.  Who to sue and against whom to recover is a matter for the victim.  For reasons as explained in the passage of my decision quoted above, the course taken by the plaintiff is entirely proper and reasonable.  There is no question of double recovery as Brandle has confirmed in his 5^th Affidavit that the plaintiff has not obtained any recovery from SIX in respect of the sum paid to Bawa or any part of it.

35. Though this is not the occasion for determining the Further Discovery Summons, for reasons as I have given above, items (1) to (4) are obviously not relevant for the purpose of the present application.  These items will not be considered in my balancing exercise. 

36. Item (5) relates to documents concerning the plaintiff’s commercial calculation of the market value of the note after the discovery of the mistake on 7 October 2011.  The disclosure sought by the defendants arose under the following circumstances. 

37. At the hearing of the ex parte application for Mareva injunction and disclosure order, Mr Lam, counsel for the plaintiffs, relied on the market value of the convertible note as evidence on which the inference of Bawa’s knowledge of the plaintiff’s mistake was drawn.  At paragraph 11(1) of his skeleton submission, Mr Lam asserted:

“Such a mistake should have been obvious to Bawa, given that the relatively insignificant balance in the Account prior to the Principal and Interest Repayments and the fact that the market value of the Bonds was only about US$2.5 million.”

That submission is supported by the draft 1^st Affidavit of Brandle in which Brandle said at paragraph 7:

“… based on further enquiries, the [Plaintiff] today attributes a market value of approximately US$2.5 million to the [note].”

In his 4^th Affidavit, Brandle also stated that the note had a market value of approximately US$2.5 million “based on a commercial calculation made by the [plaintiff] after the mistake was discovered”.  The same allegation is repeated in the plaintiff’s statement of claim. 

38. At the hearing of the Strike-out Summons and Discharge Summons in May and June 2012, counsel referred to these and other affidavits and argued extensively about Bawa’s knowledge of the plaintiff’s mistake.  The evidence showed that from the Portfolio Valuation dated 11 July 2011 issued by the plaintiff to Bawa, the plaintiff regarded the market value of the note as US$2.34 million as declared by Bawa.  In my decision dated 9 July 2012, I found that Bawa had knowledge of the plaintiff’s mistake in view of the approximate value of the note and the huge payment, and many other reasons.  It should be noted that the weight to be given to this issue is but minimal.

39. It was against the above background that SH requested the plaintiff to disclose the documents relating to the enquiries it had allegedly undertaken relating to the valuation of the note.  LK replied that they had written to the plaintiff and agreed that if documents existed they “may be discoverable in the future”.

40. As the litigation progressed, on 13 November 2012, Master de Souza ordered the plaintiff to file and serve by 4:00 pm on 16 November 2012 its List of Documents setting out all the documents which are or have been in the plaintiff’s possession, custody or power relating to the matters in question in the action.  A very comprehensive list was filed by the plaintiff, but it did not include any document relating to or evidencing the commercial calculation of the market value of the note made after the mistake was discovered.  On 31 January 2013, the defendants took out the Further Discovery Summons. 

41. On 27 February 2013, LK wrote to SH explaining that the plaintiff did not have the document sought in item (5) of the Further Discovery Summons and that the plaintiff estimated the value of the note based on online information provided through Brown Brothers Harriman & Co which was not saved or printed.  LK indicated that these matters will be further developed in the plaintiff’s witness statements in due course.

42. In their letter dated 15 July 2013, SH did not accept that information viewed online is not “document” within the meaning of discovery and insisted that the information should be included in the plaintiff’s list of document.  In their reply dated 6 August 2013, while not accepting SH’s proposition, LK agreed to file a supplemental list of documents listing that information in Schedule II if and when the interim stay ordered and any subsequent stay is lifted.  Thus, the parties’ dispute relating to discovery of item (5) was essentially resolved. The outstanding dispute is whether the disclosure should be made now or after the hearing of the appeal.

43. Unlike items (1) to (4), which are obviously irrelevant for the action, I assume item (5) is relevant.  In view of the concession made by LK, I also assume the online information as document and is discoverable.  I shall proceed with the balancing exercise on the above basis.

The balancing

44. First, Mr Wright argues that the plaintiff is in breach of their discovery obligation and there is no reason why they should continue to breach the discovery order until after conclusion of the appeal. This is a minor point only.  The real issue here is not whether there should be discovery, but whether the defendants’ Further Discovery Summons should be heard before the appeal, which as Mr Wright accepts is a case management decision to be made by balance of convenience and fairness as between the parties.  Invariably, the effect of a stay is to suspend the performance of certain obligations, including compliance of an order.  Of course, whether there was breach of a court order is an element to be considered.  But, in an appropriate case, balance of convenience and fairness may require compliance of court orders to be delayed or breach tolerated.

45. On the facts, I do not think there was any breach of Master de Souza’s discovery order.  A party’s obligation under such an order is to exchange lists of documents.  The order is a time order.  So long as the list is not illusory and disclosure made in good faith, the order is complied with (see: Reiss v Woolf [1952] 2 QB 557).  If a party disputes the sufficiency of the list, it is open to him to seek specific delivery.  Here, a comprehensive list was disclosed.  LK gave an explanation why there was no document in respect of the valuation and that the plaintiff estimated the value of the note by using online information from Brown Brothers Harriman & Co without saving that information or printing a hard copy.  They promised to show the calculation in the witness statements to be filed in due course.  They disputed if such information is “document” within the meaning of Order 24 rules 1 and 2 and subject to discovery, but nevertheless were prepared to give a supplemental list of document if the interim stay and any subsequent stay are lifted.  I do not find it necessary to determine if the information is “document” as this is not the occasion to consider the Further Discovery Summons.  In any event, there is insufficient evidence for me to make such a determination.  But I am satisfied that there was a genuine dispute as to whether the information is discoverable and it is wrong to say that the plaintiff was in breach of the discovery order. I would not take the plaintiff’s initial refusal to disclosure against them.  On the other hand, as at that date of this hearing, the defendants have still not fully complied with disclosure orders made against them.

46. The more substantial argument of Mr Wright is that compliance by the plaintiff with its discovery obligation is highly material to the issues on the applications for leave to appeal my dismissal of their Strike-out Summons and Discharge Summons to be heard by the Court of Appeal on 20 August 2013.  This is analogous to the objection raised by Kemp in his 8^th Affidavit.  I shall test this proposition against the postulated outcome of the appeal, first one way and then the other.

47. If the Recusal Appeal is allowed, my orders dismissing the defendants’ Strike-out Summons and Discharge Summons will be set aside and the summonses will be heard de novo by another judge.  There will be no question of application for leave to appeal my orders.  It will then be open to the defendants to apply to the judge then hearing the summonses for further and better particulars (no application has yet been issued) and/or for the Further Discovery Summons to be heard before, after or at the same time as the Strike-Out Summons and Discharge Summons.  No delay or inconvenience will be caused to the defendants, except those as a result of my decision in dismissing the Recusal Summons.  Indeed, Mr Wright has not advanced any argument that the defendants would suffer any unfairness if the Recusal Appeal is successful.

48. In the alternative scenario that the Recusal Appeal is dismissed, the Court of Appeal will go on to consider the application for leave to appeal my dismissal of the Strike-out Summons and Discharge Summons.  As submitted by Mr Lam, it is difficult to see how or why discovery under the Further Discovery Summons would assist the defendants with their application for leave to appeal my dismissal of the Strike-out Summons.  A strike-out application proceeds on the basis of pleading and not evidence and on the basis of the statement of claim in the form as it stands.  Either the statement of claim is bad and is liable to be struck out or it is not, in which case, the Strike-out Summons will have to be dismissed again.  The discovery sought under the Further Discovery Summons will not improve the defendants’ application for leave to appeal my dismissal of their Strike-out Summons.  The request for further and better particulars is also irrelevant.

49. As for the application for leave to appeal my dismissal of the Discharge Summons, Mr Wright argues that the online information and calculation will show how the valuation of the note was assessed.  If the information and calculation indicate that the valuation is inaccurate, it would be a material consideration which the plaintiff had failed to disclose to the ex parte judge.  The Mareva injunction is therefore liable to be discharged for the plaintiff’s breach of its duty of full and frank disclosure and material non-disclosure. 

50. Despite the apparently persuasive way Mr Wright puts it, it is apparent that neither Mr Wright nor the defendants have their own valuation of the note.  Mr Wright’s submission is put in supposition terms.  The discovery is clearly a fishing exercise.  Mr Wright argues that the defendants are entitled to know the assumptions used in the valuation and the method of valuation so as to verify the correctness of the valuation.  He also argues that there was no market for this type of note and it was misleading for the plaintiff to have assigned a value as market value, thereby misleading the ex parte judge that there was a market for the note.  He submits that if there was a doubt as to the valuation, it should be brought to the notice of the ex parte judge.  All these arguments had been rehearsed before me at the hearing of the summonses.  In his affidavits, Brandle disclosed how the valuation was arrived at.  In particular, it was also based on the value declared by Morrison on behalf of Bawa which was in turn based on the purchase price of the note when it was bought in July 2011.  Mr Wright argues that there was a tendency on the part of Morrison to understate the value of the note in order to minimise the bank charges.  That is speculation to the extreme.  If the defendants want to dispute the valuation, they could have asked Morrison or Bawa, from whom they received US$10 million, to give an affidavit.  In fact, Bawa never disputed the valuation or denied knowledge of the plaintiff’s mistake. Bawa’s defence was that the money paid into its account had been reinvested and could not be returned.  Apart from being a fishing exercise, the incontrovertible evidence suggests that the valuation could not have departed from the declared purchase price by any wide margin.  And in any event, there was other evidence in support of Bawa’s knowledge of the mistake.  The valuation is of little significance in the totality of the evidence and in my dismissing the Strike-out Summons and Discharge Summons. 

51. The application before the ex parte judge is an interlocutory application.  The plaintiff only needed to show a triable issue and not to prove their case to the necessary standard of proof or the value of the note to absolute mathematical accuracy. 

52. The ex parte judge had all the affidavits before her.  She must have known the basis on which the valuation was made and that the valuation was not a true market value.  The plaintiff could not be said to have been guilty of material non-disclosure.  This issue had been exhaustively argued before me by Mr Wright.  I dismissed those argument and said in paragraph 203 of my decision dated 9 July 2012:

“Even if, contrary to my finding, there were any omission on the part of the plaintiff before the ex parte judge which justifies a discharge of the ex parte order, this is a case which cries out for the exercise of the discretion not to discharge the ex parte order or for a re-grant by reason of the fact that any breach of duty of full and frank disclosure was not dishonest and by reason of the new evidence disclosed and the subsequent conduct of the defendants, in particular the 2^nd defendant’s knowing breach of the exparte order in continuing the dissipation of the balance of the said Sum left in its account with SCB-Singapore since service of the injunction order.”

53. Despite the apparent emphasis placed by Mr Lam in his skeleton submission and my adoption of his submission, the valuation was an insignificant issue in the entire case.  It was some evidence on which the inference of Bawa’s knowledge of the plaintiff’s mistake was drawn.  In fact, Bawa did not dispute the valuation or knowledge of the plaintiff’s mistake.  The valuation was very close to the value declared by Bawa of the purchase price two months before.  It is difficult to see how the discovery could have assisted the defendants to show that the ex parte judge had been misled when the defendants did not even ask Morrison to provide a valuation. 

54. Mr Lam queries why all of a sudden the discovery sought became so important to the defendants.  The statement of claim was filed on 21 December 2011.  The Strike-out Summons and Discharge Summons were taken out by the defendants and listed for hearing six months later.  During the intervening six-month period, the defendants never complained to this court that unless there was further discovery or further and better particulars this court could not properly deal with the two summonses.  Similarly, they never complained to the Court of Appeal that the court could not properly deal with their original leave application to the Court of Appeal without further discovery or further and better particulars of the statement of claim.  Indeed, Yuen JA had no difficulty disposing of the leave applications pursuant to Order 59 rule 2A(5) on 1 February 2013 without the need for any further discovery or particulars.  The only inference from these circumstances is that the summons was issued out of doubtful motive, possibly to delay the plaintiff from getting judgment.

55. Mr Wright argues that the balance of convenience lies firmly against the grant of a stay because as a result of the stay the court would be deprived the benefit of full discovery and particulars of the plaintiff’s claim.  The additional costs which would be incurred by the plaintiff in providing the discovery are insignificant when compared with a judgment in the sum of US$10 million which the plaintiff is seeking against the defendants. 

56. These are very strong arguments in a proper case.  However, on the facts of the present case, for reasons as explained above, the discovery sought is unlikely to be of assistance to the court and is probably sought for doubtful motive.  Worse still, for reasons as I have explained in my other decisions, I hold a dim view of the integrity of the defendants (see my decision dated 27 March 2013).  A few characteristic features in this case are: the 1^st defendant is a HK$10 company; the 2^nd defendant is its sole director and shareholder; SIX’s mistake; the timely transfer by Bawa of the money paid to it by mistake to the 1^st  defendant; the dissipation of the money by the 2^nd defendant and that some dissipation was done with knowledge of the injunction order made against the 1^st defendant; the non-compliance of the court’s orders for disclosure; and that as of today, the disclosure orders are still not fully complied with.  On the facts of this case, I cannot give much weight to the otherwise very forceful argument of counsel.

57. The 2^nd defendant dissipated or concealed a substantial part of the sum of US$10 million transferred to the 1^st defendant.  He claims to be impecunious and unable to pay the outstanding costs of HK$3 million.  Despite that, he is able to conduct this litigation, as counsel puts it, in “Rolls Royce” manner, engages very experience Senior Counsel and very experienced junior counsel, and appeals each and every decision of this court.  Apparently, the 2^nd defendant has access to undisclosed source of funds to fund this litigation but will not pay costs ordered to be paid.  It appears to be a virtual certainty that the plaintiff will not receive a cent of the outstanding costs.  To provide discovery sought before the determination of the appeal will only result in further costs being incurred by the plaintiff which will in all probability be irrecoverable.

58. In balancing convenience and fairness, I give particular attention to the purpose which the discovery could serve the defendants. But, for reasons as explained, I cannot give the defendants much weight.  The defendants will not suffer any unfairness as a result of the stay.  On the other hand, a stay is obviously convenient to both parties and has the benefit of saving costs whatever the outcome of the Recusal Appeal.  Without a stay, the further costs incurred by the plaintiff may either be wasted or be irrecoverable in any event.  That will be unfair to the plaintiff, as there is no prospect that the plaintiff will ever be paid the outstanding costs of over HK$3 million already awarded against the defendants.  The balance is strongly in favour of a stay.  Accordingly, the plaintiff’s application is allowed with costs and certificate for counsel.

	( Anthony To )
	Judge of the Court of First Instance High Court

Mr Douglas Lam, instructed by Lipman Karas, for the plaintiff

Mr Colin Wright, instructed by Stephenson Harwood, for the defendants

HCA 1934/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1934 OF 2011

____________

BETWEEN
	FALCON PRIVATE BANK LTD	Plaintiff
and
	BORRY BERNARD	1st Defendant
	EDOUARD CHARLES LIMITED
	BORRY BERNARD	2nd Defendant
	EDOUARD CHARLES
____________

Before: Hon To J in Chambers (Open to Public)

Date of Hearing: 4 February 2013

Date of Decision: 4 February 2013

Date of Reasons for Decision: 21 June 2013

________________________

REASONS  FOR  DECISION

________________________

INTRODUCTION

1.  On 7 June 2012, I heard six summonses: five were issued by the Defendants and one by the Plaintiff.  At the conclusion of the hearing, I made various orders essentially in favour of the Plaintiff, including a costs order (the “First Costs Order”).  On 13 November 2012, I dismissed the Defendants’ application for leave to appeal my orders made on 7 June 2012 with costs (the “Second Costs Order”).  Those costs were ordered to be paid forthwith and were subsequently assessed summarily by this court on 13 November 2012 and 12 December 2012 in the total sum of HK$3,014,346.  Those costs were not paid.

2.  The Plaintiff now applies for an order that unless the Defendants pay the said costs within three days, the Defendants’ defence be struck out and judgment be entered in favour of the Plaintiff in the sum of US$10 million.  On the other hand, the Defendants apply for  extension of time within which to pay the said costs for a period of 14 days after the determination of their application to the Court of Appeal for leave to appeal against the order dated 7 June 2012 and, if leave is granted, until 14 days after the final determination of the appeal.  Alternatively, they apply for a stay of execution of the two costs orders.

The background

3.  The Plaintiff is a licensed bank in Switzerland with a branch office in Hong Kong.  The 1^st Defendant is a company incorporated in Hong Kong with a paid up share capital of HK$10.  The 2^nd Defendant, a Swiss national apparently resident in Vietnam, is its sole shareholder and director. 

4.  In July 2011, a Mr Morrison acting on behalf of an English incorporated company known as Bawa Financial Limited (“Bawa”) opened an account with the Plaintiff (“Bawa Account”) and deposited certain floating rate bonds with the Plaintiff.  The Plaintiff placed the bonds with a reputable Swiss custodian known as SIX SIS AG (“SIX”).

5.  On 27 September 2011, SIX erroneously advised the Plaintiff of a repayment of principal on the bonds in the amount of US$15,760,320. As a result, the Plaintiff credited the Bawa Account with the principal repayment as well as an interest payment on the bonds on 29 September 2011.

6.  On 30 September 2011, Morrison informed the Plaintiff that he would be instructing the Plaintiff to transfer US$10 million to a third party in relation to a private equity placement.  By letters dated 2 October 2011, Bawa instructed the Plaintiff to make a series of immediate cash transfers in different currencies to different recipients from funds out of the Bawa Account and to transfer the bonds to a securities firm in Canada. Pursuant to that instruction, the Plaintiff made the transfers, including a sum of US$10 million to the 1^st Defendant’s account with Standard Chartered Bank in Hong Kong (“SCB HK”).  This transfer of US$10 million formed the subject matter of this action.

7.  On 7 October 2011, SIX informed the Plaintiff of its mistake.  The Plaintiff sought return of the money from Bawa and the Defendants.  Morrison and Bawa declined, while the 1^st Defendant did not respond. 

8.  The Plaintiff commenced this action in Hong Kong against the two Defendants.  On 10 November 2011, it obtained an ex parte Mareva order from Deputy High Court Judge Au-Yeung, as she then was, restraining the 1^st Defendant from disposing of or removing any of its assets within Hong Kong up to the value of HK$78 million and to make certain disclosures within specified time limit.  The 1^st Defendant did not comply with the disclosure order.  The Plaintiff made three other inter parte applications for discovery.  Despite four orders given by various judges, no meaningful discovery was obtained.  The 2^nd Defendant gave various explanations for the 1^st Defendant’s right to the sum of US$10 million and some less than half-hearted disclosure.

9.  Then, the matter came before me.  On 27 January 2012, I ordered the Defendants to make further discovery, failing which they shall be precluded from calling evidence in any application for summary judgment or at trial.  In the course of the hearing, I criticised Mr Wright, counsel for the Defendants, for misleading the court in submitting that any order requiring the Defendants to disclose documents in their possession, custody or control did not require them to produce bank statements which they did not have possession of.  Despite the strong criticism, the Defendants still ignored the disclosure order.    

10.  As a result, the Plaintiff issued a summons seeking further discovery.  Then the Defendants took out the five summonses seeking (1) to strike out the Plaintiff’s statement of claim (the “Strike Out Summons”); (2) to discharge the ex parte order of Deputy High Court Judge Au-Yeung (the “Discharge Summons”); (3) my recusal from hearing the above summonses (the “Recusal Summons”); and (4) leave to file two affidavits made by the Defendants’ solicitors, Stephenson Harwood (“SH”).   All the summonses were listed before me for hearing on 7 June 2012.  At the conclusion of the hearing, I made various orders substantially in favour of the Plaintiff, including an unless order against the Defendants for further discovery with summary judgment as the sanction for non-compliance and the First Costs Order. 

Further development subsequent to the discovery

11.  This is a peculiar case.  SIX made an inexplicable mistake informing the Plaintiff that BAWA was entitled to a payment of principal in an amount in excess of US$15 million.  There was a window of a ten days during which the mistake was not discovered and the funds were transferred.  Before the window opened, Morrison positioned himself in Switzerland and caused BAWA to deposit the bond with the Plaintiff, while the 2^nd Defendant positioned himself in Hong Kong, incorporated the 1^st Defendant, a HK$10 company, caused it to open a bank account with SCB HK to receive the funds.  And as soon as the funds were deposited into the 1^st Defendant’s account, they were dissipated and BAWA promptly withdrew the bonds.  

12.  As a result of the discovery, the Plaintiff’s legal team was able to trace the following movement of the funds.  Upon receipt of the funds in the 1^st Defendant’s account in SCB HK, the 2^nd Defendant caused them to be transferred to his own account with Standard Chartered Bank Singapore (“SCB Singapore”) on 7 October 2011.  By a number of transfers between 6 October 2011 and 18 November 2011, he transferred US$5 million to a Mr Jager’s account in Switzerland.  The 2^nd Defendant converted the remaining US$5 million into about NZ$6.381 million and caused it to be transferred to his personal account with ANZ Bank New Zealand (“ANZ Bank”) on 17 October 2011.  Two days later, he transferred NZ$6 million into his joint account with a Mr Malik in ANZ Bank.  On 25 November 2011, he transferred NZ$3 million (approximately US$2.5 million) to Jager’s account in Switzerland.  The balance of NZ$381,620 in his own account and the balance of NZ$3 million in his joint account with Malik with ANZ Bank were transferred to various unknown recipients or spent by himself and Malik.

13.  In summary, of the sum of US$10 million received by the   1^st Defendant, US$7.5 million were transferred to Jager’s account in Switzerland.  The balance of US$2.5 million which had been converted into about NZ$3.381 million were transferred to Malik or dissipated by the 2^nd Defendant.  Some notable expenditures include about NZ$411,472 as part payments for a Bentley, an Audi S8 Quattro, a Porsche Cayenne, a Porsche Panamera, and a Mercedes ML AMG for himself and Malik; NZ$30,000 for his son’s helicopter pilot training; and NZ$268,041 as legal fees to SH.  In addition, he gave various sums to his children, paid their school fees and motor cars, paid his household expenses and weekly rental of NZ$1,400 for his luxurious villa. 

14.  Jager, Morrison and his partner Brenner were arrested by the Swiss authority.  The 2^nd Defendant claimed that he was entitled to US$2.5 million for his services as the Chief Intake Treasury Officer of Sunesko LLC in a complicated financial deal among BAWA, Sunesko LLC and AMDG International LLC.   He said that Malik was his boss in Sunesko LLC.

THE PLAINTIFF’S APPLICATION FOR UNLESS ORDER

Jurisdiction to make unless order to enforce orders for payment of costs

15.  Mr Lam, counsel for the Plaintiff, quotes the English Court of Appeal decision in JSC BTA Bank v Mukhtar Ablyazov [2012] EWCA Civ 1411 as the authority for the proposition that an unless order debarring a litigant whose conduct had created a risk to justice from proceeding to trial or in order to prevent an unfair trial may be made it is necessary, proportionate and fair. Mr Wright, counsel for the Defendants, argues that in the circumstances of the present case such an order is unnecessary, disproportionate and unfair for the just resolution of the parties’ disputes in accordance with their substantive rights.

16.  The court’s jurisdiction to make such unless orders with the very draconian effect of debarring a litigant from proceeding to trial for the purpose of enforcing an order of the court has never been doubted. Such jurisdiction has often been invoked for the purpose of enforcing the court’s order requiring a litigant to perform certain act, such as discovery.  Indeed this court has repeatedly exercised such jurisdiction against the Defendants.  However, such jurisdiction has rarely been exercised for the purpose of enforcing a costs order.  At least, I have not been referred to any such decisions by counsel.  JSC BTA Bank v Mukhtar Ablyazov is not a decision which is precisely on this issue.Though the court’s jurisdiction to exercise its coercive power to enforce a costs order is not even disputed by Mr Wright, I still feel obliged to consider this jurisdictional issue in view of the draconian effect of the sanction and the somewhat novel circumstance in which such power is sought to be exercised. 

17.  JSC BTA Bank v Mukhtar Ablyazov is a convenient starting point.  In that case, the defendant was alleged to have defrauded the Plaintiff bank of US$5 billion.  In an action brought by the bank, he was ordered to make disclosures.  He refused and absconded from jurisdiction.  He continued the conduct of his defence through his lawyers while outside the jurisdiction.  He was found guilty of contempt for failing to comply with the disclosure order, lied to the court about his assets and disposing of his assets in breach of a freezing order.  He was sentenced to 22 months of imprisonment by the court in his absence.  Teare J granted an order that unless he both surrenders himself to custody and makes proper disclosure he will be debarred from defending the claim against him and his defence will be struck out.  The unless order was upheld on appeal.  Rix LJ said at paragraph 171 that the question in that case was whether the power to commit for contempt of court included a power to order the contemnor to surrender to the tipstaff and to make that a condition of something else.  Thus, the issue in the present case is whether the power to order costs includes a power to order the party liable to pay and to make payment a condition of that party being allowed to continue with the conduct of his defence.

18.  As part of the system of justice, court orders are made for the parties to comply.  Various orders are made in the course of civil litigation.  All orders, including costs orders, are made for the ultimate purpose of achieving justice as between the parties.  It is therefore in the interests of justice that all orders are complied with.  In JSC BTA Bank v Mukhtar Ablyazov, Rix LJ said in paragraphs 168 and 171, the jurisprudence is replete with confirmation of the court’s power to make such orders as are necessary to make its own orders effective and it is impossible to argue that the court lacks jurisdiction under its own inherent jurisdiction to do what is just and convenient and necessary to protect its own orders and to give effect to the interest of justice.  Though the issue in that case was about the court’s power to make ancillary orders to enforce compliance of a disclosure order, I can see no reason why the principle does not apply with the same force in ensuring compliance of a costs order.  In JSC BTA Bank v Mukhtar Ablyazov, the sanction of loss of freedom was more draconian than summary judgment.  Hence, I think this court has inherent jurisdiction to make ancillary orders to enforce compliance of its costs orders.  Such ancillary jurisdiction includes a power to order a party to pay the costs which he was ordered to pay as a condition of his being allowed to continue with the conduct of his defence or claim. 

19.  It is difficult to formulate any criteria on which such jurisdiction may be exercised.  Factors which affect the exercise of this jurisdiction includes the facts of the case, the type of order which the court seeks to protect or enforce, the conduct of the parties and the court’s perception of where the balance of justice lies. Ultimately, this jurisdiction is to be exercised as a matter of the court’s discretion.  I think the phrase, “fairness, necessity and proportionality” says it all.  Before considering the question whether such jurisdiction should be exercised in the present case, I shall first set out some of the circumstances of the present case and the Defendants’ conduct in the litigation.

Some provisional views of the parties’ case

20.  It is trite principle that it never is the function of the court in interlocutory proceedings to make finding of facts on affidavit.  However, that does not mean it is not open to the court to form some provisional views of the parties’ case for the purpose of assisting the court in the exercise of its discretion in balancing the interest of justice between the parties.  This is particularly so in the present case where the Plaintiff is seeking summary judgment as the sanction for the Defendants’ non-compliance of costs orders made in connection with some interlocutory applications.  If a party has a good defence, the court will be less inclined to order the sanction against that party.  But that does not mean the sanction will be applied if a party does not appear to have a good defence.  It only means that the court need not have regard to the defence when exercising its discretion.  Similarly, if the Plaintiff does not appear to have a good case, the court will be less inclined to exercise such jurisdiction.

21.  During the four days’ hearing of the six summonses last May and June, Mr Wright left no stone unturned.  He made numerous criticism of the weakness of the Plaintiff’s pleaded case based on the statement of claim and fully argued the strength of the Defendants’ defences in seeking to discharge the Mareva injunction.  For reasons as already explained in my Decision dated 9 July 2012, I rejected his arguments.  I was of the view that the Plaintiff has a good case and I was not impressed with the defence.  This view is further fortified by the disclosure obtained pursuant to the further discovery order.  The evidence suggests that this is a case of fraud against SIX and the Plaintiff.

22.  Without SIX’s mistake, Morrison and the 2^nd Defendant could not and would not have known there would be US$10 million in the 1^st Defendant’s account available for their disposal.  It would then appear that they positioned themselves in Switzerland and in Hong Kong waiting for the mistake to occur and, when that occurred, to transfer the funds immediately before the mistake was discovered and to remove the bonds out of reach of the Plaintiff.  The 2^nd Defendant immediately caused the funds transferred to the 1^st Defendant’s account to be transferred to his own personal account.  Then, also very promptly, he transferred US$7.5 million to Jager and dissipated the balance of US$2.5 million between himself and Malik.  The additional facts arising from the disclosures and the 2^nd Defendant’s conduct in delaying and obstructing disclosure suggests that the defence is very shadowy.  The Defendants’ defence is therefore not anything that I would take into consideration in the exercise of my discretion.

The Defendants’ conduct in not complying with the court’s orders for disclosure

23.  On 10 November 2011, Deputy High Court Judge Au-Yeung granted a Mareva order restraining the 1^st Defendant from disposing of or removing any of its assets within Hong Kong up to the value of HK$78 million and to make certain disclosures.   By that time, the 2^nd Defendant had already caused the 1^st Defendant to transfer the entire sum of US$10 million to his personal account with SCB Singapore.  The Plaintiff was kept in the dark as to where the funds had gone.

24.  On 30 November 2011, at an inter parte hearing Suffiad J ordered the 1^st Defendant to comply with the disclosure order of Deputy High Court Judge Au-Yeung within 14 days.  By that time, the 2^nd Defendant had caused half of the said sum of US$10 million transferred to his personal account with SCB Singapore to be transferred to Jager’s account and the other half to his own account with ANZ Bank.   The     2^nd Defendant on behalf of the 1^st Defendant gave partial disclosure, which was less than truthful.

25.  On 9 December 2011, Reyes J ordered the 1^st Defendant to fully comply with the disclosure order of Suffiad J by 7 pm that day.   Again, the 2^nd Defendant gave partial disclosure only.

26.  On 6 January 2012, Deputy High Court Judge Lok ordered the 1^st and 2^nd Defendants to file a further affidavit in full and proper compliance with the order of Deputy High Court Judge Au-Yeung.  Again that order was not complied with.

27.  On 27 January 2012, I ordered the Defendants to provide the disclosure failing which they will be precluded from calling evidence in any application for summary judgment or at trial.   Again, that unless order was ignored.

28.  On 22 February 2012, I made a further unless order, at the request of the Plaintiff, instead of entering judgment for breach of the unless order made on 27 January 2012.  In justifying the Defendants' non-disclosure, Mr Wright, who is a very member of the bar, submitted that the Defendants’ obligation to disclose documents in their custody, power or possession did not include bank statements which the Defendants no longer possessed.  It was against this backdrop of five deliberate non-compliance with the court’s disclosure orders and blatantly misleading submission that I criticised counsel for pulling wool over the court’s eyes.  The criticism was intended to exert more pressure on the Defendants’ legal team to be more forthcoming in compliance with the court’s order.   

29.  Hitherto, the Defendants had a history of breach of six of the courts’ disclosure orders, including two unless orders.  The above chronology shows that at the time of making of the first order on 10 November 2011, entire sum of US$10 million had been transferred to the 2^nd Defendant’s own personal account with SCB Singapore.  By the time of the making of the second disclosure order on 30 November 2011 the 2^nd Defendant had also removed the said sum from his account with SCB Singapore.  Yet, in the three months that followed, the Defendants adopted a “catch me if you can” tactic.  They kept on delaying disclosure and the 2^nd Defendant kept lying on oath in his affidavit.  The Plaintiff was kept in the dark and was caused to incur legal costs in chasing the fund’s shadow.  Assuming the Defendants had a rightful claim to the funds and a perfectly good defence, why couldn’t they have on 30 November 2011 honestly disclosed to the Plaintiff where the funds had gone?  Further, assuming there was a reason, legitimate or otherwise, to delay disclosure until the funds had been transferred to where they were subsequently transferred, all transfers had been effected by 28 November 2011.  There was no reason whatever to play hide and seek with the Plaintiff on 30 November 2011 before Suffiad J and to cause the Plaintiff to incur all the costs for the five subsequent applications for discovery.  If that was not malicious conduct, what conduct could be malicious, one rhetorically asks?

30.  Mr Wright sings and dances on the fact that the Plaintiff had not sought any order restraining the 2^nd Defendant from transferring the funds, suggesting that the 2^nd Defendant was not to be blamed or criticised for dissipating the funds.  At the material time, the Plaintiff could not have known that the 2^nd Defendant had caused the funds to be transferred to his account with SCB Singapore and the Defendants deliberately kept the Plaintiff in the dark.  For Mr Wright to seriously put the blame on the Plaintiff is just rubbing salt on the wound.  The 1^st Defendant is the alter ego of the 2^nd Defendant.  The 2^nd Defendant is its sole shareholder and director.  His dissipation of the funds with knowledge of the restrain order against the 1^st Defendant is as much a dishonest act and contemptuous conduct as if the restrain order had been timeously made against him.  His conduct and non-disclosure reflects his dishonesty and lack of good faith in the conduct of this litigation.     

31.  Apart from obstructing discovery, when the stage was reached when they could delay no more, the Defendants resorted to attack the Plaintiff’s case as their best means of defence.  In response to the Plaintiff’s summons seeking further discovery, they issued three summonses, namely the Strike Out Summons, the Discharge Summons and the Recusal Summons.  These summonses were all dismissed: see my decision dated 9 July 2012.  In my view, the applications in those summonses were attempts to abuse the court’s process by resorting to attack as their means of defence: see Wo Fung Paper Making Factory Ltd And Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346 at 357.  I consider the recusal application hopelessly groundless, frivolous and vexatious and were made to provoke and for the purpose of forum shopping.

32.  That is one of the basis on which the present applications are to be considered.  I also refused the Defendants’ application for leave to appeal against my decision in dismissing those three summonses.  But for completeness and in fairness to the Defendants, their argument that I was biased found favour with the Court of Appeal and leave to appeal my decision in dismissing the Recusal Summons was granted.  As remarked by the Court of Appeal, that appeal has a bearing on my decision on the Strike Out Summons and Discharge Summons as well as, I shall add, the present two summonses.

The 2^nd Defendant’s lying on oath

33.  The 2^nd Defendant gave incomplete or misleading disclosures. He was caught lying on oath in his affidavit.  In paragraph 253 of my decision dated 7 July 2012, I held: 

“… In essence, Napthali demonstrated [in her Fifth Affidavit] that the 2^nd defendant lied on oath such that in sums of NZ$3,000,000, NZ$381,620.93 and other sums transferred from the 2^nd defendant’s account were unaccounted for. Upon inspection of the account records of SCB-Singapore, it was also discovered that the 2^nd defendant edited, as opposed to redacted, the documents produced. It appears from the correspondence received from ANZ Bank and SCB-HK that neither bank received the 2^nd defendant’s original requests dated 24 February 2012 for production of the documents as required in paragraphs 1.1 to 1.3 of my order dated 22 February 2012. KL sent three letters to SH in April 2012 demanding an explanation as to what steps were being taken to obtain the documents. SH did not respond. No affidavit has been filed by the defendants to contest the application or to explain the Napthali’s allegations.”

34.  Recently, the Plaintiff’s solicitors, Lipman Karas (“LK”), discovered that 2^nd Defendant lied in his 1^st to 5^th Affidavits.  In those affidavits, he averred that the affidavits were sworn before his notary, Jager, at Turtmann in Switzerland (as had been stated in the jurats).  In fact Jager testified under oath in Switzerland that he and the 2^nd Defendant had never met.  Obviously, all of the affidavits the 2^nd Defendant presented for use by this court were not sworn, not to mention whether before Jager or anyone else or anywhere.  He has no qualm lying on oath or otherwise.  What weight could this court place on his affidavits?

The non compliance with the costs orders

35.  The costs under the two costs orders were assessed on 13 November and 12 December 2012.  Shortly after the assessment in respect of the First Costs Order, SH wrote to LK on 22 November 2012 as follows:

“On 13/11/12, the Honourable Mr Justice To assessed the Plaintiff’s costs pursuant to his Order dated 07/06/12 in the sum of HK$2,942,346. We are instructed that funds are being made available to pay this sum but that our clients could require a further 7 days to pay the same after the permitted 14 day period expires (ie on or before 04/12/12). Kindly inform us if this will be an issue.”

The tone of this letter suggests that SH had been informed by the Defendants that they would put SH in funds before 4 December 2012 to pay the Plaintiff’s costs.  By 7 December 2012, the costs were not paid.  LK wrote to SH giving the Defendants four more days to pay.  SH did not respond.  After the costs under the Second Costs Order were assessed, LK wrote to SH again on 20 December 2012 demanding payment of the aggregate sum of HK$3,014,346 by 12 pm on 24 December 2012. 

36.  SH responded on 23 December 2012 as follows:

“As to the payment of your clients’ costs and also the request for our clients to consent to the release of your client from paragraph 4 of To J’s Order dated 27/01/12, please note that we are awaiting the receipt of our clients’ funds and their instructions.”

Thus, despite having instructed SH to negotiate with LK for time to pay and indicated that funds will be made available by 4 December 2012, the Defendants have by conduct retracted from their undertaking.

37.  Not only that, a month later, the Defendants took out a summons on 23 January 2013 seeking extension of time to pay until after final determination of the appeal against my decision in dismissing their Recusal Summons.  The grounds for the application is that if ordered to pay the costs immediately the Defendants will face financial ruin before their application to the Court of Appeal for leave to appeal would be determined. The Defendants drastically changed from their position of November 2012 when they said they were in a position to put in funds to meet the First Costs Order to now asserting financial ruin.   Back in November 2012, they had contemplated an appeal.  As the disclosures indicate, they had paid over HK$2 million to SH in connection with these proceedings from the funds transferred by the Plaintiff by mistake.  The 2^nd Defendant pocketed US$2.5 million from those funds and dissipated or transferred them to unknown accounts.  He had funds to conduct these proceedings whenever he wanted.  No evidence was advanced as to his other income and resources before being involved in this litigation.  No evidence was advanced as to how he would suffer financial ruin.  On his account, he would be in a far worse position after paying his costs of the appeal.  That would give him a further reason for not paying after the appeal.  Given his fraudulent conduct in connection with the swearing of his five affidavits, his various lies which were proved against him, his unexplained change of position, and his repeated defiance of the court’s orders, I can give no weight on his bald assertion of financial ruin.  I can place no weight on his assurance that he will pay the costs after the appeal.  In addition, the 2^nd Defendant is out of the jurisdiction while the 1^st Defendant is only a HK$10 company with US$2,201.07 only in its account with SCB HK.  The course taken by the Defendants evinced they have no intention to pay the costs. 

Necessity, proportionality and fairness

38.  Necessity, proportionality and fairness are often merged and overlap.  It is best to deal with them globally.  The costs under the two costs orders were assessed in November and December 2012.  For reasons as stated above, the Defendants had no intention of paying them  until after the conclusion of the appeal against my decision, and most probably not to pay at all.  The 1^st Defendant has asset of US$2,201.07 only. The 2^nd Defendant is out of the jurisdiction.  His available resources are unknown or out of the jurisdiction.  The question is how to enforce the costs orders made against him and the 1^st Defendant.  The Plaintiff seeks an order that unless the costs are paid, judgment for the claim in the amount of US$10 million be entered against both Defendants.  This is a very draconian remedy.

39.  Mr Wright argues that as stated in Order 1A rule 2(2) of the Rules of the High Court, the primary aim for the court in exercising its power is to secure the just resolution of disputes in accordance with the substantive rights of the parties.  He therefore submits that granting the unless order sought by the Plaintiff would bring about a result directly contrary to the court’s primary aim of securing the just resolution of disputes.  Indeed, he argues, the result would be to dispense with the trial and prevent the court from resolving the present dispute in accordance with the substantive rights of the parties.  He refers to the following dicta from Ma CJ in The Liquidator of Wing Fai Construction Company Ltd v Yip Kwong Robert [2012] 1 HKLRD 589 at 606, paragraph 33:

“… in the armoury of the Court’s powers, striking out must be the ultimate weapon, to be used only where it is plainly and obviously the appropriate remedy. There are many orders that can be made before striking out should be considered. In other words, the court is not left with a choice of not doing anything at all on the one hand or striking out on the other; it is now encouraged to consider the many possibilities that lie in between these two extremes.”

40.  These principles are binding on me.  There is no question of departure from these principles but how to apply them to the facts of the present case.  The Defendants are not first offenders.  They had a record of defying the court’s orders on six previous occasions, including two unless orders.  On the first two occasions when I made an unless order against the Defendants, I gave them the benefit of doubt that they innocently failed to recognise their responsibilities.  I therefore refrained from applying the most draconian sanction of entering judgment for breach.  That did not work.   Those two orders were ignored at will.   On 7 June 2012, I had to secure compliance of my discovery orders by using summary judgment as the sanction for non-compliance.  I was able to command some degree of compliance.  I said in paragraph 256 of my decision dated 9 July 2012:

“256. I have always been exceptionally cautious in the exercise of such unless jurisdiction. I was particularly tolerable to the defendants. Despite plaintiff’s counsel’s plea for summary judgment as a sanction for non-compliance, on 27 January 2012 on my own initiative I only ordered debarring the defendants from filing evidence in any application for summary judgment or at trial. Despite breach of that unless order, I did not exercise the sanction and granted the defendants a second chance. Judicial restraint and good sense is not a quality to be taken advantage of by recalcitrant defendants. It is now time for tougher sanction. On the previous two occasions, contrary to Mr Wright’s accusation of my bias against him and the defendants, I gave great respect to Mr Wright for his submission on the defendants’ defences and the weakness of the plaintiff’s cause of action. Now, having spent four days hearing arguments on those very matters, I am in a better position to consider the parties’ case and appropriate sanction. I disagree with most of Mr Wright’s submissions. Having regard to the history of defaults, Mr Wright’s submission on the weakness of the plaintiff’s case and the strength of the defendants’ defence, I think balance of justice requires that judgment be entered against the defendants for non-compliance. Up to now, the plaintiff has incurred to my estimate no less than $2 million on costs in seeking to trace its lost money of US$10 million. That is understandable. The defendants must have spend no less than that amount in resisting the plaintiff’s application for discovery in respect of funds which the defendants claim they have a legitimate reason to deal with. If the defendants have a good case and have nothing to fear or hide, they should, with total candour, provide the discovery and disclosure so that the case can promptly proceed to trial. The amount of costs they incurred and they made the plaintiff to incur are out of all proportion with what is in dispute. If the defendants continue with their present tactic of delay and obstruction, it is most likely because they do not have any good defence. Justice would require that their case be brought to an end as quickly as possible. Justice delayed is justice denied. Accordingly, I make an unless order with summary judgment as the sanction for non-compliance.”

The record has shown that the Defendants are recalcitrant offenders.  They will not comply unless under the pain of summary judgment.  For these recalcitrant Defendants, summary judgment appears to be the only effective weapon left in the court’s armoury.

41.  Mr Wright further argues that unless order is a remedy of last resort not to be made unless there is a history of failure to comply with other orders.  An unless order is the last chance to put his case in order.  He quotes Hytec v Information Systems Ltd v Coventry City Council [1997] 1 WLR 1666 at 1674 per Ward LJ; Ping Kai Engineering Company Ltd v Hong Kong Teakwood Works Ltd HCCT 2/2001 (unreported, 6 February 2002) per Ma J, as he then was, and KM Cheung & Co v Kung Ching HCA 831/2011 (unreported, 26 October 2012) per Deputy High Court Judge Le Pichon. He submits that an unless order becomes meaningless if it is made on the first application for relief or as a matter of routine.   He complains that it is wrong for the Plaintiff to seek this relief without first resorting to any means of execution set out in Order 45 of the Rules of the High Court.

42.  The Defendants were ordered to pay costs forthwith.  The costs were not paid three months after assessment.  They were already in breach of the costs orders.  Now, they even vow not to pay until after conclusion of their appeal.  Hence, the Plaintiff seeks the unless order to secure payment.  This is not strictly a case of first application.  Besides, the Defendants have a history of non-compliance with six court orders, including two unless orders.  It is unrealistic to treat that history as spent or as irrelevant on the basis that those were breaches of the court’s disclosure orders but not costs orders.  In my view, that makes no difference.  The 1^st Defendant is a HK$10 company with US$2,201.07 cash only but no other assets here or abroad.  The 2^nd Defendant is out of the jurisdiction and six months of discovery proceedings have not yielded a full picture of where the US$10 million had gone and where the 2^nd Defendant’s asserts are.  Even summary judgment is likely to be empty.  The means of enforcement under Order 45 as suggested by Mr Wright are illusory.  This further points to an unless order backed by summary judgment as the only effective weapon left.

43.  Next, Mr Wright argues that the sanction of summary judgment in the amount of US$10 million sought for enforcing a costs order of HK$3 million is contrary to the indemnity principle which governs the making of interlocutory costs orders.  With respect, Mr Wright is seeking to erroneously apply the indemnity principle applicable to assessment of costs to the issue of proportionality of the sanction of summary judgment in enforcing a costs order.  The costs under the two costs orders have been assessed in accordance with the indemnity principle.  The issue now is what sanction should be used to enforce compliance with the costs orders. 

44.  It may well appear on a cursory view that the sanction of summary judgment is disproportionate.  But if one looks at what this case is about and the Defendants’ conduct in obstructing discovery, it certainly is not.  There is no dispute that the Defendants appropriated the sum of US$10 million transferred into the 1^st Defendant’s account by mistake.   They filed a shadowy defence.  As I have said, if they had a valid defence and rightful claim to the funds, why did the Defendants not disclose the whereabouts of the funds on 30 November 2011.  Instead, the 1^st Defendant, through the 2^nd Defendant, chose to engage the Plaintiff in some very costly discovery proceedings necessitating the making of seven disclosure orders including three unless orders.  For that end, they spent more than HK$2 million, using the funds appropriated from the Plaintiff, to prevent the Plaintiff from knowing where the funds had gone.   That necessitated the Plaintiff spending more than HK$3 million in the discovery proceedings.  A court order is meant to be obeyed.  Even if the Defendants had a valid defence, in the face of a court order, their obligation is to comply.   If they suffer loss as a result of compliance, they may turn to the Plaintiff’s undertaking or seek further remedy through proper legal proceedings.  The way they resisted and delayed discovery was unreasonable.  The amount of costs they spent towards that end was out of proportion with the interest they wish to protect.  What they did was inexplicable except on the basis that they were using the court’s process to protect some illegitimate interest or to obstruct justice.  The way the Defendants delayed and obstructed the discovery proceedings is clear abuse of the legal process.  If a litigant conducts his litigation in a manner constituting an abuse of process of the court, apart from preventing the court’s machinery of justice from being abused, the court will try its best to minimize the damage in terms of wasted costs which the innocent party was made to suffer as a result of such abuse.  The court will be vigilant to protect its costs orders so that the innocent party’s costs are secured.  Under such circumstances, the use of summary judgment as the sanction to enforce its costs order is not disproportionate.

45.  As for Mr Wright’s argument that an unless order would defeat the court’s primary aim of just resolution of the parties’ disputes in accordance with their substantive rights, I think that argument is illusory in view of the Defendants’ conduct.  The word “just” does not apply to resolution of dispute only, but applies also to the manner in resolving the dispute.  It is therefore also the court’s aim to ensure that litigations are conducted in a just and fair manner.  If a party conducts his litigation in an abusive manner, in manner amounting to abuse of legal process, or in a manner causing unnecessary waste of the other party’s costs, it shall be the court’s duty to right the wrong.  The court may make such order as the circumstances so require to restore justice and fairness between the parties in the resolution of their dispute.  Such orders include, in an appropriate case, to deprive that litigant of his right to have the dispute determined in accordance with its merit.  It is not just for such a party to ask the court to protect him from being sanctioned for the injustice he has done to the other party.  JSC BTA Bank and Mukhtar Ablyazov is an extreme example of the court enforcing an order of the defendant’s imprisonment with the sanction of depriving him of a trial.  For reasons as already explained, the conduct of the Defendants makes it just for such an order to be made.  It lies ill in their mouths to seek the court’s protection when they never conducted this litigation with clean hands.

46.  Furthermore, the sanction is not going to deprive the Defendants of anything.  If they want to prosecute their defence, what they have to do is to pay the costs ordered and defend.   Having engaged the Plaintiff in such costly and wasteful proceedings, they should not be allowed to delay their payment obligation for having lost and evade it altogether.  Lesser sanction has proved to be ineffective.  Given its shadowy nature, the defence is not anything which weighs heavily in my mind when balancing the interest of justice between the parties.  Thus, there is no question of the summary judgment being out of proportion with the costs awarded.  This is not a case that the Defendants had no funds at all to pay the costs.  They have the funds to pay, but only want to reserve them for their appeal.  Even if what they say is true, what they have to do to avoid the sanction is just to pay the costs ordered and conduct their appeal in person.  There is nothing to suggest that they will suffer any personal or juridical disadvantage in the appeal due to lack of legal representation.

47.  Mr Wright argues that in determining whether to grant the unless order, it is material to take into account the Plaintiff’s wholesale disregard of the time limits for it to file and serve its list of documents.  The defence was served on 15 June 2012 and the Plaintiff elected not to serve a reply.  He says that the Plaintiff did not take out any case management summons, failed to file and serve its list of documents and had to be ordered by the court to do so by 16 November 2012.  But he made no mention of the fact that the Defendants did not serve their own list of document until 31 October 2012.  I consider the Plaintiff’s failure to meet those time limits has little bearing in an application of this sort.

48.  Next, Mr Wright says that the list of documents contains no documents relating to the steps taken by the Plaintiff to recover from SIX, Bawa and Morrison the amount credited to Bawa’s account as a result of the Plaintiff’s mistake.  He argues that rather than candidly disclosing to the court the amount that the Plaintiff expects to recover from SIX, Bawa and Morrison, the Plaintiff instead sought to obtain judgment against the Defendants for the full amount of US$10 million.  He argues that the inference to be drawn is that the present application is part of a strategy by the Plaintiff to obtain judgment against the Defendants for the full amount of its claim without a detailed examination of the merits of its case at trial. Similar criticism has been advanced by Mr Wright in a different context and dismissed.  It is not for the defendant or wrongdoer to dictate against whom the Plaintiff should pursue his remedy.  All evidence suggests that SIX was the victim of a fraud of which at least Morrison and Bawa were parties.  While SIX is under a civil liability to indemnify the Plaintiff’s loss, it is up to the Plaintiff and SIX to agree as between themselves the extent of that indemnity.  It is also up to them to agree to turn to SIX only as the last resort when the Plaintiff has exhausted all remedies against the Defendants and other parties to the fraud.  I was informed by counsel that Bawa was or is in the course of winding up.  It is also doubtful if recovery against Morrison and, I should add, Jager would prove to be sufficient to compensate the Plaintiff’s loss.   Provided the Plaintiff is not seeking double recovery, there is nothing wrong to seek judgment against the Plaintiff for the entire sum.  The 2^nd Defendant has confirmed that the 1^st Defendant has no asset except for the sum of US$2,201.07 in its bank account with SCB HK.  As the discovery indicates, any judgment against the Defendants is likely to be empty.  In my view, the Plaintiff’s neglect in providing a fuller list of documents weighs little in balancing where the interest of justice lies.  The Defendants are only repeating their tactics of resorting to attack as their means of defence in a hopeless situation.

49.  Lastly, Mr Wright argues that four of the ten bills of costs under the First Costs Order relate exclusively to costs incurred in applications which did not involve the 2^nd Defendant and which took place before the 2^nd Defendant was made a party to these proceedings.  Mr Wright is technically right.  Though the 1^st Defendant is the alter ego of the 2^nd Defendant, in absolute fairness to the 2^nd Defendant, it may be appropriate to split the ten bills under the First Costs Order.

50.  Having regard to the history of the case, I come to the conclusion that in the absence of an effective sanction, it would be impossible to enforce the costs orders.   Lesser sanction has proved to be ineffective.  Summary judgment is the only sanction open to the court.  Having regard to all the circumstances, I consider that sanction necessary, proportionate and fair.  Accordingly, subject to splitting the ten bills under the First Costs Order, I grant the unless order sought by the Plaintiff. 

THE DEFENDANTS’ APPLICATION FOR EXTENSION OF TIME

51.  I now turn to the Defendants’ application for extension of time to pay the costs ordered. 

The applicable legal principles

52.  The court has broad discretion under Order 3 rule 5 of the Rules of the High Court to extend the time within which any person is required to do any act.  Mr Wright relies on the principles stated by the Court of Appeal in two recent decisions.  There is no dispute that these principles are applicable in this application.  The question is how these principles apply to the facts of the present case.

53.  In The Decurion [2012] 1 HKLRD 1063 at 1068, paragraph 11, Cheung JA said there are two conflicting principles at play.  First, a party is required to observe procedural rules.  Second, a party should not be deprived of an adjudication on the merits due to a procedural default unless there is prejudice to the other party which cannot be compensated by costs.

54.  In Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84, Ma J, as he then was, held that (1) unless the defendant can justify a stay of execution, one will not be ordered; (2) that an appeal would be rendered nugatory without a stay may afford a justification; (3) the existence of an arguable appeal is the minimum requirement before a court will even consider granting a stay; and (4) ultimately, the court embarks on a balancing exercise bearing in mind at all times the starting point that the successful party is not to be deprived of the fruits of his success.

Prejudice to the Plaintiff

55.  Mr Wright argues that extension of time has no detrimental effect whatsoever on the just resolution of the dispute.  He said that the Defendants’ failure to observe the time for payment under the first principle in The Decurion carries no weight in deciding whether extension should be granted while the application of the second principle requires extension of time to be granted.  This is because, without an extension, the Defendants will face financial ruin and will face a liability for an amount of US$10 million despite the total absence of any trial determining the substantive rights of the parties.  Further, he argues that the Plaintiff, being a bank, would not be in need of the amount of the costs in order to prosecute the claim against the Defendants and therefore would suffer no prejudice.

56.  With respect, Mr Wright has misapplied the principles in The Decurion.  Basically, what that case says is that the court has to balance a party’s obligation to observe procedural rules against the prejudice which the other party would suffer if the procedural rules are not observed.  Cheung JA was not balancing between a party’s obligation to observe procedural rules against the prejudice suffered by the same party which cannot be compensated by costs if the procedural rules are to be observed.  I am not saying that the prejudice suffered by the party in default is unimportant. That is something which was decided in Star Play Development Ltd, but not in The Decurion.

57.  On the fact, this is not a case as if there is nothing to be put on the balance against the Defendants’ default in paying costs.  The Defendants unreasonably resisted and delayed discovery which made it necessary for seven court orders, including three unless orders, to enforce compliance.  As I have said earlier, the Defendants’ defence to the action is shadowy.  Even if they had a valid defence, there was no good reason for them to resist the application for discovery and no good reason to resist in the way they did, causing the Plaintiff hefty costs.  If they conduct their litigation in such an abusive manner, it lies ill in their mouths to say they need not comply with procedural rules or with orders to pay costs.

58.  On the facts, if the costs are not paid, the Plaintiff will suffer prejudice which cannot be compensated by costs.  The 2^nd Defendant has confirmed that the 1^st Defendant has no asset but US$2,201.07 in its bank account.  Obviously, the 1^st Defendant has no means to pay the costs ordered.  The 2^nd Defendant himself has also effectively said he has no money to pay costs, but hopes to win the appeal and thereby relieve him of his liability to pay.  He appropriated the sum of US$10 million mistakenly deposited into the 1^st Defendant’s bank account.  He caused US$7.5 million to be transferred to Jager and he dissipated the balance of US$2.5 million within a year.  He transferred some money to Malik and some other unknown bank accounts.  He spent the rest on himself and his children, his household expenses, five luxurious motor cars, cars for his children, helicopter lessons for his son etc.  He did not disclose what his asserts were other than how he dissipated the US$10 million.  He did not identify the source of funds which could be used to pay if extension is granted.  He lied repeatedly on oath in his affidavits.  Even if he did identify a source of funds, what weight can this court give to the affidavit of someone who has no qualm lying on oath?  What weight can this court give to his assurance that he will pay after the appeal?  How will he be able to pay the costs awarded and the costs of the appeal if he loses in his appeal?  All that Mr Wright submits about “no prejudice which cannot be compensated by costs” is just a cheque from an empty account.  The Plaintiff will suffer real prejudice if extension of time is given.

Financial ruin

59.  The principles in Star Play Development Ltd are of no assistance to the Defendants either.  At the time of this application, I have refused the Defendants’ application for leave to appeal against my various orders.  Thus, in my view, they do not even have an arguable appeal which is the minimum requirement before this court will even consider granting an extension.  That apart, the other principles are also against the grant of extension of time.  (In fairness to the Defendants, I must say that subsequent to my decision leave to appeal has been granted by the Court of Appeal.) 

60.  The real issue raised by the other principles is whether the Defendants can show that their appeal would be rendered nugatory if extension of time is not granted.  They rely on financial ruin.  As I have said, that is a bald assertion.  It is not supported by any evidence.  The Defendants have only accounted for how they had dissipated the sum of US$10 million mistakenly transferred into the account of the 1^st Defendant and confirmed that the 1^st Defendant only had US$2,201.07 in its account.  The 2^nd Defendant has not provided any credible evidence of his personal net worth, what asset he had and his income other than the US$10 million.  Besides, he has lied repeatedly on his affidavits.  At the highest, their case is that they have funds to pay but only wish to reserve the funds to pay their legal costs in the appeal instead.  There is nothing to prevent them from appealing in person.  There is nothing to suggest they will suffer any personal or juridical disadvantage in the appeal due to lack of legal representation.  The Defendants have badly failed to discharge the burden of showing that they would suffer financial ruin if extension of time is not granted.

61.  Accordingly, the Defendants’ summons applying for extension of time is dismissed with costs to be assessed by gross sum assessment on indemnity basis.

CONCLUSION

62.  I allow the Plaintiff’s application by summons dated 27 December 2012.  I order that unless the Defendants pay both the costs awarded to the Plaintiff by my order dated 13 November 2012 and by my order dated 12 December 2012 on or before 4 pm on 25 February 2013, the Defendants’ defence shall be struck out and judgment entered against the Defendants in terms of paragraph 3 of the prayer of the Plaintiff’s statement of claim.  The above order applies to the 1^st Defendant in respect of all the ten bills of costs under the First Costs Order and the costs under the Second Costs Order. The unless order applies to both Defendants in respect of the remaining six bills of costs under the First Costs Order and the costs under the Second Costs Order.  I also order the Defendants to pay the Plaintiff’s costs of this application to be assessed by gross sum assessment on indemnity basis.

63.  The Defendants’ summons dated 23 January 2013, applying for extension of time is dismissed with costs to be assessed by gross sum assessment on indemnity basis.

( Anthony To ) Judge of the Court of First Instance High Court

Mr Douglas Lam, instructed by Lipman Karas, for the plaintiff

Mr Colin Wright, instructed by Stephenson Harwood, for the defendants

HCA 1934/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1934 OF 2011

____________

BETWEEN
	FALCON PRIVATE BANK LTD	Plaintiff
and
	BORRY BERNARD	1st Defendant
	EDOUARD CHARLES LIMITED
	BORRY BERNARD	2nd Defendant
	EDOUARD CHARLES
____________

Before: Hon To J in Chambers (Open to Public)

Date of Hearing: 27 March 2013

Date of Decision: 27 March 2013

Date of Reasons for Decision: 27 March 2013

________________________

REASONS FOR DECISION

________________________

Background

1.  This is the Plaintiff’s application by summons dated 22 March 2013 seeking to have this action stayed until the final determination of the Defendants’ appeal in CACV 42 of 2013.  In CACV 42 of 2013, the Defendants were granted leave by the Court of Appeal to appeal against my decision in refusing to recuse myself (the “Recusal Summons” or “Recusal Decision” as appropriate) from hearing their summons applying to have the Mareva injunction order made against them by Deputy High Court Judge Au-Yeung, as she then was, discharged (the Discharge Summons”) and their summons applying to strike out the Plaintiff’s statement of claim (the “Strike Out Summons”).   Having refused to recuse myself, I proceeded to hear and then dismissed the Discharge Summons and the Strike Out Summons on 7 June 2012.  I also refused the Defendants leave to appeal my decision in dismissing those three summonses.  Then the Defendants applied to the Court of Appeal for leave to appeal.  The Court of Appeal granted leave to appeal my decision in dismissing the Recusal Summons and deferred considering their application for leave to appeal my decision in dismissing the Discharge Summons and the Strike Out Summons until after the final determination of the appeal against my decision in the Recusal Summons.

2.  In the meantime, the action progressed with discovery, filing of defence and exchange of list of documents.  The discovery revealed that the sum of US$10 million transferred to the 1^st Defendant’s bank account by mistake had been wholly dissipated by the 2^nd Defendant.  The 1^st Defendant which is a HK$10 company has no asset other than a sum of US$2,201.07 in its bank account.  The 2^nd Defendant said he had no asset and could not even pay the costs awarded under two costs orders in the total sum of about HK$3 million.  It would appear that this case has gone as far as it could and has served its purpose in ascertaining where most of the funds had gone.  The 2^nd Defendant is out of the jurisdiction and has no asset in Hong Kong.  Any judgment obtained against the Defendants is going to be empty.

Discussion

3.  The Defendants now pressed for discovery against the Plaintiffs.  The Plaintiff sought to have the action stayed until the final determination of the appeal against my Recusal Decision.  In view of the uncertainty of the outcome of the appeal, my immediate impression of the Plaintiff’s application for stay was that it was a sensible one to make.  From the factual circumstances known to this court, having had conduct of the proceedings for the past two years, it seemed that the application could be disposed of forthwith after hearing counsel’s submission.  However, the Defendants opposed the application and asked for an adjournment to enable them to file evidence and for argument. Mr Wright, counsel for the Defendants, argued that as the 2^nd Defendant was in New Zealand, his legal team had difficulties in taking instructions and filing an affidavit in time for this hearing.  I therefore granted the adjournment and gave directions for filing of affidavits as I remained open to persuasion until hearing arguments from both sides.

4.  Mr Wright objected to my hearing the summons at the adjourned hearing.  He argued that as leave to appeal my decision dismissing the Defendants’ Recusal Summons had been granted and the Court of Appeal had indicated there was good chance of success it would not be appropriate for me to continue dealing with this case.  I could see the force of that argument. However, consistent with my views formed in the hearing of the Recusal Summons, the request was just another attempt in forum shopping by the Defendants who wished to avoid adjudication by a judge who knew the case far too well. Furthermore, I had the conduct of these proceedings for the past two years and for the following reasons, I considered it expedient that I should continue dealing with, at least, this application.

5.  As indicated by the Court of Appeal, if my Recusal Decision appealed against is set aside, my decisions in respect of the Discharge Summons and the Strike Out Summons will fall away.  My decision in the present application will also fall away if unfavourable to the Defendants. It will only stand if it is to the Defendants’ liking.  On the other hand, if the Defendants’ appeal fails, then whatever decision I make in the present application will be unassailable on the grounds that the appeal was pending.  The Defendants’ grounds that I should not hear the application because of the pending appeal is just a red herring.  My decision either way will give rise to no injustice to the Defendants.

6.  Furthermore, the Defendants’ insistence to have the present application determined before the appeal was logistically illogical.  If the appeal is allowed, the Defendants’ Discharge Summons and Strike Out Summons will be restored and heard de novo by another judge. Then unless and until those summonses are re-determined and in favour of the Plaintiff and not appealed by the Defendants or their appeal is dismissed, there will be no question of further discovery as sought by the Defendants or stay of proceedings as sought by the Plaintiff.  The discovery will have to wait until the final re-determination of those two summonses.  If the re-determination results in the Plaintiff’s statement of claim being struck out and the action dismissed, any discovery sought by the Defendants will be a waste of time and costs for both parties.  Thus, there is no real or useful purpose to be served to have the Plaintiff’s application determined before the hearing of the appeal.  The course taken by the Defendants would only generate unnecessary costs.  Hitherto, they were unable to pay any costs awarded. 

7.  In view of the above, the rule of convenience must prevail.    Having handled the case almost since its commencement, it would be most expedient and in the best interest of justice that I should continue to deal with the application than to pass it on to a total stranger.  Accordingly, I gave the direction that the hearing be returned before me.

( Anthony To ) Judge of the Court of First Instance High Court

Mr Douglas Lam, instructed by Lipman Karas, for the plaintiff

Mr Colin Wright, instructed by Stephenson Harwood, for the defendants

HCA 1934/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1934 OF 2011

____________

BETWEEN
	FALCON PRIVATE BANK LTD	Plaintiff
and
	BORRY BERNARD EDOUARD CHARLES LIMITED	1st Defendant
	BORRY BERNARD EDOUARD CHARLES	2nd Defendant
____________

Before: Hon To J in Chambers (Open to Public)

Dates of Hearing: 15-16 May 2012, 1 June 2012 and 7 June 2012

Date of Decision: 7 June 2012

Date of Reasons for Decision: 9 July 2012

________________________

REASONS FOR DECISION

________________________

 

INTRODUCTION

1. I have before me six summonses, five issued by the defendants and one by the plaintiff:

(1)  the defendants’ summons dated 16 January 2012 seeking to strike-out the plaintiff’s statement of claim and the action (“Strike-Out Summons”);

(2)  the defendants’ summons dated 21 February 2012 seeking to discharge the exparte order of Deputy High Court Judge Au-Yeung dated 10 November 2011 (“Discharge Summons”);

(3)  the defendants’ summons dated 10 May 2012 seeking me to recuse myself from hearing the Strike-Out Summons and Discharge Summons (“Recusal Summons”);

(4)  the defendants’ summons dated 10 May 2012 seeking leave to file the 7^th Affidavit of Ian Childs dated 4 May 2012 and the 1^st Affidavit of Steven Jeffrey Lyons dated 9 May 2012 (together with item (5) are collectively referred to  as “Further Evidence Summonses”) ;

(5)  the defendants’ summons dated 31 May 2012 seeking leave to file the 10^th Affidavit of Ian Childs dated  30 May 2012 exhibiting a draft affidavit to be sworn by Michael Kramer (together with item (4) are collectively referred to as “Further Evidence Summonses”); and

(6)  the plaintiff’s summons dated 10 May 2012 seeking further discovery against the defendants (“Further Disclosure Summons”).

Background

2. The background of this case was summarised in paragraphs 1 to 15 of my decision dated 27 January 2012 (“1^st Decision”).  For convenience, those paragraphs are quoted hereunder:

“1. I have before me two summonses: (1) the defendants’ summons dated 17 January 2012 (“Defendants’ Summons”) seeking extension of time to comply with paragraphs 1 and 2 of the order of Deputy High Court Judge Lok dated 6 January 2012 and for discovery; and (2) the plaintiff’s summons dated 19 January 2012 (“Plaintiff’s Summons”) seeking an order that unless the defendants comply with paragraphs 1 and 2 of the order of Deputy High Court Judge Lok, judgment be entered for the plaintiff in this action.

2. These applications arose under the following circumstances. The plaintiff is a licensed bank in Switzerland with a branch office in Hong Kong. The 1^st defendant is a company incorporated in Hong Kong with a paid up share capital of HK$10. The 2^nd defendant, a Swiss national apparently resident in Vietnam, is its sole shareholder and director. He holds himself out as the chairman of the Master Vision Group of Banks (“Master Vision”), a suspected fraudulent business under investigation by the Hong Kong police. Master Vision was also the subject of warnings issued by the Hong Kong Monetary Authority and the Liechtenstein Financial Markets Authority that it was not licensed to carry on banking or investment business, contrary to representations made by Master Vision.

3. In July 2011, a Mr Morrison acting on behalf of an English incorporated company known as Bawa Financial Limited (“Bawa”) opened an account with the plaintiff (“Bawa Account”) and deposited certain floating rate bonds with the plaintiff. The plaintiff placed the bonds with a reputable Swiss custodian known as SIX SIS AG (“SIX”).

4. On 27 September 2011, SIX erroneously advised the plaintiff of a repayment of principal on the bonds in the amount of US$15,760,320. Pursuant to SIX’s instruction, the principal repayment was credited into the plaintiff’s account with SIX. On 29 September 2011, the plaintiff credited the Bawa Account with the principal repayment as well as an interest payment on the bonds in the amount of US$39,010.36. Prior to these payments, the Bawa Account had a credit balance of US$12,915.41.

5. On 30 September 2011, Morrison informed the plaintiff that he would be instructing the plaintiff to transfer US$10 million to a third party in relation to a private equity placement. By letters dated 2 October 2011, Bawa instructed the plaintiff to make a series of immediate cash transfers in different currencies to different recipients out of the Bawa Account and to transfer the bonds to a securities firm in Canada. Pursuant to that instruction, the plaintiff made the transfers, including a sum of US$10 million to the 1^st defendant’s account with Standard Chartered Bank in Hong Kong (“SCB HK”). This transfer of US$10 million formed the subject matter of this action.

6. On 7 October 2011, SIX notified the plaintiff that its previous instruction relating to the transfer of the principal repayment to Bawa had been made in error and that Bawa was only entitled to the interest payment. The payment of the principal amount from SIX was reversed on the same day. The plaintiff then reversed the credit of the principal repayment in the Bawa Account. But as a result of the various transfers out of that account, the reversal resulted in an overdraft of US$11,767,554.

7. On the same day, the plaintiff also immediately contacted SCB HK by SWIFT requesting the cancellation of the transfer of US$10 million to the 1^st defendant’s account with SCB HK. On 10 October 2011, SCB HK informed the plaintiff that the said sum of US$10 million had already been credited to the 1^st defendant’s account. Later, SCB HK confirmed that it was contacting the 1^st defendant to return the funds.

8. In the three weeks that followed, the plaintiff engaged in discussions with Bawa and its Swiss legal adviser and demanded the 1^st defendant to return the said sum of US$10 million. The 1^st defendant did not respond.

9. On 10 November 2011, the plaintiff made an ex parte application before Deputy High Court Judge Au-Yeung and obtained an injunction order restraining the 1^st defendant from disposing of or removing any of its assets within Hong Kong up to the value of HK$78 million and to make certain disclosures on or before 1:00 pm on 15 November 2011 or within 96 hours of service of the order on the 1^st defendant. In applying for the disclosure order, the plaintiff gave the usual undertaking in paragraph 6 of Schedule 2 in the order in the following terms:

 “The Plaintiff will not without the leave of the Court begin proceedings against the 1^st Defendant in any other jurisdiction or use information obtained as a result of an order of the court in this jurisdiction for the purpose of civil or criminal proceedings in any other jurisdiction.”

10. At an inter parte hearing on 30 November 2011, Suffiad J made various orders, including an order that the 1^st defendant do within 14 days comply with the outstanding items ordered to be disclosed by Deputy High Court Judge Au-Yeung.

11. At another inter parte hearing on 9 December 2011, Reyes J made various orders, including an order that the 1^st defendant do by 7:00 pm on 9 December 2011 fully comply with the order of Suffiad J dated 30 November 2011 and provide evidence of the transfer of the said sum of US$10 million from the 1^st defendant to Sunesko LLC.

12. Unknown to the defendants, upon the plaintiff’s ex parte application on 14 December 2011, Sakhrani J granted the plaintiff leave to produce to the Swiss police and the Hong Kong police the 2^nd defendant’s affidavits given pursuant to the order of Deputy High Court Judge Au-Yeung.

13. On 23 December 2011, the 2^nd defendant’s solicitors were informed by Morrison’s colleague of the arrest of Morrison and his partner, Brenner, in Switzerland in connection with the present action.

14. The disclosure by the 1^st defendant had hitherto been partial only. The parties appeared before Deputy High Court Judge Lok on 6 January 2012 when a further disclosure order was made. Paragraphs 1 and 2 of the disclosure order read as follows:

“1. The 1^st Defendant (acting by a proper officer) and the 2^nd Defendant do within 14 days of the date hereof file a further affidavit in full and proper compliance with paragraph 4 of the Order of the Deputy High Court Judge Au-Yeung dated 10 November 2011, disclosing to the Plaintiff’s solicitors:

(giving certain particulars)

2.  In the event that the documents referred to in paragraph 1 is not in the possession, custody or control of the 1^st or 2^nd Defendant, the Defendants have to explain and provide the whereabouts of such documents in the affidavits.”

When making the disclosure order, Deputy High Court Judge Lok was unaware of the order of Sakhrani J. 

15.  The defendants’ solicitors subsequently learned from Morrison’s Swiss lawyer that a warrant of arrest had been issued against the 2^nd defendant and that the Swiss police had been supplied with copies of the 2^nd defendant’s affidavits filed in this action.  On 13 January 2012, they enquired from the plaintiff’s solicitors who confirmed that an order had been obtained from the court allowing the release of the  2^nd defendant’s affidavits to the Swiss police, but refused to provide a copy of the order of Sakhrani J as it was confidential.”

(The part complained of by the defendants is underlined.)

3.  Following on from the above background, the defendants were anxious to know what information had been disclosed to the Swiss police and hence issued a summons (“Defendants’ Summons”) seeking discovery: (1) under paragraph 2.1 discovery of all summonses, supporting affidavits and affirmations, orders, skeleton arguments and other documents relating to the ex parte application before Sakhrani J on 14 December 2011 (see paragraph 12 of my 1^st Decision as quoted in the preceding paragraph); and (2) under paragraph 2.2 discovery of all correspondence relating to the disclosure of the affidavits to the Swiss police and/or any other person; and extension of time to comply with paragraphs 1 and 2 of the order of Deputy High Court Judge Lok dated  6 January 2012.  The plaintiff did not oppose the discovery sought by the defendants under paragraph 2.1 of the Defendants’ Summons.  Part of that summons was disposed of by consent. 

4.  At the hearing of the Defendants’ Summons on 27 January 2012, the outstanding issue was about discovery of the correspondence relating to the disclosure to the Swiss police and/or any other person.  I found against the defendants.  I made no order in respect of the application under paragraph 2.1 and dismissed the application under paragraph 2.2 with costs of the application reserved.

5.  At the same time, the plaintiff applied by summons seeking further discovery against the defendants subsequent to the proprietary and Mareva injunction order made by Deputy High Court Judge Au-Yeung on 10 November 2011, the order of Suffiad J made on 30 November 2011, the order of Reyes J made on 9 December 2011 and cumulating in the order of Deputy High Court Judge Lok made on 6 January 2012 on the ground that the disclosures made hitherto were incomplete.  I granted  the plaintiff’s application.  I ordered the defendants to make further disclosure sought by 4:00 pm on 31 January 2012, failing which they shall be precluded from calling evidence in any application for summary judgment or at trial.  To ease the defendants’ worry, I ordered that such disclosure shall not be disclosed to the Swiss or Hong Kong police without leave of the court obtained pursuant to an application made  inter parte.  The defendants instantly applied for leave to appeal my decision on the two summonses.  Both applications were refused.

6.  The defendants failed to comply with my unless order made on 27 January 2012.  Upon the plaintiff’s application, I made a second unless order on 22 February 2012 ordering the defendants to make further disclosure subject to the same sanction (“2^nd Decision”).  The defendants instantly applied for leave to appeal my 2^nd Decision. The application was also refused.

7.  On 9 February 2012 and 7 March 2012, the defendants applied to Tang VP for leave to appeal to the Court of Appeal respectively against my 1^st Decision and 2^nd Decision.  At the proposal of the defendants, Tang VP directed that the applications are to be dealt with after the hearing of the Discharge Summons and Strike-Out Summons, scheduled to be heard before me on 15 and 16 May 2012. 

8.  On 7 May 2012, the defendants’ solicitors, Stephenson Harwood (“SH”) applied by way of letter to me to recuse myself from hearing the Discharge Summons and Strike-Out Summons on 15 May 2012 on the ground of bias.  I rejected that application.  Then, on 10 May 2012, the defendants took out the Recusal Summons.

FURTHER EVIDENCE SUMMONSES

9.  By the summons dated 10 May 2012, the defendants apply for leave to file the 7^th Affidavit of Ian Childs dated 4 May 2012 and the 1^st Affidavit of Steven Jeffrey Lyons dated 9 May 2012 for the purpose of the hearing of the Discharge Summons and Strike-Out Summons.  Both deponents are resident in Hong Kong.  No reason was given for the late application.  Mr Lam, counsel for the plaintiff, adopts a pragmatic attitude as the plaintiff is desirous that the hearing shall not be adjourned.  Mr Lam does not object to the production of the affidavits on a de bene esse basis but asks the court to take note that the plaintiff had no opportunity to respond.  Lyons’ affidavit contains what purports to be expert evidence in the area of finance and investment practice in the United States.  Childs’ affidavit is about his inquiries with the Hong Kong Monetary Authority (“HKMA”).  Leave is therefore granted to the defendants for filing those two affidavits with costs to the plaintiff.

10.  By the summons dated 31 May 2012, the defendants apply for leave to file the 10^th Affidavit of Ian Childs dated 30 May 2012 exhibiting a draft affidavit to be sworn by Michael Kramer.  Kramer gave expert evidence on Swiss law.  Mr Lam objects to the filing of this affidavit but again adopts a pragmatic attitude in not seeking an adjournment to file evidence in opposition.  Leave is therefore granted to the filing of this affidavit on a de bene esse basis with costs to the plaintiff.

RECUSAL SUMMONS

11.  The defendants’ application by the Recusal Summons is a repetition of their application by way of SH’s letter dated 7 May 2012.  The application is supported by the 2^nd Affidavit of Malcolm Bernard Kemp, the head of the litigation department and the senior partner of SH. Three grounds were advanced by Kemp in support of the allegation of bias. 

12.  The test of bias as laid down by the Court of Final Appeal in Deaconsv White & Case Limited Liability Partnership[2003] 3 HKC 374 at 383 is:

“… The court must first ascertain all the circumstances which have a bearing on the suggestion that the judge was biased.  It must then ask whether those circumstances would lead a fair-minded and informed observer to conclude that there was a real possibility that the tribunal was biased.”

The test is an objective one, being what impact all the circumstances of the case would have on a fair-minded and informed bystander.  Whether the judge was in fact biased or whether the party allegedly affected was actually prejudiced are irrelevant.  It is akin to the principle that it is not enough that justice is done, but that it must be manifestly seen to be done.  I shall apply this fair-minded and informed bystander test in considering this application.  I am mindful of and guard myself against the difficulties I may have or may be seen to have in applying that test, being the judge of my own cause.

13.  At the hearing of the application, Mr Wright, counsel for the defendants, relied on the SH’s letter dated 7 May 2012.  He highlighted some of the arguments therein, but advanced nothing new.  I had already thoroughly considered those submissions.  For want of time I did not invite submission from the plaintiff.  Indeed the hearing which was set down for two days overran to four days and had to be adjourned twice.  The application is hopelessly groundless and frivolous.  I dismissed the Recusal Summons with costs to be assessed by a gross sum on solicitors and client basis.  Hereunder are the reasons.   

Adoption of the plaintiff’s counsel’s skeleton argument

14.  The defendants’ first ground of complaint is that in paragraph 2 of my 1^st Decision I adopted the plaintiff’s counsel’s skeleton argument in saying that the 2^nd defendant held himself out as the chairman of Master Vision Group of Banks (“Master Vision”), a suspected fraudulent business under investigation by the Hong Kong police.  It is accepted by Mr Lam that this statement which appeared in his skeleton submission placed before the ex parte judge (“ex parte skeleton submission”) is inaccurate.  Kemp said in his 2^nd Affidavit that my wholesale and uncritical adoption of this incorrect statement contained in the ex parte skeleton submission would inevitably lead a fair-minded and informed observer to conclude that I had already found as a fact that the 2^nd defendant did hold himself out as the chairman of Master Vision and would give rise to doubts as to whether I will bring a truly independent mind to bear on the matters to be decided during the hearing of the Discharge Summons and Strike-Out Summons.

15.  In Mr Lam’s ex parte skeleton submission presented to Deputy High Court Judge Au-Yeung, the ex parte judge who granted the ex parte order on 10 November 2011, he alleged that the 2^nd defendant held himself out as the chairman of Master Vision, a suspected fraudulent business under investigation by the Hong Kong police.  Mr Lam admits that statement is inaccurate and he should have said instead that Master Vision held the 2^nd defendant out as its chairman.  Mr Lam apologises for the mistake.  Mr Wright accepts that was an oversight without attributing any malice on the part of Mr Lam.  There is of course an obvious difference between alleging someone holding himself out as the chairman of a suspected fraudulent business and a statement that a fraudulent business held someone out as its chairman.  But Mr Lam submits on the facts of this case, there is little difference between the two statements.  For reasons as I shall give in paragraphs 172-192 below when considering the Discharge Summons, I agree with that submission.  For the purpose of determining the Recusal Summons, that is not relevant.  The question is whether a fair-minded and informed bystander will form the view that I have concluded and found as a fact that the 2^nd defendant held himself out as such, that I was biased and that I will not bring a truly independent mind to bear on the matters to be decided during the hearing of the Discharge Summons and Strike-Out Summons.

16.  In paragraph 2 of my 1^st Decision, I was just outlining the background in which the plaintiff’s application was presented before the ex parte judge by adopting counsel’s ex parte skeleton submission.  I was making no finding of fact and any finding whether the 2^nd defendant was holding himself out as chairman of Master Vision was unnecessary.  Insofar as the proceeding then before me was concerned, nothing actually turned on the truth or falsity of that statement.  It was wholly irrelevant and unnecessary for my decision.  It is manifestly obvious that the basis of my 1^st Decision was that the defendants were in repeated and contumelious breaches of a number of orders of the court as to justify the making of an unless order against them.  Whether the 2^nd defendant held himself out as the chairman of Master Vision has no place in my  1^st Decision.  If at all that statement served any purpose, it only fairly set out the circumstances as they were before the ex parte judge. 

17.  Furthermore, when I came to hear argument on the sanction for non-compliance of the unless order to be made, Mr Lam urged for summary judgment as the sanction.  The approach I took in determining the sanction was obviously and generously in favour of the plaintiff. While holding in paragraph 28 of my 1^st Decision that I was not impressed by the various defences advanced by Mr Wright, another point complained of under this recusal application, I accepted the defences at their face value and ordered a sanction which is fair and appropriate.   I held in paragraph 35 of my 1^st Decision:

“As for the sanction, the action has only just commenced.  The defendants raised the defence of lack of knowledge that the said sum of US$10 million was transferred in breach of trust and some legal arguments which Mr Wright says constitute a good defence.  Accepting what is submitted by counsel at its face value at this stage, I consider a fair and appropriate sanction for non-compliance is to preclude the defendants from calling evidence in any application for summary judgment or at trial.”

(My emphasis underlined.)

The sanction I imposed was merely to preclude the defendants from calling evidence in any application for summary judgment or at trial.  That point was not advanced or even contemplated by counsel for the defendants.  It is manifestly obvious that the duty of fairness has always been forefront in my mind and is reflected naturally in the above dicta.   It is impossible to see how a fair-minded and informed bystander could have doubted that the defendants did not have a fair hearing in those proceedings and could not or would not have a fair hearing in the proceedings to come.

Criticism of the defendants’ counsel and solicitors

18.  The second basis of the defendants’ allegation of bias is my criticism of the defendants’ counsel and solicitors as stated in paragraph 27 of my 1^st Decision and paragraphs 7 and 8 of my 2^nd Decision.  In the 2^nd Affidavit of Kemp, he complained that while I accused the defendants’ counsel of having misled the court I did not criticise the plaintiff’s counsel for misleading the court by incorrectly asserting that the 2^nd defendant held himself out as the chairman of Master Vision.   He said that this unequal treatment would inevitably lead a fair-minded and informed observer to conclude that there was a real possibility of bias.

19.  For convenience, I quote hereunder the parts of the two decisions relied on by Kemp.  In paragraphs 27 and 28 of my 1^st Decision, I said:

“27.  Mr Wright inundates the court with arguments criticising almost  each  and  every order  made.   He  argues  that  the plaintiff has no case against the defendants and the plaintiff’s statement of claim is bound to be struck out in due course.  Hence, the defendants should not be burdened with all these disclosures, wasting their time and costs and suffering prejudice.  Basically, he repeats his submission that it is not the plaintiff’s pleaded case that the 1^st defendant knew that the sum of US$10 million was transferred to his SCB HK account in breach of trust and that the plaintiff would be unable to prove such knowledge on the part of the defendants.  He also argues that the relationship between a bank and its customer is one of debtor and creditor and that a customer holding money in a bank account merely has a chose in action and it is inaccurate to speak of a “transfer” of funds between the bank accounts.  He submits that most importantly the plaintiff has not been frank with the court in failing to draw to the attention of Deputy High Court Judge Au-Yeung the above defence when applying for the ex parte mareva injunction. 

  28.  I am not impressed with that line of arguments nor do I find it necessary to consider them.  …”

In paragraphs 7 and 8 of my 2^nd Decision, I said:

“7.  Mr Wright submits that the 2^nd defendant is not required to disclose anything which he does not actually have.  This is blatantly in contradiction to what the 2^nd defendant said in his 7^th affidavit of what  he was advised by his solicitors, ie he was obliged to disclose the information in his knowledge, possession, custody or control.  Mr Wright argues without quoting any authority that that phrase means documents which a person actually has in his possession at the time of the making of the order.  That is a wholly layman’s approach to the interpretation of a seasoned phrase used in the courts everyday.  Law students from the universities are born with the concept that the phrase “documents in the possession, custody or control” includes documents which a person does not have in his possession or custody, but has a right to obtain from the person who has them: see Hong Kong Civil Procedure 2012, paragraph 24/2/7.  This is trite law.  Such submission is as much an insult to the intelligence of the court as it is a disgrace to the counsel of such seniority who utters it.  This comment is made not without regard to counsel’s duty to fearlessly uphold the interest of his client; but such duty does not excuse counsel from misleading the court. 

8.  Another ludicrous argument of Mr Wright is that I did not allow adequate time for the defendants to obtain the documents.  The disclosure was ordered by Deputy High Court Judge Lok on 6 January 2012.  The defendants’ solicitors understood the order to include documents in the control of the defendants.  There was no appeal against the order of Deputy High Court Judge Lok.  The defendants’ solicitors should have set in motion the steps to obtain the documents, including writing to the banks if necessary.”

(Part of the decision not quoted by Kemp is underlined.)

20.  Kemp has no basis at all to support his argument.  It was not until the present application was made that Mr Lam’s mistake became known to the parties and to the court.  At the time of writing of my  1^st Decision and 2^nd Decision, I was unaware of Mr Lam’s mistake and could not have criticised him.  The complaint of unfair treatment just could not even get off the ground.  Kemp’s argument demonstrates how desperately he was finding fault with my decisions even to the extent of making up a ground from nothing.

21.  Nevertheless, I shall go further on the question of counsel’s demerit which earned him the criticism.  Obviously, Mr Lam was less to blame.  Mr Lam apologises for his oversight.  Mr Wright accepts it was an oversight and made no suggestion of malice or bad faith on the part of Mr Lam in misleading the ex parte judge.  But on the other hand,  Mr Wright’s conduct was a deliberate attempt to mislead the court.   Not only did he not apologise for what was a very obvious mis-statement of the law, he stood by his submission and now uses the occasion to attack my impartiality.  That is a very serious accusation to make against a judicial officer.  While quoting my criticism of Mr Wright in paragraph 7 of my 2^nd Decision, Kemp did not in any fairness to me nor had the candour or courage to quote what it was that I found to be an insult to the court’s intelligence.  Those dicta are immediately preceding the part he quoted.  The unquoted part has now been underlined.  It is a very trite principle that documents in a person’s possession, custody or control includes documents which a person does not have in his possession or custody, but has a right to obtain from the person who has them.  According to the 7^th affidavit of the 2^nd defendant, he had been advised by SH that he was obliged to disclose the information in his knowledge, possession, custody or control.  Thus, even SH was aware of this trite legal principle.  Mr Wright’s conduct was either sheer incompetence or a deliberate attempt to mislead the court.  The legal principle was so trite that a counsel of his seniority and experience of twenty-five years since call to the English bar could not have got it wrong.  He obstinately insisted on his misleading proposition of the law despite his mistake had been pointed out to him.  The only inference is that he deliberately attempted to pull wool over the court’s eyes.  That is why I said it was an insult to the court’s intelligence and a disgrace to the counsel.  In the circumstances, it was appropriate for the court to express its strong sense of disapproval of such misconduct in the hope that such misconduct will not be repeated and future proceedings will be conducted in a more lawyerly manner.  When making my criticism, I had due regard to  Mr Wright’s duty to fearlessly uphold the interest of his client, but that duty does not excuse him from deliberately misleading the court.  The defendants lodge no appeal against my decision on the basis that I erred on the above trite legal principle.  That speaks for itself.  I stand firmly by my criticism of Mr Wright.  The criticism was well justified and appropriate.  No fair-minded and informed bystander would consider the court was biased when making the criticism.

21.  As for the allegation of bias against SH, it is also misplaced.  In paragraph 8 of my 2^nd Decision, I was dealing with Mr Wright’s argument for insufficient time to comply with Deputy High Court Judge Lok’s order.  Clearly SH understood correctly that Deputy High Court Judge Lok’s order included documents in the control of the defendants.   I had given complement to SH for its correct understanding of the law.  Any reasonable solicitor would upon receiving such a disclosure order have started in motion the steps necessary to obtain the document in the custody of another whom his client has control.  I do not resile from that comment.  If SH considered that a criticism, so be it and it is also justified.

23.  Kemp complained about paragraphs 27 and 28 of my 1^st Decision, but did not state the basis of his allegation of bias.   In paragraph 27, I summarised Mr Wright’s arguments relating to the defendants’ defences.  In paragraph 28, I expressed that I was not impressed with that line of argument.  If the allegation of bias is that  I gave no consideration at all or no weight to Mr Wright’s argument, that is wholly misconceived.  I made it clear that I did not find it necessary to consider the defence.  This is because I was just concerned with the plaintiff’s application for unless order as a result of the defendants’ repeated refusal to comply with a number of previous orders of the court.  There was no appeal against those orders.  There was no application to discharge the injunction order, as we now have today.  It was just not open to me to revisit the question whether those orders should have been made.  Mr Wright should not have advanced those arguments which wasted much of the court’s time.  There is simply no basis for alleging bias for my not considering Mr Wright’s argument on the defences available to the defendants.

24.  In summary, the complaint of bias based on unequal treatment or criticism of counsel is misconceived because I was not aware of Mr Lam’s mistake until the present application was made and the criticism made of the defendants’ counsel and solicitors were well justified and appropriate.  I fail to see how a fair-minded and informed bystander would be able to find a scintilla of bias in the proceedings before me hitherto and any risk of bias in the proceedings to come.

Directions for service of skeleton submissions

25.  Kemp complained that the directions I gave for service of the parties’ skeleton submissions indicate my bias in favour of the plaintiff.  The parties’ legal teams were unable to reach agreement on the timetable for filing and serving skeleton submissions.  Upon the application of the plaintiff’s solicitors, Karas Lawyers (“KL”) by letter and upon reading the response of SH, I granted the directions sought by KL that the defendants to file and serve their skeleton submissions and hearing bundles by noon on Friday 4 May 2012 and the plaintiff to file and serve its by noon Thursday 10 May 2012. 

26.  The basis of Kemp’s complaint is that under paragraphs 11 and 12 of Practice Direction 5.4, the respondent to an application, ie the plaintiff, shall have twenty-fours only to consider and respond to the applicant’s, ie the defendants’ skeleton submission.  Hence, as a result of my directions the plaintiff’s counsel would have a total of six days within which to consider the defendants’ skeleton submission before filing the plaintiff’s skeleton submission.  Thus, the plaintiff would have an additional five days to consider and respond to the defendants’ skeleton submission than they would have if the provisions of Practice Direction 5.4 were to be followed.  In contrast, the defendants’ counsel would only receive the plaintiff’s skeleton submission one and half days earlier than that provided by Practice Direction 5.4.  This is the whole basis of Kemp’s complaint of bias.

27.  With respect, Kemp’s complaint was set on the wrong premise.  He misunderstood the purpose of Practice Direction 5.4 and construed the practice direction as if it gives the respondent twenty-four hours only to consider and respond to the applicant’s skeleton submission. Paragraphs 11 and 12 of Practice Direction 5.4 provide as follows:

“11. The applicant or appellant should serve on the other party/ parties and lodge with the Court the hearing bundles, dramatis personae, chronology of events, his skeleton argument and list of authorities at least 72 hours before the hearing (excluding Saturdays, Sundays and general holidays).

12. The respondent should serve on the other party and lodge with the Court his skeleton argument and list of authorities atleast 48 hours before the hearing (excluding Saturdays, Sundays and general holidays).”

28.  By no reading of Practice Direction 5.4 can one construe these two paragraphs as prescribing that the respondent shall only have twenty-four hours to consider the applicant’s skeleton submission.  I must stress that the purpose of Practice Direction 5.4 is to ensure the orderly conduct of proceedings in court.  Paragraphs 11 and 12 only prescribed the minimum time before the hearing for lodging skeleton submissions with the court and serving on the other party.  It is only when the applicant adopts that minimum time scale in lodging and serving his skeleton submission that it will result in the respondent having only twenty-fours to lodge and serve his skeleton submission.  This is far from saying that these two paragraphs prescribe that the respondent shall only have twenty-four hours to consider and respond to the applicant’s skeleton submission. 

29.  The timetable provided by paragraphs 11 and 12 of Practice Direction 5.4 is not meant to be a strict jacket.  These paragraphs only prescribe the minimum time for filing and serving skeleton submissions before the hearing of ordinary or usual contested interlocutory summonses listed before a judge and appeals to a judge in chambers and contested interlocutory summonses listed before a master for more than thirty minutes.  Such interlocutory hearing may extend from hours to days.  Hearing lasting up to ten days is not unheard of.  Paragraphs 11 and 12 cannot be construed as taking away the discretion of the judge or master in an appropriate case to give such directions allowing for a longer time scale for the parties to lodge and serve their skeleton submissions.  Such directions do not offend Practice Direction 5.4 which only prescribed the minimum time.  For hearing lasting two or more days and involving complicated issues of law and fact, it is certainly open to the judge or the master who has conduct of the hearing to give such directions as he sees fit so as to allow the respondent adequate time to consider the applicant’s skeleton submission and then lodge and serve his skeleton submission in reply. 

30.  Just as it is important and fair to allow a respondent adequate time to consider the applicant’s skeleton submission in such a case, the applicant should also be allowed adequate time to consider the respondent’s skeleton submission before the hearing.  Where the issues raised are numerous and complicated, the usual twenty-four hours may not be adequate.  But the applicant is the party who initiates the application.  He identifies the issues to be argued.  He draws the battle line.  Usually he must have prepared his case before taking out the application or at least has a fair idea what the issues and applicable legal principles are.  He may even have anticipated the respondent’s response.  He has a good head start.  By the time he receives the respondent’s skeleton submission, the issues would have been crystallised.  Usually, his demand for time to consider the respondent’s skeleton submission before the hearing may not be as acute as that of the respondent’s demand for time to consider his.  A fair direction must allow for adequate time for both parties to consider each and other’s submission before the hearing.   Having given an exposition of the practice direction, I now turn to the facts.

31.  The Strike-Out Summons and Discharge Summons were filed on 16 January 2012 and 21 February 2012 respectively.  The hearing date was fixed in early March 2012.  On 11 April 2012, KL wrote to SH stating their proposed directions for the filing of skeleton submissions.   It took SH eight days to reject KL’s proposal.  The reason given by SH was that they saw no reason not to follow Practice Direction 5.4.  Then on 20 April 2012, KL wrote to the court to apply for directions on the terms as they suggested.  On 24 April 2012, SH wrote to object to the directions sought on the basis that the application was made too late as counsel had arranged his diary and would be on holiday at the start of the following week, ie the week starting on 30 April 2012; and that the directions should have been sought in early March 2012 when the hearing date for the applications was fixed.

32.  Having heard a rehearsal of Mr Wright’s arguments on the defendants’ defences at the two previous hearings, I can well anticipate the width and depth his arguments are going to take.  The defendants are the applicants.  They had a good head start in preparing their applications. At the hearing on 27 January 2012, Mr Wright demonstrated that he had full instructions on the defendants’ defences.  Despite his commitments, he could have no difficulties completing his skeleton submission by  4 May 2012. If he were to serve his skeleton submission by that day, the plaintiff’s counsel would have the benefit of the weekend to prepare his skeleton submission.  By ordering the plaintiff to file and serve their skeleton submission by noon on 10 May 2012 will likewise give the defendants’ counsel the benefit of the week end to respond at the hearing commencing on Tuesday. The plaintiff’s counsel may have two more days to prepare his skeleton submission in reply than has the defendants’ counsel to prepare his in reply. Given the likely width and depth of  Mr Wright’s submission and that he had a good head start, I think the arrangement is fair and appropriate.  Both counsel would have a few days in between receipt of the skeleton submission from the other side to prepare for the next stage of the proceeding.  The fact that it took SH eight days to reject KL’s request without stating any reason does not suggest to me that SH’s decision was bona fide made.  It is also unfair for SH to rely on its own delay as a ground that its counsel had taken on other commitments and made travel arrangements.  For reasons as I have explained especially that Mr Wright had a good head start, I do not envisage he would have real difficulties meeting the time limit.  Accordingly, on 24 April 2012, I gave the directions in terms as sought by KL. 

33.  On 26 April 2012, SH wrote to ask for directions for the defendants to file their skeleton submission on Monday 7 May 2012 and for the plaintiff to file its on Tuesday 8 May 2012.  The grounds advanced by SH are:

(1)  the timing of service of the parties’ skeleton submissions is unfair as it will be very difficult for defendants’ counsel to prepare his skeleton submission by 4 May 2012;

(2)  the plaintiff will have six days to prepare its skeleton submission instead of two days as provided for by Practice Direction 5.4; and

(3)  there is no justification for giving the plaintiff longer than the period of twenty-four hours as limited by Practice Direction 5.4 for considering and responding to the defendants’ skeleton submission.

Hence, SH sought directions that the defendants be allowed to file and serve their skeleton submission by noon on 7 May 2012 and the plaintiff to file and serve its by noon on 8 May 2012.  SH was therefore asking for three more days for defence counsel to file his skeleton submission.   If I was wrong in my assessment of Mr Wright’s difficulties in meeting the time limit, it was only by a small margin of one working day or three days including the weekend.  But, SH had the audacity to seek directions that the plaintiff should only be given one day to file its skeleton submission with the result that the defendants would have six and half days to consider the plaintiff’s skeleton submission before the hearing. 

34.  The directions that SH sought were absolutely ridiculous.  They were based on SH’s distorted sense of fairness and deliberately distorted construction of Practice Direction 5.4 as, in SH’s own words, limiting the plaintiff’s time for lodging and serving skeleton submission within twenty-four hours.  That construction is clearly wrong.  The directions sought reflected a total lack of good faith in SH’s conduct of this litigation.  The directions were aimed at limiting the plaintiff’s counsel to twenty-four hours to consider and respond to the defendants’ skeleton submission in a case involving numerous and complex issues which Mr Wright had a good head start and then to leave him with a further six and half days to prepare his response to the plaintiff’s submission before the hearing.  SH was obviously trying to exert pressure on the plaintiff’s legal team.  I was not satisfied that Mr Wright had real difficulties in meeting the timetable given in my directions on 24 April 2012.  I therefore dismissed SH’s application to vary my directions and standby the original timetable.  In any event, SH simply ignored my directions given on 24 April 2012.

35.  Kemp complained that the directions given on 24 April 2012 reflect my bias in favour of the plaintiff.  He alleged that giving the plaintiff four working days (or six including the weekend) to reply and the defendants two working days (or four including the weekend) to consider the plaintiff’s submission suggested bias on my part in favour of the plaintiff. This complaint is absolutely ridiculous.  As I have said,  the timetable provided by Practice Direction 5.4 is the minimum for the usual thirty minutes hearing and it is open to the judge or master who has the conduct of the hearing to allow the parties more (meaning adequate) time, but not less, for filing and serving skeleton submissions.  But of course such discretion has to be exercised fairly and in good faith.   The present case is unusual.  The hearing was set down for two days.  The defendants are the applicants.  Their counsel had a good head start in preparing his skeleton submission.  Having heard Mr Wright before,  I could well anticipate the width and depth his argument was going to take.  Indeed, as the events turned out, the hearing took four days,  not thirty minutes.  Justice and fairness to the parties required me in the exercise of my case management discretion to allow the plaintiff more, meaning adequate, time to consider the defendants’ skeleton submission before lodging and serving its in response.  My directions did not amount to a departure from Practice Direction 5.4.  The directions I gave on  24 April 2012 were aimed at giving the plaintiff’s counsel adequate time to respond and at the same time ensuring that both counsel would have a few days to consider his opponent’s skeleton submission.  In particular, the defendants’ counsel would have four and half days to consider the plaintiff’s counsel’s skeleton submission before the hearing on 15 May 2012.  The directions were balanced and reflected that both parties were treated with utmost fairness and good sense.

36.  Kemp specifically complained that the directions were unfair in that they did not allow Mr Wright adequate time to prepare his submission.  For reasons as I have explained, I considered, rightly or wrongly, that Mr Wright would have no real difficulties in meeting the time limit by 4 May 2012 as he was obviously very conversant with the case and the defences and he had a good head start.  He could not have left the entirety of the preparation of this application to the last two weeks before the hearing and at the same time take his holidays and other professional commitments.  SH could not simply sit on KL’s letter seeking agreed directions for eight days and then rely on its own delay to argue that by then Mr Wright had accepted other commitments and made travel arrangements.  It did not even occur to me that SH was conducting this litigation with good faith.  A case manager has to make a decision which he perceives would best balance the interests of the parties and the interest of justice.  Thus, even if I were wrong, that does not mean I was biased.  Litigation is not a game of tactics, technicality or surprises. Fairness does not lie in giving a party twenty-four hours to respond to what are going to be long and complicated arguments in a hearing lasting for more than two days.  In the circumstances of this case, giving more, meaning adequate, time to the plaintiff’s counsel to prepare his skeleton submission and at the same time allowing the defendants’ counsel ample time thereafter to consider the plaintiff’s counsel’s skeleton submission before the hearing best meets the ends of justice.  The directions were balanced and can hardly be criticised as being unfair.

37.  The directions I gave did not offend the minimum prescribed by Practice Direction 5.4.  They were solely within the discretion of the court in the exercise of its case management function to give.  The complaint of bias is solely founded on a deliberately distorted construction of Practice Direction 5.4 and a distorted sense of fairness that fairness means the plaintiff shall only have twenty-four hours to consider and prepare its skeleton submission in reply in a case obviously involving some degree of complexity.  I must confess I have never heard similar challenges to a judge’s case management discretion and have never heard any argument that fairness means twenty-four hours for the respondent to consider the applicant’s skeleton submission and to prepare his in reply.  I am surprised that such a very tactical position was and is still being taken by a reputable firm of solicitors.  The legal basis of the complaint was set on the wrong premises.  The moves taken by SH showed that it was not conducting this litigation with good faith. 

Conclusion

38.  I bear in mind the fair-minded and informed bystander test as lay down by the Court of Final Appeal.  It is an objective test.  I bear in mind that it is not enough that fairness is done, it must be manifestly seen to done.  Even adopting this very high standard of fairness required of the bench, I am still satisfied that a fair-minded and informed bystander could not have a scintilla of doubt that the defendants did not have a fair hearing before me on 27 January 2012 and on 22 February 2012 and could not or would not have or be seen to have a fair hearing in the proceedings to come, ie the Discharge Summons and Strike-Out Summons.  Quite on the contrary, the fair-minded and informed bystander would be surprised by the tactical position taken by SH and would easily come to the conclusion that the recusal application is not bona fide made.  I dismiss the Recusal Summons.

39.  At the request of Mr Wright, I have reserved the costs of this application to the end of these proceedings.  Mr Lam seeks for these costs to be taxed on an indemnity basis.  I had refused the defendants’ application by SH’s letter dated 7 May 2012.  The defendants renewed their application formally by taking out the Recusal Summons.  No new grounds were advanced.  The application is hopelessly groundless and frivolous.  Nothing of what I have heard in the Discharge Summons or the Strike-Out Summons justifies a different view.  The application was made to provoke and unsaddle a judge whom SH thought would probably rule against the defendants in the forthcoming proceedings.  It is an obvious attempt of forum shopping.  It is frivolous, vexatious and a blatant abuse of the process of the court.  Accordingly, I order the defendants to pay the plaintiff’s costs of this application forthwith, such costs are to be assessed by way of a gross sum on solicitor and client basis.

DISCHARGE SUMMONS

Introduction

40.  The background of this case was summarised in paragraphs 1 to 15 of my 1^st Decision, which has been reproduced in paragraph 2 above.  On 29 September 2011, the plaintiff transferred the principal payment to the Bawa Account.  The plaintiff was informed of the mistake by SIX on 7 October 2011.  In the month that followed, the plaintiff through its solicitors KL attempted to locate and demanded the  1^st defendant for return of the sum of US$10,000,000 (“said Sum”) transferred from the Bawa Account to the 1^st defendant’s account with SCB-HK.  That was met with no response from the 1^st defendant.  It was under those circumstances the plaintiff applied for the injunction before the ex parte judge on 10 November 2011.  At that stage, the plaintiff’s knowledge of the case was very rudimentary.  Deputy High Court Judge Au-Yeung granted a proprietary injunction with a Mareva injunction in aid of the proprietary injunction restraining the 1^st defendant from disposing of or removing any of its assets within Hong Kong up to the value of HK$78 million and to give disclosure of certain information  set out in paragraph 4 of the ex parte order.  The disclosures had been partial and led to a series of five further disclosure orders, including two unless orders.

41.   At that stage, all the plaintiff knew was that the principal payment had been transferred to the Bawa Account as a result of a mistake of SIX, the said Sum was then transferred from the Bawa Account to the 1^st defendant’s account with SCB-HK and thus in the  2^nd defendant’s possession.  It did not have detailed knowledge of the dealings between Bawa and the 1^st defendant and/or the 2^nd defendant  or the state of the knowledge of the 1^st and 2^nd defendants as regards the said Sum.

An overall view of the discharge application

42.  Before setting out the parties’ submission on the discharge application and the reasons for my conclusion, I think it convenient to state my overall view of the defendants’ discharge application. This view is formed after I have reached my decision on the merit of all the three applications.  By stating my view at the beginning of this judgment, I am in no way pre-determining the application and biased.  It is only that  I find it more convenient to set it out at the beginning than at the end.

43.  Duty judges or summons judges come across such ex parte injunction applications almost every day.  Usually, after service of the  ex parte order on the defendants, the parties would reasonably reach sensible agreement regarding the terms of the interlocutory injunction and disclosure order to be made or for the ex parte order to be continued until trial or argument at an inter parte hearing.  A defendant properly advised and who has nothing to hide will give disclosure in a timely manner and with total candour.  Inter parte hearing will usually be disposed of rather quickly and disclosure orders complied with.  When the cards are fairly placed on the table, the plaintiff will withdraw the ex parte injunction order obtained if it has no good cause against the defendant.  Parties who have a genuine dispute will reasonably come to some sensible arrangement to maintain the status quo and seek direction for the further conduct of the litigation to have their dispute resolved.  In this regard,  I quote the following observations of Parker LJ in Derby & Co Ltd and Others v Weldon and Others (No 1) [1990] Ch 48 at 58:

“It is to be hoped that in future the observations of Lord Diplock and Lord Templeman will be borne in mind in applications for a Mareva injunction, that they will take hours not days and that appeals will be rare. I do not mean by the foregoing to indicate that argument as to the principles applying to the grant of a Mareva injunction should not be fully argued. With a developing jurisdiction it is inevitable and desirable that they should be. What, however, should not be allowed is (1) any attempt to persuade a court to resolve disputed questions of fact whether relating to the merits of the underlying claim in respect of which a Mareva is sought or relating to the elements of the Mareva jurisdiction such as that of dissipation or (2) detailed argument on difficult points of law on which the claim of either party may ultimately depend. If such attempts are made they can and should be discouraged by appropriate orders as to costs.”

(My emphasis underlined.)

44.  In the present case, though there was no appeal initially until when the unless orders were made, there was wilful and contumelious refusal or delay in complying with the disclosure orders of the ex parte judge and the series of orders made by other judges at the inter parte hearings.  Nine days before the hearing on 27 January 2012, the defendants also took out the Strike-Out Summons, which if successful, will put an end to the plaintiff’s action.  Then, subsequent to the unless orders, the defendants took out the Discharge Summons seeking to discharge the ex parte order of Deputy High Court Judge Au-Yeung which would have the effect of setting aside all the disclosure orders made since including the unless orders.  After that, they also appealed my unless orders, ie my 1^st Decision and 2^nd Decision.  Not only those, they repeatedly applied for my recusal from hearing the Discharge Summons and Strike-Out Summons.  That recusal application, as I have found, was hopelessly groundless, frivolous and vexatious.  It was made to provoke and for forum shopping.  It also reflected that SH was not conducting this litigation in good faith.  SH was deliberately distorting the construction of Practice Direction 5.4 and exhibited a distorted sense of fairness.  So too is the discharge application and the strike-out application as this judgment is about to reveal.  The present application is much worse than the sort of case Hunter JA had in mind in Wo Fung Paper Making Factory Ltd And Sappi Kraft (Pty) Ltd [1988] 2 HKLR 346 at 357:

“I turn now to the two principles I conceive to be relevant, in relation to non-disclosure.  First the court’s power to discharge any order obtained ex parte for material non-disclosure is salutary and necessary.  As one of the earlier cases shows, ex parte Polignac [1917] 1 KB 486, it is there for the court’s own protection.  It is necessary to prevent its process being abused.  Secondly, there is another equally significant principle in this jurisdiction.  This is to make sure that the court does not get itself in a position of what might be called “counter-abuse”: where this sort of point is regarded by litigants as “a very present help in trouble”; and where problems arise on the substance to resort to attack as the best method of defence. …

…

… I am happy to adopt the observations of Macdougall, J who at p 1191 says: 

“It would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the court have intended to give active encouragement to undeserving defendants to search ingeniously for facts which a plaintiff may innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge [the original order].” ”

45.  The Discharge Summons and Strike-Out Summons were set down for hearing for two days, but ended up in four.  The majority of time was spent on the Discharge Summons.  The defendants are searching with the help of counsel’s ingenious arguments for facts which the plaintiff might have innocently failed to disclose, in the hope that a judge may consider them to be material and so discharge the ex parte order.   Mr Wright does so by vigorously persuading the court to resolve a number of disputed facts, seemingly on the criminal standard of proof, in total disregard of the interlocutory context of the proceedings.  The width of the defendants’ grounds for discharge, the frivolous nature and depth of its counsel’s arguments amply demonstrate the point.  Mr Wright seemingly makes copious submission and criticism on plaintiff’s counsel’s breach of duty of full and frank disclosure.  They are repetitive.  He leaves no stone unturned.  When analysed in the proper context in which the ex parte skeleton submission was made before the ex parte judge, those arguments and criticisms are demonstrably unfounded, misleading and wrong in law. The ex parte skeleton submission was distorted and quoted out of context by Mr Wright. 

46.  Another feature of the conduct of this litigation by the defendants’ solicitors and counsel is pressure and surprise. Firstly, Kemp persistently insisted on giving plaintiff’s counsel only twenty-four hours to consider and prepare their response to the defendants’ counsel’s skeleton submission in wanton disregard of my directions.  Secondly,  SH made belated applications for leave to file the 7^th Affidavit of Childs about his inquires with HKMA and the 1^st Affidavit of Lyons about United States financial and investment practices, leaving the plaintiff with no time to respond.  Thirdly, Mr Wright suddenly advances a new argument on Swiss law not foreshadowed in his skeleton submission and sought leave to file Kramer’s expert evidence on Swiss law during the course of the plaintiff’s counsel’s submission.  When the late filing of Childs’ 7^th Affidavit, Lyons’ 1^st Affidavit and Kramer’s 1^st Affidavit and the Swiss law argument are viewed in the light of Kemp’s and  Mr Wright’s conduct of this proceeding, it is obvious that these are tactical moves to ambush the plaintiff.

47.  The way this proceeding is conducted suggests that the defendants realised that they do not have any good defence, their delay tactic by way of inaction had come to an end and they now engage in a new tactic of pre-emptive strike, ambush and abuse of process as their best means of defence.

The defendants’ grounds for discharging the ex parte order

48.  The 1^st defendant now seeks to discharge the ex parte order made by Deputy High Court Judge Au-Yeung on the following grounds:

(1)  the plaintiff has failed to comply fully with its duty to give full and frank disclosure of all material matters (“material non-disclosure ground”);

(2)  the plaintiff has failed to establish a good arguable case against the defendants (“no good arguable case ground”);  and

(3)  the plaintiff has failed to establish on a balance of convenience that the order was necessary (“no necessity ground).

The first ground is specifically applicable to discharging an ex parte order.  The other two grounds are applicable generally to discharging an interlocutory injunction.  The third ground was added in the course of  Mr Wright’s submission.

49.  Under the material non-disclosure ground, Mr Wright attacks the plaintiff’s breach of duty on four fronts:

(1)  the plaintiff’s failure to disclose to the ex parte judge the defences which would be available to the defendants;

(2)  the plaintiff’s failure to disclose all relevant facts;

(3)  the plaintiff’s making improper allegations of fraud against the defendants; and

(4)  the plaintiff’s failure to make proper inquiries before applying for the ex parte order.

Legal principles applicable to material non-disclosure

50.  The main ground of the 1^st defendant’s application is material non-disclosure.  The following legal principles applicable to material non-disclosure are not in dispute.

51.  An applicant for interlocutory relief at an ex parte hearing is under a very onerous duty to give full and fair disclosure to the court of all material facts which are necessary for the proper disposal of the application: see Century First Investments Ltd and Others And Lung Ping and Others [1996] 1 HKLR 26 at 31 per Godfrey JA and Rex v Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 KB 486 at 514 per Scrutton LJ.  The duty is one of the utmost or highest good faith: see Nicekind Holdings Limited And Yim Wai Ning, CACV 435/2000, 26 March 2001 per Leong JA, as he then was.  But law or legal arguments do not fall within the category of material facts requiring disclosure.  

52.  Material facts are those facts which are material for the judge to know in dealing with the application.  Materiality is to be decided by the court and not by the assessment of the applicant or his legal advisors: see: Rex v Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac at 504 per Lord Cozens-Hardy MR; Thermax Limited v Schott Industrial Glass Limited [1981] FSR 289 at 295 per Browne-Wilkinson J.

53.  The applicant must identify any defences which, although not yet taken, would be available to be taken by the defendant had he been present at the application provided that the defence is one which can reasonably be expected to be raised in due course by the defendant and not one which can be dismissed as without substance or importance: New Asia Energy Limited And Concord Oil (Hong Kong) Ltd, CACV 347/1998, 3 November 1999 (CA), per Keith JA. 

54.  The applicant must make proper inquiries before making the application.  The extent of the inquiries which will be held to be proper and therefore necessary, must depend on all the circumstances of the case including the nature of the case which the applicant is making when he makes the application; the order for which application is made; and the probable effect of the order on the defendant: see Bank Mellat v Nikpour [1985] FSR 87 and Columbia Picture Industries Inc and Others v Robinson and Others [1987] 1 Ch 38.  The duty of disclosure applies not only to facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries. 

55.  Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the ex parte order without examination of the merits depends on the importance of the facts to the issues which were to be decided by the ex parte judge on the application.  The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented: Yau Chiu Wah and Gold Chief Investment Limited, HCA 807/2001, 15 May 2001.

56.  An ex parte order obtained as a result of material non-disclosure will be discharged.  The court will be astute to ensure that a plaintiff who obtained an ex parte injunction order without full disclosure is deprived of any advantage he may have derived by that breach of duty and to serve as a deterrent to ensure that persons who make ex parte applications realize that they have this duty of disclosure and of the consequences (which may include a liability in costs) if they fail in that duty to other applicants: Bank Mellat v Nikpour at 91 per Donaldson J, Brink’s Mat Ltd v Elcombe and Others [1988] 1 WLR 1350 at 1358 per Balcombe LJ.

57.  Further, the court also has discretion to re-grant an injunction order following its discharge for material non-disclosure.  In Yau Chiu Wah, Recorder Ma SC, as he then was, said the relevant factors that a court would consider in the exercise of this discretion include the following:

(1)  whether the material non-disclosure was innocent or deliberate;

(2)  the excuse or reason for such material non-disclosure;

and

(3)  whether the material non-disclosure would in fact have resulted in the original order not having been made in the first place or whether, conversely, even if the material fact or facts have been disclosed, this would have made no difference. 

58.  Counsel are in dispute as to whether notwithstanding material non-disclosure the court has any discretion not to discharge an  ex parte order.  Relying on Brink’s Mat Ltd and a line of English Court of Appeal authorities, Mr Lam submits that there is.  In his usual forceful manner, Mr Wright submits there is no.  He argues that once material non-disclosure is proved, the ex parte order must be discharged without more ado.  In support of that proposition, he quotes paragraph 43 of Cheung Kam Wah And Cheung Hon Wah and Others,CACV 53 of 2004, 11 January 2005  (unreported) in which Woo VP said:

“It is well settled that upon being satisfied that there was material non-disclosure at the ex parte stage, the ex parte order so obtained should, without more ado, be discharged.  See Manor Electronics Ltd v Dickson and Others [1988] RPC 618, at 623 lines 40 to 45, page 624, lines 3-8; Standard Chartered Securities Ltd v Lai Arthur [1993] 1 HKC 375, at 389B; Bank Mellat v Nikpour [1985] FSR 87, at p 91.”

(Mr Wright emphasis underlined)

Mr Wright emphasises strongly on the words “without more ado”, that CheungKam Wah is a Court of Appeal decision and that the ex parte injunction order in that case was indeed set aside.  He does not dispute the English line of authorities and seems to suggest there is a dichotomy in the law.  He submits that the above dictum of Woo VP in Cheung Kam Wah is binding on me, but the English Court of Appeal authorities are not.

59.  With respect, this is not the way to understand and apply a judicial decision.  I do not think Woo VP intended his dictum should be interpreted the way Mr Wright submits, ie that the court has no discretion not to discharge an ex parte order in an appropriate case.  Just as in construing a contract, a judicial decision has to be read as a whole and construed as a whole.  In the same sub-section in the judgment, Woo VP referred to one English Court of Appeal and one local High Court decision in which the discretion not to discharge the ex parte order was exercised.  Woo VP said in paragraphs 46 to 48:

“46.  On the other hand, Mr Ho drew our attention to Arab Business ConsortiumInternational Finance and Investment Co v Banque Franco-Tunisienne [1996] 1 Lloyd’s Rep 485.  At 492, Walker J refused to set aside the ex parte leave granted for serve proceedings out of jurisdiction after making the following observation:

“As part of the need to emphasize the duty [of disclosure] it may be necessary to set aside orders to penalise those guilty, but in my view in this case the punishment that would in fact be inflicted on ABCI would be out of proportion to the offence.  If there were a risk that proceedings could not be re-started because of limitation, it would seem to me that that would be too severe a punishment having regard to the fact that if there had been disclosure, it would not have made any difference to the judge who had to deal with the ex parte application.”

47.  Mr Ho also referred us to AMD Pack Rack Ltd & Ors v The Barrons Group Ltd & Ors [1992] 2 HKLR 50, where Bokhary J (as he then was), observed at p 53:

 “Nevertheless, leaving aside any general rule, I am sure of this.  There is a discretion to decline to intervene to discharge injunctive relief on the ground of inadequate ex parte disclosure where: dishonesty does not appear to be involved; it is by no means obvious that there has been any failure to make material disclosure; it would be necessary to comb through a large body of disputed evidence to discern whether adequate disclosure had or had not been made; and the nature of the alleged failure is not so serious as to demand immediate investigation.”

48.  In our judgment, in all the circumstances of this case, there was sufficient material to show that had the liabilities of Guangzhou Caming been disclosed, the ex parte judge, who had apparently placed great reliance on the value of that company in the assessment of the plaintiff’s worth, would have refused to grant the ex parte order.  Moreover, those liabilities would fairly cast the gravest doubts on the project’s worth and even its viability, and thus the plaintiff’s financial ability to honour his undertaking in damages.  Since Deputy Judge Poon had gone through the evidence in some detail and identified the items that had not been disclosed to the ex parte judge, with a certain degree of culpability that could be attached to the plaintiff for the material non-disclosure, it was proper for him to discharge the ex parte injunction, and indeed it was incumbent upon him to do so.”

60.  In Arab Business Consortium International Finance and Investment Co, the discretion was exercised as the penalty was out of proportion with the nature of the breach of duty of full and frank disclosure. In AMD Pack Rack Ltd & Ors v The Barrons Group Ltd & Ors, the discretion was exercised where the material non-disclosure was not dishonest or not culpable.  BesidesAMD Pack Rack Ltd & Ors, there is no lack of local authorities in support of the discretion not to discharge the ex parte order, for example, Yau Chiu Wah.   

61.  There is an abundance of English Court of Appeal authorities from many high power judges that such discretion exists.   It would suffice to quote what Balcombe LJ said in Brink’s Mat Ltd v Elcombe and Others[1988] 1 WLR 1350 at 1358:

“Nevertheless, this judge-made rule cannot be allowed itself to become an instrument of injustice.  It is for this reason that there must be a discretion in the court to continue the injunction, or to grant a fresh injunction in its place, notwithstanding that there may have been non-disclosure when the original ex parte injunction was obtained: see in general Bank Mellat v. Nikpour [1985] F.S.R. 87, 90 and Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc., ante, p. 1337, a recent decision of this court in which the authorities are fully reviewed.  I make two comments on the exercise of this discretion.  (1) Whilst, having regard to the purpose of the rule, the discretion is one to be exercised sparingly, I would not wish to define or limit the circumstances in which it may be exercised.  (2) I agree with the views of Dillon L.J. in the Lloyds Bowmaker case, at p. 1349C-D, that, if there is jurisdiction to grant a fresh injunction, then there must also be a discretion to refuse, in an appropriate case, to discharge the original injunction ….” 

(My emphasis underlined)

62.  Brink’s Mat Ltd, Bank Mellat v Nikpour and Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc were referred to by Woo VP, albeit in considering the legal principles on re-grant after the discharge.  His lordship must be conscious of the line of English Court of Appeal authorities on the issue of discretion.  It was only after referring to Arab Business Consortium International Finance and Investment Co  and AMD Pack Rack Ltd & Ors, which his lordship did not expressly overrule that Woo VP held the plaintiff’s non-disclosure of his  financial information which impacted on his ability to honour his  cross-undertaking in damages material and culpable that the ex parte injunction order was discharged.  By specifically considering the  question of culpability, Woo VP must have accepted that the court has discretion not to discharge an ex parte order on the ground of material  non-disclosure, at least, if the material non-disclosure was not dishonest and the injunction order could properly be granted even had the facts been disclosed.  The local decisions, albeit at the level of Court of First Instance, show that Hong Kong courts have been following the line of English Court of Appeal authorities.  By not expressly disapproving or overruling AMD Pack Rack Ltd & Ors and by considering the issue of culpability, Woo VP was actually adopting the line of authorities of the English Court of Appeal.  In my view, there is no dichotomy between Hong Kong and the United Kingdom.  The law is that notwithstanding proof of material non-disclosure, the court does have a discretion not to discharge an ex parte order.  But such discretion should only be sparingly exercised.  That is the emphasis on the general rule which Woo VP must have intended convey by the phrase “without more ado”.  In my view,  Mr Wright is quoting the dictum out of its proper context and misinterpreting the authority.  I ponder in passing, why practice direction, trite legal principles such as possession, custody and power and judicial authorities are so persistently misrepresented by the defendants’ legal team. In this judgment one will read more of such misrepresentation of the law by Mr Wright.

63.  Though counsel have no dispute on the court’s discretion to re-grant an injunction after a discharge, they differ on a procedural issue.  Mr Wright argues that the court has no jurisdiction to exercise this discretion until an application has been properly made by way of summons or at least informally by counsel’s oral application in court.  He argues that the procedure is necessary to enable the issues mentioned in Yau Chiu Wah to be properly raised and argued.  He further argues that in the present case unless a cross-summons has been taken out by the plaintiff, this court has no jurisdiction to exercise such discretion.  In my view, all these issues would have been argued at the inter parte hearing when the defendant seeks to have the ex parte order discharged.  If they have not, then there is no question of a re-grant in a case involving breach of such duty of full and frank disclosure.  But if they have, there is no reason why the court should not exercise the discretion, if there is merit.  I consider Mr Wright’s arguments ridiculous, particularly in the light of the Civil Justice Reform.  He is sparing no effort in seeking tactical advantage over the plaintiff. 

The plaintiff’s application before the ex parte judge

64.  To properly consider the Discharge Summons, it is necessary to put myself in the position of the ex parte judge on 10 November 2011 when she made the ex parte order. 

65.  The factual basis of plaintiff’s application before the ex parte judge is as follows.  On 6 June 2011, Morrison acting on behalf of Bawa opened the Bawa Account.  Shortly afterwards, Bawa delivered four structured notes to the plaintiff which were then deposited with a custodian SIX in Switzerland.  On 27 September 2011, SIX erroneously informed the plaintiff that a principal payment was to be made under the notes in the amount of US$15,760,320 (“principal payment”).  On  29 September 2011, the plaintiff credited the Bawa Account with the principal payment as well as an interest payment in the amount of US$39,010.36.  On the same day, the plaintiff informed Morrison by telephone and e-mail of the deposit.  Then on 5 October 2011, on the instruction of Bawa, the plaintiff transferred the said Sum of US$10,000,000 to the 1^st defendant’s account with SCB-HK.  On  7 October 2011, upon being advised by SIX of the mistake, the plaintiff reversed the credit to the Bawa Account resulting in an overdraft of US$11,767,554. 

66.  The plaintiff’s knowledge of the case was very rudimentary at the time of the application before the ex parte judge. All that it knew was that the principal payment had been transferred to the Bawa Account as a result of the mistake of SIX, the said Sum was then transferred to the 1^st defendant’s account with SCB-HK and thus in the 2^nd defendant’s possession.  It did not have detailed knowledge of the dealings between Bawa and the 1^st defendant and/or the 2^nd defendant or the state of the knowledge of the 1^st defendant and 2^nd defendant as regards the said Sum.  It did not know how much of the said Sum is still in the 1^st defendant’s account with SCB-HK, how much has been transferred out of that account and where the said Sum had been transferred to.

The basis of the plaintiff’s claim for injunction order before the ex parte judge

67.  Against the above factual background, it is Mr Lam’s submission that the plaintiff’s primary case before the ex parte judge was for a proprietary injunction and a Mareva injunction as a “top up” protection in support of the proprietary injunction.  Mr Wright disputes that was the plaintiff’s position before the ex parte judge.  He argues that the plaintiff’s claim was based on the 1^st defendant’s breach of constructive trust.  The significance of counsel’s dispute is that on the plaintiff’s claim of a proprietary injunction with a Mareva injunction as a top up the plaintiff has duly discharged its duty of full and frank disclosure, whereas according to Mr Wright, the plaintiff was in breach of its duty of full and frank disclosure in respect of its case of knowing receipt based on constructive trust.  Mr Wright submits that Mr Lam’s argument is an attempt to excuse his failure to draw to the attention of the ex parte judge the defences available to the 1^st defendant to a claim based on knowing receipt of trust property.  Obviously, Mr Wright’s dispute is to provide the 1^st defendant a springboard on which to launch its case of material non-disclosure.  It is necessary to set the basis of the  1^st defendant’s complaint of material non-disclosure right before actually dealing with the individual grounds of material non-disclosures relied on by the 1^st defendant.

68.  Two basis were advanced by Mr Wright for his argument that the plaintiff’s application or main thrust before the ex parte judge was constructive trust.  Firstly, Mr Wright relies on the reference to constructive trust in the plaintiff’s statement of claim and the indorsement on the writ of summons.  In my view, the proper way to consider what case was put before the ex parte judge is to look at the plaintiff’s ex parte skeleton submission and the writ of summons then before the ex parte judge, particularly the former rather than the statement of claim which was filed subsequently.  By the time the statement of claim was drafted and filed, a more complete picture of the case emerged as a result of the disclosures pursuant to the court orders and the defendants’ conduct since commencement of the action.  It is clear that the said Sum, or most of it, was no longer in the possession of the 1^st defendant and/or the  2^nd defendant.  It was therefore necessary for the plaintiff to plead an additional case of, inter alia, knowing receipt and conspiracy against the 1^st and 2^nd defendants.  The plaintiff seeks to draw inferences of the defendants’ dishonesty and knowledge that the said Sum was transferred to the 1^st defendant in breach of trust at the time of the transfer in support of those pleas.  At the ex parte stage, such evidence was not available to the plaintiff and could not have formed the basis of a constructive trust claim before the ex parte judge.

69.  Mr Lam’s ex parte skeleton submission presented before the ex parte judge was very clear and well structured. He set out the background of the case in paragraphs 1 to 3 under section I,  the applicable legal principles in paragraphs 4 to 10 under section II and the plaintiff’s contentions in paragraphs 11 to 18 under section III.   In sub-paragraphs (1) to (4) of paragraph 11, he argued that Bawa held the principal payment as a constructive trustee for the plaintiff.   In sub-paragraph (3), Mr Lam submitted in relation to the transfer of the said Sum to the 1^st defendant that:

“… it is unclear at this stage whether the Transfer to the 1^st Defendant was gratuitous, or whether Bawa acquired any assets in consideration of the Transfer.”

Still referring to the trust over the principal payment credited to the Bawa Account by mistake, albeit focusing on or tracing to the said Sum which was transferred to the 1^st defendant’s account with SCB-HK, Mr Lam said in sub-paragraph 4 of paragraph 11:

“Any assets or investments acquired by Bawa with the said Sum would clearly be held on constructive trust for the Bank, irrespective of whether this asset is held in the name of Bawa or the 1^st Defendant.”

(Mr Wright’s emphasis underlined.  My emphasis in bold print.)

70.  Mr Wright argues that those sub-paragraphs shows that the plaintiff’s claim was made on the basis of the 1^st defendant’s breach of constructive trust and hence the plaintiff owed and breached the duty of full and frank disclosure of certain matters.  Though in paragraph 11(4) Mr Lam was referring to a constructive trust in favour of the plaintiff in respect of assets or property converted from the principal payment by Bawa, he was talking about a construction trust of the principal payment or the investment required by the principal payment held by Bawa.

71.  As for the said Sum transferred from the principal payment, Mr Lam said in the preceding sub-paragraph that it was not clear if the transfer by Bawa to the 1^st defendant was for value or gratuitous.   In paragraph 11(5), he said it was highly unlikely that it would have been a bona fide transaction, ie for value.  He said:

“It is highly unlikely however that the Transfer would have been an arm’s length or bona fide transaction without notice on the part of the 1^st Defendant given inter alia:

(listing five reasons)”

Mr Lam then made a suggestion in paragraph 11(6) that the 1^st defendant was probably dishonestly assisting Bawa in dissipating of the said Sum.  But he did not actually pursue that line of argument.  The focal point of his submission was tracing and that the 1^st defendant was holding the principal payment which was impressed with trust or property converted from the principal payment as a volunteer. 

72.  Mr Lam’s position is confirmed in paragraph 12 of the  ex parte skeleton submission in which he repeated that the transfer of the said Sum to the 1^st defendant was not a bona fide transaction and that there was a real risk of dissipation of the said Sum, if not already dissipated.  Then he argued on the balance of convenience that the injunction should be granted. 

73.  That the plaintiff was seeking a proprietary injunction is further confirmed by paragraph 13(2) of the ex parte skeleton submission.  There, Mr Lam expressly stated that the purpose of seeking Mareva relief in this instance is to obtain “top-up” protection in support of the proprietary injunction.  He wrote in paragraph 13:

“Insofar as the granting of a Mareva injunction up to the value of the said Sum is concerned:

(1)  The Plaintiff does not have any information concerning the 1^st Defendant’s assets, other than the SCB Account, the balance of which is unknown at this stage.  As mentioned above, the 1^st Defendant has a share capital of only HK$10.

(2)  The purpose of seeking Mareva relief in this instance is to obtain “top-up” protection in support of the proprietary injunction.  It is unclear at this stage when and how much has been withdrawn from the said Sum in the SCB Account, and therefore, a Mareva injunction would provide necessary further protection by restraining the disposition of the 1^st Defendant’s other assets up to the amount of the sum withdrawn.

(3)  Although little is known of the 1^st Defendant at this stage, for the reasons mentioned above, there is a real risk that it would dissipate its assets to avoid judgment.  This is a classic case where the Court will infer a risk of dissipation.”

74.  It is clear from the tenor of paragraphs 11 to 13 of Mr Lam’s ex parte skeleton submission that basically the plaintiff was seeking a proprietary injunction with a Mareva injunction in aid of the proprietary injunction in respect of funds which might have been transferred from the said Sum from the 1^st defendant’s account with SCB-HK.  The basis of the plaintiff’s claim for the proprietary injunction was that the  1^st defendant held the said Sum which was impressed with a trust, otherwise than as a bona fide purchaser for value. Though Mr Lam’s argument appeared to be premised on the 1^st defendant being a volunteer who paid no value for the said Sum, that is not a necessary element he has to prove in a proprietary claim.  This does not affect the plaintiff’s proprietary claim.  It would have been sufficient for him to establish that the 1^st defendant was a recipient of trust property.  It will then be for the 1^st defendant to raise the defence that he was a bona fide purchaser for value without notice: see paragraphs 99, 100 and 111.  

75.  I now turn to the second basis of Mr Wright’s argument.   He argues that an applicant for a Mareva injunction must allege that the defendant is personally liable to the applicant on a claim and in the absence of such an allegation of personal liability on the part of the  1^st defendant, there would be no basis for granting a Mareva injunction.  Mr Wright therefore argues that it must necessarily follow that the Mareva injunction was sought on the basis of the 1^st defendant’s personal liability as a constructive trustee for knowing receipt.  This argument is hardly sustainable.  On the facts, other than a mere suggestion in paragraph 11(6) of the ex parte skeleton submission before the ex parte judge that the 1^st defendant was dishonestly assisting Bawa to dissipate the said Sum, that line of argument based on knowing receipt was not pursued in the ex parte skeleton submission.

76.  Furthermore, the plaintiff did have a claim of a personal nature against the 1^st defendant.  In the indorsement of the writ of summons which was before the ex parte judge, the plaintiff pleaded claims for inter alia equitable damages for knowing receipt, an account and restitution, all of which are purely personal claims in nature.  It must not be overlooked that the plaintiff’s case against the 1^st defendant at the ex parte stage was that it was not a bona fide purchaser for value of the said Sum (or just simply recipient of trust property), a basis which  Mr Wright deliberately chooses to ignore in advancing his arguments.   The claim in restitution is based on the principle of unjust enrichment.   A recipient of stolen property who has not given valuable consideration for the property, even if he is innocent and has no knowledge of the theft, is obliged to restore the property to the true owner because he had thus been unjustly enriched at the expense of the true owner: see Lipkin Gorman (a firm) And Karpnale Ltd [1991] AC 548.  The owner has a proprietary claim over the property or its proceeds if the property has been converted.  If the recipient has disposed of the property, whether by sale or otherwise, the true owner has a claim of a personal nature against the recipient.  The only defence a recipient could have is that he is “equity’s darling”, the bona fide purchaser for value without notice.

77.  As explained in paragraph 13 of the ex parte skeleton submission, at the ex parte stage little was known of what happened to the said Sum.  The 1^st defendant is a company incorporated shortly before the transfer with a paid up capital of HK$10.  It has no business address or registered office in Hong Kong.  Its sole shareholder and director is associated with Master Vision, which is suspected of engaging in fraudulent activities.   It remained silent in the face of demand for the return of principal payment paid into the Bawa Account.  It was most likely that the 1^st defendant has dissipated the said Sum.  As the disclosures subsequently revealed, the plaintiff’s fear turned out to be correct.  In the circumstances, it was both proper and prudent for the plaintiff to rely on its claim in restitution to seek a Mareva injunction as a “top-up” protection or in aid of the proprietary injunction.  Thus, contrary to Mr Wright’s argument, the plaintiff does have a claim of a personal nature other than one based on constructive trust to support its application for a Mareva injunction.

78.  Mr Wright is also wrong to argue that a Mareva injunction was not appropriate where the primary case against the 1^st defendant is solely proprietary in nature.  There are no constraints on the nature of a claimant’s cause of action or on the types of monetary relief which he may seek.  A Mareva injunction is designed to protect the claimant against the dissipation of assets against which he might otherwise execute judgment whether immediately or in the future: see Gee’s Commercial Injunctions, 5^th edition at paragraphs 3.029 and 5.009.  So long as the claimant has a claim against the defendant and that the defendant has assets which may be used to satisfy judgment, a claimant may apply for a Mareva injunction to restrain the defendant from dissipating his assets.   A claimant’s right to a proprietary injunction is different.  It is issued to preserve assets which a claimant has a proprietary claim so that they can be turned over to the claimant if he is successful in the action.   A proprietary injunction is easier to obtain and not subject to the usual liberties inserted into Mareva relief and there is no need to prove risk of dissipation.  It is a better relief than Mareva injunction, provided that the property has not been dissipated.  Where there is risk that the property has been dissipated, then it is prudent to apply for a Mareva injunction in aid or as a “top-up” protection in support of the proprietary injunction.

79.  Mr Wright’s argument demonstrates his untiring effort in distorting plaintiff’s applciation before the ex parte judge and in misleading the court.  He deliberately ignores the plaintiff’s applciation as presented before the ex parte judge and gratuitously attributes a different case of knowing receipt for the plaintiff which entails different duties and then argues, on the basis of that different case, that the plaintiff owed the duty of full and frank disclosure of some other facts and was in breach of that duty.  His argument is artificial, self-serving and utterly misleading.  It must be emphasised that the plaintiff’s application before the ex parte judge is that the 1^st defendant is a volunteer recipient of the plaintiff’s property held by Bawa as a constructive trustee and not that  the 1^st defendant is liable for knowing receipt as a constructive trustee.  With this in view, most of Mr Wright’s argument for material non-disclosure can be dismissed.

Bawa’s knowledge of the mistaken principal payment

80.  Before considering the various grounds for discharging the ex parte order, it is convenient to deal with two issues of fact which are hotly disputed by counsel.  The defendants’ application for discharging the ex parte order is heavily premised on the lack of evidence to support these factual issues and the plaintiff’s counsel’s failure to draw all relevant facts to the attention of the ex parte judge.  It would therefore be convenient to get these issues out of the way.  It must be emphasized that I am not making any finding of fact, but only deciding in the interlocutory context whether there is evidence to support this allegation.

81.  The first one is Bawa’s knowledge that the principal payment of US$15,760,320 was credited to the Bawa Account by mistake.  In paragraph 11(1) of the ex parte skeleton submission presented to the  ex parte judge, Mr Lam submitted:

“The Principal Repayment was made to Bawa under a mistake of fact.  Such a mistake should have been obvious to Bawa, given that the relatively insignificant balance in the Account prior to the Principal and Interest Repayments and the fact that the market value of the Bonds was only about US$2.5 million.  In any event, the Bank expressly informed Bawa of the error on 7 October 2011.”

Mr Lam accepts that the knowledge required to be proved is actual knowledge or blind-eye knowledge.  That was the kind of necessary knowledge which he submitted to the ex parte judge earlier in paragraphs 6 and 7 of the ex parte skeleton submission relying on Westdeutsche and Papamichael.  Mr Lam also accepts that there is no direct evidence of such actual knowledge and the plaintiff’s application is built on inference.  He relies on two facts to raise the inference of knowledge: the insignificant balance prior to the crediting of the principal payment into the Bawa Account and the market value of the bonds in respect of which the principal payment was paid.

82.  Then, further on in paragraph 11(5) of the ex parte skeleton submission Mr Lam advanced five facts in support of his assertion that the transfer of the said Sum from the Bawa Account to the 1^st defendant’s account with SCB-HK was not a bona fide transaction: (1) that the  2^nd defendant, being the sole shareholder and director of the 1^st defendant was being investigated for fraud (this was erroneous as it was Master Vision which the 2^nd defendant was associated with which was being investigated); (2) that the 1^st defendant appeared to be dormant and an alter ego of the 2^nd defendant; (3) that the 1^st defendant cannot be found at its registered address and remained silent despite the serious and repeated demands for return of the said Sum made against it; (4) the hastiness of the transfer; and (5) Bawa’s refusal to disclose the nature and purpose of the transfer.  While these assertions were made in relation to the 1^st defendant’s knowledge, to a certain extent, these facts are also relevant facts from which Bawa’s own knowledge of the mistaken principal payment can be inferred.  It would be unreal to expect the  ex parte judge to shut her eyes to these facts, simply because of the lack of reference to them as being relevant to Bawa’s knowledge.  Two of these facts are particularly pertinent: the hastiness of the transfer out of the said Sum from the Bawa Account to the 1^st defendant’s account with SCB-HK and Bawa’s own refusal to disclose the nature and purpose of the transfer.

83.  On top of all these are the surrounding circumstances, which form the background against which the relevant facts should be considered and inference drawn.  The ex parte judge must also have regard to those facts, even though they were not mentioned in paragraph 11(1).  Those facts were set out in paragraph 3 of the ex parte skeleton submission.  Those facts included: Bawa opened the Bawa Account with the plaintiff in June 2011; deposited four bonds (or structure notes or notes as counsel subsequently called them) with a face value of US$4 billion, but a market value of US$2.5 million at the time; upon being informed on 29 September 2011 of the principal payment, Morrison gave instruction to transfer the said Sum to the 1^st defendant’s account with SCB-HK on 30 September 2011; Morrison gave further instructions to transfer funds out of the Bawa Account within those few days exhausting the principal payment in the account and leaving it with a debit balance of US$11,767,554.33 when the plaintiff reversed the mistaken principal payment; and the fruitless discussion with Bawa’s Swiss lawyer, Enzo Caputo of Messrs Caputo & Partners (“Caputo”) in the three weeks that followed.  The ex parte judge must have at least read Brandle’s first affidavit in support of the ex parte application, which gave further particulars of the above assertions, which I shall go into on greater details later.  I should point out that in the course of the hearing before me it becomes apparent that there was a mistake in the ex parte skeleton submission which suggested that the face value and market value were the values of the four bonds together when in fact they refer to those values of the bond in respect of which the principal payment was made.  The face value of the four bonds together was US$9.109 billion.  I do not think this mistake was deliberate nor has any impact on the ex parte judge.  Mr Wright does not argue otherwise.

84.  Against the above background, the plaintiff has shown before the ex parte judge that Bawa opened an account with an insignificant amount of cash and maintained an insignificant balance, relative to the principal payment in question.  It deposited four bonds with a face value of US$4 billion in June 2011.  In September 2011, those bonds were assessed by the plaintiff to have a market value of only US$2.5 million, leaving aside for the time being the error about the value of the four bonds I mentioned earlier and Mr Wright’s argument about the accuracy of the valuation.  Mr Wright argues that those bonds are volatile.  However, people who invest huge amounts in such volatile financial products must be cautious and experienced investors.  Taking a realistic view of the matter, Morrison must know the approximate value or range of value of the bonds, no matter how much more he had paid when he first acquired them.  A principal payment of six and half times the approximate value of the bond was so unusual that it must have alerted Morrison that the payment was a mistake.  

85.  In response, Mr Wright argues that three of the bonds were interest paying bonds but one was eligible for principal payment.   He submits that there is no evidence as to which one of those bonds was the principal payment referable to and no evidence of what Morrison was told by the plaintiff’s director Evoquoz on 29 September 2011 as to identity of the bond in respect of which the principal payment was made. Hence, he argues that the principal payment was something which one of the bonds was capable of and would not be anything of a surprise to Morrison.  Mr Wright has ignored the interlocutory context of this proceeding and is apparently asking for proof to the criminal standard or at least seeking to resolve dispute of fact on affidavit.  His argument is based on an approach which is fundamentally wrong and must be rejected.

86.  Bawa’s conduct after receipt of the principal payment was also evidence which the ex parte judge was entitled to take into account. Within days of its receipt, the principal payment was hastily dissipated and the four bonds were transferred out of reach of the plaintiff.  Those events were highly unusual and could not have been coincidental.  The plaintiff reversed the credit which resulted in a debit balance of US$11,767,554 in the Bawa Account.  Since 7 October 2011, the plaintiff had been in communication with Morrison about the mistaken transfer, the reversal and the debit balance. On 10 October 2011, Morrison accompanied by his Swiss legal advisor Caputo attended a meeting with the plaintiff.  The plaintiff representative demanded return of the principal payment.  Morrison responded that Bawa received the principal payment in good faith and evaded the issue about the return of the principal payment.  On 12 October 2011, the plaintiff’s Swiss legal advisor sent an e-mail to Bawa requesting interalia details and documentation in support of the alleged investment.  To that request, Bawa’s Swiss lawyers, Caputo replied, inter alia, that:

“… The investment made has been executed and fulfilled as  per their agreement and is a private business.  Your request for a copy of the investment documentation is not relevant to achieve our goals within this investigation. All information in connection with early redemption/termination and associated penalties is not anymore an issue as the investment has been accomplished.”

That was a reply from Bawa’s lawyers.  It was vague, evasive and did not answer the inquiries raised by the plaintiff. The plaintiff’s Swiss legal advisors made further inquiries with Caputo on 21 and 26 October 2011 for information concerning the nature and purpose of the transfer of the said Sum to the 1^st defendant.  Neither Caputo nor Bawa responded.  In a memorandum of understanding provided by Louis Maguire, the person who introduced Morrison to the plaintiff, it was stated that in the week following 29 September 2011,

“Bawa acting in good faith, entered into binding contractual agreements with unconnected third parties in relation to the said distribution.  These third party agreements have been entered into in good faith and on a binding bona fide basis.”

87.  I note that it was Bawa’s stance that though the principal payment had been paid to the Bawa Account by mistake, the funds had been applied under binding and bona fide contractual agreements with unconnected third parties.  Bawa never denied liability to repay the said Sum but asserted that it had a counterclaim against the plaintiff in respect of the plaintiff’s mistake.  Mr Wright supports that counterclaim.  But  I am not impressed by his argument.  Bawa had received the principal payment and applied it to meet its own ends.  How could Bawa had suffered any loss as to justify a counterclaim to the tune of US$15 million?  It is not necessary for me to decide if Bawa had a valid counterclaim and its chances of success.  What I need to do is to apply common sense and ask what an ordinary reasonable man of commerce would have done in response to the bank’s request under such circumstances.  The answer is obvious.  If money had been paid by mistake into the account of a reasonable man and he, without knowledge of the mistake, treated the money as his own and applied it for his own purpose, when the mistake was discovered and inquiries made by the bank, he would certainly have acted with total candour.  He would have replied,

“It is unfortunate.  I thought it was my money.  I have applied the funds to meet (stating whatever the use or contractual obligations).  These are the supporting documents” 

By way of contrast, Bawa remained silent.  Its lawyers responded with an evasive reply.  I doubt if lawyers acting properly would have so conducted his client’s affairs.  Bawa’s reaction was not the conduct of an honest or reasonable man, let alone that of a man of decent commercial morality. 

88.  The hastiness with which Bawa dissipated the principal payment and transferred the bonds out of its account with the plaintiff was highly unusual.  These events could not have been coincidental.   The inference of dishonesty and intention on the part of Bawa to appropriate the principal payment belonging to the plaintiff can readily be drawn.  Alongside that inference, another inference can also be drawn,  ie Bawa hastily withdrew the principal payment and transferred the bonds out of the Bawa Account so as to put it beyond the plaintiff’s means to reverse the credit payment or to hold the bonds as a security because it knew it was not entitled to the principal payment and intended to permanently deprive the plaintiff of the principal payment.

89.  Bawa never denied liability to refund the said Sum.  It never explained why it thought it was entitled to the payment.  Its attitude has always been evasive.  Its conduct is not that of an honest businessman who had been mistaken.  From the circumstances mentioned above, the inference that Bawa knew the principal payment was a mistake could be drawn at least in the context of interlocutory proceeding or deliberately turned a blind eye.

The 1^st defendant’s knowledge of the mistaken principal payment

90.  The second factual issue in hot dispute is the defendants’ knowledge that the said Sum was transferred to the 1^st defendant by Bawa in breach of trust.  There were two parties to the transfer: Bawa and the 1^st defendant.  As against Bawa, Mr Lam relied on its refusal to disclose the nature and purpose of the transfer and the hastiness of the transfer: paragraph 11(5)(d) and (e) of the ex parte skeleton submission.  This is evidence on which the inference of Bawa’s own knowledge of the mistaken principal payment could be drawn. 

91.  As against the 1^st defendant, Mr Lam relied on paragraph 11(5)(a), (b) and (c) of the ex parte skeleton submission.  These are: the fact that the 1^st defendant is a HK$10 company: that it appeared to be a dormant company; that it could not be found at its registered address and it remained silent in the face of the serious and repeated demands for return of the said Sum and that the 1^st defendant is the alter ego of the  2^nd defendant.  As against the 2^nd defendant, Mr Lam asserted that the  2^nd defendant held himself out as the chairman of Master Vision; that Master Vision was being investigated by the police; and that it was subject to a warning issued by the financial authorities in Hong Kong and Liechenstein that it was not licensed to conduct banking activities contrary to its representation.  The assertion that the 2^nd defendant held himself out as the chairman of Master Vision is incorrect.  The proper assertion should have been that Master Vision held the 2^nd defendant out as its chairman.  But as I shall explain, this inaccuracy has but little impact on the ex parte judge.

92.  Viewed in isolation, as Mr Wright presumably does, there is nothing sinister about the 1^st defendant receiving the said Sum from Bawa and no inference of knowledge that the said Sum was transferred to the  1^st defendant in breach of trust may be drawn.  However, a wholly different picture emerges when the assertions against Bawa, the 1^st and 2^nd defendants and Master Vision are viewed together. 

93.  Master Vision is suspected of carrying on banking activities without licence contrary to its own representation that it was properly licensed for those activities.  It was being investigated, not merely by monetary regulatory authorities, but by Hong Kong police.  Master Vision held the 2^nd defendant out as its chairman. 

94.  The 2^nd defendant is the sole director and shareholder of the 1^st defendant which is a HK$10 and dormant company.  The 1^st defendant was incorporated just a few months prior to the present incident.  It used the addresses of its corporate secretary as its own registered address and then disappeared from that addresses altogether.  The contact addresses of the 1^st and 2^nd defendants left to the corporate secretary were incomplete.  It was under all these circumstances that the said Sum was transferred by Bawa to the 1^st defendant’s account with SCB-HK with knowledge on the part of Bawa of the mistake. 

95.  When contact was established with the 1^st defendant and/or the 2^nd defendant and demand was made for the return of said Sum, they remained silent.  Mr Wright argues that the fact that communications sent to the registered office of a limited liability company were not immediately answered does not establish that the company had knowledge of the particular matters asserted in the communications.  The 1^st defendant could not be reached at its registered office.  After a great deal of effort, KL was able to obtain the e-mail and mailing addresses of Malik from the 1^st defendant’s corporate secretary.  A letter of demand was sent to the 1^st defendant at that address.  Caputo responded confirming receipt of the letter addressed to the 2^nd defendant and Malik.  Though Caputo expressly stated that he was acting for Bawa, it is only too obvious that Caputo could not have received the letter otherwise than through the 1^st defendant or 2^nd defendant or Malik.  Mr Wright argues that Malik is not a director or officer of the 1^st defendant.  Such argument has no realism because, as disclosed in the subsequent discoveries,  Malik was heavily involved with the 2^nd defendant in dissipating the said Sum and Malik’s e-mail address is in the website of Master Vision,  Malik and the 2^nd defendant are both involved in Master Vision and the 2^nd defendant is on his own admission involved in the website of Master Vision.  There is a strong inference that Caputo received the letter of demand, not from Bawa, but from the 2^nd defendant and/or Malik.   There is no substance in Mr Wright’s argument that there is no evidence that the 1^st defendant or 2^nd defendant had knowledge of the letters of demand as to oblige them to respond to the demand.  If it is the defendants’ case that they had not received the letters of demand, it is for them to adduce such evidence.  They did not.  Mr Wright is demanding a criminal standard of proof which is inappropriate in interlocutory proceedings.  He is also advancing an argument which is not supplied by evidence from his own clients.

96.  Ordinary honest people receiving such a huge sum would have responded upon a demand made for its return.  Not only is this not the case, the above circumstances, including in particular the suspicious nature of Master Vision, the 2^nd defendant’s involvement with Master Vision and the hastiness with which the said Sum was transferred suggest that the transfer was not only with knowledge on the part of Bawa of the mistake, but also with knowledge on the part of the defendants.  I think the inference that the 2^nd defendant and, through him, the 1^st defendant had knowledge that the said Sum was transferred to the 1^st defendant in breach of trust by Bawa is overwhelming, at least in the interlocutory context.

Failure to disclose the available defence ground – generally

97.  Mr Wright argues that the plaintiff was in breach of its duty of full and frank disclosure by failing to draw the ex parte judge’s attention to the potential defences available to the 1^st defendant.   He submits that this need was particularly acute in the present case in view of the unorthodox nature of the plaintiff’s claim.  He relies on seven defences.  I shall deal with each of those defences one by one.

Defence 1: the no knowledge defence

98.  Mr Wright argues that the 1^st defendant had no knowledge that the principal payment was made to Bawa by mistake and therefore could not itself be liable as a constructive trustee.  This argument completely ignores the plaintiff’s claim as presented before the ex parte judge.  As I have already analysed above, the plaintiff’s knowledge of the case was very rudimentary at the stage before the ex parte judge.  Hence, the plaintiff only relied on its proprietary claim to support its application for a proprietary injunction.  In addition, it also relied on its claim in restitution to support its application for a Mareva injunction in aid of the proprietary injunction.  It was only in paragraph 11(6) of his ex parte skeleton submission that Mr Lam suggested that the 1^st defendant may be liable for dishonestly assisting Bawa in the breach of trust.  But the application for Mareva injunction was not made on the basis of constructive trust for knowing receipt.  The plaintiff’s proprietary claim was built on two premises: firstly that Bawa knew that the principal payment was transferred to the Bawa Account by mistake and hence held them on trust for the plaintiff; and secondly that the 1^st defendant received the said Sum transferred from the principal payment subject to the plaintiff’s equity and is liable to restore the principal payment to the plaintiff unless it was a bona fide purchaser for value without notice.   The 1^st defendant’s knowledge of Bawa’s breach of trust is not a necessary element for the plaintiff’s claim for proprietary injunction and its lack of knowledge is not a defence.  Thus, Mr Wright’s argument of no knowledge defence completely misses the basis of plaintiff’s claim before the ex parte judge.

99.  I now turn to the legal basis of the plaintiff’s case before the ex parte judge.  It is a well established principle that a beneficiary’s interest in a trust property binds the whole world except as against a bona fide purchaser for value without notice.  In Foskett v McKeown and others [2001] 1 AC 102, Lord Millett said at 127: 

“A beneficiary of a trust is entitled to a continuing beneficial interest not merely in the trust property but in its traceable proceeds also, and his interest binds every one who takes the property or its traceable proceeds except a bona fide purchaser for value without notice.  In the present case the plaintiffs’ beneficial interest plainly bound Mr Murphy, a trustee who wrongfully mixed the trust money with his own and whose every dealing with the money (including the payment of the premiums) was in breach of trust.  It similarly binds his successors, the trustees of the children’s settlement, who claim no beneficial interest of their own, and Mr Murphy’s children, who are volunteers.  They gave no value for what they received and derive their interest from Mr Murphy by way of gift.”

(My emphasis underlined.)

100.  On the principle as stated by Lord Millett, if Bawa held the principal payment on trust for the plaintiff, the plaintiff not only has a remedy against Bawa as constructive trustee, but is also entitled to trace the principal payment or its traceable proceeds into the hands of the person holding them unless that person is a bona fide purchaser for value without notice.  Therefore, on the case as presented at the ex parte hearing, the issues for the ex parte judge were whether there was evidence to support a finding that Bawa knew the principal payment was a mistake, whether the said Sum was transferred from the principal payment to the 1^st defendant’s account with SCB-HK and whether the defence of a bona fide purchaser for value without notice is available to the 1^st defendant.  The 1^st defendant’s knowledge of Bawa’s breach of trust is not an element the plaintiff has to prove to establish its claim for a proprietary injunction.

101.  Mr Wright appreciates that the plaintiff was making a proprietary claim.  However, when launching his no knowledge defence,  he asserts that the plaintiff has no evidence that the 1^st defendant was not a bona fide purchaser for value without notice and failed to draw to the attention of the ex parte judge that knowledge is a necessary ingredient for knowing receipt and to authorities such as BCCI (Overseas) Ltd and Another v Akindele [2001] Ch 437 in which Nourse LJ stated:

“The recipient’s state of knowledge was such as to make it unconscionable for him to retain the benefit of the receipt.”

102.  The concept of knowledge in the context of breach of trust for knowing receipt and knowing assistance and the concept of notice in the context of a bona fide purchaser for value without notice are two different concepts relevant for different purposes.  Knowledge is a necessary element which a beneficiary has to establish in a personal claim against a constructive trustee for breach of trust.  It includes actual knowledge and blind-eye knowledge.  On the other hand, notice is an element which the recipient of trust property has to prove in order to raise the defence of bona fide purchaser for value without notice, once such a proprietary claim is prima facie established against him.  Constructive notice is sufficient to defeat this defence.  The distinction was clearly explained by Megarry V-C in Re Montagu’s Settlement Trusts at 276B-D and 278B-D.  The Vice-Chancellor said at 276:  

“The core of the question (and I put it very broadly) is what suffices to constitute a recipient of trust property a constructive trustee of it.  I can leave on one side the equitable doctrine of tracing: if the recipient of trust property still has the property or its traceable proceeds in his possession, he is liable to restore it unless he is a purchaser without notice.  But liability as a constructive trustee is wider, and does not depend upon the recipient still having the property or its traceable proceeds.”

Re Montagu’s Settlement Trusts was cited with approval in BCCI v Akindele at 452C-453D which Mr Wright also quoted.

103.  It is impossible to understand how Mr Wright could have mixed the concept of knowledge of breach of trust in a claim based on knowing receipt or knowing assistance against a constructive trustee with the concept of bona fide purchaser for value without notice in a proprietary claim against a person holding trust property.  If the  1^st defendant was a volunteer, then whether it had notice of the prior equity or knowledge that the said Sum was transferred to its account with SCB-HK by Bawa in breach of trust is irrelevant.  The plaintiff is entitled to recover the said Sum in the 1^st defendant’s account with SCB-HK or its traceable proceeds.  The 1^st defendant’s knowledge that the said Sum was transferred to it by Bawa in breach of trust is irrelevant insofar as the plaintiff’s proprietary claim is concerned.

104.  I now turn to the two issues which the ex parte judge had to consider.  In respect of the first one, ie Bawa’s knowledge of the mistaken principal payment, for reasons as explained in paragraphs 80-89, I am satisfied that on the evidence available before the ex parte judge such inference may be reasonably drawn.  This would be sufficient to dispose of this issue.  I now turn to Mr Wright’s various attacks on  Mr Lam’s ex parte skeleton submission on Bawa’s knowledge of the mistake before the exparte judge.  Basically, this is not necessary as there is indeed sufficient evidence of Bawa’s knowledge of the mistake before the ex parte judge.

105.  Mr Wright made a huge issue of Mr Lam’s ex parte skeleton submission before the ex parte judge that the mistaken principal payment should have been obvious to Bawa as early as 29 September 2011 when Morrison was informed of the impending payment or at the latest on  7 October 2011 when Morrison was actually informed of the mistake.  He argues that the transfer of the said Sum was effected on 5 October 2011 and the 1^st defendant was therefore not caught by the trust.  Mr Lam was then addressing the state of knowledge of Bawa and not the fact as to when the trust was created.  The trust was created at the very moment the principal payment was credited into the Bawa Account by mistake.  When Bawa came to know about the mistake is irrelevant and cannot change the fact that the principal payment was trust property right from the beginning.  As the remedy sought before the ex parte judge was a proprietary one, the issues were whether the said Sum was transferred from the principal payment which is properly held on trust and whether the 1^st defendant was still in possession of the said Sum or traceable proceeds from the said Sum.  That the 1^st defendant received the said Sum before Bawa knew of the mistake does not relieve it of the obligation to return the said Sum or the proceeds or the obligation to make disclosure.

106.  Besides, as the disclosures subsequently reveal, the said Sum transferred into the 1^st defendant’s account was then hastily transferred to the 2^nd defendant’s account with SCB-Singapore on 7 October 2011.  Thus, the said Sum was impressed with the trust for the plaintiff when it was received by the 2^nd defendant.  Most probably the 1^st defendant was informed of the mistake by SCB-HK on 10 October 2011.  The  2^nd defendant must have that knowledge himself, being the only director and shareholder of the 1^st defendant.  Yet, with that knowledge,  he transferred four sums totalling US$2,274,739.71 out of his account with SCB-Singapore to Jager’s account in Switzerland and another sum of US$5 million (which was converted into NZ$6.381 million) to his own New Zealand dollar account in ANZ Bank in New Zealand, which was then transferred to his joint account with Malik in ANZ Bank.   After being served with the injunction order on 10 November 2011, the 2^nd defendant further transferred two other sums totalling US$3,500,000 to Jager’s account and a sum of NZ$6 million from his joint account with Malik to Jager’s account.  He also dissipated the rest of the said Sum.   Thus, Mr Wright’s argument that the trust only came into existence on  7 October 2011 could not avail the defendants.

107.  Mr Wright criticises Mr Lam for further breach of the duty of full and frank disclosure in failing to draw to the attention of the ex parte judge the logical impossibility of the 1^st defendant having knowledge that the said Sum was held on trust by Bawa on 5 October 2011 because on the plaintiff’s own evidence it was not until 7 October 2011 that it informed Bawa of the mistake.  Such argument is not applicable to the plaintiff’s claim of proprietary injunction.  Mr Wight’s argument is only to be dismissed.  In the case of a unilateral mistake, invariably one party is aware of the mistake while the other is not.  Simply put, a payer may not know of the mistake, but the payee may.  Thus, the plaintiff did not know of the mistake until 7 October 2011 does not of necessity mean that Bawa did not know of the mistake when the principal payment was credited to the Bawa Account on 29 September 2011.  It is not the plaintiff’s knowledge which is in issue, but Bawa’s.  It is the plaintiff’s case that Bawa must have known or at least turned a blind eye to the real risk that the principal payment was credited to its account by mistake on 29 September 2011 and did not belong to it.  There is no logical impossibility.

108.  Mr Wright argues that Mr Lam compounded his failure to draw to the attention of the ex parte judge the no knowledge defence by asserting in paragraph 11(5)(a) of his ex parte skeleton submission in the following terms:

“it is highly unlikely however that the Transfer would have been an arm’s length or bona fide transaction without notice on the part of the 1^st Defendant.”

He submits that the use of double negative implies that it is highly likely that the 1^st defendant had the necessary notice of the alleged trust.  It is obvious that this sub-paragraphs followed the line of submission from sub-paragraphs (3) and (4), ie the bona fide purchaser for value point.  Knowledge, as I have said, is not relevant for the proprietary claim.   The five sub-sub-paragraphs in support of the assertion at sub-paragraph (5) is consistent with the transfer not being made bona fide or for value. 

109.  Next, Mr Wright complains that Mr Lam failed to draw to the attention of the ex parte judge the total absence of evidence in support of the plaintiff’s application.  It was not Mr Lam’s submission that there was direct evidence of Bawa’s or Morrison’s knowledge of the mistaken principal payment and likewise the 1^st defendant’s knowledge that the transfer of the said Sum to the 1^st defendant was made by Bawa in breach of trust.  In paragraph 11(3) to (6) of his ex parte skeleton submission,  Mr Lam set out the basic facts on which he invited the ex parte judge to draw the inference.  It was obvious to the ex parte judge that the plaintiff was not asserting it had direct evidence of the knowledge of Bawa, Morrison or the 1^st defendant.  The ex parte judge obviously knew that the plaintiff’s case was based on inference to be drawn on the  primary facts including the surrounding circumstances.  There was no misrepresentation by Mr Lam of the evidence to the ex parte judge.   The ex parte judge must have read Mr Lam’s ex parte skeleton submission, listened to his oral submission, and read Brandle’s affidavit and at least selectively examined the exhibits.  She must have realised that there was no direct evidence on those two issues.  It is otiose to suggest, as  Mr Wright does, that counsel should lead the ex parte judge by the hand and tell her what evidence she had and what she had not.  Such argument must be dismissed.

110.  On the second issue, ie whether the 1^st defendant was a bona fide purchaser for value, Mr Wright submits that the legal burden is on the plaintiff to prove that the 1^st defendant had not given consideration for the transfer, that there was no such evidence and that Mr Lam failed to draw to the attention of the ex parte judge the absence of such evidence.  He argues that as the plaintiff’s case is that the 1^st defendant was not a bona fide purchaser for value, the plaintiff bears the burden of proof and Mr Lam wrongly reversed the burden of proof by putting it on the shoulders of the defendants.  

111.  In his written skeleton submission in answer to the strike-out application prepared for this hearing, Mr Lam assumed that the plaintiff has the burden of proof but argues that there are grave doubts if the 1^st defendant was not a volunteer.  In his oral submission, however, he departs from that position and argues that legal burden of proving value has been given is on the recipient of the transfer, ie the 1^st defendant.  That, I think, is the correct position.  Starting from basic principles,  the facts and matters which should be pleaded in any particular case, either by way of claim or defence, are determined partly by the rules of procedure and practice and partly by the substantive law relevant to the cause of action and the available defences to the cause of action: see Barclays Bank Plc v Boulterand Another (CA) [1998] 1 WLR 1 at 8  per Mummery LJ.  The burden of proof is fixed at the beginning of the trial by the state of the pleading.  At the ex parte stage, the statement of claim was not yet filed.  The plaintiff’s case was simply that the  1^st defendant was a recipient of part of the principal payment which was held on trust by Bawa for the plaintiff under the principle of Foskett v McKeown.  That should be taken as the pleaded cause of action.  What the plaintiff had to prove were that the principal payment was held on trust by Bawa by reason of mistake and that part of that principal payment was held by the 1^st defendant.  Then it would be up to the  1^st defendant to plead its own defences.  It was not known to the plaintiff and the ex parte judge what would be the defences.  Some possible defences would be a denial of the receipt or denial of the transfer.  But such defences are unlikely to succeed in view of the incontrovertible evidence.  Another possible defence is that the 1^st defendant was a  bona fide purchaser for value.  Again in Barclays Bank Plc, Mummery LJ said at 8:

“It is well established at this level of decision that the doctrine of bona fide purchaser for value without actual or constructive notice is a defence which can be raised to defeat a claim of an equitable right or interest and that the burden is on the person raising that defence to plead and prove all its elements: it is a “single defence.” ”

Thus, as a matter of substantive law, bona fide purchaser for value is a defence which has to be pleaded by the recipient if he wishes to avail himself of that defence.  The contrary, ie that the recipient is not a bona fide purchaser for value is not an element of the plaintiff’s cause of action.   

112.  In his argument in the strike-out application relating to striking-out paragraph 25 of the statement of claim and the burden of proof, Mr Wright quotes Foskett v McKeown as example of a case in which it was properly alleged that a recipient of a benefit was a volunteer but in which the evidence established that the beneficiaries of the life insurance policies had not provided any consideration for the policy proceeds.  In that case, money held on trust for purchasers by a trustee for a property transaction was misapplied by the trustee to pay premiums for his life insurance policy.  The trustee then appointed his children and two others as beneficiaries of his life insurance and committed suicide.   The House of Lords held that the purchasers could trace the trust money through the premiums into the policy money.  That case was decided on the basis of substantive law and not on a pleading point.  Indeed, it is not even clear from the law report what the pleadings were.  It seemed that the beneficiaries of the life insurance policy had no dispute that they were volunteers.  That case does not really support Mr Wright’s contention on the burden of proof.

113.  Mr Lam submitted before the ex parte judge in paragraph 11(5) of his ex parte skeleton submission that it was highly unlikely that the transfer to the 1^st defendant would have been an arm’s length or  bona fide transaction on the part of the 1^st defendant and advanced some reasons.  That should not be taken as the plaintiff accepting that is has the burden of proving that the 1^st defendant was not a bona fide purchaser for value in order to succeed.  In making that submission, Mr Lam was, contrary to what Mr Wright has been repeatedly accusing him of his failures, discharging his duty of full and frank disclosure by drawing to the attention of the ex parte judge what he thought would be the  1^st defendant’s most likely defence in the circumstances and then he negative that defence by referring to the various circumstantial evidence.  It was not known if that defence would be raised by the 1^st defendant.   If it is, it will be up to the 1^st defendant to discharge that legal burden.  That the 1^st defendant was not a bona fide purchaser is a negative averment.  Whether it gave any consideration, what it was and how it was given are matters solely known to the 1^st defendant.  It is difficult, if not impossible, for the plaintiff to prove, let alone to speculate before the  ex parte judge.  If at the ex parte stage Mr Lam wrongly assumed that it was the plaintiff’s burden to prove the 1^st defendant was a volunteer,  that mistake would only have benefited the 1^st defendant.  In any event, the ex parte judge would not have erred on such a simple legal issue as burden of proof.  If the legal burden were indeed on the plaintiff, I would have considered that the evidence submitted by Mr Lam in paragraph 11(5) of his ex parte skeleton submission would have discharged the evidential burden as to pass the judge and to leave it to the tribunal of fact to decide whether on the totality of the evidence the legal burden is discharged.

114.  As the burden of proving that it had given consideration for the transfer of the said Sum is on the 1^st defendant, Mr Wright’s argument that Mr Lam failed to draw to the attention of the ex parte judge that the legal burden was on the plaintiff to prove that the 1^st defendant was not a bona fide purchaser for value and the lack of such evidence are all  non-sense submitted to mislead this court.  

115.  It has never been the plaintiff’s case that there was direct evidence as such.  The plaintiff’s case is based on inference.  In his  ex parte skeleton submission before the ex parte judge, Mr Lam referred to the fact that the 2^nd defendant is the sole shareholder and director of the 1^st defendant which is being investigated by the police and financial authorities in Hong Kong and Liechtenstein for fraudulent activities; that the 1^st defendant appeared to be a dormant company and likely alter ego of the 2^nd defendant; that the 1^st defendant cannot be found in its registered address; and most importantly the 1^st defendant’s failure to respond to the plaintiff’s demand for return of the said Sum.

116.  When the 1^st defendant’s repeated refusal to respond in the face of a serious demand for return of the said Sum is considered against the above background, the inference could be drawn that it received the said Sum as a volunteer.  Were it a bona fide purchaser for value without notice, it would have promptly protested the demand and provided supported documents.  In the previous paragraphs 90-96, I have also found that on these primary facts, the inference that the defendants knew the said Sum was transferred by Bawa in breach of trust could be drawn.

117.  Mr Wright says that Morrison’s informed the plaintiff that the said Sum was to be transferred for the purpose of a commercial transaction.  He refers to a contract between Bawa and AMDG International LLC (“AMDG”) disclosed by the 2^nd defendant as evidence of a legitimate commercial transaction between Bawa and AMDG,  that Bawa agreed with Sunesko LLC to jointly invest in AMDG and that the said Sum was paid by Bawa to Sunesko through the 1^st defendant for a legitimate business transaction.  I do not find it necessary to deal with that evidence. That evidence is very dubious and contrary to other evidence, for example, Caputo’s letter of 2 November 2011.  These are matters for trial.  I do not wish to further burden this already very long judgment.

118.  It may well be that at trial the court may not be satisfied that Bawa had knowledge of the mistake. In my view, in the interlocutory context, the evidence considered as a whole was sufficient for the  exparte judge to draw the inference that Bawa had knowledge of the mistaken principal payment and that the 1^st defendant was a recipient of that property and therefore to find there was a serious issue to be tried.

Defence 2: the no trust defence

119.  One of the two basis on which the plaintiff’s proprietary claim was made is that Bawa held the principal payment on a constructive trust for the plaintiff.  Mr Wright submits that the 1^st defendant would have an absolute defence to the claim in the event that Bawa was not a constructive trustee of the principal payment.  Mr Lam has no quarrel with that proposition.  Mr Wright then refers to paragraph 11(1) and (2) of Mr Lam’s ex parte skeleton submission before the ex parte judge which read:

“(1)  The Principal Repayment was made to Bawa under a mistake of fact.  Such a mistake should have been obvious to Bawa, given that the relatively insignificant balance in the Account prior to the Principal and Interest Repayments and the fact that the market value of the Bonds was only about US$2.5 million.  In any event, the Bank expressly informed Bawa of the error on 7 October 2011.

(2)  Bawa therefore held the Principal Repayment as constructive trustee upon receipt, or at the latest on 7 October 2011 on the principle enunciated by Lord Brown-Wilkinson (sic) in the Westdeutsche case and applied in the Papamichael case.”

120.  First, Mr Wright criticises Mr Lam for quoting selectively from Westdeutsche case and failed to draw the attention of the ex parte judge to the precise words of Lord Browne-Wilkinson at [1996] AC 669 at 715B where his lordship stated:

“the mere receipt of the moneys, in ignorance of the mistake, gives rise to no trust.”

That is a serious allegation of counsel misleading the court by quoting selectively from a judgment.  For someone as meticulous and careful in raising ingenious arguments as Mr Wright, it is surprising that he would have made such a serious allegation in the face of express reference to that very proposition by Mr Lam in paragraph 6 of his ex parte skeleton submission.  There, Mr Lam referred the ex parte judge to the very principle as follows:

“In Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, Lord Browne-Wilkinson held on 715B-C that although the mere receipt of the moneys, in ignorance of the mistake, does not give rise to a trust, the retention of the moneys after the recipient learned of the mistake may well give rise to a constructive trust.”

(My emphasis underlined.)

Mr Lam has indeed quoted the very principle which Mr Wright complains he had selectively omitted.  Mr Wright’s submission is grossly misleading, inadvertently I hope.  But it demonstrates the ingenuity (or dis-ingenuity) with which Mr Wright desperately searched for facts and even made up legal arguments in the hope that a judge may lightly consider it a material non-disclosure and so discharge the ex parte order.

121.  As a follow up to that misconceived argument, Mr Wright submits that Mr Lam failed to inform the ex parte judge of the narrow scope of any equitable claim based on a mistaken payment.  There being no misquoting of the judgment by Mr Lam, the ex parte judge must be well aware of that defence.  Mr Wright’s submission must be rejected.

122.  As yet another follow up to that misconceived argument,  Mr Wright submits that Mr Lam failed to draw to the attention of the  ex parte judge that when money has been paid pursuant to a voidable transaction, the recipient acquires full legal and beneficial ownership of the money at least until such time as the transaction is avoided.   He argues that the earliest that the transaction between the plaintiff and Bawa can possibly have been avoided was 7 October 2011 because on the plaintiff’s case it was not aware of the mistake until that date.  As the transfer of the said Sum from the Bawa Account to the 1^st defendant was completed before that date, the said Sum could not have been held by the 1^st defendant as a constructive trustee on the basis of knowing receipt.   He quotes Shalson and Others v Russo and Others [2005] Ch 281 at 316D-H in support of his proposition.

123.  With respect, Mr Wright’s argument is utterly distorted.   The plaintiff’s case is that Bawa held the principal payment under a constructive trust and not pursuant to a contract.  It is impossible to understand how Mr Wright could have imported the principles applicable to avoiding a contract to property held on trust created by the presumed intention of the parties.  There is a world of difference between money paid pursuant to a voidable contract and money paid by mistake which becomes property held on trust.  In the case of the former, the contract has to be avoided first before the obligation to refund arises.  In the case of the latter, the money was not paid pursuant to any contract.  The trust was created as soon as the principal payment was credited into the Bawa Account.  There is simply no contract or transaction to be avoided before the trust is created.  When this is pointed out to Mr Wright, he disagrees and argues that the principle he advocates applies to any transaction including the transaction of crediting the Bawa Account with the principal payment and not just to contracts.  He quotes paragraph 40-08 of Goff & Jones, The Law of Unjust Enrichment, Eight Edition which reads:

“A voidable transaction is valid until it is rescinded, and a party who is entitled to rescind such a transaction is not obliged to exercise his power: he may choose instead to affirm the transaction, in which case he will lose his power to rescind by waiver.  When a party with a right to rescind knowingly elects to affirm the transaction, his election is final: he cannot change his mind and rescind the transaction afterwards. Affirmation of a voidable contract may be established “by any conduct which unequivocally manifests an intention to affirm it by the party who has the right to affirm or disaffirm.”

(Mr Wright’s emphasis underlined.  My emphasis highlighted in bold print.)

124.  That is another of Mr Wright’s blatant and gallant attempt to mislead the court on the law.  The passage he quotes is taken from Chapter 40 entitled “Proprietary remedies: Rescission and Rectification”.  Part 1 of the chapter is an introduction and Part 2, which begins with paragraph 40-05 is about rescission.  It reads:

“40-05

  In this part we summarise the rules governing the rescission of contracts and gifts.  We then discuss how rescission can lead to the recovery of legal title to property that was transferred by the rescinding party to a recipient.

(a) General Principles

  40-06

  At common law, contracts may be rescinded for fraudulent misrepresentation, duress and mental incapacity, and insurance contracts may also be rescinded for non-disclosure and non-fraudulent misrepresentation.  …

(b) Proprietary Effects

40-17

  A voidable contract is valid until it is rescinded, and prior to rescission it is as capable of effecting a valid transfer of title to property as any other legally valid contract.  Hence, for example, where goods are delivered to a fraudster in circumstances where the fraud renders the contract voidable rather than void, title to the goods will generally pass. …”

  (My emphasis underlined)

As the learned editors stated in paragraph 40-05, Chapter 40 of The Law of Unjust Enrichment is about the law governing the rescission of contract and gifts.  By “transaction”, the learned editors were referring to transactions in contract or voluntary disposition. Paragraph 40-17 which Mr Wright also quotes in support of his proposition specifically referred to “voidable contract”.  Also, Peyman v Lanjani [1985] Ch 457, which was quoted in paragraph 40-08 and cited by Mr Wright, was also about rescission of contract.

125.  In further support of his proposition, Mr Wright quotes Shalson v Russo which was a case where a party had fraudulently induced another to lend money.  The question arose as to whether the money lent was held by the fraudulent borrower on constructive trust for the lender.  It was not a case of mistaken payment.  It was a case of payment pursuant to a contract.  The payment was made pursuant to the intention of the lender.  The court held that a constructive trust only arose after the lender had rescinded the loan agreement.  On the legal principle as I have explained, Mr Wright’s reliance on that authority is misplaced.  In my view, Mr Wright is misrepresenting the law and misquoting the editors of the authorities he cited.  Such conduct supports the observations I made earlier.

126.  On the issue of whether a constructive trust arises as a result of a mistaken payment, Mr Lam refers to two scenarios.  The first is where a bank by mistake credits a customer’s account with a sum which is not a particularly large sum and is of the usual amounts which are frequently deposited into the account.  The customer is unaware of the mistake and spends the money.  In the second scenario, the customer maintains a modest balance in his bank account and the bank by mistake credits an unusually large sum into the account.  The customer discovers the deposit and knowing he had no reason for the deposit decides to spend it.  Mr Lam submits on the principle in Westdeutsche and Papamichael, which he quoted before the ex parte judge, that under the first scenario there is no question of knowing receipt and no constructive trust arises; but under the second scenario the customer becomes a constructive trustee of the money credited into his account by mistake.  This is because under the second scenario, the customer knows or turns a blind eye to the fact that the money does not properly belong to him.   At that point it becomes unconscionable for the customer to withdraw the money or if he has already withdrawn it from the account, to deal with it or spend it. 

127.  This brings me to yet another of Mr Wright’s misconceived arguments.  He refers to the legal principles quoted by Mr Lam in paragraphs 6 and 7 of the exparte skeleton submission before the exparte judge.  He submits that the proposition of law stated in Westdeutsche is obiter, whereas the issue whether beneficial ownership of money vested in the transferee (ie the customer) did not arise for consideration in Papamichael and that Mr Lam’s summary of the proposition of law stated in Papamichael before the ex parte judge was incorrect.

128.  In paragraphs 6 and 7 of the exparte skeleton submission before the ex parte judge, Mr Lam submitted:

“6.  In Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, Lord Browne-Wilkinson held on 715B-C that although the mere receipt of the moneys, in ignorance of the mistake, does not give rise to a trust, the retention of the moneys after the recipient learned of the mistake may well give rise to a constructive trust.

7.  In Papamichael v National Westminster Bank Plc and Another [2003] 1 Lloyd’s Rep 341, Deputy Judge Chambers QC, following the above dicta, held at pp 368-369 and 372-373 that:

(1)  The recipient of money paid under a mistake becomes a constructive trustee of the money once he acquires knowledge of the mistake or turns a blind eye to such a mistake by wilfully and recklessly failing to make such inquiries as an honest and reasonable person would make.

(2)  At that point, it becomes unconscionable for the recipient not to return the money and a constructive trust arises.

(3)  In such a case, there is no reason why tracing should not be available as a tool to see whether there remained an asset upon which a trust can operate where money has been paid under a mistake.

See also Goff and Jones: The Law of Restitution 7^th Edition at paras 4-035 to 4-041.”

Of course, Mr Lam accepts that what was said by Lord Browne-Wilkinson in the House of Lords in Westdeutsche was obiter, but his submission before the ex parte judge was that that obiter dictum became the ratiodeccidendi in Papamichael.

129.  In Papamichael, the claimant, Mrs Papamichael (“wife’), won a lottery of two billion Greek drachmas, which the Bank of Cyprus caused to be paid to National Westminster Bank P/C (“NatWest”) for her benefit.  The wife had no account with NatWest.  She entrusted her husband to arrange with NatWest for an account to be opened in her name and into which the two billion Greek drachmas were to be deposited, converted into US dollars, and to be held in a fixed term deposit account to mature when Greece joined the Euro.  The Greek drachmas were paid to NatWest.  However, NatWest’s bank manager, Makris, deliberately ignored the reference to the wife as the stated beneficiary of the funds and set up a forex account into which the  US dollars converted from the Greek drachmas were paid as security for the husband’s margin trading activity.  Deputy Judge Chambers rejected NatWest’s submission that it was a bona fide purchaser of the drachmas and accepted that the claim for drachmas was a personal one in restitution while the claim for the US dollars was respectively a claim for breach of fiduciary duty and fraud which rendered the husband a constructive trustee.  At page 378, Deputy Judge Chambers held at paragraph 262:

“For the reasons that I have set out I find that Mrs Papamichael is entitled to GRD 2 billion as money paid under a mistake of fact and to US$6,506,604.20 by reason of dishonest assistance in a breach of trust or, to the extent that such moneys were received by the bank, for knowing receipt.”

130.  At page 368, the learned judge discussed about NatWest’s dishonest assistance in the husband’s breach of trust and knowing receipt of a mistaken payment.  He said that the obligation of the recipient of funds who had actual knowledge of the mistake was to return the funds.  He said at paragraph 135:

“  …The factors which will determine whether it is inequitable to allow the claimant to obtain restitution in a case of mistaken payment will vary from case to case, but where the payee has voluntarily parted with the money much is likely to depend on the circumstances in which he did so and the extent of his knowledge about how the payment came to be made.  Where he knows that the payment he has received was made by mistake, the position is quite straightforward: he must return it.  This applies as much to a banker who receives a payment for the account of his customer as to any other person: see, for example, the comment of Lord Mersey in Kerrison v Glyn, Mills, Currie & Co (1912) 81 LJKB 465 (HL) at page 472.” 

The first limb of paragraph 7(1) of Mr Lam’s skeleton before the ex parte judge is consistent with the above statement of the law.

131.  Then the learned judge went on to discuss the position of a recipient who did not have actual knowledge of the mistake.  He concluded that actual knowledge included recklessness or blind-eye knowledge. Deputy Judge Chambers continued at paragraph 135:

“… Greater difficulty may arise, however, in cases where the payee has grounds for believing that the payment may have been made by mistake, but cannot be sure.  In such cases good faith may well dictate that an enquiry be made of the payer. The nature and extent of the enquiry called for will, of course, depend on the circumstances of the case, but I do not think that a person who has, or thinks he has, good reason to believe that the payment was made by mistake will often be found to have acted in good faith if he pays the money away without first making enquiries of the person from whom he received it.

…

However, for present purposes, I am content to proceed upon the basis of a requirement of actual knowledge where good faith is concerned.  This would include wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make.”

These are the dicta from which the second limb of paragraph 7(1) of  ex parte skeleton submission before the ex parte judge came. 

132.  When applying the above legal proposition to the facts of that case, Deputy Judge Chambers said at paragraph 210:

“If one applies the above criteria to the present case, the assumption must be that when the bank entered into the forex bargain it acted in good faith but that when on 6 May 1999 it appropriated the drachmas to the satisfaction of the forex bargain it was acting in bad faith.”

As to how the learned judge came to that conclusion, one has to go back to the learned judge’s finding of fact on this issue starting from page 359 through to page 364.  It is sufficient to quote part of that careful and lengthy analysis.  The learned judge referred to a document “SWIFT MT 100” which was a notice to a receiving bank of the account to which the transfer of funds should be posted.  He said at paragraph 181 of page 363:

“181.  From the point of view of Mr Makris [bank manager of NatWest], Friday started well. He was promised the payment.  That payment could easily have come from and for [the husband].  But it did not.  The MT 100 said that it came from and for the benefit of Mrs Papamichael.  It was a situation clearly inconsistent with what Mr Makris was trying to achieve: an account for the benefit of [the husband]. Nothing in the events of Thursday or the earlier part of Friday could change the meaning of the words.  If the wording was mistaken, it was a mistake that required to be resolved.  Nothing known to Mr Makris at the time of receiving the faxed copy of the MT 100 could resolve the situation in favour of ignoring Mrs Papmichael as the stated beneficiary of the funds. …

182.  Although the matter is not free from doubt, I am not persuaded on a balance of probabilities that when Mr Makris received his copy of the MT 100 he read it in such a way as to absorb that Mrs Papamichael was the transferor of the money and its potential beneficiary.  It is here that the submissions of the bank are at their most powerful.  What Mr Makris had been led to expect was a transfer from and for the benefit of [the husband].  What he got was something that purported to be that transfer.  Minutes before he got the document he had a conversation that told him that Nana Papamichael was the wife of [the husband].  If he had read the MT 100 with any degree of care when he received it, he must have appreciated the likelihood that Despina Papamichael was Nana Papamichael the wife of [the husband].  However the conversation between Mr Makris and [the husband] which started at 14 12 (see par. 124) gives the impression that it was only then that it was borne in upon Mr Makris that the money had come from an account in Mrs Papamichael’s name.  I think it was at this time that he must also have appreciated that she was also a potential beneficiary of the transfer.  He had actual knowledge of how matters stood.  Was he then dishonest?

…

185.  … I think the inference is clear.  [Makris] read the reference and he deliberately decided to ignore it.  He did so not because he weighed up whether Mrs Papamichael could indeed be the beneficiary of the money and, however negligently, decided that there was no such chance.  He simply decided to suppress the matter.  On any view such conduct was dishonest.  If it was dishonest, it was lacking in good faith.” 

Deputy Judge Chambers did not find favour with Makris.  Though he said at paragraph 182 that Makris had actual knowledge of how matters stood, that must be reference to the surrounding circumstances he mentioned immediately preceding that sentence.  Paragraph 185 put it beyond doubt that Deputy Judge Chambers considered Makris reckless and found he was deliberately turning a blind eye.  Thus, the factual basis of that decision was blind-eye knowledge. The dicta relied on by Mr Lam indeed form the ratio decidendi of that case. 

133.  In my view, paragraph 7 of Mr Lam’s ex parte skeleton submission is a correct statement of the law.  Mr Wright’s criticism that paragraph 7 is an inaccurate summary of the law is unfounded and unfair.  His argument that the dicta relied on by Mr Lam are obiter is proven to be wrong.  That criticism served no real purpose.  Even if the dicta were obiter, Mr Wright has not advanced his proposition of what the law is or any contrary legal proposition supported by authority.  An interlocutory proceeding is not the occasion for deciding complicated questions of law.  Mr Wright is just muddying the water.  His criticisms are frivolous. 

134.  On the facts of this case, there was no contract to be avoided.  The plaintiff’s case is that Bawa well knew of the mistaken principal payment and became a trustee of the principal payment on the date it was credited into the Bawa’s Account or at the latest on 7 October 2011 when Morrison was informed of the mistake. 

135.  Mr Wright complains that when asserting before the ex parte judge that the “mistake should have been obvious to Bawa”, Mr Lam indicated that the standard of proof required was just constructive knowledge as opposed to actual knowledge of the existence of the alleged trust.  Mr Wright submits that Mr Lam again failed to make clear to the ex parte judge that the plaintiff was unable to prove actual knowledge of the alleged mistake until 7 October 2011 and the impact that this inability had on its claim against the 1^st defendant.  I think in its proper context, Mr Lam was only asserting that in the light of the circumstances Bawa was obviously aware of the mistake.  He was not inviting the ex parte judge to adopt a lower standard of constructive knowledge as opposed to actual or blind-eye knowledge. 

136.  Mr Wright argues that Mr Lam’s assertion in paragraph 11(1) of his ex parte skeleton submission that “the mistake should have been obvious from the fact that the market value of the Bonds was only about US$2.5 million” is misleading and that Mr Lam should have drawn the attention of the ex parte judge to the fact that the bonds had a face value of US$4 billion and a payment of US$15.8 million was but a fraction of the face value.  The face value of the bonds was clearly placed before the ex parte judge.  There is no substance in that complaint.  I shall deal with this issue later where it is more appropriate.

137.  In conclusion, this defence is hopeless.   

Defence 3: the Swiss law defence

138.  During the course of his submission on the second day of hearing, which was the last day scheduled for the hearing, Mr Wright suddenly advanced a new argument not forewarned in his skeleton submission.  He says he was only alerted of this point by Kemp.   He argues that the plaintiff’s case is based on a trust of a chose in action held by Bawa for the plaintiff in Switzerland and that recovery or enforcement of such a chose in action shall be determined by the lex situs, quoting rule 119(2) and rule 120(1) from Dicey, Morris and Collins, The Conflict of Laws, 14^th edition, Vol 2, paragraphs 22R-001 and 22R-023.  It is unlikely that, being a civil law country, Switzerland would have a similar concept of constructive trust under the common law.  Hence, he submits that the plaintiff’s failure to prove that the law of Switzerland is identical to Hong Kong law is fatal to the plaintiff’s claim and the plaintiff’s failure to draw to the attention of the ex parte judge that Swiss law may be different from Hong Kong law is a breach of its duty of full and frank disclosure.  The hearing overran and was adjourned for two weeks.  One day before the resumed hearing, the defendants took out a Further Evidence Summons seeking to file Childs’ 10^th affidavit exhibiting a copy of affidavit of Kramer, an advocate qualified to practice law in Switzerland, stating his opinion that there is no concept of trust under Swiss law.  At the resumed hearing, Mr Lam objects to the filing of Childs’ 10^th affidavit but decides not to file any evidence in response.   I allow the 10^th affidavit to be admitted on a de bene esse basis.

139.  In reply, Mr Lam submits that the Swiss law point is a  red herring.  Though Kramer said that Swiss law has no concept of constructive trust, he opined that Bawa is potentially liable for restitution under the principles of unjust enrichment under Swiss law which requires Bawa to account for the principal payment.  Any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is, to prevent a man from retaining the money of, or some benefit derived from, another which is against his conscience to keep: see Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at 61.  If Bawa is under an obligation to disgorge the benefit, the 1^st defendant would be under a similar obligation.  The question for the court is to decide what is the proper law to apply in determining whether, having regard to all the circumstances in which the said Sum was received, the 1^st defendant was entitled to retain the said Sum or that equity would require the 1^st defendant to account for it.  Relying on rule 230 as set out in paragraph 34R-001of The Conflict of Laws, Mr Lam submits that this is a matter for the Hong Kong court to decide by applying Hong Kong law. 

140.  Rule 230 reads:

“(1)  The obligation to restore the benefit of an enrichment obtained at another person’s expense is governed by the proper law of the obligation:

(2)  The proper law of the obligation is (semble) determined as follows:

(a)  If the obligation arises in connection with a contract, its proper law is the law applicable to the contract;

(b)  If it arises in connection with a transaction concerning an immovable (land), its proper law is the law of the country where the immovable is situated (lex situs);

(c)  If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs.”

This rule has been accepted without discussion in many cases.  No English decision has held the rule to be wrong.  Rule 230(1) states the general principle.  Rule 230(2) gives guidance as to the choice of law which will follow from that general principle in certain particular cases.  The 1^st defendant’s obligation to return the said Sum does not arise in contract or in connection with a transaction concerning an immovable.  Hence, rule 230(2)(c) is applicable.  

141.  In respect of the operation of rule 230(2)(c), the learned authors wrote in paragraph 34-030:

“Clause (2)(c) of the Rule.  Where money is paid to, or a benefit is conferred upon, another person with whom no prior contract, or supposed contract, exists, and it is alleged that the money or the value of the benefit is recoverable, e.g. because of a mistake of fact, the enrichment is likely to be most closely connected with the country in which it occurred, and the obligation to restore it to be governed by the law of that country.  The rationale for the traditional formulation of clause (2)(c) is that in the absence of a prior relationship between the parties to which reference may be made, or which may contribute to the identification of the proper law of the obligation to make restitution, the law of the place where the enrichment occurred may be expected to be that which has the best claim to be applied to any obligation to restore.”

Clause (2)(c) and the above passage have been judicially approved in KuwaitOil Tanker SAK v Al Bader [2000] 2All ER (Comm) 271 (CA).

142.  The 1^st defendant is a Hong Kong company and received the said Sum in Hong Kong.  The receipt of the money was not pursuant to any existing contract between the plaintiff and 1^st defendant.  It is now alleged that the money is recoverable.  As the enrichment occurs in  Hong Kong, the enrichment is most connected with Hong Kong.  The obligation to return that money is governed by the law of Hong Kong. 

143.  The learned authors in The Conflict of Laws submitted that rule 230(2)(c) also applies to constructive trusts and tracing.  They wrote in paragraphs 34-044 to 34-048:

“34-044

 Constructive trusts and tracing.  Difficult questions may arise if the law applicable to the obligation to restore the benefit pursuant to clause (2)(c) of the Rule is the law of a common law country which seeks to rectify the unjust enrichment by means of a constructive trusts.  Problems may also arise if that law allows a claimant to follow property into the hands of a third party, or to “trace” the property or its value when it has been substituted for other property, or mixed with property belonging to another.

  34-045

  The essential problem is principally one of classification.  If the claimant is able to rely on the choice of law rules which deal with transfers of property in order to show that the defendant has his property, he will be able to rely on that law …  But if the claimant cannot follow and make out a claim of title to property, and relies on the law identified by clause (2)(c), that law may recognize that the defendant is under a restitutionary obligation and give effect to it by means of a constructive trust.  If the property in question has changed its form through mixture of substitution, that law may allow the claimant to “trace” and claim the property in its new form.

(The learned authors made four submissions.)

34-048

…  Fifthly, if the relevant substantive law is English, in that England is the place of the enrichment or the receipt, English tracing rules will certainly apply.  As to these, the fact that the money may have passed through other jurisdictions which would not have recognized the concept of equitable ownership is irrelevant, for these intermediate laws are not the lexcausae, and English rules of tracing in equity do not require there to have been a fiduciary relationship arising under each law through whose jurisdiction the funds were passed.  But as equity operates in personam, it is required that the defendant be within the jurisdiction of the court.”

I adopt the submission of the learned authors.  Thus, even though Swiss law does not recognize the concept of constructive trust, Bawa is potentially liable for restitution under the principles of unjust enrichment in Swiss law requiring it to account for the mistaken principal payment.  When Bawa transferred the said Sum from the mistaken principal payment to the 1^st defendant who received it in Hong Kong, the  1^st defendant’s obligation to account for the said Sum received falls to be determined by Hong Kong law both as the lex causae and lex fori.   Hence, the position as between the plaintiff and Bawa under Swiss law is not relevant to the question of the 1^st defendant’s liability to the plaintiff in a claim of unjust enrichment brought in Hong Kong nor does it affect the nature of that liability.  The plaintiff can rely on the concept of trust in pursuing its claim against the 1^st defendant in Hong Kong.

144.  Furthermore, Mr Lam submits that even if Bawa were to be brought before this court or the nature of Bawa’s liability to the plaintiff were somehow relevant, this court would nonetheless apply concept of constructive trust to characterize Bawa’s obligations to the plaintiff, notwithstanding the absence of trust concept in Swiss law.  This is because the defendants accept that Bawa is potentially liable for restitution under the principles of unjust enrichment in Swiss law which requires it to account for the mistaken principal payment.  Mr Lam relies on paragraph 34-049 of The Conflict of Laws:

“… if it is argued that a defendant, who in a domestic case would be required to hold property on constructive trust, is nevertheless not liable, on the ground that the law of the place of the enrichment, or other lex cause, does not recognize the principles of constructive trusteeship, the argument is misconceived.  The appropriate analysis is to ask whether, under the lex causae, the defendant owes obligations which would impose on him under that law a liability to disgorge a benefit.  If so, an English court may hold him liable as constructive trustee when giving remedial effect to the substantive right arising under the lex causae.”

145.  Mr Wright does not dispute the correctness of the above principles.  He only argues that those principles relate to the choice of law applicable to restore the benefit of unjust enrichment in respect of property and to trace that property, whereas the plaintiff’s case is about status of money credited to the Bawa Account which is a chose in action.  Hence, he argues that Swiss law is the proper law to apply to determine the status of the chose in action and the plaintiff has to plead Swiss law and to show under the Swiss law it has a beneficial interest in the chose in action.  In my view, he is avoiding his own Swiss law expert’s opinion that Bawa is potentially liable for restitution under the principles of unjust enrichment in Swiss law which requires it to account for the mistaken principal payment.  He only tries to brush that issue aside by arguing that there was no plea of unjust enrichment or pleading why the enrichment was unjust.  He says that if the plaintiff wishes to change its case to one of unjust enrichment, it should plead each and every element of that cause of action.

146.  Again, Mr Wright is wrong in asserting that there is no plea of unjust enrichment.  In paragraph 28 of the statement of claim,  the plaintiff pleaded an alternative case of restitution of the said Sum as money had and received and further that the 1^st defendant was unjustly enriched by the said Sum.  As for particulars, the plaintiff relied on the matters pleaded in paragraphs 26 and 27 of the statement of claim.   Those paragraphs run into six pages describing the 1^st and 2^nd defendants’ conduct in relation to the said Sum and how the money ended up in Jager’s account in Switzerland.  Particularly, in paragraph 27(4)(n) and (o), 27(5) and 27(6), the plaintiff pleaded that the 2^nd defendant gave no explanation as to why the money was remitted to Jager’s account,  where it was subsequently remitted or how it was used, that the 1^st and 2^nd defendants’ conduct was wholly inconsistent with that of honest or  bona fide persons receiving the said Sum as a legitimate investment or for any lawful purpose, that the 1^st defendant through the 2^nd defendant knew or turned a blind eye to the fact that the said Sum did not belong to Bawa and had been paid into the 1^st defendant’s account with SCB-HK in breach of trust and then transferred to the 2^nd defendant’s account with SCB-Singapore in dishonestly assisting Bawa to dissipate the said Sum.  It may well be that as a matter of Swiss law the principal payment was not held on trust, but the law seems to recognize that Bawa may have been unjustly enriched at the expense of the plaintiff and liable to account to the plaintiff.  For the same reason, the defendants are likewise liable to account to the plaintiff.  That gives the plaintiff a remedy against the defendants.  At least it is arguable that this court may apply the concept of constructive trust as the lex fori and lex causae in respect of such a claim.

147.  The conclusions I reached above is tentative and in the interlocutory context.  The Swiss law issue cannot be taken as fully argued.  It is a difficult law point involving conflict of law and unfamiliar Swiss law which requires mature consideration.  This is all the more so as it is an ambush on the plaintiff; firstly by way of raising the argument and secondly by adducing expert evidence within the shortness of time.   The plaintiff should be given an opportunity to have the issue fully argued if necessary.  But based on the above analysis, the plaintiff has demonstrated it is at least arguable that despite the absence of the concept of constructive trust in Swiss law, that concept may nevertheless be applied in determining the 1^st defendant’s obligation to account for the said Sum in an action brought in Hong Kong for unjust enrichment.  

148.  Foreign law and conflict of law are topics which most often escape the attention of counsel.  This is especially so when the plaintiff’s attention was focused on tracing the whereabouts of the lost funds and the person who is holding the funds acted obstructively.  This is all the more so if the issue is not raised by that party.  In the present case,  the defendants, in my view, acted most obstructively.  They diverted the plaintiff’s time and attention in disclosure applications and with their incomplete disclosures. They never raised the issue that they were entitled under Swiss law to keep the said Sum before the ex parte application was made.  They did not raise it then and did not raise it until the last day of the scheduled hearing.  Mr Wright says that the plaintiff had a month to consider the question of Swiss law before taking out the ex parte application.  While blowing up the plaintiff’s oversight, he kept silent of the fact that he had five to six months to prepare the discharge application and strike-out application, but it took him until the eve of the scheduled last date of hearing to raise this issue. If he can reasonably be excused for the ambush, the plaintiff should all the more be excused for its oversight.

149.  Though I accept Mr Lam’s submission on the Swiss law defence, the defence or the Swiss law are, nevertheless, matters which should have been brought to the attention of the ex parte judge.  The mistake, if it is a mistake, was neither deliberate nor dishonest.  For reasons as explained above, it should reasonably be excused.  Furthermore, on the submission of Mr Lam, their non-disclosure would have made no difference.  At least in the ex parte context, Mr Lam has demonstrated it is arguable that the plaintiff can maintain an action against the defendants founded on unjust enrichment. There is a serious issue to be tried.  Accordingly, I dismiss the Swiss law defence as a ground for discharging the ex parte order.

Defence 4: the reversal of payment defence

150.  Mr Wright argues that the relationship between a bank and its customer is one of debtor and creditor.  A customer holding money in a bank account does not own any money in a bank: Libyan Arab Foreign Bank v Bankers Trust Co [1989] 1 QB 728 at 748.  He merely has a chose in action which is the right to demand payment of the relevant sum from the bank: Regina and Preddy [1996] AC 815 at 841 per Lord Jauncey.  Thus, on depositing money in a bank, the customer acquires a chose in action to request payment by the bank of the whole or any part of the aggregate amount of principal and interest which has been credited or ought to be credited to the account.  When funds are transferred from one account to another, the original obligation is not assigned; rather that the debt obligation of the transferor’s bank to the transferor is reduced or extinguished whilst the debt obligation of the recipient’s bank to the recipient is created or increased: Du Preez Ltd (formerly Habana Ltd) v Kaupthing Singer & Friedlander (Isle of Man) Ltd (In Liquidation) and Others (2010) 12 ITELR 943.  These are trite principles and not disputed by Mr Lam.

151.  Based on these principles, Mr Wright argues that while it is conceptually possible that a customer of a bank might hold a chose in action represented by his right to demand payment from the bank on trust for the bank, this possibility cannot arise on the facts of this case.  This is because, Mr Wright argues, on the plaintiff’s own case, immediately upon discovering the mistaken principal payment on 7 October 2011, the plaintiff reversed the credit which had previously been made to the Bawa Account.  The effect of the reversal was to extinguish the chose in action which was the only property that Bawa could possibly have held on trust for the plaintiff.  The legal right which might have been the trust property had ceased to exist and there was nothing for Bawa to hold on trust for the plaintiff.

152.  In reply, Mr Lam argues that the reversal was merely an accounting entry on the part of the plaintiff to show that the principal payment should not have been credited in the Bawa Account.  Unlike an ordinary withdrawal from an account, there was no credit balance in the Bawa Account to meet the reversal or that obligation.  Bawa maintained no credit or overdraft facility with the plaintiff to meet that obligation.  The reversal cannot extinguish the chose in action which Bawa held on trust for the plaintiff.  Mr Wright’s argument must fail.

153.  Another and more practical way to look at the situation is that the said Sum was remitted out of the Bawa Account to the  1^st defendant’s account in SCB-HK before the reversal of the principal payment.  Once that sum was remitted out, it was no longer merely a chose in action held on trust by Bawa for the plaintiff.  It was real money which the plaintiff continued to have an equitable interest as a result of the constructive trust which had arisen in favour of the plaintiff.  Equity is able to follow the trust funds into and out of bank accounts in the sense that a customer can hold his chose in action against the bank on trust for the beneficiary: see Foskett v McKeown [2001] 1 AC 102 at 127H-128C.  Mr Wright’s disingenuous argument is only to be dismissed.  The so called defence is illusory and can be readily dismissed.  There is no duty to draw such an illusory defence to the attention of the ex parte judge.

Defence 5: the election defence

154.  Mr Wright argues that upon SIX reversing the principal payment made on 29 September 2011, the plaintiff debited the Bawa Account for the same amount, resulting in the Bawa Account being overdrawn by US$11,767,554.  He submits that the plaintiff had the option of reversing the credit to the Bawa Account or bringing action against third parties such as the 1^st defendant or SIX, but elected to debit the Bawa Account.  Hence, Mr Wright argues that the chose in action which previously existed in the form of a right by Bawa to demand payment of an amount equivalent to the credit balance became a right on the plaintiff’s part to require Bawa to pay the sum of US$11,767,554.   In exercising the election, the plaintiff gave up the inconsistent right of bringing a claim against the 1^st defendant.

155.  As mentioned above, the reversal was only an accounting entry and more importantly the said Sum had been remitted out of the Bawa Account before the reversal.  Because of the various transfers made prior to the reversal, a debit balance was created by the reversal.  It is not an authorized overdraft which the plaintiff may recover against Bawa.  No basis was given why by making the reversal the plaintiff is deemed to have waived its claim in equity against the defendants, especially when the reversal was but an accounting entry which has no effect of extinguishing the chose in action which Bawa held on trust for the plaintiff.  Of course, the plaintiff cannot have double recovery.  But subject to that there is no reason why the plaintiff should be forced to elect between remedies, especially on the facts of the present case it is unlikely that the plaintiff will be able to obtain full recovery from either Bawa or the defendants.

156.  This defence is so artificial and fanciful that it can be dismissed as one without substance.  There was no duty to draw such an artificial and fanciful defence to the attention of the ex parte judge.

Defence 6: the change of position defence

157.  The defence of change of position is available to a person who received money paid under a mistake of fact, if his position has so changed as a result that it would be inequitable in all the circumstances to require him to make restitution in full or in part: Lipkin Gorman (a firm) and Karpnale Ltd [1991] 2 AC 548 at 580 per Lord Goff.  Mr Lam accepts that this is a valid defence and if not fanciful should be drawn to the attention of the ex parte judge.

158.  Mr Wright argues that it was highly probable that the  1^st defendant would have sufficiently changed its position between the date of transfer on 5 October 2011 and the date of the application before the exparte judge on 10 November 2011 such that it would be inequitable for the 1^st defendant to make restitution.  He argues that the possibility that the 1^st defendant might have changed its position was obvious to the plaintiff as the whole basis of the application for the ex parte injunction was the likelihood that the 1^st defendant would not retain the said Sum indefinitely.  He further submits that on the fact, the 1^st defendant has indeed changed its position in having transferred the said Sum to other parties so that it is grossly inequitable for the 1^st defendant to be required to make restitution in circumstances in which the  1^st defendant no longer holds the said Sum.

159.  The application before the ex parte judge was for an injunction and disclosure order.  It was not an application for summary judgment.  At the ex parte stage, the plaintiff knew nothing about what happened to the said Sum in the 1^st defendant’s account with SCB-HK.   It was only seeking an order to preserve the status quo and disclosure.  What the plaintiff was seeking then was to freeze the said Sum where it was pending resolution.  It would not be until discovery is complete that the probability of that defence being available would be known to the plaintiff.  If that defence is available to the 1^st defendant, it is something to be decided after the 1^st defendant has made full disclosure and told the plaintiff where the said Sum is and why it has parted with it.  To suggest that is a defence which the ex parte judge should be made aware at that stage is simply premature.  That defence is not anything which the  ex parte judge should put in her weighing pan to decide whether to grant the injunction.  The position would be different if prior to the ex parte application, the 1^st defendant had with total candour informed the plaintiff what happened to the said Sum and then the plaintiff sought a Mareva injunction to enforce a personal claim against the 1^st defendant and not a proprietary injunction with a Mareva injunction as an aid.  On the facts of this case as they stood at the time of the ex parte application, change of position could not be a realistic defence at the stage before the ex parte judge.  And in any event, any exparte judge would have been aware of the possibility of such a defence anyway and would have considered it if appropriate.   

160.  Furthermore, what Mr Wright does not tell the court is that the defence is not available to a person who acted in bad faith to change his position after he became aware of the mistake.  In Lipkin Gorman, Lord Goff said at 580:

“… It is, of course, plain that the defence is not open to one who has changed his position in bad faith, as where the defendant has paid away the money with knowledge of the facts entitling the plaintiff to restitution; and it is commonly accepted that the defence should not be open to a wrongdoer.”

As submitted by Mr Lam, the 1^st defendant’s knowledge at the relevant time will be a key issue which will have to be resolved at trial.  SCB-HK indicated on 11 October 2011 that it had contacted the 1^st defendant for the return of the said Sum.  It is not known what SCB-HK had told the  1^st defendant and whether it was successful in contacting the 1^st defendant.  But the injunction had been served on the 1^st defendant on 10 November 2011.  As the discoveries revealed, between 11 and 28 October 2011,  the 2^nd defendant after causing the 1^st defendant to transfer the said Sum from the 1^st defendant’s account with SCB-HK to his personal account with SCB-Singapore, transferred five sums totalling US$7,274,739.71 out of that account to Jager’s account in Switzerland and to his joint account with Malik in New Zealand and that since the service on him of the  ex parte order, he further transferred two other sums totalling US$3,500,000 to Jager’s account and dissipated the rest of the said Sum.  These facts were not available to the ex parte judge.  As the matter now stands, this defence can hardly be raised at all. 

Defence 7: the double recovery defence

161.  Mr Wright submits that the plaintiff has an obvious and good cause of action against SIX in view of SIX’s admission of its mistake.  He complains that the ex parte judge has not been informed why the plaintiff has not yet made a full recovery from SIX and any recovery against SIX would preclude the plaintiff from pursuing against the  1^st defendant and obtaining double recovery.

162.  In reply, Mr Lam submits that Mr Wright’s argument is a non-starter.  There is nothing to suggest that the plaintiff has or is seeking to obtain double recovery, whether at the time of the ex parte order or now.  Mr Lam also expressly confirms in court that the plaintiff has not obtained any recovery from SIX in respect of the said Sum or the principal payment which had been paid out by Bawa or any part of it.  There can be no question of material non-disclosure.

Conclusion – failure to disclose available defences

163.  None of the defences advanced by Mr Wright can reasonably be expected to be raised in due course by the defendants or has any substance.  The defences suggested are either based on the plaintiff’s case being one of knowing receipt which was not the case advanced before the ex parte judge, or are illusory, fanciful and premature.  This ground for discharging the exparte order is frivolous and groundless.

Failure to disclose all relevant facts

164.  The focal point of Mr Wright’s complaint is on paragraph 11(1) of the ex parte skeleton submission before the ex parte judge in which Mr Lam asserted that the mistaken principal payment should have been obvious to Bawa.  He argues that Mr Lam failed to draw to the attention of the ex parte judge an e-mail correspondence and telephone conversation between the plaintiff’s own director Evequoz with Morrison.  He argues that had those matters been drawn to the attention of the  ex parte judge, they would have influenced her assessment of the strength of Mr Lam’s assertion that the mistaken principal payment was obvious to Bawa and that more investigation should have been made before the application for the ex parte order was made.

165.  Mr Wright referred to Evequoz’s e-mail dated 29 September 2011 to Morrison in which he wrote:

“As mentioned by telephone this morning, we are crediting your current account for the Capital Reduction/Principal Pay-down on the following security:

(Setting out the details of the bond and amount of payment.)” 

Mr Wright argues that the e-mail must have been drafted by an officer of the plaintiff who had carefully reviewed the information relating to the bonds and principal payment and satisfied that the information was correct.  He then submits that if the plaintiff’s own officer did not notice the mistaken principal payment, it should not have been obvious to Bawa that the payment was a mistake.

166.  With respect, I disagree with the logic advanced by  Mr Wright.  It is not the plaintiff’s knowledge of the mistaken principal payment which is in issue, but Bawa’s.  If someone is mistake, it is because the mistake was not obvious to him, not because it was not obvious to an officious bystander.  It is invariably the case of a unilateral mistake that one party is aware of the mistake while the other is not.  I have dealt with this issue already in paragraph 107.  This e-mail set out clearly the face value of the bond in question is US$4 billion and its CUSIP number.  Morrison knew the price for which Bawa paid for the bond and the most extraordinary principal payment of six and half times its purchase price or value.  The mistaken principal payment must have been obvious to Bawa, if not to anybody else.

167.  Mr Wright also referred to the telephone conversation mentioned in that e-mail.  He argues that if during the telephone conversation Evequoz failed to distinguish between the four notes,  there would have been no reason for Morrison’s attention subsequently to be directed to which of the notes had generated the payment.  The fact remains, for reasons as explained above, that mistaken principal payment must have been obvious, if not to Evequoz, to Morrison who paid US$2.3 million for that note which had been clearly identified and to be informed of a principal payment of more than six and half times its purchase price.  

168.  These matters are so trivial that Mr Wright’s complaints are just fault finding and frivolous.  He is ignoring the interlocutory context of this proceeding and seeking to resolve factual issues even to the extent of applying the criminal standard of proof.  The ex parte judge must have read the supporting affidavits, particularly Brandle’s 1^st affidavit.   She must have at least selectively examined such of the exhibits as she felt would have a bearing on her decision to be made.  That telephone conversation and e-mail could have no bearing on the decision of the  exparte judge.  This ground of material non-disclosure is frivolous and unfounded.

The plaintiff’s improper allegations of fraud

169.  This complaint is aimed at paragraph 3(3) of the plaintiff’s  ex parte skeleton submission before the ex parte judge in which Mr Lam asserted:

“The 2^nd Defendant also holds himself out as the chairman of the Master Vision Group of Banks (“Master Vision”), a suspected fraudulent business under investigation by the Hong Kong police.  Master Vision is also the subject of warnings by the Hong Kong Monetary Authority and the Liechtenstein Financial Market Authority that it is not licenced to carry on banking or investment business, contrary to representations made by Master Vision on its website.”

Mr Wright takes strong exception to the above assertion.  The assertion contains three elements: (1) that Master Vision is a suspected fraudulent business; (2) that the 2^nd defendant holds himself out as the chairman of Master Vision; and (3) that Master Vision was at the date of the ex parte application under investigation by the Hong Kong police.  Mr Lam accepts that it was Master Vision who held the 2^nd defendant out as its chairman and not that the 2^nd defendant holding himself out as the chairman of Master Vision.  Mr Lam apologises for the inaccuracy but submits that the inaccuracy has no significance or bearing before the  ex parte judge.  He maintains that the other two elements are true.   The real issue is whether the 2^nd defendant is or was the chairman of Master Vision or involved in its activities and whether Master Vision was being investigated by the Hong Kong police for fraudulent business activities.

170.  In Brandle’s 1^st affidavit which was before the ex parte judge, Brandle cited and exhibited a page from the Finroad website (www.finroad.com), which operates an on-line international business and social network for financial markets professionals which introduced MVGBS, which obviously stands for Master Vision Group of Banks.   In the MVGBS webpage, MVGBS introduced itself as follows:

“Master Vision Group of Banks (MVBGS) is a brain trust of private banking systems and global financial technology.  MVGBS is a Group of Banks, meaning we are shareholders and Management Company for our network of privately owned banks throughout the world.  MVGBS headquarters is in Liechtenstein, and its parent company BBEC Holding Corporation is headquartered in Hong Kong.  Our Group Chairman, Mr Borry Bernard Edouard Charles, a Swiss National, and has hold key banking positions as ambassador for major states financial departments for over 30 years, with tenures [in] leading banking and re-insurance groups.  MVGBS embraces trends in global banking, wealth management & asset protection to empower with unprecedented solutions.”

Master Vision Group of Banks or Master Vision is not a known corporate identity.  Even as at this stage, its identity remains a mystery.  The  2^nd defendant, who admittedly is connected with it, chose not to disclose.  Master Vision is believed to refer to a collection of associations,  some incorporated and some not. Facebook has a page for BBEC Holding Corporation which lists its domain as “mvgbs.com”. The page indicated that BBEC Holding Corporation is a corporation belonging to or under the control of the 2^nd defendant.  Its name bears the initials of the 2^nd defendant.  Malik’s e-mail address was located in that domain.   The website has now shut down and the domain name is being advertised for sale.

171.  Initially, the 2^nd defendant attempted to distance himself from Master Vision.  In his 6^th affidavit, he deposed that he knew nothing of the police investigation or of such allegations and denied that he was the chairman of MVGBS.  When Brandle disclosed in his 4^th affidavit the various websites in which the 2^nd defendant’s connection with Master Vision could be found, he replied in his 10^th affidavit as follows:

“It is asserted [by Mr Brandle] that I am connected with Master Vision Group of Banks. I deny I am the Chairman of Master Vision Group of Banks but do not deny (and never have) that I am involved with ‘mvgbs’ [the website] or Master Vision Group of Banks.”

The 2^nd defendant withdrew his total denial and admitted that he was involved with Master Vision or its website.  He gave no particulars of his involvement in the website or in Master Vision.  He did not clarify if he had ever been the chairman of Master Vision, or explain why the Finroad website described him as the “Group Chairman”.  The introduction in the Finroad website was written in the first person and appears to be a marketing write up by Master Vision.  Given the 2^nd defendant’s own admission of his involvement in Master Vision and in the website, who actually wrote the introduction and whether the 2^nd defendant knew and approved the content are solely within his knowledge.  Given his lack of explanation, the inference could be drawn that he was the writer of that introduction or at least was aware of and approved its content.  If so,  it makes no difference whether it was the 2^nd defendant who held himself out as the chairman of Master Vision or that it was Master Vision who held him out as its chairman.  This is because Master Vision would not have so held him out if he was not its chairman and the 2^nd defendant who admittedly was involved with the website would not have permitted that information to be published if he was not the chairman.

172.  The more important issue is whether Master Vision is being investigated for fraudulent business activities.  The basis of the plaintiff’s assertion that Master Vision was suspected of fraudulent business activities is the press release issued by the HKMA and a warning notice issued by the Financial Market Authority (“FMA”) in Liechtenstein.

173.  The warning notice issued by FMA in Liechtenstein on  25 May 2011 reads:

“Warning Notice: Master Visio of Banks has not been licensed by the FMA as a financial company

 The Financial Market Authority Liechtenstein expressly points out that Master Vision Group of Banks, Hong Kong, has not been licensed by the FMA in Liechtenstein. 

  According to its website (mvgbs.com), Master Vision Group of Banks offers financial services and products, wealth management, individual and tailored investment advice and portfolio diversification with investment funds.  These activities are subject to a licence in Liechtenstein pursuant to the Banking Act and other applicable supervisory laws.  Until today the FMA has not granted any licence to Master Vision Group of Banks. 

  The executive office in Liechtenstein mentioned on the website of Master Vision Group of Banks does not exist and it was not possible to establish a personal contact.”

174.  The HKMA press release  issued on 18 August 2011 reads:

“The Hong Kong Monetary Authority (HKMA) wishes to alert members of the public in Hong Kong to a suspected fraudulent website with the domain name “www.mvgbs.com”. The website is operated by an alleged “Master Vision Group of Banks”, which claims that it offers various banking services to members of the public in Hong Kong.

The public should be aware that the alleged “Master Vision Group of Banks” is not authorised under the Banking Ordinance to carry on banking business or the business of taking deposits in Hong Kong, nor does it have the approval to establish a local representative office.

 The HKMA has referred the case to the Hong Kong Police Force for further investigation.  …”

175.  A recent search of the Securities and Futures Commission (“SFC”) website also revealed that Master Vision had been placed on SFC’s alert list of unlicensed entities on 18 July 2011.  SFC’s webpage referred to Master Vision’s address at 12/F, Ruttonjee House, 11 Duddell Street, Central, Hong Kong (“Duddell Street address”) and remarked as follows:

“The company gives the above Hong Kong address but is not located there.”

176.  While giving itself and the 2^nd defendant a grandiose description of their activities in the global financial market, Master Vision was actually not authorised to carry out any banking activities in Liechtenstein or Hong Kong, which are the countries where its and its holding parent company’s headquarters are purportedly located.  According to FMA in Liechtenstein, the group headquarters which was represented to be in Liechtenstein in fact did not exist and it was not possible to establish any personal contact.  According to SFC, Master Vision was not located at the Duddell Street address which it gave.   That address was the registered address of the 1^st defendant at the time of its incorporation, but is in fact the address of its corporate secretary.   The 1^st defendant had moved out of that address.  It is not the address of Master Vision or of any group of bank or entity of that description.  Furthermore, HKMA has referred the case to the Hong Kong police for investigation.

177.  The above cast serious doubts on the genuine existence of Master Vision and the kind of business it has been carrying on.   SH, but not either of the defendants, attempted to cover that issue by filing the 7^th affidavit of its solicitors, Ian Childs.  Childs deposed in his 7^th affidavit that he contacted Chou, a senior manager of the Banking Supervision Unit of HKMA, to inquire about the meaning of the phrase “suspected fraudulent website” in HKMA’s press release of 18 August 2011.  More specifically, he said that he had asked Chou to confirm either of the following alternatives: (i) that the website purported to offer banking services to the Hong Kong public without regulatory approval to do so; or (ii) that there was something more sinister and dishonest in relation to the website’s operations in accordance with the commonly understood legal definition of “fraudulent”.  Childs repeatedly emphasised in his 7^th affidavit that Chou and HKMA expressly confirmed that the press release was related solely to a question of regulatory compliance.  Then Childs referred to his own enquiries which, on a careful reading of his affidavit, I understand to mean researches rather than his own inquiries with Chou, which showed that the majority of the press releases refer to websites which falsely purported to be operated by an established bank.  He exhibited a press release dated 21 February 2011 referring to a website which looked similar to the official website of the Hang Seng Bank but which has no connection with the Hang Seng Bank.  Then he offered an explanation, which by a casual reading might be misunderstood as an explanation by Chou or HKMA, that the press release relating to Master Vision was just an inappropriate adoption of precedents relating to fraudulent websites.  He exhibited a bundle of  e-mail correspondence as evidence in support of his inquiries with Chou.

178.  A careful reading of Childs’ 7^th affidavit and the e-mail correspondence shows that his affidavit must be taken with a lot of care.  He mixed his own explanations for the press release with what he said he was told by Chou which gives the reader the impression that Childs’ own explanations were Chou’s representations.  He mixed what he said he was told by Chou with his own conclusion.  In paragraph 5 of his affidavit,  he wrote:

“Mr Chou confirmed to me that the HKMA’s press release dated 18 August 2011 was issued to alert to the Hong Kong public that the Master Vision Group of Banks had not obtained any authorisation under the Banking Ordinance to carry on any banking business or the business of taking deposits in Hong Kong and also that the company operating the website had not established any representative office here.  Mr Chou therefore confirmed that the issue with website was merely a problem of compliance with the Banking Ordinance and nothing else.”

(My emphasis underlined.)

179.  The first sentence is consistent with the press release.   The second sentence imported the words “and nothing else”, which is not supported by the press release or the first sentence.  It gives a reader two different meanings.  One is that after confirming what was obvious,  Chou made a further confirmation that the problem was about nothing else.  A second one is that Childs understood or conclude from what Chou had told him as summarised in the first sentence that Chou confirmed to him that the problem was about nothing else.  It was drafted to be equivocal.  As he was putting specific questions to Chou seeking  his confirmation that HKMA meant that the problem was about  non-compliance and nothing else, one would expect Childs to paraphrase, if not quote, his questions asked and answers received.

180.  To assure the court of the veracity of Childs’ affidavit,  Mr Wright says that the confirmation was orally given by Chou during his conversation with Childs and undertakes to obtain a further affidavit from Childs to that effect.  Then, SH filed the 11^th affidavit of Childs.   In paragraph 7 of that affidavit, Childs said:

“During the course of my telephone conversation with Mr Chou on 27 April 2012, he confirmed to me that the issue with the website was merely a problem of compliance with the Banking Ordinance and nothing else.  The final sentence of paragraph 5 of my seventh affidavit is an accurate statement of what Mr Chou said to me at that time.”

Childs confirmed that it was the first meaning that he meant to convey in his 7^th affidavit but added nothing to support that.  KL then wrote to SH requesting Childs to swear a supplemental affidavit setting out the exact words used by Chou.  SH did not respond.

181.  A reading of the e-mail correspondence amply demonstrates what Childs deposed under oath was most probably false.  In response to Childs’ inquiry by e-mail dated 25 April 2012 seeking confirmation whether HKMA’s press release relating to Master Vision was about mere non-compliance with regulatory controls or fraudulent business,  Chou replied on 26 April 2012 at 1:27 pm:

“In response to your enquiry about the press release (“Suspected fraudulent website: www.mvgbs.com”) issued by the HKMA on 18 August 2011, please see the following for your information:

·  According to the website (www.mvgbs.com), the Master Vision Group of Banks (“the company”) offered various banking services to members of the public in Hong Kong.  However, our records indicated that the alleged company had not obtained authorization under the Banking Ordinance to carry on banking business or the business of taking deposits in Hong Kong, nor did it had the approval to establish a local representative office.

·  The HKMA issued a press release on 18 August 2011 to alert members of the public in Hong Kong to the above suspected fraudulent website operated by an alleged “Master Vision Group of Banks”.”

182.  Obviously the above reply did not give Childs the confirmation he wanted.  Childs wrote again by e-mail on the same day at 14:06 pm putting a very specific question seeking a very specific answer:

“Did the HKMA ever implicate or connect Mr Borry with the website or Master Vision Group of Banks and were there ever any victims from the website?”

183.  Chou replied at 5:59 pm:

“The HKMA would like to reiterate that the purpose of issuing the press release (“Suspected fraudulent website: www.mvgbs.com”) on 18 August 2011 was to alert members of the public in Hong Kong to the suspected fraudulent website (www.mvgbs.com) operated by an alleged “Master Vision Group of Banks” which according to the record of the HKMA, had not obtained authorization under the Banking Ordinance to carry on banking business or the business of taking deposits in Hong Kong, nor did it had the approval to establish a local representative office.”

184.  I think Chou was being very cautious by confining his answer to the terms of the press release, ie that Master Vision had not obtained authorization to carry on banking business nor approval to establish a local representative office.  He deliberately avoided confirming one way or the other whether Master Vision was suspected of fraudulent operation.  Chou’s position is perfectly understandable.   The HKMA is only a regulatory authority responsible for regulatory control of banking business and not a policing authority.  It does not investigate into criminal activities.  One would have thought that if HKMA’s concern was just about non-compliance, it would not have refused confirming it.  Perhaps, out of excessive caution, it may not.   But the fact that HKMA saw fit to refer the case to the Hong Kong police speaks for itself.  If it was merely a matter of non-compliance with regulatory control, HKMA would have dealt with the matter itself without referring it to the police.  It is quite obvious that Master Vision was referred to the police for investigation of criminal activities.  It is understandable that HKMA would not wish to confirm that to be the case.  Why would HKMA refer a matter of non-compliance with regulatory control under its own purview to the police, one rhetorically asks.  I am quite unable to read either of Chou’s e-mails as a confirmation that the problem of Master Vision was one solely relating to non-compliance of regulatory control as Childs put it.  Childs was passing off his own opinion or conclusion as Chou’s confirmation.  I hate to think it was deliberate.  Childs’ evidence is so inconsistent with the documentary evidence and SH’s refusal to file a further supplemental affidavit makes me cast serious doubt on the veracity of those affidavits.  I give no weight to Childs’ 7^th and 11^th affidavits.

185.  Mr Wright said it only took SH less than a day to obtain the information from HKMA relating to the meaning of its press release and submits that it would have been open to the plaintiff’s solicitors to make the same inquiries with HKMA or the police before making the assertion about Master Vision’s fraudulent activities to the ex parte judge.   Childs’ own inquiries speak for themselves.  HKMA was not going to confirm whether Master Vision was engaging in fraudulent activities other than confirming that Master Vision was not authorised to carry on banking business.  I assume, similarly, Hong Kong police would not confirm to non-parties or victims the same if the case is under investigation.  The exercise suggested by Mr Wright would be futile.   On the other hand, Master Vision or the 2^nd defendant being its officer or group chairman would be in a good position to seek a confirmation from HKMA or the Hong Kong police if Master Vision was being investigated.  There is nothing to stop the 2^nd defendant as group chairman of Master Vision or SH on his behalf from making such inquiries.  But SH stopped short of making such inquiries on behalf of the 2^nd defendant. 

186.  The way in which the defendants dealt with this issue is very dubious.  The 2^nd defendant admittedly is involved in the business and website of Master Vision.  What makes it so difficult for the  2^nd defendant to give an affidavit, supported with documentary evidence, describing what Master Vision is, its member banks and its business activities, the places in other parts of the world in which it has licence to carry on banking business, contradicting HKMA’s and FMA in Liechtenstein’s assertions, giving its actual business address and confirming that it was not being investigated by the Hong Kong police.  Instead, he caused SH to have one of its solicitors to file such a dubious affidavit giving half truths to mislead the court and to avoid the very central issue.  This court is kept in the dark as to what Master Vision is.  Childs’ 7^th affidavit raises more questions than what it attempts to answer.

187.  As the disclosures reveal, about US$7.5 million of the said Sum transferred to the 1^st defendant’s account with SCB-HK ended up in Jager’s bank account in Switzerland after routing through a number of the 2^nd defendant’s and his joint account with Malik. Many of the transfers were effected after the 2^nd defendant had notice of the plaintiff’s interest in the said Sum through SCB-HK or at the latest by 10 November 2011 through the ex parte order.  Jager is a director of a Swiss corporation known as MVGBS Financial Capital Trust Holding Group AG which may or may not be part of Master Vision.

188.  Furthermore, at the hearing on 27 January 2012 much has been said by Kemp about being informed by Morrison’s colleague of the arrest of Morrison and his partner, Brenner, in Switzerland in connection with the present action.  This is some evidence from the defendants’ side that investigations were being carried out on people related to the  2^nd defendant and Master Vision.

189.  Looking at the evidence in the round, there is evidence in support of Mr Lam’s assertion that Master Vision was being investigated for fraudulent banking activities in Hong Kong and Liechtenstein.   Along with that the 2^nd defendant who is held out by Master Vision as its group chairman and who admittedly is involved in the business of Master Vision and its website is most likely to be the person or one of the persons behind the suspected fraudulent activities which are the subject matter of investigation.  There was no misrepresentation by Mr Lam of the evidence, save for the mistake for which he has apologised.

190.  As for that mistake, as I have held, on the circumstances of this case, it makes little difference whether it was the 2^nd defendant who held himself out as the chairman of Master Vision or that it was Master Vision who held him out as such as the 2^nd defendant admitted he was involved in Master Vision and its website and his footprints are found everywhere in a number of websites connected with Master Vision.

191.  Would that mistake have any impact on the ex parte judge?  Putting myself in her position, with the knowledge she had at that stage (not with my knowledge acquired from the subsequent proceedings) and the case as presented by the plaintiff, I would have thought the answer is no. The plaintiff’s knowledge of the case was very rudimentary at that stage.  It was only seeking a proprietary injunction with a Mareva injunction in aid.  The issues before the ex parte judge was whether the 1^st defendant held the said Sum transferred to its account with SCB-HK by Bawa from the principal payment which it held on trust for the plaintiff.  Just as simple as that.  The ex parte judge might out of caution consider whether the 1^st defendant was a bona fide purchaser for value.  That is besides the point.  The 2^nd defendant’s knowledge of Bawa’s breach of trust, his dishonesty, Master Vision’s overall role do not come into her weighing pan in the exercise of her discretion whether to grant the injunction.  Therefore, the mistake made by Mr Lam simply has no bearing in the decision of the exparte judge.

192.  I therefore conclude that the allegation that Master Vision was being investigated for fraud was not improper and that the mistake about the 2^nd defendant holding himself out as chairman of Master Vision was not material.  Mr Wright argues that Mr Lam does not offer any explanation for the oversight.  As Mr Wright rightly calls it an oversight, that is the explanation.  It was just an oversight, careless though, but not maliciously made to mislead.  It could have no impact on the ex parte judge and ought fairly be excused.  There was no material non-disclosure based on paragraph 11(1) of Mr Lam’s ex parte skeleton submission.

Failure to make proper inquiries before applying for the ex parte order

193.  Mr Wright’s argument on this ground is just a repetition of his arguments in respect of the other three grounds.  I have dismissed those arguments and shall not repeat them in here.

Whether the plaintiff has shown an arguable case

194.  The main thrust of Mr Wright’s argument that the plaintiff has failed to show an arguable case before the ex parte judge is material non-disclosure by reason of the plaintiff’s failure to draw to the attention of the ex parte judge the various available defences and certain facts.  None of those suggested defences were available to the 1^st defendant.  Those defences are based on a case of knowing receipt which was not the basis of the plaintiff’s claim for proprietary injunction with a Mareva injunction in support advanced before the ex parte judge.  Besides,  those defences are illusory, frivolous or pre-mature.  The other grounds of material non-disclosure are all trivial and unsubstantiated.

195.  On the case based on proprietary claim as presented before the ex parte judge, what the plaintiff had to show was sufficient evidence in the interlocutory context firstly that Bawa knew of the mistaken principal payment on 29 September 2011 or by the latest on 7 October 2011; and secondly that the 1^st defendant is or was in possession of part of the principal payment.  On the first issue, there is ample evidence on which the inference may be drawn that Bawa knew of the mistake  upon receipt of the principal payment.  There is also undisputed or incontrovertible evidence that Bawa knew of the mistaken principal payment at the latest on 7 October 2011.  That was only two days after the transfer of the said Sum to the 1^st defendant’s account.  Little is known of what happened to the said Sum during those two days.  As for the second issue, there is no dispute that the 1^st defendant was in possession of the said Sum on 5 October 2011. 

196.  Mr Wright argues that the plaintiff has failed to prove that the 1^st defendant was not a bona fide purchaser for value without notice.  I have dismissed that argument when dealing with his argument on the alleged failure on the part of the plaintiff in drawing to the attention of the ex parte judge this particular defence and the absence of such evidence.  Suffice it is to say that whether to raise that defence is a matter for the defendants to plead and their burden to prove.  The plaintiff does not have to prove this negative averment.  But in fact, Mr Lam has taken a step further and submits that based on the available evidence, the inference could be drawn that the defendants were not bona fide purchaser for value without notice.  Anyway that is a matter for trial.

197.  Subsequent to the ex parte order, the 2^nd defendant gave an explanation.  In his 1^st affidavit, the 2^nd defendant deposed that he is a junior employee of Sunesko LLC, a company incorporated in Nevis and St Kits and that the said Sum was intended for Sunesko LLC pursuant to arrangements between Sunesko LLC and Bawa.  He said he knew very little about Sunesko LLC, its directors, shareholders or secretary and was unable to obtain supporting documents from Sunesko LLC or Malik in support of the arrangement between Sunesko LLC and Bawa.  In short,  he said he and the 1^st defendant was a conduit for Bawa in the transfer of the said Sum.  If so, both defendants are caught under the proprietary claim, not having paid any consideration for the receipt of the said Sum which they then disposed of.  As the disclosures reveal, the majority of the said Sum was subsequently transferred to Jager’s account in Switzerland after routing through some of the 2^nd defendant’s account and his joint account with Malik.  Jager is connected with Master Vision.   The balance of the said Sum was dissipated by way of cash withdrawals or used as the 2^nd defendant’s personal expenses.  A sum of US$7,274,739.71 was transferred presumably after the 1^st defendant was informed by SCB-HK of the mistaken principal payment.  A further sum of US$3,350,000 (including US$624,739 from the 2^nd defendant’s other source) was transferred after service on the 1^st defendant of the injunction order.  Both defendants would be caught as knowing recipients or for rendering knowing assistance in Bawa’s breach of trust.  The evidence goes even further to suggest that both defendants are parties to a conspiracy with Bawa to defraud the plaintiff, which I shall consider under the next main heading.  I am unable to see how the facts asserted by the defendants could amount to a defence.  In any event, whether those assertions are to be believed is a matter for trial.

198.  In conclusion, in the interlocutory context, the plaintiff has adduced sufficient evidence that the funds still remaining in the 1^st defendant’s account with SCB-HK was impressed with trust for the plaintiff.  The defences suggested by Mr Wright are dubious and fall far short from requiring this court to consider their merits.  Accordingly, I am satisfied that the plaintiff has shown an arguable case based on its proprietary claim before the ex parte judge.  On the evidence now available, the plaintiff has also shown an arguable case base on breach of constructive trust for knowing receipt and knowing assistance.

Balance of convenience

199.  In the course of his submission, Mr Wright adds a further ground for discharging the ex parte order.  The highest he puts it is  that because of the availability of a remedy against SIX and Bawa,  the balance of convenience was against the grant of the injunction order.   I have considered and dismissed that as a ground for material  non-disclosure. I now consider the same ground in a different context.  This ground can be disposed of very briefly.

200.  As the case then stood before the ex parte judge, the fact that an alternative remedy is available does not render the injunction unnecessary.  The court has to do justice, not only as between parties but also between all those who may be affected, including the victims of the parties’ wrongful acts.  SIX made a mistake, presumably as a result of its working system.  A window was created which opened SIX to the risk of making mistaken payments and for SIX to be taken advantage of.   A mistake did occur and a mistaken payment generated.  Bawa received the mistaken principal payment which it does not dispute it was not entitled to.  Bawa transferred the said Sum from the principal payment to the 1^st defendant, who refused to return the said Sum and explain.  The plaintiff and SIX became victims.  The plaintiff has a remedy against SIX, Bawa and the 1^st defendant.  SIX has a similar remedy against Bawa and the 1^st defendant.  Bawa and the 1^st defendant were unjustly enriched by the mistake, while SIX suffered.  Basically, Bawa and the 1^st defendant who received the said Sum are primarily liable to return the said Sum to the plaintiff.  It is not open to them, particularly the defendants now before me, to argue “let us keep our ill-gotten gain and let SIX suffer for its own mistake.”  This is not even a case of who, as between two innocent parties, should suffer.  This is a case where one party is certainly innocent and the other is possibly not.  No court of equity would have allowed such argument to prevail.  It must be dismissed with contempt.

201.  Applying the American Cyanamid test, first one way and then the other, what have the parties put in the weighing pans? The plaintiff is a clearly well established bank which is good for the damages if the injunction order is wrongly granted.  The 1^st defendant will be adequately compensated in damages.  On the other hand, the 1^st defendant is a HK$10 company; without a registered address or business address in Hong Kong; now known to have little balance in its bank account and with no sign of carrying on business here or abroad.  There is no evidence of any potential loss which could be caused by the injunction order,  let alone there is no significant asset to be restrained.  Very little is known of the 1^st defendant, its assets and its sole director and shareholder,  the 2^nd defendant.  No potential loss has been demonstrated.  There is no evidence that it is good for the damages, if the injunction order is wrongly withheld.  It has nothing to put in the weighing pan.  Howsoever one looks at this case, the balance tilts heavily in favour of granting the injunction order.

Conclusion – the injunction order

202.  There was no material non-disclosure.  The injunction order was necessary.  On a proper balance of convenience, it was appropriate for the ex parte judge to grant the injunction order so as to freeze the defendants’ assets pending resolution of the parties’ dispute.  The application to discharge the injunction order is therefore dismissed. 

203.  Even if, contrary to my finding, there were any omission on the part of the plaintiff before the ex parte judge which justifies a discharge of the ex parte order, this is a case which cries out for the exercise of the discretion not to discharge the ex parte order or for a  re-grant by reason of the fact that any breach of duty of full and frank disclosure was not dishonest and by reason of the new evidence disclosed and the subsequent conduct of the defendants, in particular the  2^nd defendant’s knowing breach of the exparte order in continuing the dissipation of the balance of the said Sum left in its account with  SCB-Singapore since service of the injunction order.

Conclusion – the disclosure order

204.  The 1^st defendant also applies to discharge the disclosure orders.  Mr Wright submits that the general rule is that a person is under no obligation to disclose his private information to another person.   He argues that an order requiring disclosure of information is a strong order which will not be given unless the applicant is able to establish at the very least that he has a good arguable case: A v C [1981] 959 at 1 QB 956 at 959B per Goff J. There is no dispute about these legal principles.

205.  The basis of the defendants’ application is that the plaintiff does not get close to establishing that the circumstances justify the making of the intrusive disclosure order.  If the ex parte judge had been fully appraised of the defences available to the 1^st defendant, the disclosure order would never have been made.  In view of the conclusion I reached in respect of the ex parte injunction order, this basis has wholly fallen apart.

206.  Mr Wright further argues that even if there was justification for granting interlocutory injunctive relief, it is clear that the disclosure order should never have been made.  He does not elaborate. 

207.  Disclosure orders are usually made as ancillary orders in aid of a freezing injunction for the purpose of obtaining disclosure of documents or information by a defendant concerning his assets.  At the interlocutory stage, a plaintiff usually has but little information about the assets of the defendant. He may, through his course of dealing with the defendant, have acquired knowledge about some of the defendant’s assets connected with the subject matter.  He may have obtained knowledge of the particulars of some of the bank accounts of the defendant into which he made payments or from which the defendant made payments to him.  But he may not know what other accounts the defendant has with some other banks.  Without such information, there is no way the Mareva injunction could operate properly.  In Dadourian Group v Simms (No 2) [2007] 2 All ER 329, Arden LJ said at 335E:

“A freezing order is an important tool in the court’s armory 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 …”

208.  In the present case, the wrongful acts complained of were committed within a few months of Bawa and the 1^st defendant opening their accounts with the plaintiff and SCB-HK respectively.  Substantial amount of money was involved.  There was serious concern about dissipation, which turned out to be real.  The plaintiff has shown an arguable case that the defendants are liable to restore the said Sum.  It is not open to the defendants to seek the court’s help to protect their privacy so that they can keep what on the face are the proceeds of their wrongful act or be protected from having to make good the plaintiff’s loss.   The disclosure order is both fair and necessary.  I can see no reason why the disclosure order should be discharged. The application to discharge the disclosure order has no merit and is therefore dismissed.

Conclusion – the Discharge Summons

209.  For the above reasons, the Discharge Summons is dismissed.  The application has absolutely no merit.  The arguments are based on wrong premises, partly at least appears to be deliberately so.  Mr Wright advanced numerous grounds on the fact and on the law for discharging the ex parte order.  He left no stone unturned.  Most of the grounds relied on in support of the application are frivolous.  Defence counsel distorted the plaintiff’s counsel’s ex parte skeleton submission before the exparte judge, misrepresented the law and repeatedly ambushed the plaintiff by engaging new legal argument not contained in the defendants’ skeleton submission and filing new evidence shortly before the hearing and during the course of plaintiff’s counsel’s submission.  The proceeding has been conducted by the defendants and their legal team in an abusive manner, such as Kemp’s unreasonable persistent insistence on giving the plaintiff’s counsel twenty-four hours to consider and respond to what was likely to be a complicated application and the ambushes.  Some of  Mr Wright’s argument amounted to inviting the court to resolve factual disputes on the basis of affidavit evidence or to resolve difficult or complicated arguments on the law.  Such arguments are a waste of time.  Had the application been properly conducted, much time and costs would have been saved.  The length of this judgment manifestly demonstrates the point.  Mr Wright left no stone unturned.  The plaintiff is being harassed and put to expense by his frivolous, vexatious or hopeless arguments.  The plaintiff is forced to incur good money after bad.   This application is an obvious abuse of proceedings in the hope of deterring the plaintiff from prosecuting its claim.  To show the court’s disapproval of such conduct, I order the 1^st and 2^nd defendants to jointly and severally pay the plaintiff’s costs forthwith.  The costs are to be assessed on a gross sum and on a solicitor and own client basis. 

STRIKE-OUT SUMMONS

210.  The defendants’ application to strike-out the statement of claim and the action is brought under Order 18 rule 19(1)(a), (b) and (d) of the Rules of the High Court and under the inherent jurisdiction of the court.  The defendants complain that paragraphs 21 through to 37 of the statement of claim ought to be struck-out.

211.  The defendants seek to invoke the court’s inherent jurisdiction.  Thus, in addition to some specific attacks on the pleading based on substantive legal principles and established rules of pleading, the general thrust of the defendants’ application is that the plaintiff’s action is a spurious one not supported by evidence, that the plaintiff does not know what its case is, cannot identify the relevant evidence but only hopes that evidence will come up in the course of the proceedings.   The plaintiff’s ex parte application is an abuse of the process of the court.

The applicable legal principles

212.  The legal principles governing strike-out applications are well-established and include the following:-

(a)  Spurious claims or claims that have no foundation should be struck-out: HongKongCivilProcedure2012, Vol 1, p 423 paragraph 18/19/21.

(b)  A party should know his case and be in a position to identify the relevant evidence when he starts a claim.   It is an abuse of the process of the court for a party to start a case without a solid foundation hoping that evidence will turn up during the course of the proceedings, whether by discovery or otherwise: Nomura International plc v Granada Group Ltd [2008] Bus LR 1 at §37 per Cooke J; New China Hong Kong Group Ltd v Ng Kwai Kwai Kenneth, HCA 519/2010 at §70 per Fok JA.

(c)  Striking-out should only be done in plain and obvious cases: Byjoy Ltd v Thorogood Estates [1985] 2 HKC 746 and Ha Francesca v Tsai Kut Kan [1982] 1 HKC 382, CA at 392. 

(d)  “Plain” is not the same as “simple” and “obvious” is not the same as “short”: Cheung Chui Sou-ying v Personal Representatives of the estate of Cheung Yuk-luen [1981] 1 HKLR 585 at 588hper Barker J.  In an appropriate case, the court ought not to be slow to exercise the power to strike-out in order to dispose of proceedings which are hopeless and without foundation in law.   In those cases, such power is required by the very essence of justice to be exercised, so as to prevent the defendant from being harassed and put to expense by frivolous vexatious or hopeless claims: Riches v DPP [1973] 1 WLR 1019 at 1027.

(e)  There should be no trial upon affidavits.  Disputed facts are to be taken in favour of the party sought to be struck-out.  The claim must be obviously unsustainable,  the pleadings inarguably bad and that it be impossible, not just improbable, for the case to succeed before a court will strike-out. If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious then there should be no striking-out.  One must be careful not to drive a plaintiff from the judgment seat nor should the court decide difficult points of law in proceedings such as this: Ha Francesca v Tsai Kut Kan.

213.  Counsel have no dispute that these are the applicable principles.  Their disagreement is as to how these principles are to be applied to the statement of claim in question.  Mr Wright argues that the statement of claim offends each and every one of these principles and that following the implementation of the Civil Justice Reform and consistent with its underlying objectives the court is required to be more vigilant to ensure that hopeless proceedings are struck-out at the earliest opportunity.  Save the first twenty introductory paragraphs, the last paragraph and the prayer, Mr Wright criticizes each and every one of the paragraphs of the statement of claim.  As with my observation in paragraphs 39 and 40 in relation to the Discharge Summons, after hearing the Strike-Out Summons, I cannot help but come to the same conclusion that the application under the Strike-Out Summons is one of a series of three applications made by the defendants who resort to attack as a means to defend a possibly hopeless case and to delay justice being done to the plaintiff.  Mr Wright’s argument is mostly fault finding.  He seeks to resolve dispute of facts on affidavit and attributes to the plaintiff a high standard of proof in total ignorance of the interlocutory context of the  exparte application.  I now turn to his arguments in respect of the statement of claim paragraph by paragraph.

Paragraph 21

214.  In paragraph 21, the plaintiff pleaded:

“As Bawa was not contractually or otherwise entitled to receive or retain the Principal Payment under the terms of the Relevant Note, the Principal Payment was a gratuitous payment to Bawa.  In the circumstances, Bawa held the Principal Payment on resulting trust for the Bank upon receipt of the same on 29 September 2011.”

215.  Mr Wright argues that on the plaintiff’s pleaded case, the plaintiff credited the Bawa Account by mistake and hence the plaintiff intended the principal payment to Bawa.  He submits that as a matter of law a resulting trust is to give effect to the presumed intention of the parties and is not imposed against the intention of the trustee.  He quotes Lord Browne-Wilkinson’s dicta in Westdeutsche Bank at 708C-D and Lord Goff’s dicta at 689D-F and Yuen Yat Shan Fiona v Sit Hin Kau [2005] 4 HKC 170 in which Tang VP applied Lord Browne-Wilkinson’s dicta in Westdeutsche Bank.  Mr Lam argues that both Westdeutsche Bank and Yuen Yat Shan Fiona were cases involving property transactions in which there was intention to transfer payment and not cases of transfer of property under a mistake of fact.  He submits that there are no decisions directly on the point and the plea should be given a chance to be fully argued.  While Westdeutsche Bank is factually distinguishable from the present case, the principle that a resulting trust is to give effect to the presumed intention of the parties and not contrary to that intention is a long and well established one.  It cannot be created against the parties’ intention.  In Westdeutsche Bank, Lord Goff dismissed similar arguments advanced by Professor Birks in Equity: Contemporary Legal Developments (1992) (ed Goldstein), p 335.  His lordship said at 689E-F:

“In a most interesting and challenging paper, “Restitution and Resulting Trusts,” published in Equity: Contemporary Legal Developments (1992) (ed Goldstein), p335, Professor Birks has argued for a wider role for the resulting trust in the field of restitution, and specifically for its availability in cases of mistake and failure of consideration.  His thesis is avowedly experimental, written to test the temperature of the water.  I feel bound to respond that the temperature of the water must be regarded as decidedly cold: see, e.g. Professor Burrows, “Swaps and the Friction between Common Law and Equity” [1995] RLR 15 and W J Swadling “A new role for resulting trusts?” (1996) 16 Legal Studies 133.”

216.  It is both clear and obvious that the plaintiff’s claim under a resulting trust cannot be sustained as a matter of law.  The second sentence in paragraph 21 of the statement of claim must be struck-out. Incidentally, this is the only part of the application in which the defendants are successful.

Paragraph 22

217.  In paragraph 22, the plaintiff pleaded:

“Further or alternatively, Bawa well knew upon learning of the receipt of the Principal Payment on 29 September 2011, if not earlier, that:

(1)  it was not entitled to receive the Principal Payment under the terms of the Relevant Note;

(2)  the Principal Payment was credited to the Bawa Account by mistake; and

(3)  the Principal Payment did not belong to it.”

218.  It is accepted by Mr Lam that by that plea, the plaintiff is alleging Bawa had actual knowledge.  Mr Wright argues that this plea is inconsistent with the plaintiff’s case before the ex parte judge which was put on the basis that the mistake should have been obvious to Bawa,  ie a lower standard of knowledge.  That is only semantic.  It never was  Mr Lam’s argument that any lesser knowledge would suffice and he was not relying on constructive knowledge before the ex parte judge. 

219.  Mr Wright then argues that there is no evidence that Bawa had actual knowledge that the principal payment had been credited as a result of mistake.  Knowledge is something that is in the mind of a person. Even if a neurosurgeon opens up the brain of a person, he cannot find knowledge.  Except in the case of admission or where the knowledge is acknowledged and reduced into writing, knowledge is invariably proved by inference.  For reasons as given in my decision in relation to the Discharge Summons, I think the plaintiff has pleaded ample primary facts on which the inference of knowledge may reasonably be drawn.   Whether that inference is to be drawn is a matter for trial.  Mr Wright’s submission is tantamount to asking the court to strike-out the pleading merely for lack of direct evidence and ask the court to close its mind to inferences.  That cannot be right.

Paragraph 23

220.  In this paragraph, the plaintiff pleaded that Bawa held the principal payment on constructive trust for the plaintiff.  Mr Wright attacks this plea on three fronts.  Firstly, he argues that the proper law applicable to the rights in relation to the chose in action is Swiss law, that the concept of constructive trust is not recognized by Swiss law, that the plaintiff chose not to file any evidence to contradict Kramer’s opinion on Swiss law and hence there is no possibility that the court could find at trial that the chose in action represented by the credit balance at the plaintiff’s Zurich branch was held by Bawa on trust for the plaintiff.   I have dealt with the Swiss law issue in the Discharge Summons.  It is arguable that the Swiss law issue is a red herring and the plaintiff has a remedy under Swiss law in restitution based on unjust enrichment.  I do not wish to repeat.

221.  Secondly, Mr Wright argues that it is an established rule that not until a voidable transaction is avoided, the beneficial interest in the property transferred remains vested in the transferee.  Hence, he submits that the earliest the transaction could have been avoided was 7 October 2011 but before that Bawa had transferred the said Sum to the  1^st defendant without any breach of trust which has not come into existence.  I have dealt with those arguments.  Mr Wright’s submission ignores the fact that there is evidence on which the inference could be drawn that Bawa knew of the mistaken principal payment at the time of its receipt, that one of the plaintiff’s claim is a proprietary claim and that there is nothing to be avoided in the case of a payment by mistake, or at least it is strongly so arguable.  I have dealt with all these issues under the Discharge Summons.  With the conspiracy claim now pleaded and new evidence obtained from the disclosure, there are facts on which the inference could be drawn that the 1^st and 2^nd defendants are parties to an agreement to defraud the plaintiff and had knowledge of the mistaken principal payment.  All these are clearly matters for trial.

Paragraph 24

222.  In this paragraph, the plaintiff pleaded Bawa’s breach of duty as trustee.  Mr Wright argues that the plea does not contain an allegation that the principal payment was held on a constructive trust and no attempt has been made to identify the duties to which Bawa was allegedly subject to in its capacity as trustee and the manner in which Bawa is alleged to have acted in breach of the alleged trust.

223.  This is plainly fault finding.  Mr Wright knew the plea must be referring to the constructive trust arising as a result of the mistaken principal payment.  He so mentions it in his submission.  If the defendants consider it necessary, all they have to do is to ask for further and better particulars and not to seek to strike-out the pleading.  The plea is not so bad as to be incurable or to disclose no reasonable cause of action. 

Paragraph 25

224.   Under this paragraph, the plaintiff pleaded:

“Borry Limited received the said Sum as a volunteer from the Bank or Bawa, and hence, received and held the same subject to the trusts pleaded above.”

225.  It is Mr Wright’s arguments that the plaintiff bears the burden of proof that the 1^st defendant was a volunteer, that Mr Lam’s argument has the effect of reversing the burden of proof erroneously putting it on the 1^st defendant and that there is no evidence before the court that the 1^st defendant was a volunteer.  I have dealt with these issues in considering the Discharge Summons.  What the plaintiff needs to prove is that the 1^st defendant was in possession of trust property and it is up to the 1^st defendant to decide whether it wishes to avail itself of the defence of bona fide purchaser for value and if so, to plead and prove.  Save that the words “as a volunteer” are superfluous, there is no defect in the plaintiff’s pleading in paragraph 25.

Paragraphs 26 and 27

226.   Under paragraph 26, the plaintiff pleaded:

“Further or alternatively, Borry Limited well knew or at least turned a blind eye to the fact that the said Sum was remitted to the SCB Account on the instructions of Bawa in breach of trust.  In the circumstances, Borry Limited is liable as constructive trustee of the said Sum, or alternatively, is liable for damages for knowing receipt.”

In paragraph 27, the plaintiff pleaded:

“Pending discovery and the administration of interrogatories, the best particulars that the Plaintiff is able to plead is as follows:

  (Followed by six sub-paragraphs containing five full pages of particulars.)”

227.  Mr Wright submits that the plaintiff has failed to place any evidence before the court that the 1^st defendant had actual knowledge that the said Sum was remitted to the 1^st defendant’s account with SCB-HK on the instructions of Bawa in breach of trust and it is clear that the plaintiff’s case against the 1^st defendant is that it turned a blind eye.  Hence, he argues that the plea of actual knowledge (effectively this means the words “well knew or at least” in paragraph 26) must be struck-out.  This cannot be right.  Pleading is restricted to facts and not evidence.  The plea that the 1^st defendant knew of the breach of trust is a good plea.  Whether that plea is supported by the evidence is a matter for trial.  Proof of that fact may be by direct evidence or by inference to be drawn from primary facts.  The plaintiff pleaded certain primary facts in paragraph 27 on which inference of actual knowledge or blind-eye knowledge may be drawn.  The issue then is whether on those primary facts as proved the inference of actual or blind-eye knowledge will be drawn.

228.  By reference to Manifest ShippingCo Ltd v Uni-Polaris Insurance CoLtd [2001] 1 Ll. Rep. 389, Mr Wright argues that blind-eye knowledge requires proof that the 1^st defendant harboured a suspicion that the transfer by Bawa was in breach of trust and deliberately decide to avoid confirming that suspicion.  He refers to Lord Scott’s dicta at 414:

“In summary, blind-eye knowledge requires, in my opinion, a suspicion that the relevant facts do exist and a deliberate decision to avoid confirming that they exist.  But a warning should be sounded.  Suspicion is a word that can be used to describe a state-of-mind that may, at one extreme, be no more than a vague feeling of unease and, at the other extreme, reflect a firm belief in the existence of the relevant facts.  In my opinion, in order for there to be blind-eye knowledge, the suspicion must be firmly grounded and targeted on specific facts.  The deliberate decision must be a decision to avoid obtaining confirmation of facts in whose existence the individual has good reason to believe.”

229.  On the adequacy of the pleading, Mr Wright quotes Three Rivers District Council v Bank of England (No. 3) [2003] 2 AC 1 and submits that allegation of fraud or dishonesty must be sufficiently particularised and proved.  It is not sufficiently particularised if the fact pleaded is consistent with guilt as with innocence.  Inference, whether of fraud or dishonesty or knowledge, may not be drawn on facts which have not been pleaded.  He quoted Lord Millett’s speech at 291F-292B:

“It is well established that fraud or dishonesty … must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularized if the facts pleaded are consistent with innocence: see Kerr on Fraud and Mistake, 7^th ed (1952), p 644; Davy v Garrett (1878) 7 Ch D 473, 489; Bullivant v Attorney General for Victoria [1901] AC 196; Armitage v Nurse [1998] Ch 241, 256.  This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts, matters and circumstances which are consistent with negligence do not do so.

It is important to appreciate that there are two principles in play.  The first is a matter of pleading.  The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him.  If the pleader means “dishonestly” or “fraudulently”, it may not be enough to say “wilfully” or “recklessly”.  Such language is equivocal.  A similar requirement applies, in my opinion, in a case like the present, but the depositors are alleging an intentional tort.

The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient.  This is only partly a matter of pleading.  It is also a matter of substance.  As I have said, the defendant is entitled to know the case he has to meet.  But since dishonesty is usually a matter of inference from primary facts, this involves knowing not only that he is alleged to  have acted dishonestly, but also the primary facts which will be relied upon at trial to justify the inference.  At trial the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in a case of fraud.  It is not open to the court to infer dishonesty from facts which have not been pleaded, or from facts which have been pleaded but are consistent with honesty.  There must be some fact which tilts the balance and justifies an inference of dishonesty, and this fact must be both pleaded and proved.”

230.  Based on these very high power statements of the law,  Mr Wright argues that paragraphs 26 and 27 of the statement of claim has to be struck-out as the plaintiff has not alleged any facts from which a finding could be made that the 1^st defendant had good reason to believe that the said Sum was credited to Bawa’s account by mistake; or any facts which could justify a finding that the 1^st defendant had good reason to believe that, by giving instructions to transfer the said Sum to the  1^st defendant’s account with SCB-HK, Bawa had acted in breach of trust.  He argues that the opening words of paragraph 27 indicate that the plaintiff is not in a position to give proper particulars of the serious allegation of dishonesty which it purports to make.  Hence, Mr Wright submits there is simply no basis upon which the court could find  blind-eye knowledge at trial.

231.  There are, as I have indicated, five full pages of particulars given under paragraph 27.  Mr Lam chooses not to engage in any argument as to how the inference of knowledge of Bawa’s breach of trust and dishonesty may be inferred from those particulars.  I should say, rightly so. I have carefully read those particulars.  They refer to,  inter alia, the defendants’ conduct upon service on them of the ex parte injunction order and disclosure order, the hastiness with which the  said Sum was dissipated, the incomplete disclosures concealing transfers made after the service of the injunction order and disclosure order,  the inconsistent explanations given by Caputo and the 2^nd defendant as to the purpose of the transfer and the whereabouts of the said Sum and a lot more.  Taking a broad brush approach as I should in a strike-out application, I consider these facts support an inference of knowledge of Bawa’s breach of trust, fraud and dishonesty and even a conspiracy among the defendants, Bawa, Malik, Jager to defraud the plaintiff.   Some of the pleaded facts looked at in isolation, which presumably is the basis on which Mr Wright makes his submission, may be consistent with innocence.  But this is not the proper way to deal with the evidence in a case of this nature.  It may well be that at the end of the day, the inference will not be drawn.  But this is not the occasion make that decision.   That is a decision to be made at trial after mature argument and when all the facts are examined in their proper context.  The discretion to  strike-out may only be exercised in plain and obvious cases.  This is not such a case.   

232.  Mr Wright also argues that the statement of claim is deficient since it does not contain any particulars of the enquiries which it alleges an honest and reasonable person would make. In the absence of such particulars, it is impossible for the 1^st defendant to know the case it is expected to meet.  The 1^st defendant is left to guess as to the nature of the enquiries that the plaintiff alleges would have been made by an honest and reasonable person.  In a case like this, it is what the defendants did not do in the face of the letter of demand rather than what enquiries honest and reasonable person would make that is more important.  In any event, if the defendants wish, they may request for further and better particulars.  Absence of such particulars is not fatal or incurable.   The defendants may have shown a case for further and better particulars, but far from a case of striking-out.  The same applies to Mr Wright’s complaint that paragraph 27 does not specify the 2^nd defendant’s role in the 1^st defendant.  This is a very trivial point.  The 2^nd defendant is the sole director and shareholder of the 1^st defendant.  Prima facie, whatever the 1^st defendant did must be done at the direction of the 2^nd defendant.  If the defendants wish to offer an explanation or contrary evidence, it is a matter for them to plead.  If the defendants strongly feel clarification is needed, they may seek further and better particulars, but not a strike-out.

Paragraph 28

233.  In this paragraph, the plaintiff pleaded restitution against the 1^st defendant.  It pleaded:

“Further or alternatively, the Bank claims against Borry Limited for restitution of the said Sum as money had andreceived.  Further, Borry Limited was unjustly enriched by the said Sum, and the Bank relies on the matters pleaded in paragraphs 26 and 27 above to show that the enrichment was unjust.”

(My emphasis underlined)

234.  Mr Wright complains that the first sentence of this paragraph does not contain any allegation of fact and should be struck-out as disclosing no cause of action and that the second sentence of the paragraph should also be struck-out as it does not contain the factual allegations necessary to constitute a complete cause of action for unjust enrichment.  He submits, quoting Shanghai Tongji Science & Technology Co Ltd (2004) 7 HKCFAR 79 at 104G per Ribeiro PJ, that it is crucial for the plaintiff to correctly identify and characterise the transaction providing the basis for the 1^st defendant’s enrichment. 

235.  Paragraph 27 is a further and alternative plea and must be understood as such.  The plea “money had and received” is a clear pleading of fact relating to the transfer of the said Sum as received by the 1^st defendant as pleaded in paragraph 15 and in circumstances as described in the preceding paragraphs 26 and 27.  I think paragraph 27 has pleaded a cause of action based on unjust enrichment and identified and characterised the transaction providing the basis for the  1^st defendant’s enrichment.  It may well be that the plaintiff will not be relying on each and every sub-paragraph under paragraph 27.  If the defendants are really concerned, they may seek further and better particulars to limit the scope of the evidence, but not striking-out.

Paragraph 29

236.  This paragraph is related to the transfer by the 1^st defendant of the said Sum it received from Bawa to the personal account of the  2^nd defendant.  By this paragraph, the plaintiff pleaded that the  2^nd defendant received the said Sum impressed with trust from the plaintiff through the 1^st defendant.  This paragraph mirrors paragraph 25 in relation to the 1^st defendant.  The 2^nd defendant is the sole director and shareholder of the 1^st defendant and its controlling mind and working hands.  For reasons as explained in relation to paragraph 25, there is no ground for striking-out this paragraph.

Paragraph 30

237.  In this paragraph, the plaintiff pleaded that the 2^nd defendant knew or turned a blind eye to the fact that the said Sum had been remitted to the 1^st defendant by Bawa in breach of trust.  This paragraph mirrors paragraph 26 in relation to the 1^st defendant.  Mr Wright complains that the plaintiff has not even attempted to plead any primary facts upon which it will seek to rely in support of the allegation that the  2^nd defendant had blind-eye knowledge and hence the allegation must be struck-out.  The 2^nd defendant is the sole director and shareholder of the 1^st defendant and its controlling mind and working hands.  This paragraph together with paragraph 33 pleaded a cause of action based on breach of constructive trust and damages for knowing receipt.  For reasons as explained in relation to paragraph 26, this ground for striking-out is frivolous and vexatious.

Paragraphs 31 to 33

238.  In these paragraphs, the plaintiff pleaded an alternative case assuming that the defendants did not know about Bawa’s breach of trust until 10 November 2011 when the ex parte order was served on the 1^st defendant.  In paragraph 32, the plaintiff pleaded that notwithstanding service of the ex parte order, the 2^nd defendant proceeded to dissipate or assist Bawa to dissipate the balance of the said Sum remaining in his account with SCB-Singapore.  Together with paragraph 33, the plaintiff pleaded that the 2^nd defendant is liable as constructive trustee in respect of the balance of the said Sum remaining in his account with  SCB-Singapore as at 10 November 2011.  This alternative case is for a lesser sum.

239.  Mr Wright submits that this allegation is inconsistent with the rest of the plaintiff’s case.  He argues that if the 2^nd defendant did not know until 10 November 2011 of the alleged breach of trust, the  1^st defendant could not have known of the breach of trust by that day and its transfer of the said Sum to the 2^nd defendant on 7 October 2011 could not have been in breach of trust.  The whole of this argument is premised on Mr Wright’s erroneous assumption that the plaintiff has not pleaded the manner in which the 1^st defendant is alleged to have acquired knowledge of the breach of trust by Bawa.  The plaintiff has pleaded in paragraphs 26 and 27 that the 1^st defendant had knowledge of the breach of trust and the basis of that assertion.  Whether it is proved is a matter for trial.  Paragraphs 31 and 32 pleaded an alternative basis of claim which is consistent with the main claim.  The plaintiff’s claim against the 2^nd defendant under paragraph 29 is no different from its proprietary claim against the 1^st defendant under paragraph 25.  The plaintiff’s claim for breach of constructive trust and damages for knowing receipt under paragraph 30 is no different from its claim against the 1^st defendant under paragraphs 26 and 27.  The plaintiff’s alternative claim under paragraphs 31 to 33 is also no different from its claim against the 1^st defendant under paragraphs 26 and 27, but for a lesser amount, ie the balance of said Sum dissipated by the 2^nd defendant after service of the ex parte order. 

Paragraph 34

240.  In this paragraph, the plaintiff pleaded:

“By reason of the matters pleaded in paragraphs 25 to 31 above, Mr Borry, both in his capacity as the sole shareholder and director of Borry Limited and in his own capacity, dishonestlyassisted Bawa to dissipate the said Sum in breach of the trusts pleaded above.”

(My emphasis underlined)

241.  Mr Wright complains that the plaintiff has not pleaded the allegation that the 2^nd defendant “dishonestly assisted” Bawa to dissipate the said Sum in breach of trust either distinctly or with any particularity whatsoever and that by simply referring to the entirety of “paragraphs 25 to 31 above” is not enough.

242.  I have dealt with Mr Wright’s similar complaint in the context of the plaintiff’s plea as against the 1^st defendant.  The  2^nd defendant is the sole shareholder and director of the 1^st defendant.   He is the controlling mind and working hands of the 1^st defendant.   His knowledge and dishonesty is attributable to the 2^nd defendant and  vice versa.  What is a sufficient plea against the 1^st defendant is also sufficient against the 2^nd defendant.  Mr Wright’s complaint is just fault finding and has no merit.  If the defendants need clarification, they may seek further and better particulars.  This is not a case for striking-out.

Paragraph 35

243.  This paragraph mirrors the plaintiff’s plea of unjust enrichment against the 1^st defendant in paragraph 28.  Mr Wright makes a similar complaint that no cause of action has been pleaded.  For similar reasons as given in relation to my decision in respect of that paragraph,  I find that there is no ground for striking-out this plea.

Paragraphs 36 and 37

244.  In paragraph 36, the plaintiff pleaded:

“Further or alternatively, Mr Borry, Borry Limited and Bawa conspired to injure the Bank using unlawful means, thereby causing loss and damage.  The Plaintiffs rely upon, inter alia, the matters pleaded in paragraphs 21 to 30 above as the unlawful acts involved.”

In relation to the particulars of the conspiratorial agreements, the plaintiff pleaded in paragraph 37 as follows:

“The Plaintiff is unable at this stage to plead precise particulars of the conspiratorial agreements, but the Court is invited to infer from the coordination and/or joint execution of the acts pleaded above that:

(1)  one or more conspiratorial agreements had been entered into by each and every one of the said individuals to carry out the said acts;

(2)  the said acts were committed with the joint intention of the said individuals in furtherance of the said agreements; and

(3)  the implementation of the said agreements resulted in loss and damage to the Bank.”

245.  Mr Wright refers to Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co Ltd [1994] 2 HKC 264 at 273E-F and argues that the statement of claim does not contain a proper pleading of any such allegation and hence must be struck-out.

246.  In Aktieselskabet Dansk Skibsfinansiering, it was held that a plaintiff in a claim of conspiracy has to plead at least one overt act which was the act of all the alleged conspirators or, alternatively, a number of overt acts which include at least one overt act on the part of each conspirator.

247.  In paragraph 36, the plaintiff specifically referred to matters pleaded in paragraphs 21 to 30 of the statement of claim as the unlawful acts involved.  A concise summary of those paragraphs is that Bawa knowing that the credit to the Bawa Account was by mistake, transferred the said Sum to the 1^st defendant’s bank account with SCB-HK, thereupon the 2^nd defendant who is the controlling mind and working hands of the 1^st defendant caused the said Sum to be transferred to his own personal account with SCB-Singapore which he dissipated with knowledge of the mistake. Whether these overt acts were referable to or were carried out with a common intention in furtherance of the conspiratorial agreement involving the defendants and Bawa are matters of inference to be drawn from the facts pleaded therein and proved at trial.  Such inference may reasonably be drawn on those pleaded facts.   The plaintiff has pleaded an arguable case.  Whether the conspiracy is proved is a matter for trial.

248.  The overt acts have been clearly pleaded.  The plaintiff has not pleaded the precise terms of the conspiratorial agreement.  This is understandable.  Invariably, such an agreement is not evidenced in writing or signed, sealed and delivered.  Very often a plaintiff does not have knowledge of the specific facts concerning the alleged agreement or its terms. However, paragraph 37 has sufficiently pleaded the ingredients of such a conspiratorial agreement from which the existence of the agreement could be inferred.  I do not consider the pleading defective. 

Conclusion

249.  Except for the pleading relating to creation of a resulting trust in the second sentence of paragraph 21 which has to be struck-out, the rest of the statement of claim is not defective.  Thus, I allow the application to the very limited extent of striking-out the second sentence of paragraph 21. 

250.  The defendants are substantially unsuccessful, though barely successful on a very minor point.  Mr Wright made a wholesale attack on the pleading, again leaving not a paragraph uncriticised, except the introductory and concluding paragraphs.  An important thrust of the application is the lack of evidence, which is unusual for an application of this nature.  I repeat my observations in paragraph 209 in respect of the discharge application.  Those observations are equally applicable to the strike-out application.  This attack on the statement of claim is launched by counsel deliberately ignoring inferences which may reasonably be drawn on the primary facts pleaded.  The Swiss law argument and the filing of expert evidence are clear ambushes on the plaintiff.  Most of  Mr Wright’s other arguments are very strained.  Kemp’s unreasonable insistence on giving the plaintiff’s counsel only twenty-four hours to consider and respond to the defendants’ counsel’s skeleton submission in a case which the court foresaw would take such a difficult course is a clear indication of SH’s intention to take every tactical advantage of  the plaintiff.  When viewed in the light of the defendants’ conduct,  in particular the contumelious delay in complying with the court orders, the motive behind the making of the recusal application and the discharge application, this strike-out application is also made by way of an attack as a means to defend a possibly hopeless case and to delay or protect the defendants from having to make further disclosures which may yield more evidence of their wrongful act.  This application is frivolous and vexatious and an abuse of proceedings.  The application was made to harass the plaintiff and deter it from pursuing its claim.  To show the court’s disapproval of such conduct, it must be dismissed with costs on the highest scale.  Accordingly, the application is dismissed with costs to be assessed by way of gross sum assessment on solicitor and own client basis.

FURTHER DISCLOSURE SUMMONS

251.  This is the plaintiff’s application for further discovery and disclosure.  On the first day of this hearing, Mr Wright indicated the possibility of reaching some form of agreement with the plaintiff,  but gave no subsequent response.  It was only until after hearing the above five summonses and at the court’s suggestion that Mr Wright indicated the defendants’ agreement to the first two paragraphs of this summons subject to certain amendment which was accepted by the plaintiff.  That agreement was later extended to the third and fourth paragraphs.  The time for compliance was extended.

252.  The Further Disclosure Summons seeks the following orders:

“(1)  The 2^nd defendant do within two days send an original handwritten letter to ANZ, Takapuna branch by facsimile and courier requesting that the 2^nd defendant and his solicitors, Messrs Stephenson Harwood (“SH”), be provided with a copy of (a list of documents);

(2)  The Defendants do within four days file and serve an affidavit:

(i)  demonstrating compliance with paragraph 1 above;

(ii)  explaining the present whereabouts of the sum of NZ$3,000,000 withdrawn from the First Account between 25 November 2011 and 28 November 2011;

(iii)  setting out the bank accounts into which the Cheques and any other cheques relating to the withdrawals were deposited with details of the bank, branch and account numbers and the name of the holders of such accounts;

(iv)  exhibiting copies of the relevant bank account statements showing t he deposits referred to  in sub-paragraph (iii) above;

(v)  explaining the present whereabouts of the sum of NZ$381,620.93 deposited into the Second Account on 18 October 2011, including similar details as above of all bank accounts into which any part of this sum was transferred; and

(vi)  explaining why the 2^nd defendant stated in paragraph 4 of his 7^th Affidavit sworn 3 February 2012 filed herein that the Second Account was a United States dollar account when t he account statements produced by ANZ Bank for the Second Account indicates it is a New Zealand dollar account.

(3)  The defendants produce for inspection within seven days the original bank statements for the 2^nd defendant’s account with SCB-Singapore dated 21 October 2011 and 21 November 2011 as exhibited to the 2^nd and 3 affidavits of the 2^nd defendant.

(4)  The defendants do disclose to the plaintiff’s solicitors any reply to the letters referred to in paragraph 1 above and any further correspondence with the ANZ Bank in relation to the request within two days of receiving the same.

(5)  Unless the defendants comply with each of the orders above, the defendants be debarred from filing evidence in any application for summary judgment or at trial of this action; and

(6)  The plaintiff do have costs of this Summons on an indemnity basis to be assessed on a gross sum basis and paid forthwith.”

253.  The application is supported by the plaintiff’s solicitor, Naphtali’s 5^th affidavit.  In view of the defendants’ agreement to provide the discovery and disclosure, I do not find it necessary to set out in detail the basis of the plaintiff’s application.  In essence, Napthali demonstrated that the 2^nd defendant lied on oath such that in sums of NZ$3,000,000, NZ$381,620.93 and other sums transferred from the 2^nd defendant’s account were unaccounted for.  Upon inspection of the account records of SCB-Singapore, it was also discovered that the 2^nd defendant edited,  as opposed to redacted, the documents produced.  It appears from the correspondence received from ANZ Bank and SCB-HK that neither bank received the 2^nd defendant’s original requests dated 24 February 2012 for production of the documents as required in paragraphs 1.1 to 1.3 of my order dated 22 February 2012.  KL sent three letters to SH in April 2012 demanding an explanation as to what steps were being taken to obtain the documents.  SH did not respond.  No affidavit has been filed by the defendants to contest the application or to explain the Napthali’s allegations.  Even without the defendants’ agreement through counsel,  in the absence of a response from the defendants, the orders sought in paragraphs 1 to 4 of the Further Disclosure Summons would have been made just the same.

254.  Mr Wright contests the application for unless order and costs.  His only argument is that the agreement or concession is made to save time and because the defendants intended to agree to the terms sought therefore no affidavit was filed to oppose or explain anything.  He argues that this is not an appropriate case for grant of an unless order because it is draconian, it affects the conduct of the defence.  He argues that the plaintiff does not have a good cause of action and the grant of an unless order is contrary to our system of justice. 

255.  On the evidence now placed before me, the further discovery is necessitated by the defendants’ incomplete discovery and disclosure.  Six court orders had been issued in the past six months starting from the exparte order of 10 November 2011.  Discovery is still incomplete. There was contumelious delay in compliance which has hitherto been partial. The 2^nd defendant has been caught lying on oath.  Some of the contents of his affidavits are inconsistent.  Documents disclosed have been edited.  My previous two unless orders have proved to be ineffective.  This is a case which cries out for tougher sanction.  Court orders are made to be complied with.  Particularly in the case of disclosure order, the court will be astute to identify those defendants who are deliberately concealing assets. 

256.  I have always been exceptionally cautious in the exercise of such unless jurisdiction.  I was particularly tolerable to the defendants.  Despite plaintiff’s counsel’s plea for summary judgment as a sanction for non-compliance, on 27 January 2012 on my own initiative I only ordered debarring the defendants from filing evidence in any application for summary judgment or at trial.  Despite breach of that unless order, I did not exercise the sanction and granted the defendants a second chance.  Judicial restrain and good sense is not a quality to be taken advantage of by recalcitrant defendants.  It is now time for tougher sanction.  On the previous two occasions, contrary to Mr Wright’s accusation of my bias against him and the defendants, I gave great respect to Mr Wright for his submission on the defendants’ defences and the weakness of the plaintiff’s cause of action.  Now, having spent four days hearing arguments on those very matters, I am in a better position to consider the parties’ case and appropriate sanction.  I disagree with most of  Mr Wright’s submissions.  Having regard to the history of defaults,  Mr Wright’s submission on the weakness of the plaintiff’s case and the strength of the defendants’ defence, I think balance of justice requires that judgment be entered against the defendants for non-compliance.  Up to now, the plaintiff has incurred to my estimate no less than $2 million on costs in seeking to trace its lost money of US$10 million. That is understandable.  The defendants must have spend no less than that amount in resisting the plaintiff’s application for discovery in respect of funds which the defendants claim they have a legitimate reason to deal with.  If the defendants have a good case and have nothing to fear or hide, they should, with total candour, provide the discovery and disclosure so that the case can promptly proceed to trial.  The amount of costs they incurred and they made the plaintiff to incur are out of all proportion with what is in dispute.  If the defendants continue with their present tactic of delay and obstruction, it is most likely because they do not have any good defence.  Justice would require that their case be brought to an end as quickly as possible.  Justice delayed is justice denied.  Accordingly,  I make an unless order with summary judgment as the sanction for  non-compliance.

257.  No explanation has been given by the defendants for the prior non-compliance which necessitated this application. The application is occasioned by the defendants’ default.  There has been a history of default already.  Accordingly, I order that the defendants do pay the plaintiff’s costs of this application to be assessed by way of gross sum assessment on solicitor and own client basis.

CONCLUSION

258.  The defendants’ summons dated 10 May 2012 seeking leave to file the 7^th Affidavit of Ian Childs dated 4 May 2012, and the  1^st Affidavit of Steven Jeffrey Lyons dated 9 May 2012 is allowed with costs to the plaintiff assessed by gross sum assessment on party and party basis in the amount of $1,500.

259.  The defendants’ summons dated 31 May 2012 seeking leave to file the 10^th Affidavit of Ian Childs dated 30 May 2012, exhibiting a draft affidavit of Michael Kramer is allowed with costs to the plaintiff assessed by gross sum assessment on party and party basis in the amount of $1,500.

260.  The defendants’ summons dated 10 May 2012 seeking me to recuse myself from hearing the Discharge Summons and the Strike-Out Summons are dismissed with costs to the plaintiff to be assessed by gross sum assessment on solicitor and own client basis.

261.  The defendants’ summons dated 16 January 2012, seeking to discharge the ex parte order of Deputy High Court Judge Au-Yeung dated 10 November 2011 is dismissed with costs to the plaintiff assessed by gross sum assessment on solicitor and own client basis.  Furthermore, the defendants shall pay the plaintiff all costs hitherto reserved in this action to be assessed by gross sum assessment on a party and party basis.

262.  The defendants’ summons dated 21 February 2012 seeking to strike-out the plaintiff’s statement of claim and the action is dismissed with costs to the plaintiff to be assessed by gross sum assessment on solicitor and own client basis.

263.  The plaintiff’s Further Disclosure Summons dated 10 May 2012 seeking further discovery against the defendants is allowed with an order that unless the defendants comply with the disclosure orders, judgment in this action will be entered against the defendants.  The defendants shall pay the plaintiff’s costs of this application to be assessed by gross sum assessment on solicitor and own client basis. 

264.  All costs are to be paid forthwith upon assessment.  I shall make gross sum assessments of the costs in chambers.

( Anthony To ) Judge of the Court of First Instance High Court

Mr Douglas Lam, instructed by Karas Lawyers, for the plaintiff

Mr Colin Wright, instructed by Stephenson Harwood, for the defendants

Please refer to HCMP2693/2012 for the relevant appeal(s) to the Court of Appeal.

HCA 1934/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1934 OF 2011

____________

BETWEEN

	FALCON PRIVATE BANK LTD	Plaintiff
and
	BORRY BERNARD EDOUARD CHARLES LIMITED	1st Defendant
	BORRY BERNARD EDOUARD CHARLES	2nd Defendant

____________

Before: Hon To J in Chambers (Open to Public)

Date of Hearing: 22 February 2012

Date of Decision: 22 February 2012

______________

D E C I S I O N

______________

 

Background

1.  This is the plaintiff’s application by summons to enforce the proper compliance by the defendants with a series of orders made by this court to trace a sum of US$10 million received by the 1^st defendant.      On 27 January 2012, I made an order that unless the defendants make disclosure in compliance with paragraphs 1 and 2 of the order of Deputy High Court Judge Lok dated 6 January 2012 by 4:00 pm on 31 January 2012, they shall be precluded from calling evidence in any application for summary judgment or at the trial of this action; and refused the defendants’ application for leave to appeal against that unless order.       On 9 February 2012, the defendants lodged an application to the Court of Appeal for leave to appeal against the unless order.  But no application for stay pending appeal has been made to this court or the Court of Appeal.  The background of this case is summarised in paragraphs 2 to 15 of my decision dated 27 January 2012. 

2.  On 31 January 2012, the 2^nd defendant filed his 7^th affidavit in purported compliance with the unless order.  The plaintiff’s solicitors wrote to the defendants’ solicitors on 2 February 2012 complaining of inadequacies of the 2^nd defendant’s affidavit.  The defendants’ solicitors did not respond.  On 10 February 2012, the plaintiff took out the present summons seeking: (1) to enforce the unless order made on 27 January 2012; and (2) further and specific disclosure in respect of inconsistencies arising from the 2^nd defendant’s affidavits.

Enforcement of the unless order

3.  Basically, the inadequacies alleged fall under two categories: (1) failure to disclose banking documents which are patently within the power of the 1^st and/or 2^nd defendants; and (2) failure to answer queries arising from the affidavits.  There is no need for me to go into details of those inadequacies because in the course of submission, it is accepted by Mr Wright, counsel for the defendants, that the 7^th affidavit of the          2^nd defendant was inadequate.  What counsel says is that there is no obligation to disclose the banking documents which were not in the physical possession of the defendants at the time of the making of the unless order and that the time allowed for the disclosure was inadequate.

4.  Mr Wright argues that the summons was set down for         15 minutes for the purpose of directions and should be adjourned for argument.  I disagree.  This is a simple matter of non-compliance of an unless order made after a series of breaches of the court’s orders.            Mr Wright says it would take hours for the defendants’ case to be fully argued.  And I listened patiently for two and half hours.  Mr Wright spends most of that time in regurgitating his earlier arguments presented at the hearing on 27 January 2012, ie the plaintiff will be unable to prove the defendants’ knowledge that the sum of US$10 million credited to the 1^st defendant’s account was transferred in breach of trust and his argument that money deposited in a bank account is a chose in action.      I heard those arguments at the hearing on 27 January 2012 and rejected them as being irrelevant for the purpose of the present application.       The real issues are whether the defendants are under any obligation to disclose the banking documents which were not in their physical possession at the time of the making of the unless order and whether the time allowed for the disclosure was inadequate.  Mr Wright’s insistence on an adjournment is just a delaying tactic.

5.  Under paragraph 1.1 of the order of Deputy High Court Judge Lok, the defendants were ordered to produce bank transfer instructions and bank statements in relation to a sum of US$2.5 million allegedly transferred to Mr Jager from the 2^nd defendant’s account with ANZ Bank in New Zealand.  It is incumbent upon the defendants to make the disclosure or otherwise satisfy the court why they were unable to do so.  The 2^nd defendant disclosed that he received US$5 million from Standard Chartered Bank Singapore (“SCB Singapore”) which was transferred to his US dollar account with ANZ Bank, converted into   New Zealand dollars and transferred to his New Zealand dollar account with ANZ Bank through the internet on 19 October 2011.  Then, the     2^nd defendant said on or about 18 November 2011 he was informed by ANZ Bank that all services provided to him by the bank were to be unilaterally withdrawn with effect from 1 December 2011.  By the time the further disclosure order was made, the ANZ Bank accounts were all closed and the internet banking services discontinued.  Then, he said in paragraphs 13 and 14 of his 7^th affidavit:

“13. The fact that ANZ Bank was not prepared to deal with me has repeatedly been shown to me during the month of December 2011 when I repeated telephoned the bank’s officers. I was never told the reason why the bank closed my accounts. I was not given any courtesy from ANZ Bank or co-operation from their personnel or copies of documents relating to the account.

  14.  Further to paragraph 13 above, despite my contact with ANZ Bank’s personnel, my attempts to obtain copies of my ANZ Bank accounts’ bank statements has not been granted.  ANZ Bank has refused to deal with me and won’t give me any support. I have been informed by my solicitors that I am not required to provide information which is not in my knowledge or my possession, custody or control. For the reasons stated above, the bank statements are not in my possession (no copies were taken), custody or control (ANZ Bank won’t now provide them).  In so far as I am required to explain and provide the whereabouts of ANZ Bank account statements which the Plaintiff requires, these are in the possession of ANZ Bank at the moment and for some reason, undoubtedly caused by the Plaintiff, out of my control.”

6.  In gist, the 2^nd defendant said that he kept no computer printout of the internet transfer he made, that ANZ Bank closed his accounts, withdrew all services from him with effect from 1 December 2011 and refused to deal with him.  He made a bald allegation that     ANZ Bank refused to provide him with bank statements.  The allegation was lacking in particulars as to when the requests for bank statements were made and not supported by any written correspondence issued by him or by the bank.  It is incredible that well established international banks such as SCB Singapore and ANZ Bank would refuse to supply their clients, albeit former clients, banking documents relating to their accounts upon a request properly made.

7.  Mr Wright submits that the 2^nd defendant is not required to disclose anything which he does not actually have.  This is blatantly in contradiction to what the 2^nd defendant said in his 7^th affidavit of what   he was advised by his solicitors, ie he was obliged to disclose the information in his knowledge, possession, custody or control.  Mr Wright argues without quoting any authority that that phrase means documents which a person actually has in his possession at the time of the making of the order.  That is a wholly layman’s approach to the interpretation of a seasoned phrase used in the courts everyday.  Law students from the universities are born with the concept that the phrase “documents in the possession, custody or control” includes documents which a person does not have in his possession or custody, but has a right to obtain from the person who has them: see Hong Kong Civil Procedure 2012, paragraph 24/2/7.  This is trite law.  Such submission is as much an insult to the intelligence of the court as it is a disgrace to the counsel of such seniority who utters it.  This comment is made not without regard to counsel’s duty to fearlessly uphold the interest of his client; but such duty does not excuse counsel from misleading the court. 

8.  Another ludicrous argument of Mr Wright is that I did not allow adequate time for the defendants to obtain the documents.  The disclosure was ordered by Deputy High Court Judge Lok on 6 January 2012.  The defendants’ solicitors understood the order to include documents in the control of the defendants.  There was no appeal against the order of Deputy High Court Judge Lok.  The defendants’ solicitors should have set in motion the steps to obtain the documents, including writing to the banks if necessary.  No such correspondence had been produced in the 7^th affidavit of the 2^nd defendant.  The 2^nd defendant did not even say his solicitors had written to the banks or he had instructed his solicitors to do so.  The only mention was the bald and vague allegation of oral requests I referred to above.  Then at the hearing before me on 27 January 2012, there was no argument by Mr Wright that the documents were not in the defendants’ possession, custody or control.  There was no argument that more time was needed to write to the banks to obtain the documents.  The argument was focussed on deferment pending the outcome of a review of the order of Sakhrani J, the application for which was yet to be made.  It was therefore assumed that the documents were in the possession of the defendants or otherwise readily available.  The time for compliance was set on that basis.  When the order was made, no objection was raised by Mr Wright that compliance would be impossible because some documents were not available.  The way this matter was conducted by the defendants was to engender to delay.  It appears that very experienced counsel and reputable solicitors are part of it.  They should not have slept on the order of Deputy High Court Judge Lok for over six weeks and then advance a self induced excuse of inadequate time to comply.

9.  It is unnecessary to refer to the other inadequacies mentioned in the summons.  They all relate to bank cheques and bank documents.   In view of the history of delay and breaches, the plaintiff is entitled to judgment in the terms of the unless order.  I offer the plaintiff the option of a judgment forthwith or another disclosure order on unless terms.  After taking instructions, Mr Lam opts for the latter, which in my view is the preferred choice.  I therefore grant a further unless order in terms as agreed by counsel.

Further and specific disclosure 

10.  The plaintiff also asks for further and specific disclosure in respect of inconsistencies and queries arising from the 2^nd defendant’s   7^th affidavit.  The court’s power to order further and specific disclosure in case where the disclosure given is unsatisfactory or inadequate is well established.  The plaintiff’s case for specific disclosure arose out of inconsistencies in the 2^nd defendant’s affidavit.

11.  Under paragraph 1.2 of the order of Deputy High Court Judge Lok, the 2^nd defendant was required to produce copies of cheques and relevant bank statements relating to the sum of US$2.5 million allegedly paid to Sunesko LLC’s clients.  In paragraph 12(ii) of his fourth affidavit, the 2^nd defendant said specifically that “cheque payments” were made to Sunesko LLC’s “clients”, suggesting there were multiple payments made. However, in paragraph 16 of his 7^th affidavit, the        2^nd defendant said that there was only one payment which was by a cheque to him, which was collected by Mr Malik.  Then in paragraph 18, he said “as stated in paragraph 12(ii) of my fourth affidavit, I understand that the cheque was paid by way of an endorsement to it by Mr Malik     to a client of Sunesko LLC’s”.  No such allegation was made in paragraph 12(ii) of his fourth affidavit.  Such inconsistent disclosure       was unsatisfactory and inadequate.  The plaintiff is entitled to further and specific disclosure.  In view of the history of delays and breaches, it is only appropriate that this disclosure order should be fortified with the terms of an unless order.  

Costs

12.  This application would not have been necessary had the defendants not been guilty of unsatisfactory and inadequate disclosure.  Against a background of contumelious delays and breaches, I order the defendants to pay the plaintiff’s costs with certificate for counsel on an indemnity basis.

Leave to appeal

13.  At the conclusion of the hearing, Mr Wright applies for leave to appeal against my decision.  No further reasons having been advanced, leave to appeal is forthwith refused.

( Anthony To ) Judge of the Court of First Instance High Court

Mr Douglas Lam, instructed by Karas Lawyers, for the plaintiff

Mr Colin Wright, instructed by Stephenson Harwood, for the defendants

Please refer to HCMP241/2012, HCMP407/2012 & HCMP2693/2012 for the relevant appeal(s) to the Court of Appeal.

HCA 1934/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1934 OF 2011

____________

BETWEEN

	FALCON PRIVATE BANK LTD	Plaintiff
and
	BORRY BERNARD EDOUARD CHARLES LIMITED	1st Defendant
	BORRY BERNARD EDOUARD CHARLES	2nd Defendant

____________

Before: Hon To J in Chambers (Open to Public)

Date of Hearing: 27 January 2012

Date of Decision: 27 January 2012

______________

D E C I S I O N

______________

 

Background

1.  I have before me two summonses: (1) the defendants’ summons dated 17 January 2012 (“Defendants’ Summons”) seeking extension of time to comply with paragraphs 1 and 2 of the order of Deputy High Court Judge Lok dated 6 January 2012 and for discovery; and (2) the plaintiff’s summons dated 19 January 2012 (“Plaintiff’s Summons”) seeking an order that unless the defendants comply with paragraphs 1 and 2 of the order of Deputy High Court Judge Lok, judgment be entered for the plaintiff in this action.

2.  These applications arose under the following circumstances.  The plaintiff is a licensed bank in Switzerland with a branch office in Hong Kong.  The 1^st defendant is a company incorporated in Hong Kong with a paid up share capital of HK$10.  The 2^nd defendant, a Swiss national apparently resident in Vietnam, is its sole shareholder and director.  He holds himself out as the chairman of the Master Vision Group of Banks (“Master Vision”), a suspected fraudulent business under investigation by the Hong Kong police.  Master Vision was also the subject of warnings issued by the Hong Kong Monetary Authority and the Liechtenstein Financial Markets Authority that it was not licensed to carry on banking or investment business, contrary to representations made by Master Vision.

3.  In July 2011, a Mr Morrison acting on behalf of an English incorporated company known as Bawa Financial Limited (“Bawa”) opened an account with the plaintiff (“Bawa Account”) and deposited certain floating rate bonds with the plaintiff.  The plaintiff placed the bonds with a reputable Swiss custodian known as SIX SIS AG (“SIX”).

4.  On 27 September 2011, SIX erroneously advised the plaintiff of a repayment of principal on the bonds in the amount of US$15,760,320. Pursuant to SIX’s instruction, the principal repayment was credited into the plaintiff’s account with SIX.  On 29 September 2011, the plaintiff credited the Bawa Account with the principal repayment as well as an interest payment on the bonds in the amount of US$39,010.36.  Prior to these payments, the Bawa Account had a credit balance of US$12,915.41.

5.  On 30 September 2011, Morrison informed the plaintiff that he would be instructing the plaintiff to transfer US$10 million to a third party in relation to a private equity placement.  By letters dated 2 October 2011, Bawa instructed the plaintiff to make a series of immediate cash transfers in different currencies to different recipients out of the Bawa Account and to transfer the bonds to a securities firm in Canada.  Pursuant to that instruction, the plaintiff made the transfers, including a sum of US$10 million to the 1^st defendant’s account with Standard Chartered Bank in Hong Kong (“SCB HK”).  This transfer of US$10 million formed the subject matter of this action.

6.  On 7 October 2011, SIX notified the plaintiff that its previous instruction relating to the transfer of the principal repayment to Bawa had been made in error and that Bawa was only entitled to the interest payment.  The payment of the principal amount from SIX was reversed on the same day.  The plaintiff then reversed the credit of the principal repayment in the Bawa Account.  But as a result of the various transfers out of that account, the reversal resulted in an overdraft of US$11,767,554.

7.  On the same day, the plaintiff also immediately contacted SCB HK by SWIFT requesting the cancellation of the transfer of US$10 million to the 1^st defendant’s account with SCB HK.  On 10 October 2011, SCB HK informed the plaintiff that the said sum of US$10 million had already been credited to the 1^st defendant’s account.  Later, SCB HK confirmed that it was contacting the 1^st defendant to return the funds.

8.  In the three weeks that followed, the plaintiff engaged in discussions with Bawa and its Swiss legal adviser and demanded the 1^st defendant to return the said sum of US$10 million.  The 1^st defendant did not respond.

9.  On 10 November 2011, the plaintiff made an ex parte application before Deputy High Court Judge Au-Yeung and obtained an injunction order restraining the 1^st defendant from disposing of or removing any of its assets within Hong Kong up to the value of HK$78 million and to make certain disclosures on or before 1:00 pm on 15 November 2011 or within 96 hours of service of the order on the 1^st defendant.  In applying for the disclosure order, the plaintiff gave the usual undertaking in paragraph 6 of Schedule 2 in the order in the following terms:

“The Plaintiff will not without the leave of the Court begin proceedings against the 1^st Defendant in any other jurisdiction or use information obtained as a result of an order of the court in this jurisdiction for the purpose of civil or criminal proceedings in any other jurisdiction.”

10.  At an inter parte hearing on 30 November 2011, Suffiad J made various orders, including an order that the 1^st defendant do within 14 days comply with the outstanding items ordered to be disclosed by Deputy High Court Judge Au-Yeung.

11.  At another inter parte hearing on 9 December 2011, Reyes J made various orders, including an order that the 1^st defendant do by 7:00 pm on 9 December 2011 fully comply with the order of Suffiad J dated 30 November 2011 and provide evidence of the transfer of the said sum of US$10 million from the 1^st defendant to Sunesko LLC.

12.  Unknown to the defendants, upon the plaintiff’s ex parte application on 14 December 2011, Sakhrani J granted the plaintiff leave to produce to the Swiss police and the Hong Kong police the 2^nd defendant’s affidavits given pursuant to the order of Deputy High Court Judge Au-Yeung.

13.  On 23 December 2011, the 2^nd defendant’s solicitors were informed by Morrison’s colleague of the arrest of Morrison and his partner, Brenner, in Switzerland in connection with the present action. 

14.  The disclosure by the 1^st defendant had hitherto been partial only.  The parties appeared before Deputy High Court Judge Lok on 6 January 2012 when a further disclosure order was made. Paragraphs 1 and 2 of the disclosure order read as follows:

“1. The 1^st Defendant (acting by a proper officer) and the 2^nd Defendant do within 14 days of the date hereof file a further affidavit in full and proper compliance with paragraph 4 of the Order of the Deputy High Court Judge Au-Yeung dated 10 November 2011, disclosing to the Plaintiff’s solicitors:

(giving certain particulars)

  2. In the event that the documents referred to in paragraph 1 is not in the possession, custody or control of the 1^st or 2^nd Defendant, the Defendants have to explain and provide the whereabouts of such documents in the affidavits.”

When making the disclosure order, Deputy High Court Judge Lok was unaware of the order of Sakhrani J.  

15.  The defendants’ solicitors subsequently learned from Morrison’s Swiss lawyer that a warrant of arrest had been issued against the 2^nd defendant and that the Swiss police had been supplied with copies of the 2^nd defendant’s affidavits filed in this action.  On 13 January 2012, they enquired from the plaintiff’s solicitors who confirmed that an order had been obtained from the court allowing the release of the 2^nd defendant’s affidavits to the Swiss police, but refused to provide a copy of the order of Sakhrani J as it was confidential.

Defendants’ Summons

16.  The defendants were anxious to know what information had been disclosed to the Swiss police and hence issued the Defendants’ Summons seeking discovery: (1) under paragraph 2.1 discovery of all summonses, supporting affidavits and affirmations, orders, skeleton arguments and other documents relating to the ex parte application before Sakhrani J; and (2) under paragraph 2.2 discovery of all correspondence relating to the disclosure of the affidavits to the Swiss police and/or other person; and extension of time to comply with paragraphs 1 and 2 of the order of Deputy High Court Judge Lok.

17.  The plaintiff did not oppose the discovery sought by the defendants under paragraph 2.1 of the Defendants’ Summons.  On         20 January 2012, the parties filed a consent summons seeking leave from this court for the defendants to inspect the sealed documents relating to the plaintiff’s ex parte application before Sakhrani J.  As there are a number of sealed documents in the court file, clarification was sought from the parties as to the particulars of the documents sought to be inspected.  A reply was only received on the day before this hearing.   The consent summons was approved on the same day.  Thus, the issue of discovery of the summons, affirmations and other documents used at the hearing before Sakhrani J became a non-issue. 

18.  The outstanding issue is about discovery of the correspondence relating to the disclosure to the Swiss police and/or other person.  Mr Lam, counsel for the plaintiff, admits that there are such correspondence to the Swiss police and Hong Kong police and confirms that there are none to the New Zealand police, which the defendants are also concerned.  But, Mr Lam argues that those correspondence are not relevant to the ex parte application before Sakhrani J in particular or to the present action as a whole and need not be disclosed. 

19.  Mr Wright, counsel for the defendants, sings and dances about the plaintiff’s ex parte application before Sakhrani J.  He argues that the plaintiff’s undertaking was an important consideration for the defendants’ disclosure pursuant to the order of Deputy High Court    Judge Au-Yeung.  The rationale for the undertaking was to protect the defendants’ rights to privacy and privilege against self incrimination.    He argues that those rights were infringed.  He submits that it is a matter of public interest that those rights are protected and that the order of Sakhrani J was contrary to all principles of natural justice.  All these are very high sounding principles.  But, for the purposes of this action or specifically for the purpose of any application to set aside the order of Sakhrani J, the question is one of relevancy.  

20.  Mr Wright submits that the information is important and relevant for the purpose of the defendants’ application to set aside the order of Sakhrani J.  He argues that the correspondence will disclose the plaintiff’s motivation and whether it communicates with the Swiss police on its own volition and maliciously.  In fact, the plaintiff never shied away from its intention to file a criminal complaint against Morrison, the 2^nd defendant and others.  In the second affidavit of Brandle dated 28 November 2011 filed on behalf of the plaintiff, the plaintiff confirmed that it was going to do so.  Mr Wright also argues that it is not the plaintiff’s pleaded case that the 1^st defendant had knowledge that the sum of US$10 million was transferred to its account with SCB HK in breach of trust and belonged to Bawa.  He further argues that the plaintiff did not have possession of necessary facts to entitle it to make a report to the Swiss police.  With respect, at this stage of the proceedings, I am not concerned with the strength or weakness of the plaintiff’s case or the merits of the ex parte application before Sahkrani J, but with non-compliance of previous orders of this court.  I am unable to see the logic in Mr Wright’s arguments. 

21.  The plaintiff’s undertaking was not to begin proceedings against the 1^st defendant in any other jurisdiction or use information obtained as a result of an order of this court for the purpose of civil or criminal proceedings in any other jurisdiction without the leave of the court.  The plaintiff may not disclose the information obtained in these proceedings to any person at its discretion.  It has to seek leave of the court before such information may be disclosed.  That was the term of its undertaking. The defendants’ interest was adequately protected by the court when deciding whether to grant leave.  Leave was sought in the absence of the defendants, but Sakhrani J must have considered all necessary information and balanced between the parties’ rights and interests on the one hand and the public interest on the other before granting the plaintiff leave to produce the 2^nd defendant’s affidavits to the police.  There is no need for me to go behind the judgment of Sakhrani J.  If the defendants thought fit, they may apply to have the order of Sakhrani J set aside.  As far as this court is concerned, leave to disclose the affidavits has been granted in compliance with the undertaking.

22.  The materials presented to Sakhrani J at the ex parte application are relevant.  They have all been disclosed.  The correspondence with the Swiss police or Hong Kong police sought by the defendants is irrelevant.  The application for their discovery is just fishing. 

23.  As for the defendants’ application for extension of time, Mr Lam argues that it is manifestly inadequate for a person who is required to comply with an order by a specific time merely to issue a summons for an extension of time returnable two weeks after the due date for compliance: Abu Dhabi National Tanker Co v Lam Ming Chi [1998] 4 HKC 320 at 325.  Mr Wright explains that the defendants’ solicitors had attempted to obtain a return date before the summons judge on 20 January 2012 when the application could have been heard before the due date for compliance expired, but the request was declined by the listing clerk who insisted that the Defendants’ Summons should be returnable before Deputy High Court Judge Lok who made the order and the first available date before the learned judge was 3 February 2012. Then, by consent,  the parties applied to have the Defendants’ Summons heard before me today together with the Plaintiff’s Summons.  I accept that explanation.

24.  The basis of the defendants’ application for extension of time is not that the defendants did not have the information or documents in their possession but their concern that any affidavits they serve will be supplied to the Swiss police as a result of the order of Sakhrani J. They wanted to defer disclosure until they had the opportunity to consider the materials presented to Sakhrani J at the ex parte hearing and to challenge that order.  As of today, the defendants had seven days extension already.  As the plaintiff is seeking an unless order for the defendants to make further disclosure, I shall deal with the issue of extension of time under the Plaintiff’s Summons. 

25.  Accordingly, in respect of the Defendants’ Summons, I make no order in respect of the application under paragraph 2.1 and dismiss the application under paragraph 2.2.  The costs are reserved.

The Plaintiff’s Summons

26.  The further disclosure order sought before Deputy High Court Judge Lok was made further to a number of disclosure orders made by the court, commencing with the proprietary and mareva injunction order made by Deputy High Court Judge Au-Yeung on 10 November 2011, the order of Suffiad J on 30 November 2011, and then the order of Reyes J on 9 December 2011. The disclosures made hitherto were incomplete.  Time is of the essence in a tracing exercise.  The delay was excessive for a simple matter such as this and would not have occasioned had the defendants acted with total candour.  Hence, Mr Lam seeks an unless order.

27.  Mr Wright inundates the court with arguments criticising almost each and every order made.  He argues that the plaintiff has no case against the defendants and the plaintiff’s statement of claim is bound to be struck out in due course.  Hence, the defendants should not be burdened with all these disclosures, wasting their time and costs and suffering prejudice.  Basically, he repeats his submission that it is not the plaintiff’s pleaded case that the 1^st defendant knew that the sum of US$10 million was transferred to his SCB HK account in breach of trust and that the plaintiff would be unable to prove such knowledge on the part of the defendants.  He also argues that the relationship between a bank and its customer is one of debtor and creditor and that a customer holding money in a bank account merely has a chose in action and it is inaccurate to speak of a “transfer” of funds between the bank accounts.  He submits that most importantly the plaintiff has not been frank with the court in failing to draw to the attention of Deputy High Court Judge Au-Yeung the above defence when applying for the ex parte mareva injunction. 

28.  I am not impressed with that line of arguments nor do I find it necessary to consider them.  I am concerned with the defendants’ non-compliance with a series of court orders.  It is not the function of this court to review each and every of those previous orders.  If the defendants had valid objections to the order of Deputy High Court Judge Au-Yeung, they should have applied to have her order discharged.  They did not.  The disclosure order of Deputy High Court Judge Au-Yeung was renewed after an inter parte hearing before Suffiad J and then before Reyes J.  There was no appeal against those orders.  Similarly, there was no appeal against the order of Deputy High Court Judge Lok, the non-compliance of which formed the basis of the plaintiff’s present application.

29.  Another thrust of Mr Wright’s argument is that the plaintiff was in breach of the undertaking given before Deputy High Court Judge Au-Yeung.  He submits that at the time of the hearing before Deputy High Court Judge Lok on 6 January 2011, the learned judge did not know that the plaintiff had been released of its undertaking, had disclosed the 2^nd defendant’s affidavits to the Swiss police and will do so in respect of the further affidavits to be made by the defendants.  Thus, when the learned judge made the order, he was under the misapprehension that the defendants’ interest, privacy, rights, particularly the right not to incriminate oneself were protected by the undertaking.  In my view, the undertaking was not an absolute one.  The protection afforded by that undertaking was the court’s sanction before the plaintiff may disclose the information.  The plaintiff sought and was granted leave from the court.  Sakhrani J must have taken care and considered all the circumstances of the case before granting leave to the plaintiff to make the disclosure.  There was no breach of the undertaking.  The defendants had the protection in the terms of the undertaking. 

30.  Furthermore, I have repeatedly asked Mr Wright if the 2^nd defendant’s affidavits were self incriminating.  He unhesitatingly replies in the negative.  He raises no issue of privilege.  There was no ground for not disclosing the affidavits to the Swiss police.  Indeed, Brandle said in his second affidavit that the plaintiff intended to file a criminal complaint against Morrison, the 2^nd defendant and others.     Thus, if the defendants had appeared before Deputy High Court Judge Au-Yeung when the application for mareva injunction was heard and raised the issue about disclosure to the Swiss police, the learned judge would have dispensed with the undertaking just as Sakhrani J did.  Similarly, had the issue been raised before Suffiad J or Reyes J, the   same would have happened.  The defendants’ complaint was groundless.  In any event, they may seek a review of the ex parte order.  If indeed they suffer any damage, they may make a claim against the plaintiff.

31.  Another line of Mr Wright’s argument is that there is no need for urgency.  The plaintiff delayed commencing the present proceedings for over one month which remains unexplained.  It appears any further affidavits served in accordance with the order of Deputy High Court Judge Lok will be disclosed to the Swiss police.  Hence, Mr Wright further argues that filing of the affidavits should be delayed until the plaintiff had disclosed the materials used at the ex parte hearing before Sakhrani J and that the defendants had an opportunity to review the order of the learned judge; otherwise, any such review would be nugatory. To allay the defendants’ worries, Mr Lam has no objection that the information disclosed under the further disclosure order shall not be disclosed to the Swiss or Hong Kong police unless with the leave of the court obtained pursuant to an application made inter parte. 

32.  The delay in commencing proceedings was not unexplained.  The plaintiff had taken steps to liaise with SCB HK and the  1^st defendant’s company secretary for the return of the money.  Presumably, not knowing then that the 1^st defendant is a HK$10 company and assuming it to be a bona fide businessman and an important client, it was reasonable for the plaintiff to have allowed time for discussion but the defendants did not respond. 

33.  More importantly, Mr Wright is not arguing against disclosure, which he is not permitted to, but for time to consider the circumstances surrounding the plaintiff’s ex parte application before Sakhrani J and to await the outcome of the defendants’ application to set aside that order.  Any such deferment could serve no useful purpose so far as these proceedings are concerned.  Whatever affidavits served by the 2^nd defendant, which had been produced to the Swiss police rightly or wrongly, are relevant for these proceedings.  Whatever further affidavits to be served by the 2^nd defendant, which have not yet been produced to the Swiss police, should have been served long ago and are also relevant for these proceedings.  More importantly, those affidavits will be protected from disclosure as suggested by Mr Lam.  If the defendants are successful in setting aside the order of Sakhrani J, it will have no effect on the admissibility in this court of the affidavits served or to be served.  The only effect a successful challenge will have is on the admissibility in the Swiss court of the affidavits in the hands of the Swiss police.  That would be a matter for another jurisdiction.  It has no effect in these proceedings.  This ground for extension of time is illusory and an obvious delaying tactic. 

34.  The only questions are whether to make an unless order, the time allowed for compliance and the sanction for non-compliance. There  has been  contumelious  delay.   A  substantial  sum of  money is at

stake.  Time is of the essence in a tracing exercise such as this.  Hitherto, disclosure has been half-hearted.  The circumstances cry out for sanction to enforce compliance.  No argument has been advanced that the defendants do not have the information or documents or have difficulties in complying with the further disclosure order.  The materials presented at the ex parte hearing before Sakhrani J have been disclosed.  As of today, the defendants had a de facto extension of seven days already. I grant the defendants another four days to comply.

35.  As for the sanction, the action has only just commenced.  The defendants raised the defence of lack of knowledge that the said sum of US$10 million was transferred in breach of trust and some legal arguments which Mr Wright says constitute a good defence. Accepting what is submitted by counsel at its face value at this stage, I consider a fair and appropriate sanction for non-compliance is to preclude the defendants from calling evidence in any application for summary judgment or at trial.

36.  Accordingly, I order the defendants to make further disclosure sought by 4:00 pm on 31 January 2012 and that such disclosure shall not be disclosed to the Swiss or Hong Kong police without leave of the court obtained pursuant to an application made inter parte. I also order the defendants to pay the plaintiff’s costs with certificate for counsel.  Such costs are to be taxed, if not agreed.

Leave to appeal

37.  At the conclusion of the hearing, Mr Wright applied for leave to appeal against my decision in both summonses.  No further reasons having been advanced, leave to appeal is forthwith refused.

( Anthony To ) Judge of the Court of First Instance High Court

Mr Douglas Lam, instructed by Karas Lawyers, for the plaintiff

Mr Colin Wright, instructed by Stephenson Harwood, for the defendants