YINGGAO RESOURCES LTD v. ECO METAL (HONG KONG) LTD AND ANOTHER

HCA 964/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 964 OF 2012

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D E C I S I O N

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Decision on costs

1. By a decision dated 16 March 2016, this court allowed in part the plaintiff’s appeal against the Master’s decision refusing the plaintiff leave to amend its pleadings.

2. The background to this matter is set out in the said decision and I will not repeat the same here.

3. In allowing the plaintiff’s appeal, I made an order nisi that 50 per cent of the costs of and occasioned by the appeal and in the application to the Master below be paid forthwith by the 2nd defendant to the plaintiff, with certificate for two counsel, to be taxed if not agreed.

4. Neither party was content with this order nisi and hence today’s hearing.

5. Mr Tong for the plaintiff submits, in short, that the 2nd defendant should pay his client two-thirds of the costs of the appeal and the costs of the application below. 

6. He puts this on the basis that there were four issues of amendment: (fraud, misrepresentation, negligence and reliance on Section 3 of the Misrepresentation Ordinance), that although the plaintiff succeeded on two issues (misrepresentation and negligence) and failed on fraud and the Section 3 issue, there was little moment or importance in respect of the Section 3 issue and that the plaintiff had realistically succeeded on two out of three issues and should correspondingly get two-thirds of its costs.

7. For the 2nd defendant bank, Mr Eugene Fung, SC, whilst accepting the order nisi in relation to the appeal, says that the costs of and occasioned by the amendments, excluding the costs of the appeal, are to be paid to the bank, in any event.

8. Mr Tong has sensibly accepted that this is correct.

9. I agree with Mr Fung’s submission in this regard and order accordingly.

10. However, as to the costs of the hearing before the Master, Mr Fung submits all the claims, in the way they were presented to the Master, were bound to fail and, accordingly, those costs should be paid by the plaintiff to the 2nd defendant bank.

11. Both parties have referred me to the Court of Appeal decision in Swiss Singapore Overseas Enterprises Pte Ltd v China Citic Bank Corporation Ltd (Xiamen Branch), CACV 197/2013.  In that decision, Hon Kwan JA at paragraph 19 said this:

“We do not think the court should simply reduce costs with regard to the number of issues raised and lost and the time taken by those unsuccessful issues. There is clearly a discretionary element in making a proportional reduction. And an important matter that may be taken into consideration is the reasonableness in advancing the unsuccessful arguments.”

12. Mr Tong’s able argument can be dealt with shortly.  There was, in my view, no substance to either the plaintiff’s plea of fraud nor the Section 3 misrepresentation plea.

13. In paragraph 26 of my decision dated 16 March 2016, I held that the particulars provided did not in any way support a case of fraud against the bank; furthermore, that the allegation of fraud was unarguable and bound to fail.  In respect of the Section 3 Misrepresentation Ordinance point, I held at paragraph 31 of that decision that reliance upon Section 3 was misconceived.  Both these pleas were plainly untenable and, in my view, it was unreasonable to advance the same.

14. Although the Section 3 argument took little time, it was never abandoned and Mr Fung was forced to deal with it.

15. Bearing in mind the conduct of the plaintiff in this regard, I am unable to accept Mr Tong’s two-third costs submission and maintain that a proper proportional reduction is 50 per cent.

16. Mr Fung’s submission that the plaintiff was bound to fail before the Master is based upon conjecture, albeit ably presented conjecture. 

17. I am not persuaded that the changes in the plaintiff’s pleading between the pleas presented to the Master and those now before this court are of fundamental significance.   In my view, the matters raised in the pleading before the Master was sufficient to support both the plea in misrepresentation and in negligence, and the pleas in the later version simply further particularised the primary claims made in the original pleading.

18. In the event, I maintain the order that the 2nd defendant pay to the plaintiff 50 per cent of the costs in the application to the Master below.

Order

19. I make the following orders:

(1) Leave be granted to the 2nd Defendant to amend the Summons dated 29 March 2016 in the manner as shown in red as per the Amended Summons annexed to the 2nd Defendant’s Summons filed herein on 22 September 2016 and to file the Amended Summons with 3 days from the date hereof;

(2) Service of the Amended Summons be dispensed with;

(3) Costs of the 2nd Defendant’s Summons filed herein on 22 September 2016 be paid by the 2nd Defendant to the Plaintiff, to be taxed if not agreed;

(4) The plaintiff is to pay the costs of and occasioned by the amendment of the statement of claim (excluding the costs of this appeal) to the 1st and 2nd Defendant in any event;

(5) The 2nd Defendant is to pay to the plaintiff 50% of the costs of and occasioned by this appeal, and in the application to the Master below forthwith, with certificate for two counsel, to be taxed if not agreed; and

(6) Costs of today’s hearing be costs in the cause.

HCA 964/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 964 of 2012

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D E C I S I O N
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1.  This is an appeal against a Master’s decision in relation to the plaintiff’s application to amend its pleadings by which the Master ordered:

(i) The application for amendment as per the draft Amended Statement of Claim against the 2^nd defendant is disallowed.

(ii) There be an order nisi that the costs of and occasioned by the application be paid by the plaintiff to the 1^st and 2^nd defendants, with certificate for counsel payable forthwith, to be taxed forthwith if not agreed.

BACKGROUND

2.  On 14 December 2011 the plaintiff, through its nominee, entered into a preliminary sale and purchase agreement to purchase a house at Regalia Bay.  This was followed by a formal sale and purchase agreement on 28 December 2011 with completion fixed for 8 February 2012.

3.  By an agreement dated 6 January 2012, the 1^st defendant agreed to sell and deliver copper scrap to the plaintiff for sub‑sale to the plaintiff’s buyer. The plaintiff and 1^st defendant’s eventual agreement was on the basis that the sale and sub‑sale of the copper scrap should be completed well before the completion date of the aforesaid purchase of the house at Regalia Bay.

4.  On this basis and on 17 January 2012 the plaintiff remitted two sums of HK$26 million and US$2,240,000 to the designated account of the 1^st defendant as pre‑payment (“the Prepayment”).

5.  On or about 18 January 2012 the 1^st defendant tried to utilize the pre‑payment funds in his accounts with the 2^nd defendant bank but on or about 20 January 2012 the 2^nd defendant, according to the plaintiff, represented to the 1^st defendant that the accounts were frozen by the Customs and Excise Department (“the C&E”), which representation was passed on to the plaintiff.

6.  The plaintiff asserts that it was subsequently discovered that the accounts were not in fact frozen by the C&E, and thus the plaintiff takes out its present claims for loss and damage.  In this context the plaintiff seeks to amend its Statement of Claim to add two new causes of action, namely claims in misrepresentation and in negligence, against the 2^nd defendant.

APPLICABLE PRINCIPLES

7.  The principles relevant to an application to amend by adding new causes of action are well established.  The amendment must arise out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed, and the amendment must be necessary either for disposing fairly of the cause or matter, or for saving costs.

8.  If these two conditions are satisfied, then leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail.  Mr Ronny Tong SC, who appears together with Mr Justin Tong on behalf of the plaintiff, has stressed that for the purposes of an application to amend, the facts pleaded in the Statement of Claim are assumed to be true and correct, and the court will take the applicant’s proposed pleaded case at its highest.  Mr Eugene Fung SC, who appears together with Ms Theresa Chow on behalf of the 2^nd defendant, accepts that he cannot dispute the facts that appear in the pleadings, and that such facts are assumed to be true.  Both Mr Tong and Mr Fung are clearly correct in this approach, and it is the approach that I will adopt in this matter.

9.  In short Mr Tong says that on the assumption that the facts pleaded in the proposed Amended Statement of Claim are true, that the proposed amendments are at least arguable and not bound to fail, that the amendments involve factual or legal issues requiring investigation at trial, and thus the amendments should be allowed.

THE PLAINTIFF’S CASE UPON THE AMENDMENTS

The misrepresentation claim

10.  In summary, the plaintiff has pleaded a factual background from which it is said that the 2^nd defendant, through the 1^st defendant, knew that the monies in question came from the plaintiff, and that the plaintiff required these monies to purchase the house at Regalia Bay. Furthermore, that it must be inferred and reasonably foreseeable that whatever the 2^nd defendant informed the 1^st defendant as to the availability of the funds, that the same would be repeated to the plaintiff, and the plaintiff would rely upon the same.

11.  The plaintiff says that the 2^nd defendant’s representation as to the unavailability of the funds was indisputably false. The representation being untrue and known to the 2^nd defendant to be untrue is sufficient, says Mr Tong, to support an allegation in fraud.

12.  Alternatively, the plaintiff says that the representation was made recklessly or negligently.  In this regard Mr Tong has relied upon the seminal case of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 in which it was said:

“… if, in the ordinary course of business, including professional affairs, a person seeks advice or information from another, who is not under any contractual or fiduciary obligation to give it, in circumstances in which a reasonable man so asked would know that he was being trusted or that his skill or judgment was being relied on, and such person then chooses to give the requested advice or information without clearly disclaiming any responsibility for it, then he accepts the legal duty to exercise such care as the circumstances require in making his reply.”

Accordingly, says Mr Tong, the claim of misrepresentation is at very least arguable.

The negligence claim

13.  In summary, the plaintiff’s case is that the 2^nd defendant owed a duty of care to the plaintiff when it refused to release the Prepayment which caused the loss of the agreement and forfeiture of the purchase of the house at Regalia Bay.  This, says Mr Tong, is also a question of mixed law and fact.  In respect to the question of proximity in the context of a negligence case, Mr Tong relies upon Caparo Industries plc v Dickman & others [1990] 2 AC 605 per Lord Oliver at p 638C:

“… What can be deduced from the Hedley Byrne case, therefore, is that the necessary relationship between the maker of a statement or giver of advice (‘the adviser’) and the recipient who acts in reliance upon it (‘the advisee’) may typically be held to exist where (1) the advice is required for a purpose, whether particularly specified or generally described, which is made known, either actually or inferentially, to the adviser at the time when the advice is given; (2) the adviser knows, either actually or inferentially, that his advice will be communicated to the advisee, either specifically or as a member of an ascertainable class, in order that it should be used by the advisee for that purpose; (3) it is known either actually or inferentially, that the advice so communicated is likely to be acted upon by the advisee for that purpose without independent inquiry, and (4) it is so acted upon by the advisee to his detriment. …”

14.  Mr Tong submits that whether the 2^nd defendant owed a duty of care to the plaintiff would depend upon whether the 2^nd defendant’s acts might reasonably be foreseeable to cause harm to the plaintiff, and in this regard he relies upon a meeting between the plaintiff and the 1^st defendant during which a telephone call was made to the 2^nd defendant, and what he describes as “correspondence between the 2^nd defendant and the plaintiff”.  Mr Tong further relies upon Wells v First National Commercial Bank [1998] PNLR 552 in which the facts were similar to the present case save that there was no communication between the intended beneficiary and the bank.  Mr Tong points to the judgment of Evans LJ at p 563D that:

“Finally, I would add this: if the plaintiff had communicated with the bank then it could be, I say no more, a situation which was in Lord Devlin's words ‘equivalent to contract’. It may be that in such a situation it would be arguable that a Hedley Byrne duty would arise. …”

THE 2^ND DEFENDANT’S CASE UPON AMENDMENT

15.  Mr Eugene Fung SC takes five primary points in objecting to the proposed amendments.

16.  First, in relation to the fraud plea, he submits that none of the particulars pleaded in the proposed amendments go anywhere to supporting a case of fraud against the bank.

17.  Second, Mr Fung says that the plaintiff’s case in negligent misrepresentation must fail because the bank cannot be said to be in a Hedley Byrne type relationship with the plaintiff.

18.  Third, in relation to misrepresentation, Mr Fung submits that none of the pleaded particulars establish the bank, when making the alleged representation to the 1^st defendant, intended or expected for that representation to be passed on to the plaintiff.

19.  Fourth, in respect of the negligence claim, Mr Fung submits that a bank which receives funds from a third party and credits a customer’s account cannot also owe any tortious duty of care to the third party; and that Wells v First National Commercial Bank is a clear authority that foreseeability of harm to a plaintiff alone would not give rise to any duty of care on the part of the bank towards the plaintiff.

20.  Fifth, in relation to a plea made in respect of section 3 of the Misrepresentation Ordinance (Cap 284), that it is well established that section 3 has no application where the representor is neither himself the other contracting party nor the agent of the other contracting party.

ANALYSIS

Fraud

21.  It is well established that fraud must be pleaded distinctly and with the utmost particularity, and must be distinctly proved.

22.  In the present case, the particulars of fraud relied upon by the plaintiff are found in §25 of the proposed amendments, as follows:

“(1) The 2^nd Defendant knew or ought to have known there was no restraint order issued by any court restraining the use of the Accounts.

(2) The 2^nd Defendant ought to, but failed, to take steps to ascertain if the mode and operation of the payer of the funds, namely, the Plaintiff, was the subject matter of investigation of the C&E and that there was any legal justification at all for freezing the Accounts.

(3) The 2^nd Defendant accordingly knew or ought to have known that the investigation by the C & E was not a matter that was caused by the Plaintiff or its making of the Prepayment.

(4) The 2^nd Defendant accordingly knew or ought to have known that the investigation by the C & E was not directed at the Prepayment made by the Plaintiff, but the legality of the operations of the 1^st Defendant.

(5) In the premises, the Representation was made fraudulently without any honest belief that the same was true.”

23.  Mr Tong has confirmed that the above particulars are the only particulars advanced by his client in support of an allegation of fraud.

24.  Mr Fung has relied on the judgment of Millett LJ in Armitage v Nurse [1998] Ch 241 at 256–257.  Mr Fung submits and I accept, that an allegation that the defendant “knew or ought to have known” is not a clear and unequivocal allegation of actual knowledge and will not support a finding of fraud.

25.  Furthermore, Mr Fung submits and I agree, that the plea that the 2^nd defendant ought to but failed to make certain enquires with the C&E about the plaintiff has no basis as to why this should be so, and in any event at best supports an allegation of negligence.

26.  In short, I find that the plea of fraud made against the 2^nd defendant and the particulars provided do not in any way support a case of fraud against the bank.  In my view the allegation of fraud is unarguable, and is bound to fail.

Negligent misrepresentation

27.  Mr Tong submits that in order to maintain his cause of action in misrepresentation, that he does not need fraud to succeed.  In answer to Mr Fung’s submission that the bank cannot be said to be in a Hedley Byrne relationship with the plaintiff, Mr Tong refers to Charlesworth & Percy on Negligence at §2/190 as follows:

“A person is under no general duty to speak or act but by undertaking to speak or to act or by inducing reliance in some way, responsibility is assumed, and the basis for a duty of care comes into existence.”

28.  In my view and upon the assumption that the matters pleaded in the proposed amendments are true, the factual circumstances in which the representation is said to have been made and have been imparted to the plaintiff, together with the subsequent conduct of the bank, raises in my view at least an arguable case that a Hedley Byrne relationship between the 2^nd defendant and the plaintiff did in fact arise.  As such I find that the proposed amendments in relation to the claim for negligent misstatement are maintainable and should be allowed.

The negligence claim

29.  The distinction between Wells v First National Commercial Bank and the present case is that there appears in this case to be communication between the 2^nd defendant and the plaintiff, albeit indirect and perhaps inferentially.  I take Mr Fung’s point that some of the communications relied upon were made after the alleged representation was made, but on the basis that the present averments in the Amended Statement of Claim are correct, there are pleas to the effect that the 2^nd Defendant knew of the agreement made between the Plaintiff and the 1^st Defendant, and when the representation was made the same was communicated with the 2^nd defendant’s knowledge, by the 1^st defendant to the plaintiff.  Mr Tong has relied uponCommissioners of Customs and Excise v Barclays Bank plc [2007] 1 AC 181 that issues of fact are plainly questions for trial and are not to be determined at an interlocutory stage.  I also bear in mind the dicta of Evans LJ in Wells v First National Commercial Bank as noted, that where there is a communication between the plaintiff and the bank it may be that in such a situation it would be arguable that a Hedley Byrne duty would arise.

30.  In these circumstances I cannot say that the plea in negligence is unarguable, and thus the amendments in respect of this plea will be allowed.

Section 3 of the Misrepresentation Ordinance

31.  I accept Mr Fung’s submission that the plaintiff’s reliance upon section 3 is misconceived.  It is not pleaded that bank has ever been a party to any contract allegedly entered into by the plaintiff as a result of the alleged representation.  The section 3 representation plea is disallowed.

CONCLUSION

32.  My decision is as follows:

(i) The proposed amendments in respect of the claim in fraud and any consequential amendment thereto are disallowed.

(ii) The proposed amendments in respect of negligent misrepresentation and any consequential amendments thereto are allowed.

(iii) The amendments in respect of the claim in negligence and any consequential amendments thereto are allowed.

(iv) The amendment in respect of section 3 of the Misrepresentation Ordinance is disallowed.

33.  The Master’s decision orally delivered on 17 July 2015 is accordingly set aside.

COSTS

34.  The plaintiff has substantially but not entirely succeeded in its appeal.  Regard must be had to the fact that the 2^nd defendant has succeeded in resisting the plaintiff’s proposed amendments in fraud, and also in respect of section 3 of the Misrepresentation Ordinance.  Accordingly, I make an order nisi to become absolute in 14 days of the date of this decision that 50% of the costs of and occasioned by this appeal, and in the application to the Master below, be paid forthwith by the 2^nd defendant to the plaintiff with certificate for two counsel, to be taxed if not agreed.

HCA 964/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 964 OF 2012

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R U L I N G

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1.  As I have pointed out in paragraph 26 of my decision, the first and foremost objection raised by the plaintiff and the 1st defendant against the interpleader application of the 2nd defendant is that there are no adverse claims within the meaning of Order 17 rule 1 in the special circumstances of this case.

2.  I then dealt with, in paragraph 28, the evidence and those special circumstances and arrived at the conclusion that despite there is no dispute between the plaintiff and the 1st defendant as to where the money should go, there are still adverse claims within the meaning of Order 17 rule 1 for the 2^nd Defendant to engage the protective jurisdiction thereunder.

3.  I think this case gives rise to an important jurisdictional issue, that is whether, in these special circumstances, the jurisdiction under Order 17 is engaged or is capable of being engaged.  It is, I think, in the interests of justice that this matter should be visited by the Court of Appeal.

4.  For this reason, I will give leave to the plaintiff and the 1st defendant to appeal against my decision.

(Submissions on costs)

5.  Costs will be in the cause of the appeal.  I agree with Mr Liu that Miss Eu is quite capable of dealing with the application without the assistance of a junior. So I will refuse the application for certificate for two counsel.

Mr Jonathan Chang, instructed by Ng & Partners, for the plaintiff

Ms Audrey Eu SC leading Ms Tanie Toh, instructed by Ho Tse Wai, Philip Li & Partners, for the 1st defendant

Mr Harry Liu, instructed by Wilkinson & Grist, for the 2nd defendant

HCA 964/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 964 OF 2012

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BETWEEN

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D E C I S I O N

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1.  This is the 2^nd defendant’s interpleader summons seeking an order that the sum of HK$26 million standing in credit in Account A and the sum of US$2,240,000 standing in credit in Account B both in the name of the 1^st defendant with the 2^nd defendant, after deducting therefrom the 2^nd defendant’s costs be paid by the 2^nd defendant, be paid into court, with consequential orders and directions.

2.  The background circumstances leading to this application is largely not in dispute.  They are summarized as follow.

A.  BACKGROUND

A1.  The disputes

3.  The 2^nd defendant is a bank licensed to carry on banking business in Hong Kong.  The 1^st defendant is a customer of the 2^nd defendant holding Accounts A and B.

4.  By an agreement dated 6 January 2012, the 1^st defendant agreed to sell to the plaintiff 800 tons of copper scrap at a provisional price of US$7,155 per ton (“the Agreement”).  On or about 10 January 2012, the 1^st defendant informed the plaintiff that the goods were ready for delivery and requested the plaintiff to make advance payment before delivery.  On 17 January 2012, the plaintiff transferred HK$26 million into Account A and US$2,240,000 into Account B.

5.  On 18 January 2012, the 2^nd defendant was notified by the Customs and Excise Department (“C&E”) that it was conducting investigation in relation to the 2 sums in the Accounts.  The 2^nd defendant then froze the Accounts.

6.  On 20 January 2012, the C&E notified the 2^nd defendant that:

(1) it could not without the C&E’s consent to further deal with any of the funds in the Accounts;

(2) if any person approached the 2^nd defendant and attempted a transaction involving the Accounts, it should immediately contact the officer-in-charge of the C&E; and

(3) if the 1^st defendant or a third party questioned the 2^nd defendant as to why he could not access the funds in the Accounts, he should be directed to the officer-in-charge of the C&E without any further information being revealed (“the C&E Directions collectively).

7.  It is the case of the plaintiff and the 1^st defendant that on or about 3 February 2012 they agreed to terminate the Agreement (“the Termination Agreement”).

8.  The former solicitors of the plaintiff then wrote to the 2^nd defendant on 14 February 2012 :

“On or about 30 January 2012, [the 1^st defendant] informed [the plaintiff] that [the Accounts have been suspended by your bank or alternatively frozen by [the C&E]. [The 1^st defendant] therefore could not complete the contract. The contract has been terminated by mutual agreement of the parties on about 3 February 2012. After the termination, [the 1^st defendant] failed to repay the [2 sums] to [the plaintiff] as your bank has suspended [the Accounts], or alternatively [the C&E] has taken action to freeze the said accounts. However, there is absence of a Court Order or any written notice from either your bank or [the C&E] evidencing and providing a reason for the freezing of the funds in [the Accounts].

As [the plaintiff] has paid the amounts directly into your bank in the course of normal commercial and banking transaction, you owe a duty to [the plaintiff] to ensure the amounts are released and used by the account-holder, namely, [the 1^st defendant].  Alternatively, the amounts should be returned to [the plaintiff] forthwith if [the Accounts] are not operative by [the 1^st defendant] for any reason. ...”

9.  The plaintiff’s former solicitors then demanded the 2^nd defendant to pay the 2 sums back to the plaintiff’s accounts with HSBC within 7 days, failing which the plaintiff would take legal action against the 2^nd defendant.

10.  The 2^nd defendant’s case is that because of the C&E Directions and sections 25(1) and 25(A)(5) of the Organized and Serious Crimes Ordinance, Cap 455, it did not and could not comply with the plaintiff’s demand.  By an email dated 20 February 2012, the 2^nd defendant requested the plaintiff’s former solicitors to contact a senior inspector of the C&E for details.

11.  By another letter dated 24 May 2012 to the 2^nd defendant.  The plaintiff’s current solicitors asserted that, by reason of the matters stated in the letter, in particular, the fact that the designated purpose of the 2 sums having failed as a result of the Termination Agreement, the 1^st defendant has constituted itself as a trustee of the 2 sums for the plaintiff.  The plaintiff’s solicitors demanded :

“As you are presently in possession of the Trust Money, we hereby demand that you expressly acknowledge [the plaintiff’s] beneficial interest in the Trust Money and to account to [the plaintiff] by restoring the Trust Money to them. Pending repayment and restoration of the Trust Money to [the plaintiff], your client is required to safe keep the Trust Money (together with the interests earned thereon) for the sole purpose of ultimate repayment to our client. In particular, you must ensure that the Trust Money (together with the interests earned thereon) is not to be paid out, transferred or otherwise dealt with by [the 1^st defendant] or in accordance with [the 1^st defendant] instruction, and that the same would be returned or restored by you to our client.

We also demand you to acknowledge the aforesaid obligations within 7 days from the date hereof, failing which legal proceedings may be instituted against you without further notice.”

12.  It is the 2^nd defendant’s case that for the same reasons stated above it did not and could not comply with the demand.

A2. The plaintiff’s claims against the defendants

13.  On 6 June 2012, the plaintiff commenced the present proceedings.  For present purposes, it is not necessary to detail the pleas.  Suffice it to say that the plaintiff is suing (a) the 1^st defendant for, inter alia, return of the 2 sums and damages; and (b) the 2^nd defendant for a declaration that the 2 sums are trust money of which the plaintiff is the beneficiary and that the 2^nd defendant is obliged to return or restore the same to the plaintiff; and for return of the same to the plaintiff.

14.  The 2^nd defendant’s solicitors then notified the C&E of the proceedings.  In the ensuing correspondence, the C&E simply stated that the investigation was still going on and they had no comment or view on or active role to play in the proceedings.

15.  By letter dated 31 July 2012, the 2^nd defendant’s solicitors asked the 1^st defendant’s solicitors if the 1^st defendant would (1) defend the plaintiff’s claim for repayment of the 2 sums and (2) claim against the 2 sums.  The 1^st defendant’s solicitors swiftly replied on the following day that they would defend the plaintiff’s claim.

A3. The 1^st defendant’s defence

16.  The 1^st defendant then filed its defence on 1 September 2012.  Among other things, it pleaded that the Agreement was frustrated and the plaintiff has not yet been entitled to the return of the 2 sums.  It went to plead in para 24 that however in the spirit of the Termination Agreement, the 1^st defendant has no objection to the 2^nd defendant remitting back the 2 sums to the plaintiff.

A4. The 1^st defendant’s claim against the 2^nd defendant

17.  On 26 September 2012, the 2^nd defendant’s solicitors wrote to the 1^st defendant’s solicitors seeking clarification if the 1^st defendant claimed against the 2 sums.  Referring to its plea in para 24 of its defence, the 2^nd defendant’s solicitors sought confirmation as to whether :

“1. [The 1^st defendant] agrees and would give to the Bank irrevocable instructions and absolute authority, without being liable to [the 1^st defendant] for any loss or damages, to transfer, remit and pay back the [2 sums] directly to the plaintiff, and into the plaintiff’s bank account ... , once C&E unfreezes the Accounts and withdraws the C&E directions. (if and when this should arise)

2. [The 1^st defendant] agrees with the plaintiff and accepts the plaintiff’s prayer for relief no 1 against the Bank in the plaintiff’s Statement of Claim dated 6 June 2012 that the [2 sums are] trust money for which the plaintiff is the beneficiary (in other words, the Bank is holding [the 2 sums] on trust for the plaintiff).”

18.  The 1^st defendant’s solicitors replied on 10 October 2012.  They first stated that the 1^st defendant’s position has been made clear in its defence and it was unnecessary to state if the 1^st defendant would have a claim to the 2 sums.  They went on to state the 1^st defendant’s position thus :

“1. [The 2^nd defendant] has wrongfully renounced its obligation and has been in breach or anticipatory breach of its contractual duty to repay the Funds in the Accounts to [the 1^st defendant] or to [the 1^st defendant’s] order since 18 January 2012 or alternatively since 20 January 2012. As such, [the 2^nd defendant] is obliged to pay the balance in the Accounts to [the 1^st defendant] and/or to its order in such sum(s) as [the 1^st defendant] may from time to time demand;

2. [The 1^st defendant] does not admit that the [2 sums] was held by [the 1^st defendant] upon trust for the plaintiff (see paragraphs 7, 14 and 21 of the Defence). [The 1^st defendant] further denies that [the 2^nd defendant] is bound by any trust and any right of the plaintiff as the beneficiary thereof (see paragraphs 22 and 23 of the Defence).

3. However, without prejudice to [the 1^st defendant’s] rights in consequence of [the 2^nd defendant’s] previous failure to honour [the 2^nd defendant’s] duty to repay [the 1^st defendant] or to its order, and pursuant to [the 2^nd defendant’s] continuing duty to pay the Funds to [the 1^st defendant] or to is order, our client do hereby order and demand [the 2^nd defendant] to pay the Funds to the plaintiff.”

19.  On the following day, the 1^st defendant issued a contribution notice against the 2^nd defendant.  It alleged that the 2^nd defendant had since 18 or 20 January 2012 wrongfully renounced and had been in breach of its contractual obligations owed to the 1^st defendant as its banker, which prevented the 1^st defendant from using the funds in the Accounts.  The 1^st defendant was thus compelled to enter into the Termination Agreement with the plaintiff.  The 1^st defendant is entitled to the repayment of the balance in the accounts to itself or its order/nominee in such sums as the 1^st defendant may from time to time demand.  It then sought a declaration that the 2^nd defendant had wrongfully renounced its obligations as pleaded and that the 2^nd defendant is obliged to pay the balance in the Accounts to the 1^st defendant and/or to its order in such sums as the 1^st defendant may from time to time demand.

20.  The 2^nd defendant’s solicitors then notified the C&E of the contribution notice and sought the C&E’s consent to allow the 2^nd defendant to disclose the letter dated 20 January 2012 (containing the C&E Directions) for the purpose of the proceedings.   By a letter dated 18 October 2012, the C&E repeated that its investigation was still going on, that it did not have an active role in the proceedings, and that it was not in a position to give the consent to disclose the said letter.

A5. The Order 85 application

21.  The 2^nd defendant then applied to the court on 20 December 2012 under Order 85, Rules of the High Court, for directions.  On 28 March 2013, Deputy Judge Burrell granted an order that the 2^nd defendant may commence the present interpleader proceedings.

A6. C&E’s stance

22.  The C&E has been notified of the interpleader proceedings.  By letter dated 3 June 2013, the Department of Justice, acting for C&E, informed the 2^nd defendant that :

“You are at liberty to disclose to the Court that you do not receive any opposing opposition by our client department to pay the subject fund into court or deal with it in any other way that the Court may consider appropriate.”

B. DISCUSSION

B1. The general principles

23.  Order 17, rule 1(1) of the Rules of the High Court, Cap 4A, provides :

“(1) Where-

(a) a person is under a liability in respect of a debt or in respect of any money, goods or chattels and he is, or expects to be, sued for or in respect of that debt or money or those goods or chattels by two or more persons making adverse claims thereto, or

(b) claim is made to any money, goods or chattels taken or intended to be taken by a bailiff in execution under any process, or to the proceeds or value of any such goods or chattels, by a person other than the person against whom the process is issued,

the person under liability as mentioned in sub-paragraph (a), or (subject to rule 2) the bailiff, may apply to the Court for relief by way of interpleader.”

24.  The general principles on interpleader have been helpfully summarized by Fung J in China Dragon International Ltd v Pang Hong [2007] 2 HKLRD 655 at para 29 and DLA Piper Hong Kong v China Property Development (Holdings) Ltd [2009] 4 HKLRD 333 at para 20, approved by the Court of Appeal on appeal in [2010] 3 HKLRD 903 per Tang VP at para 22 :

“(1) Where 2 or more persons claim the same thing or fund, the holder of the thing or fund does not claim any interest in the property, and not knowing to which of the claimants he ought to deliver the property, and he is sued or fears that he may be sued by some of them, he may apply for interpleader relief against the claimants.

(2) The relief is discretionay and it will not be granted unless there appears to be some real foundation that the applicant may be sued.

(3) The applicant does not in any manner collude with any claimant, or has not voluntarily put himself into the situation from which he calls on the court to extricate him.

(4) He is ready to bring into court, or to pay or dispose of the subject matter of the action in such manner as the court may direct.”

25.  It will be sufficient if each of the rival claimants has a prima facie case against the interpleading party, but not whether the adverse claimant has a claim against each other : DLA Piper Hong Kong, supra, per Fung J at para 22.

B2. Adverse claims

26.  The first and foremost objection raised by the plaintiff and the 1^st defendant against the interpleading 2^nd defendant is that there are no adverse claims within the meaning of Order 17, rule 1.  Referring to the general principle summarized by Fung J, they argued that two conditions have to be met in order to constitute the claims raised by the competing claimants “adverse claims” within the meaning of Order 17, rule 1, namely :

(1) each of the claimants claim the same thing or fund;

(2) the holder of the thing or fund does not know to which of the claimants he ought to deliver the property.

27.  While the plaintiff and the 1^st defendant have claimed the 2 sums respectively, there is no dispute between them that the 2^nd defendant should pay the 2 sums to the plaintiff.  The second condition is therefore not met.  So there are no adverse claims based upon which Order 17, rule 1 can apply.  With respect, I disagree.

28.  The interpleader jurisdiction under Order 17 is a protective one.  It aims at relieving the innocent interpleading party, who has no interest in the subject property or fund, of any further unnecessary involvement in the disputes between the rival claimants.  Here, the plaintiff asserts that the 2 sums are trust moneys and it is the beneficial owner, which is denied by the 1^st defendant.  On the evidence before me, faced with the rival claims by the plaintiff and the 1^st defendant, the 2^nd defendant cannot deal with the 2 sums, thereby relieving them of further involvement in the proceedings, in the absence of a proper instruction from the 1^st defendant or failing which, a court order.  In demanding by letter dated 10 October 2012 the 2^nd defendant to pay the 2 sums to the plaintiff and issuing the contribution notice on the following day, the 1^st defendant is effectively asserting that it is the rightful and beneficial owner of the 2 sums and is entitled to direct the plaintiff to pay the same to its order.  If the 2^nd defendant were to accede to the 1^st defendant’s demand, it could be reasonably arguable that the 2^nd defendant had agreed with the 1^st defendant’s assertion.  The 2^nd defendant would practically be left with no valid defence to the 1^st defendant’s claim by way of the contribution notice.  The 2^nd defendant might also be seen as having sided with the 1^st defendant in its defence to the plaintiff’s claim namely, the 2 sums were not trust moneys.  Adverse costs consequences against the 2^nd defendant might follow if the plaintiff were to win on this question at the end of the day.  In the circumstances, the instruction given by the 1^st defendant to pay the 2 sums to the plaintiff is something which the 2^nd defendant cannot possibly comply with.  The only other option open to the 2^nd defendant is to come to court to seek an order under Order 17.

29.  Because of the very special circumstances as explained above, I hold that the objection raised by the plaintiff and the 1^st defendant is not a valid one.

B3. Collusion

30.  This is a point relied on by the plaintiff, which can be disposed of shortly.

31.  It is well established that interpleader relief may be declined if the applicant colludes with any claimant in the sense that he is playing the same game as, or has taken side with, a claimant : China Dragon International Ltd v Pang Hong, supra.  Here, the plaintiff relied on three matters.

32.  First, the 2^nd defendant did not immediately take out the present interpleader proceedings but took out an application to strike out or stay or proceedings in August 2012, which was subsequently withdrawn.  But a careful look of the supporting affirmation filed by Lee Tak Sing, Senior Vice President of the Risk Management Department of the 2^nd defendant clearly showed that what the 2^nd defendant sought to do was no more than protecting its position.  That is hardly any evidence of collusion with the 1^st defendant.

33.  Second, the 2^nd defendant adopted a positive litigation stance in respect of the 2 sums which was openly hostile and adverse to the plaintiff.  I do not think this complaint is borne out by evidence.  The 2^nd defendant has all along wished to get out of the proceedings as soon as possible.  That is no evidence of collusion.

34.  Finally, the 2^nd defendant refused to disclose the C&E Directions.  But the 2^nd defendant was at the time prevented from doing so by the C&E.  This is not a valid complaint at all.

35.  I hold that there is no collusion as alleged.

B4. Delay

36.  Both the plaintiff and the 1^st defendant complained that the 2^nd defendant had been guilty of unreasonably delay in bringing the present interpleader proceedings.  They argued that it was not necessary for the 2^nd defendant to seek directions from the court under Order 85 before doing so.  I disagree.  I think it was perfectly proper to do so.

B5. Change of stance

37.  The 1^st defendant complained that in said affirmation of Mr Lee filed in support of the striking out application, the 2^nd defendant said that there was no adverse claims between the plaintiff and the 1^st defendant.  The 2^nd defendant has now adopted a completely different stance.  Mr Lee filed his affirmation in August 2012.  The matter had since been overtaken by subsequent events.  And as I have demonstrated above, the 2^nd defendant’s current stance that there are adverse claims within the meaning of Order 17 is wholly justified.

C. DEPOSITIONS

38.  For the above reasons, I allow the 2^nd defendant’s application with a costs order nisi that the plaintiff and the 1^st defendant do jointly and severally pay the 2^nd defendant costs of the interpleader proceedings, to be taxed if not agreed.

39.  As my decision will impact on the future conduct of the proceedings, I will direct the 2^nd defendant to lodge with the court a draft order for (a) the disposal of the interpleader proceedings and (b) the future conduct of the case within 14 days from the date of this Decision, copied to the plaintiff and the 1^st defendant, who are at liberty to write to the court to state their views on the draft order, if so advised, within 14 days thereafter.  I will then deal with the draft order on paper.

Mr Jin Pao, instructed by Ng & Partners, for the plaintiff

Mr Daniel Marash SC leading Ms Catherine Wong, instructed by Ho Tse Wai, Philip Li & Partners, for the 1^st defendant

Mr Eugene Fung SC, instructed by Wilkinson & Grist, for the 2^nd defendant