Case Detail

HCA 1020/2015

[2024] HKCFI 2767

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1020 OF 2015

________________________

BETWEEN
	PA SAM NANG	1st Plaintiff
	FUNG YUEN KWAN VERONICA	2nd Plaintiff
	FUNG KA CHUN RONALD	3rd Plaintiff
	LEE YERK FUN	4th Plaintiff
	and
	THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED	Defendant
	and
	CHIU YEE MUI (招綺梅)	Intended
		Intervener

________________________

Before:

Master Lewis Law in Chambers

Dates of Hearing:	21 August 2024 & 25 September 2024
Date of Decision:	25 September 2024
Date of Handing Down Reasons for Decision:	10 October 2024

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REASONS FOR DECISION

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Background

1. This is my decision on a joinder application made by Ms Chiu Yee Mui (“Ms Chiu”). The action, commenced on 8^th May 2015, has 4 Plaintiffs, viz, Mr Pa Sam Nang (also known as “Sam Pa”), Ms Fung Yuen Kwan Veronica (“Ms Fung”) and Ms Fung’s parents. The Plaintiffs claim that the Defendant bank, which will be simply referred to as “HSBC” in the following, has wrongfully frozen their various accounts. One of the accounts frozen, a joint account held by Sam Pa and Ms Fung, had a balance of over US$86.7 million.

2. Shortly after commencement of the action, the accounts held by Ms Fung’s parents were unblocked, but the said substantial joint account remains frozen up to the dates of this hearing.

3. According to HSBC:

3.1. In around April 2015, it came to their knowledge that the Government of the United States (“US”) had placed Sam Pa on a list of “Specially Designated Nationals” under US laws. By reason of its compliance obligation, the bank had to freeze all accounts in his name;
3.2. The bank further identified Ms Fung and her parents as closely associated with Sam Pa, which led the bank to suspect that funds in their accounts might be under Sam Pa’s control and/or that they were actually Sam Pa’s property.

4. In gist, HSBC says it was (and is) entitled to carry out “Financial Crime Risk Management Activity” in accordance with the terms and conditions of the accounts, which permitted (and continues to permit) them to freeze the accounts. As a result, the bank should not be liable for any of the Plaintiffs’ losses occasioned by the freezing of the accounts.

5. In April 2023, eight years after commencement of the action, HSBC introduced a new line of defence to its pleading. I will come back to this amendment later.

6. The Plaintiffs once applied for summary judgment, but HSBC was granted unconditional leave to defend by DHCJ Paul Lam SC, who commented in the written decision that “in law, HSBC is not entitled to do whatever it likes, or to freeze the Accounts for as long as it wishes”.

7. There is no dispute that Sam Pa has since October 2015 become untraceable; there is no concrete proof whether he has just lived clandestinely, has been detained or has died. However, there was still exchange of list of documents and witness statements in this action in years 2016 and 2017, before it became practically stalled in the ensuing few years. On 5^th November 2021, Ms Fung and her parents, the 2^nd to 4^th Plaintiffs (who will be collectively called the “Fung Parties” in the following) filed a notice of intention to proceed; they further applied on 4^th November 2022 to set down the action for trial.

8. At this stage, new solicitors had been appointed to represent the Fung Parties, and the original solicitors acting for all Plaintiffs just remained to be the solicitors for Sam Pa on record. Such separate representation of different Plaintiffs is still the situation today, and will be the subject matter of another summons to be dealt with after the present application is disposed of.

9. Meanwhile, solicitors for Ms Chiu, the Intended Intervener in the present application, issued a letter dated 21^st November 2022 to HSBC, which was later forwarded to the Plaintiffs. In this letter, Ms Chiu said she is the lawful wife of Sam Pa, and Sam Pa is the beneficial owner of all the funds in the joint account. She described Ms Fung as Sam Pa’s secretary having no beneficial interest over the funds.

10. According to the materials before the Court, it is fair to say both Ms Fung and Ms Chiu had engaged in a romantic and familial relationship with Sam Pa before his disappearance. They both had children with Sam Pa. They both were able to produce some sort of marriage proof issued in foreign countries; Ms Chiu’s proof apparently pre-dated Ms Fung’s.

11. A few months afterward, HSBC amended its defence to make a new “further or alternative” plea. HSBC says in view of the competing claims to the funds in the joint account by, firstly, Ms Chiu and, secondly, another company called CIF Airport Construction Company Ltd (“CIF Airport”), the bank has reason to suspect that Sam Pa and/or Ms Fung may not be the true owner(s) of the balance in the joint account. HSBC is thus entitled to exercise its powers under the terms and conditions to suspend the operation of the joint account until such time as the bank considers appropriate.

12. The said CIF Airport has actually issued a separate summons for intervening into this action. I understand that it has also started separate proceedings HCA 309/2023 against Ms Fung, and is now applying for that action to be heard together with this action. On the first day of the hearing of the present application, I refused to adjourn the present application by reason of CIF Airport’s intended joinder. CIF Airport’s potential interest is noted but its joinder application is not going to be determined at the same time as Ms Chiu’s. By the same reason, Ms Chiu’s late filing of an affirmation setting out substantively the basis of CIF Airport’s application was refused.

13. The Fung Parties have not filed any Amended Reply in response to HSBC’s Amended Defence so far. According to paragraph 36 of their skeleton argument for this hearing, Fung Parties’ position is that “[f]or HSBC to properly advance its defence about suspicions about “true ownership”, the relevant fact is the existence of the alleged suspicion(s) – and how this maps onto the relevant terms and conditions purportedly entitling the bank to suspend operation of the Account. What is not required is an exhaustive determination of who is truly the “owner”. Ms Fung has not pleaded in the Reply [which was filed back in 2016] that if true ownership is demonstrated, HSBC’s suspicions are irrelevant and/or the relevant terms do not apply”.

14. On 15^th September 2023, Ms Chiu petitioned for divorce against Sam Pa in FCMC 10614/2023. According to Ms Chiu’s affirmation, she originally hoped that Sam Pa would return home, but the lapse of 8 years has led her to lose hope, culminating in her decision to petition for divorce.

15. On 30^th October 2023, solicitors for Ms Chiu issued another letter, this time to the Fung Parties’ solicitors directly. Again, it was said Sam Pa is the 100% beneficial owner of the funds in the joint account, and Ms Fung held the account as a nominee and/or trustee for Sam Pa. It was further said the joint account forms part of their matrimonial pot, against which ancillary relief will be sought.

16. Ms Chiu indicated in this letter she intended to commence a TL v ML procedure in the Family Court against Ms Fung, and invited Ms Fung to apply for directions. She also indicated she wished to intervene in the present action. Ms Chiu threatened that nothing should be done in this action to prejudice the claims of Sam Pa and/or Ms Chiu, including any settlement with HSBC.

17. On 21^st November 2023, Ms Chiu took out the present joinder summons. Order 15, rule 6(2) of the Rules of the High Court was, amongst others, cited in support of the summons. The Fung Parties oppose to the summons, HSBC stays neutral and the attendance of the solicitors for Sam Pa on record has been excused.

18. According to information provided by the parties, the teams representing Ms Chiu and Ms Fung have attended the Family Court but there is no development warranting my attention. In paragraph 13 of Ms Chiu’s written skeleton, it was also said “service [of the FCMC proceedings] has already been completed, and a First Appointment hearing for Madam Chiu’s ancillary relief claims [has been] fixed”.

Bases of the Joinder Application and the Opposition

19. To justify her joinder to the present action, Ms Chiu first refers to HSBC’s new plea concerning her, and says this plea is central to the question of whether HSBC has been justified in freezing those sums in the joint account as pleaded.

20. Ms Chiu also refers to the pleaded relief that the funds in the joint account, as soon as they are unfrozen pursuant to the Court’s judgment in this action, will have to be released. If the “true owner” is found to be Sam Pa and Sam Pa only, Ms Chiu has a claim against it by way of ancillary relief. It is necessary for her to be joined to protect her interest.

21. Further, given the potential of Ms Fung being found to be the “true owner” or partial owner of the funds in the joint account, and the potential of a settlement with HSBC, it is said Ms Chiu should be joined to prevent the release of the funds without regard of her interest.

22. The Fung Parties say Ms Chiu’s interest is “entirely tangential”. It is said her only claim of relevance is that the monies in the joint account may be part of the matrimonial pot, such that ancillary relief may be sought and be paid out from such monies. Her interest has little to do with the issues in these proceedings. Her participation would unjustifiably delay matters and alter the entire landscape of the action. Any separate claim Ms Chiu may have against Sam Pa and/or the joint account can and should be dealt with elsewhere.

Applicable Principles and Relevant Propositions

23. As this case is concerned about the intersection of general civil action in the High Court and matrimonial proceedings in the Family Court, a consideration of the TL v ML procedure adopted in the Family Court and its related practice is more important than a consideration of principles on joinder in general.

24. In the written submissions of the counsel team acting for Ms Chiu, led by Mr Johnny Mok SC, four propositions have been put forward:

24.1.  As the divorce proceedings are up and running, Ms Chiu has standing to argue that Sam Pa is the beneficial owner of the funds in the joint account;
24.2.  There is no special rule that whenever there are divorce proceedings consisting of disputes between a spouse and a third party as to ownership of property, such a dispute would need to be tried in the Family Court;
24.3.  When there is the same dispute between a spouse and a third party concerning ownership of property, the Family Court and the High Court could exercise their respective case management powers to best manage its resolution; and
24.4.  As a matter of case management, it would be appropriate for the ownership issue of the funds in the joint account to be tried in these proceedings, with all relevant parties present.

25. Having considered the written submissions of Fung Parties’ team, led by Mr Victor Dawes SC, and heard from him, it does not appear to me there is any dispute in principle against the first three propositions.

26. First, the Fung Parties accept that divorce proceedings have been commenced, and Ms Chiu may have some interest over the funds by way of ancillary relief. The Fung Parties’ position, as I see it, is just that Ms Chiu’s interest may be protected by the divorce proceedings, and thus it is unnecessary, and hence insufficient to justify, a joinder to this action. To me, this disagreement can actually be analyzed under the rubric of the 4^th proposition outlined above, i.e. as a matter of case management, which court, the High Court or the Family Court, is more appropriate.

27. In relation to the 2^nd and 3^rd propositions, it is actually a common ground that both courts have the requisite jurisdiction to adjudicate a dispute between “Spouse A” and a third party over a property which is the subject matter of another dispute between “Spouse B” and that third party.

28. During the hearing, Mr Dawes informed me that the Fung Parties do not say Ms Chiu is bound by any kind of procedural exclusivity to only litigate her claim in the Family Court. I think that must be correct. From a reading of the authorities cited to me, I also derive the following:

28.1.  TL v ML [2006] 1 FLR 1263, the case itself, did not suggest that the Family Division is more superior in determining disputes of this sort. In fact, DHCJ Mostyn QC said, at paragraphs 33-34 of that judgment, that a dispute between a spouse and a third party on the beneficial ownership of a property can be adjudicated in ancillary relief proceedings. But at the same time, such adjudication “must be approached on exactly the same basis as if it were being determined in the Chancery Division”. So even the starting point of that principle is suggestive of plurality instead of exclusivity.
28.2.  The learned Judge went on to say the determination on ownership is completely different in nature from the discretionary exercise between spouses in terms of financial provision. By reason of that difference, but the need for determination in a Chancery-like manner, the learned Judge accepted a party’s complaint that pleadings should have been ordered.
28.3.  Then comes the substance of the Judge’s suggested procedure, inclusive of joinder of the third party to the matrimonial proceedings, direction for pleadings or points of claim to be filed, separate set of witness statements and hearing of that property ownership issue as a preliminary issue before financial dispute resolution (“FDR”) takes place.
28.4.  The learned Judge said, by doing things that way, divorce parties would know at an early stage whether a property in question falls within the dispositive powers of the Family Division and whether a meaningful FDR can take place. The expensive attendance of the third party for the entire duration of the matrimonial proceedings can also be avoided.
28.5.  The same spirit can actually be seen from the Hong Kong Court of Appeal case LLC v LMWA [2019] 2 HKLRD 529. At paragraph 21 thereof, Lam ACJHC (as he then was) emphasized again the need to decide issue between one spouse and the third party by reference to the general laws of property and formal pleadings. At paragraphs 22-23, His Lordship referred to the situation that, but for the breakdown of marriage and application for ancillary relief, there would not be any claim on the property – “[i]f the underlying ancillary relief claim is settled or resolved satisfactorily between the spouses, often there would be no further need or justification for proceeding with a determination of a dispute on the ownership”.
28.6.  His Lordship then further referred to the situation where proprietary interest in the property in question may be satisfied or settled by other properties in the matrimonial pot. This was the same consideration mentioned in TL v ML – ownership of a property should be dealt with before FDR so that during the FDR, there can be an exercise to account for the relevant value. In such situations, the ownership of the very property disputed may not have to be actually changed as it may be replenished by something else.
28.7.  In the present case, however, we are talking about a sum of almost US$87 million, which involves, probably, the resolution of certain banking issues, the ownership structure between Sam Pa and Ms Fung, and potentially a fourth party’s interest before it may be fully or partially recognized as the constituent of the matrimonial pot for any meaningful FDR exercise between Sam Pa and Ms Chiu to be conducted.
28.8.  I am not suggesting, and I have no means knowing, whether the sum represents a significant or major proportion of all assets under Sam Pa’s name. But to me, at least, this case is quite different from the kind of situation envisaged by DHCJ Mostyn QC or the learned Acting Chief Judge.
28.9.  In any event, these two cases and those along the same line were, in my view, meant to enable the Family Court to deal with matters efficiently and “Chancery-like”. They did not mean to give priority to the Family Division/Court over the Chancery Division or the Court of First Instance. As said in Gourisaria v Gourisaria [2011] 1 FLR 262 at paragraphs 23-28, there are cases where the dispute between the third party and the spouses should be resolved at the same time as the issues between the spouses, but there are also cases where this simply cannot be done. Ultimately, the question is one of case management, see also A v A [2007] 2 FLR 467 at paragraphs 23-24.
28.10.  In my view, if the dispute between a spouse and a third party has already had impetus in another court before any sign of divorce emerges, and its resolution is required regardless of whether there is a breakdown of marriage between the spouses and FDR may be conducted effectively, I do not see any obvious advantage for all relevant parties to be made parties in the Family Court or be bound by that court’s decision through some sort of undertaking. The matter should instead be judged on a case-by-case basis.

29. So in short, the crux of this application is, in my view, simply which forum is more appropriate for the parties to raise different viewpoints over the ownership of the funds in the joint account after balancing all the competing considerations. Determination of this matter is a discretionary exercise. There is no presumption in favour of the Family Court. Only the 4^th proposition raised by Mr Mok represents the true contention between the parties in this application.

What Management Serves Justice Better in This Case?

30. I have carefully considered the competing considerations raised by Leading Counsel. I also give significant weight to the position of HSBC, as the question of joinder will certainly affect the further conduct of this action, HSBC has been a party to this action since its commencement and the money in question is still with them. I take note of CIF Airport’s potential interest but put it no higher than the existence of a further potential claim, a fact already referred to in the Amended Defence and parties’ correspondence.

31. After a balancing exercise, I come to the view that I should allow Ms Chiu’s joinder. I take into account the following:

31.1.  The text of Order 15, rule 6(2) needs not be repeated; the two limbs under it are widely worded. I am sure Ms Chiu has satisfied the threshold of interest for the purpose of joinder. In some authorities, it was said even when the proposed intervener’s interest appears doubtful, the Court would let he or she comes in first for the matter to be properly argued in trial (eg Man Whi Chung v Man Ping Nam & Anor [2003] 1 HKC 549). Ms Chiu’s interest, or potential interest, in the funds of the joint account cannot be categorized as “merely commercial”.
31.2.  I note from the evidence that Sam Pa had many female partners and children before his disappearance, but I do not think allowing Ms Chiu to join will raise any “floodgate” concern. So far, Ms Chiu is the only one who has taken the initiative to commence divorce proceedings. According to the available evidence, Ms Chiu is also, apparently, the first in time in terms of obtaining some sort of marriage certificate with Sam Pa.
31.3.  During the hearing, Mr Dawes mentioned to me there has been an assertion that Ms Chiu’s marriage might be invalid because Sam Pa had not properly divorced his previous wife when the Chiu and Pa marriage was seemingly certified in Nevada, US in 1990. However, Mr Dawes also fairly accepted that there is no evidence before me pointing to the lack of divorce with that previous wife as matters stood in 1990. To the contrary, Ms Chiu has deposed to the fact that Sam Pa had divorced that previous wife.
31.4.  More importantly in my view, HSBC has already referred to Ms Chiu’s claim qua Sam Pa’s sole interest over the funds and her status as his lawful wife in the Amended Defence. Ownership is put into issue and Ms Chiu’s interest is affected. I do not think the Fung Parties can merely tag on the lack of their reply to that new plea to say no such issue shall arise.
31.5.  Upon my enquiry with Mr Val Chow, counsel for HSBC, he said he actually prefers the ownership issue of the funds to be resolved first, as it will impact on the banking issues, i.e. the interpretation, application and effect of the terms and conditions of the accounts. As one possibility (but certainly not the only possibility), the banking issues, and the concerned damages claims, may not have to be resolved after determination of the ownership issue.
31.6.  Mr Chow emphasizes that this is only his input as counsel, rendered for the purpose of assisting the Court. This does not represent the formal position of HSBC, which remains to be neutral to the application. That said, I see the good sense in his input. Assuming the trial Court of this action holds that all the funds belonged to Sam Pa absolutely (ie Ms Fung is/was merely an account holder and has nothing to do with the beneficial interest of the funds), given Sam Pa was indeed an individual targeted by the US Government, HSBC’s act of freezing would be better justified as a compliance measure. The resolution of the ownership issue this way will certainly assist HSBC.
31.7.  In his submissions, Mr Chow effectively embraces the same statement made by DHCJ Paul Lam SC in his decision over Order 14 that HSBC cannot, in law, hold the funds forever. It has been mentioned in the course of the hearing that the sanction against Sam Pa will have to be gone one day, just it is unsure when. There is just a restraint; parties understand that there will be no application to confiscate the funds in the account by say a governmental authority.
31.8.  One day, access to the funds by a party other than HSBC itself has to be allowed. On that day, HSBC needs to know whether Ms Fung should be allowed to withdraw the money. Normally she can as an account holder; but when there are already competing claims that the money was not beneficially hers, this is not the normal situation. Although HSBC has not taken out any interpleader summons or proceedings under Order 17, it is effectively in the same position of an interpleader applicant or plaintiff. Given that position, I accept Mr Mok’s submission that it is necessary to create a litigation relationship between Ms Chiu and HSBC so that they will be bound by a decision on where the funds should go after the sanction is gone.
31.9.  When there are such rival claims to property, the discretionary exercise of ordering financial provision between spouses in the matrimonial proceedings is one more step afar. The property law exercise of finding the true owner is more complicated in this case than the usual type the Family Court sees. This is not the situation that had there been no divorce, there would be no dispute over ownership. In this case, the dispute over ownership started much earlier in time. It started before Sam Pa disappeared. When the Fung Parties resumed the action in 2021 without the support of the original solicitors acting for them and Sam Pa, an outsider could already sense that a potential conflict between Ms Fung and Sam Pa had arisen. This potential conflict, if any, would have to be adjudicated even if there had been no divorce between Sam Pa and Ms Chiu.
31.10.  Obviously, the Court of First Instance is more experienced in dealing with claims of an interpleader nature. It is also better to tag on the existing action as the platform to resolve the rival claims than to ask all the concerned parties to go to a freshly started matrimonial proceedings or compel them to make certain undertakings across different litigations. If Ms Fung is a rightful joint owner, why should she spend more time and costs at the Family Court but not resolve the matter here? Why should HSBC specifically go to the Family Court to seek reliefs similar to interpleader reliefs but not do so in an existing action in which it is the defendant?

32. At paragraph 35 of Fung Parties’ skeleton, it was said “Sam Pa’s absolute entitlement to the funds in the joint account is not a necessary facet to be resolved in these proceedings”. At paragraph 52 thereof, it was said “Ms Chiu would have nothing to plead as against HSBC”. I disagree.

33. As said, while HSBC’s defence may be established without proving Sam Pa’s absolute entitlement, the proof that he is indeed the absolute owner takes its defence further; its “suspicions”, so to speak, will be reinforced. Ms Chiu’s pleading will be a matter for her legal team and not a matter we can adopt to determine the joinder at this stage. In any event, she may echo HSBC and say it was right for HSBC to hold up the funds in the light of her assertion since 2021. This will impact on not just the issue and relief of ownership, but also Fung Parties’ claim for damages against HSBC.

34. Ms Chiu’s participation in these proceedings will be more effective than undertakings by Ms Fung in the matrimonial proceedings, as an interested party, not to compromise with HSBC in this High Court action without regard of Sam Pa’s or Ms Chiu’s interest and not to dispose of any funds ordered in her favour. I agree with Mr Mok in this regard.

35. In this discretionary exercise concerning joinder, the special feature of Sam Pa’s disappearance also affects me. As said, the interests of Sam Pa and Ms Fung appeared to be convergent at the inception of these proceedings in 2015. But things have changed with Sam Pa’s long period of absence and the separate representation between him and the Fung Parties.

36. I am concerned whether the solicitors still acting for Sam Pa on record can effectively handle this potential conflict between Sam Pa’s interest and Ms Fung’s interest, in view of Sam Pa’s absence (and hence inability to give instructions) and their status as the previous solicitors for the Fung Parties in this case. Although I cannot say Ms Chiu may serve as a protector of Sam Pa’s interest (given they are respectively the petitioner and the respondent in the matrimonial proceedings), Ms Chiu’s case theory is that all the funds were Sam Pa’s absolutely. This theory is unlikely to be subscribed by Ms Fung or the potential further intervener CIF Airport, but may have been subscribed by Sam Pa if he is here. The suggestion that the subject account is not a normal joint account owned by a man and a woman in a relationship, but where a businessman’s substantial capital or income was stored, appears to be a serious one. This suggestion cannot be brushed aside without proper adjudication. If so, it is in the interest of the proper adjudication to have Ms Chiu joining in this action to advance that competing case theory.

37. Mr Dawes once questioned why should HSBC be bothered to incur more costs to hear the story between Sam Pa, Ms Chiu and Ms Fung in this action. In my view, Sam Pa’s love triangle, or hexagon (in view of his many female partners as disclosed in the affirmations), will not feature in the trial of this action. Ms Chiu’s joinder is to advance the competing theory that the funds belonged to Sam Pa absolutely. HSBC only needs to participate in the issue of who the actual owner was, is or should be. Such participation can in fact be passive like any other plaintiff/applicant in interpleader proceedings/summons.

38. Throughout the submissions, Fung Parties’ team placed much emphasis on DHCJ MC Law SC’s refusal of similar intervention attempt by Ms Chiu in separate proceedings concerning New Bright International Development Limited (HCMP 2219/2020), fought between one Ms Lo Fong Hung (who happens to be the key figure of CIF Airport) and Ms Fung. That interlocutory decision, made on the basis of a number of undertakings by Ms Fung without a publication of its reasoning, is not binding on me. Moreover, I see fundamental differences: (1) this action has not been set down for trial whereas the summons to intervene in the New Bright case was issued around one month before the milestone trial date; (2) the subject of the New Bright proceedings is about the actual ownership ratio of the shares of a private company co-owned by the aforesaid Ms Lo and Ms Fung, but not money in a bank account under Ms Fung’s name; (3) that case does not apparently involve an entity taking the position akin to a plaintiff/applicant for interpleader relief like HSBC. The timing of the joinder application, the risk of dissipation of assets and the complexity of the respective ownership issues all differ. Given those differences, I also think Ms Chiu’s intervention herein cannot be regarded as an abuse of process because of that previous refusal in separate proceedings.

39. Finally, I will say this application to join is not late as the action has not been set down for trial. HSBC does not say it will be prejudiced by the joinder. The Fung Parties themselves have not made progress in this action for a few years from around 2017 to 2021. It does not appear the interest in having an expeditious resolution of this case outweighs Ms Chiu’s interest in the joinder and should cause the joinder to be refused.

40. I also note that it still takes some time for this case to reach the trial stage as the determinations on whether Sam Pa’s solicitors should still appear on record, whether Sam Pa should be substituted as a defendant, whether CIF Airport should be allowed to join and whether the two sets of proceedings should be heard together are all in the pipeline. In my view, a tight case management timetable, with probably certain directions dissecting the handling of the ownership issues and the banking issues, may be adopted to alleviate Fung Parties’ concern.

Disposition

41. I allow Ms Chiu’s application to intervene in these proceedings. There is no dispute that her costs of this application shall be borne by the Fung Parties, to be taxed if not agreed. Mr Mok seeks certificate for three counsel but I agree with Mr Dawes that only a certificate for two counsel should be granted. I should also mention, in view of my refusal to admit into consideration a late affirmation filed by Ms Chiu to set out the basis of CIF Airport’s application, the costs of such affirmation should not form part of the costs recoverable under this costs order.

42. HSBC seeks costs despite its neutral position. Mr Dawes submits that the proper order should be HSBC’s costs in the cause. If this proposal is put into practice, there will be no order as to costs between HSBC and any other party in relation to this application when HSBC loses the final “cause”, but it will be able to recover from the Fung Parties the costs it incurred for this application when HSBC wins the final “cause”.

43. I once had some doubt what the word “cause” should stand for as this action involves, separately, the ownership issue and the banking issue. The joinder is necessitated more by the ownership issue and HSBC may potentially be neither a winner or loser in the “cause” over that issue – as said it may be just in the position of an applicant/plaintiff in interpleader. When I raise this question, Mr Dawes agrees with me that the word “cause” may be referable to a win or a loss over the banking issue instead. Mr Chow does not reply on that. I adopt Mr Dawes’s formulation to order HSBC’s costs of this application be HSBC’s costs in the cause, with certificate for counsel. But I would leave it for parties to argue, in future if necessary, how the word “cause” in this costs order should be interpreted.

44. Parties have consensus that, in view of the development of this case, I can just order the joinder without giving consequential directions. I so order. Parties are at liberty to apply. I thanks counsel’s assistance in this matter.

( Lewis Law )
Master of the High Court

Attendance of the 1^st Plaintiff excused

Mr Victor Dawes SC, Ms Natalie So and Mr Alexander Burg, instructed by Haldanes, for the 2^nd to 4^th Plaintiffs

Mr Val Chow, instructed by Freshfields Bruckhaus Deringer, for the Defendant

Mr Johnny Mok SC, Ms Theresa Chow and Ms Jennifer Fan, instructed by KCL & Partners, for the Intended Intervener

HCA 1020/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1020 of 2015

__________________

BETWEEN
	PA SAM NANG	1^st Plaintiff
	FUNG YUEN KWAN VERONICA	2^nd Plaintiff
	FUNG KA CHUN RONALD	3^rd Plaintiff
	LEE YERK FUN	4^th Plaintiff
	and
	THE HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED	Defendant

__________________

Before: Deputy High Court Judge Paul Lam SC in Chambers

Date of Hearing: 25 February 2016

Date of Decision: 7 March 2016

________________

D E C I S I O N

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A. Introduction

1. The plaintiffs commenced this action on 8 May 2015. They held accounts either individually or jointly with the defendant, the Hong Kong and Shanghai Banking Corporation Ltd (“HSBC”). They claim that HSBC has since on or about 27 March 2015 wrongfully frozen the accounts specified in the schedule to the amended indorsement of claim (“the Accounts”), and thereby wrongfully prevented them from accessing and operating the Accounts and withdrawing or otherwise dealing with the balance therein.

2. On 12 and 22 May 2015, the 3^rd plaintiff, Mr Fung Ka Chun Ronald (“R Fung”) and the 4^th plaintiff, Ms Lee Yerk Fun (“Lee”) closed their accounts with HSBC; and HSBC repaid the monies deposited in their accounts to them. However, the accounts of the 1^st plaintiff, Mr Pa Sam Nang (“Pa”), and those of the 2^nd plaintiff, Ms Fung Yuen Kwan Veronica (“V Fung”) remain frozen by HSBC up to date.

3. This is the plaintiffs’ application for summary judgment.

B. HSBC’s application to adduce new evidence

4. By an order dated 19 June 2015, Master J Wong ordered, inter alia, that no further evidence be filed without leave of the court save that the plaintiffs were given leave to file affirmations within 28 days of the order. By a summons dated 4 February 2016, HSBC applied to adduce the affirmation of Mr Wu Wing Chuen (“Wu”), the Head of Financial Crime Compliance, Hong Kong of HSBC, sworn on 4 February 2016.

5. At the hearing, after hearing Mr Man for the plaintiffs and Ms Ismail for HSBC, I allowed HSBC’s application. These are my brief reasons. Both parties had referred me to the relevant legal principles. I had borne those principles in mind, which I need not repeat here. In short, pursuant to Order 32, rule 11A(4) of the Rules of the High Court (“the RHC”), HSBC must show that there are exceptional circumstances making it desirable that further evidence should be adduced. I had decided to exercise my discretion in favour of HSBC on the following grounds:

(a) The main purpose of Wu’s affirmation is to provide the court with updated information concerning the investigations conducted by HSBC in respect of the accounts of Pa and V Fung, including the fact that such investigations are still ongoing. As I shall explain below, the new evidence is relevant to the Order 14 application. Bearing in mind the nature and purpose of such evidence, it is understandable, and indeed desirable, that it should be adduced at a time reasonably close to the hearing.
(b) The plaintiffs must, of course, be given a reasonable chance to consider whether, and if so how, to respond to such new evidence. In this case, the summons to adduce new evidence was taken out on 4 February 2016, which was three weeks before this hearing. In a letter dated 5 February 2016, HSBC indicated that it would not oppose the plaintiffs’ filing further evidence in reply should they be minded to do so. There was no reply to this letter. Mr Man confirmed that the plaintiffs did not need to file any evidence in reply, and would not seek an adjournment. The only prejudice that he complained of was that HSBC’s application had disrupted the plaintiffs’ preparation for this hearing. Such disruption has not, apparently, resulted in any material adverse impact on the plaintiffs’ presentation of submissions at this hearing.

6. As to costs, I shall order that the costs of HSBC’s application be in the cause of the Order 14 application. I shall now turn to the Order 14 application.

C. The plaintiffs’ claim and Order 14 application

7. The following facts as pleaded in the statement of claim and supported by contemporaneous documents are not in dispute:

(a) The plaintiffs were customers of HSBC, and held the Accounts with HSBC.
(b) By a letter dated 27 March 2015, Pa, through his former solicitors, demanded HSBC to release the monies in the accounts under his name which had been unilaterally frozen. In that letter, the solicitors requested HSBC to release all frozen accounts belonging to different persons, including Pa, under an injunction order which had been discharged.
(c) By a letter dated 2 May 2015, Pa’s former solicitors stated that some of the accounts held in the name of Pa and his family members had remained frozen. They raised strong objections and demanded HSBC to disclose the basis for freezing those accounts.
(d) On or about 4 May 2015, V Fung was unable to access or make withdrawals in respect of some of the accounts held in her name. On the same day, Pa’s former solicitors stated that they had not received any reply to their previous letters, and that some of the accounts held by Pa and his family members had remained frozen. They claimed that, if their clients were still unable to operate those accounts after 6 May 2015, they would take appropriate actions.
(e) By a letter dated 6 May 2015, the plaintiffs, through their present solicitors, demanded HSBC to explain why their accounts had been frozen. They stated that if they did not receive any valid reason or the account holders were still unable to operate those accounts on or before 1 pm on 7 May 2015, they had instructions to commence legal proceedings.
(f) By a letter dated 7 May 2015, the plaintiffs, through their present solicitors, identified more accounts which had been frozen. They stated their belief that the freezing of the accounts was without basis and HSBC had infringed the rights of the plaintiffs. They stated that if they did not receive any valid reason or the account holders were still unable to operate those accounts on or before 1 pm on 8 May 2015, they had instructions to commence legal proceedings. A draft writ of summons was attached to this letter.
(g) By a letter dated 7 May 2015, in reply to the plaintiffs’ solicitors’ letter dated 6 May 2015, HSBC stated that the matter was under investigation, and that it would reply by 13 May 2015 (though occasionally investigations would take longer).
(h) On 8 May 2015, the plaintiffs issued and served the writ of summons herein.
(i) By a letter dated 11 May 2015, in reply to Pa’s former solicitors’ letter dated 4 May 2015, HSBC stated that it was unable to act on the instruction because the account number and authorization of Pa were not enclosed.
(j) By a letter dated 14 May 2015, referring to the two letters issued by HSBC mentioned above, the plaintiffs’ present solicitors put on record that they had not received any response despite HSBC’s indication that a reply would be provided by 13 May 2015. They repeated that the demand of the plaintiffs was that the relevant accounts be released to the account holders so that they may have access to and operate those accounts. They stated that they were deeply unsatisfied by HSBC (being the largest bank in Hong Kong)’s inexcusable acts for freezing the accounts without reason or justification. They stated further that, if they did not receive any valid reason or the account holders were still unable to operate those accounts on or before noon on 16 May 2015, they had instructions to commence legal proceedings.
(k) As mentioned, on 12 and 22 May 2015, R Fung and Lee closed their accounts with HSBC, and HSBC repaid the monies deposited in their accounts to them.
(l) On 21 May 2015, HSBC, through their solicitors, acknowledged service of the writ herein.
(m) On 4 June 2015, the plaintiffs amended the general indorsement of claim (in respect of the particulars of the Accounts), and filed their statement of claim. On the same day, they took out an Order 14 summons.

8. Hence, the plaintiffs’ claim is simple and straightforward: HSBC has wrongfully frozen the Accounts without providing any reason.

9. Mr Fong Ho Man Raymond (“Fong”), a Senior Sanctions Manager at HSBC, made an affirmation on 17 June 2015 to oppose the Order 14 application. HSBC’s defence is summarised in §13 of Fong’s affirmation as follows:

“In blocking the Plaintiffs’ accounts, the Defendant has exercised its contractual right to carry out Financial Crime Risk Management Activity, a right which exists in order to enable the Defendant to comply with its legal and regulatory obligations to combat financial crime. Furthermore, both the General Terms and the Integrated Account Terms make clear that, to the extent permitted by law, the exercise of such right by the Defendant shall not give rise to any liability to the Plaintiffs.”

10. What I need to consider is whether HSBC has a “real or bona fide defence”, or that there are triable issues in the light of the said defence raised by HSBC. The general principles on Order 14 applications are well established, and need not be repeated here.

D. The contract

11. The relationship between the plaintiffs and HSBC is one of creditors and debtor arising out of a contract. It is essential to identify, construe and apply the relevant terms in the contract.

12. HSBC relies on the current versions of its General Terms and Conditions (For Personal Sole Account, Joint Account and Business Account Holders) (“the General Terms”) and Integrated Account Terms and Conditions (“the Integrated Account Terms”). It is not in dispute that they have been governing the relationship between HSBC and the plaintiffs since 15 October 2014. For the present purpose, the relevant terms in both sets of document are virtually identical. Hence, suffice for me to refer to the General Terms. I shall focus on the terms which are related to HSBC’s power to freeze a customer’s account.

13. To begin with, clause 1.1 provides that:

“The relationship between the Bank and the account holder is basically that of debtor and creditor. …”

14. Clause 1.30b(vii) provides that:

“Where
…
· the Bank has, or a member of the HSBC Group has, suspicions regarding Financial Crime or an associated risk,
the Bank may:
(1) be unable to provide new, or continue to provide all or part of the Services to the account holder and reserve the right to terminate its relationship with the account holder;
(2) take actions necessary for the Bank or a member of the HSBC Group to meet the Compliance Obligations; and
(3) block, transfer or close the account holder’s account(s) where permitted under local Laws.”

15. Clause 1.30c(ii) provides that:

“The Bank and HSBC Group’s Financial Crime Risk Management Activity may lead to the delay, blocking or refusing the making or clearing of any payment, the processing of the account holder’s instructionsor application for Services or the provision of all or part of the Services. To the extent permissible by law, neither the Bank or any member of the HSBC Group shall be liable to the account holder or any third party in respect of any loss (howsoever it arose) that was suffered or incurred by the account holder or a third party, caused in whole or in part in connection with the undertaking of Financial Crime Risk Management Activity.”

16. Mr Chan for the plaintiffs submitted that there is a distinction between blocking an account under clause 1.30b(vii) and blocking a payment under clause 1.30c(ii), in particular, the former can be done only “where permitted under local Laws”. At the hearing, there was a debate on the meaning of the phrase “under local Laws”. Ms Ismail for HSBC submitted that this would include the contract law of Hong Kong. Mr Chan submitted that such construction would render this phrase otiose. It is, however, unnecessary for me to resolve this issue for this reason. Clause 1.30c(ii) gives HSBC the power to delay or refuse the processing of an account holder’s instructions. Mr Chan accepted that it is wide enough to cover the power not to process an account holder’s instruction to release the funds in his or her account in the meantime. What is really in issue is whether HSBC could and can exercise such contractual power in this particular case.

17. It is necessary to consider how various key terms and phrases used in clause 1.30c(ii) are defined in the General Terms. The most important phrase must be “Financial Crime Risk Management Activity” (“FCRMA”).

18. FCRMA is defined in clause 1.30a to mean:

“… any action to meet Compliance Obligations relating to or in connection with the detection, investigation and prevention of Financial Crime that the Bank or members of the HSBC Group may take.”

19. It should be noted that FCRMA is not confined to any action that HSBC may take; it also covers any action that members of the HSBC Group may take. “HSBC Group” (or “member of the HSBC Group”) is defined in clause 1.30a to mean:

“… HSBC Holdings plc, its affiliates, subsidiaries, associated entities and any of their branches and offices (together or individually) …”

20. The scope of FCRMA is further defined in clause 1.30c(i) as follows:

“Financial Crime Risk Management Activity may include: (1) screening, intercepting and investigating any instruction, communication, drawdown request, application for Services, or any payment sent to or by the account holder, or on the account holder’s behalf; (2) investigating the source of or intended recipient of funds; (3) combining Account Holder Information with other related information in the possession of the HSBC Group; and (4) making further enquiries as to the status of a person or entity, whether they are subject to a sanctions regime, or confirming the identity and status of the account holder or a Connected Person.”

The word “include” indicates that this clause is not intended to be an exhaustive definition of the scope of FCRMA.

21. Returning to the meaning of FCRMA, it refers to “Compliance Obligations” and “Financial Crime”. What do they mean?

22. The term “Compliance Obligations” is defined under clause 1.30a to mean:

“… obligations of the HSBC Group to comply with (i) any Laws or international guidance and internal policies or procedures, (ii) any demand from Authorities or reporting, disclosure or other obligations under Laws, and (iii) Laws requiring the HSBC Group to verify the identity of its customers.”

23. Pausing here, the scope of the “Compliance Obligations” is couched in very wide terms:

(a) It covers the obligations of not only HSBC, but also those of the HSBC Group.
(b) It covers not only Laws, but also “international guidance and internal policies and procedures”. “Laws” is in turn defined to include:
“… any local or foreign law, regulation, judgment or court order, voluntary code, sanctions regime, agreement between any member of the HSBC Group and an Authority, or agreement or treaty between Authorities and applicable to the Bank or a member of the HSBC Group.”
(c) It also extends to “demand from Authorities”. “Authorities” is defined to include:
“… any local or foreign judicial, administrative, public or regulatory body, any government, any Tax Authority, securities or futures exchange, court, central bank or law enforcement body, self‑regulatory or industry bodies or associations of financial service providers or any of their agents with jurisdiction over any part of the HSBC Group.”

24. On the other hand, the term “Financial Crime” is defined under clause 1.30a to mean:

“… money laundering, terrorist financing, bribery, corruption, tax evasion, fraud, evasion of economic or trade sanctions, or any acts or attempts to circumvent or violate any Laws relating to these matters.”

25. It is noteworthy that clause 1.30e(i) provides that:

“In the event of any conflict or inconsistency between any of the provisions of this Clause 1.30 and those in or governing any other service, product, business relationship, account or agreement between the account holder and the Bank, this Clause 1.30 shall prevail.”

E. Whether the plaintiffs have an arguable cause of action

26. Ms Ismail submitted that the plaintiffs do not even have an arguable cause of action because, as at the date of the writ, HSBC had lawfully exercised its contractual right to freeze their accounts pursuant to the said contractual provisions.

27. Mr Chan reminded me of what the words “cause of action” mean; they “comprise every fact (though not every piece of evidence) which it would be necessary for the plaintiff to prove, if traversed, to support his right to the judgment of the court” (Hong Kong Civil Procedure 2016, vol 1, §15/1/2 at p 301). He accepted that the plaintiffs must plead a cause of action that existed as at the date of the writ, ie 8 May 2015 (see Wong Siu Co Ltd v Goldquest International Ltd [2003] 2 HKC 64 at 70H–71D, §§17–19).

28. I do not agree with Ms Ismail’s submissions on this point:

(a) The relationship between the plaintiffs and HSBC is that of creditors and debtor. Their instructions given to HSBC to release the funds in the Accounts as pleaded in the statement of claim are, in effect, demands made by creditors against the debtor for repayment of the debts. Prima facie, HSBC has a contractual duty to follow the instructions of the plaintiffs, and to repay the debts owed to them. When HSBC refused to follow such instructions, and at the same time, failed to provide any explanation or justification for its refusal (as pleaded in §8 of the statement of claim), the plaintiffs were entitled to make a claim against HSBC. Ms Ismail has not gone as far as suggesting that the statement of claim does not disclose a reasonable cause of action.
(b) Of course, it does not follow that the plaintiffs’ claim will necessarily succeed. It is for HSBC to put up a defence to explain and justify why it was entitled not to follow the plaintiffs’ instructions. Whether the plaintiffs’ claim will succeed must depend on whether the defence raised by HSBC can be established. I take the view that the burden is on HSBC to explain and justify why it had the contractual power to freeze the Accounts. When Ms Ismail submitted that the plaintiffs did not even have an arguable cause of action, I believe she was trying to impress upon me that it is clear that HSBC had the contractual power to freeze the Accounts as at 8 May 2015.

29. While I can understand why Ms Ismail ran such argument from a forensic point of view, I am afraid that she had put HSBC’s case too high. In any event, for the present purpose, HSBC only needs to show an arguable defence, or a triable issue.

F. Relevance of events after 8 May 2015

30. In making the above‑mentioned submissions, Ms Ismail submitted that I should focus on the state of affairs as at 8 May 2015. As stated above, it is not in dispute that the plaintiffs must plead a cause of action which existed as at 8 May 2015. However, it does not follow that, in considering whether HSBC has shown any arguable defence, the court should ignore what happened after 8 May 2015.

31. Depending on the nature of the defence in a particular case, a defence which is valid as at the date of the writ may cease to be so subsequently. For example, in this case, assuming that HSBC had the right to freeze the plaintiffs’ accounts on 8 May 2015, but if subsequently it ceased all FCRMA but still refused to release the funds in issue without any valid reason, I will be very surprised if the court should nevertheless dismiss the plaintiffs’ claim on the ground that HSBC had a valid defence on the date of the writ, and require the plaintiffs to start another legal action to demand for release of the funds in the Accounts. This will not make sense.

32. Indeed, one of the main purposes of Wu’s affirmation is to inform the court that the investigations are still ongoing; and hence, HSBC still has the contractual power to freeze the Accounts up to date. I take the view that in considering whether I should give summary judgment, I am entitled to, and should, take into account the development up to date.

G. The real questions

33. As I indicated at the hearing, in my view, in considering whether HSBC had and has the right to freeze the Accounts, it is necessary to consider the matter in two stages:

(a) First, one must consider whether, in the first place, there was sufficient basis for HSBC to invoke the contractual power to carry out FCRMA in respect of the plaintiffs’ account, and, hence, to freeze the Accounts in the meantime?
(b) Second, if so, for how long HSBC was and is entitled to freeze the Accounts on such ground?

34. I shall consider these two questions one by one.

H. Sufficient basis for HSBC to invoke the contractual power in the first place

35. HSBC’s case (as supported by the evidence of Fong and Wu) is that:

(a) Its FCRMA as defined in the General Terms and the Integrated Account Terms is carried out with reference, inter alia, to the list of Specially Designated Nationals (“the SDN List”) promulgated by the US Department of Treasury’s Office of Foreign Assets Control (“OFAC”).
(b) On 17 April 2014, Pa was designated by the OFAC and added to the SDN List for “undermining democratic processes and institutions in Zimbabwe, facilitating public corruption by Zimbabwean senior officials through illicit diamond deals, and providing financial and logistical support to the Government of Zimbabwe and SDNs”.
(c) In March 2015, HSBC began to carry out FCRMA after it became aware that Pa had been added to the SDN List by OFAC. As a result, between 28 April and 4 June 2015, HSBC blocked the plaintiffs’ accounts. V Fung is believed to be Pa’s wife whereas R Fung and Lee are the parents of V Fung.

36. Pa denied in his affirmation filed on 6 August 2015 the allegations made against him, and claimed that he had never taken part in any of the conduct alleged by the US Department of Treasury. He stated that he has no knowledge of the SDN List and does not know why he has been designated by the OFAC and added to the SDN List. It is for not the Hong Kong court, let alone by me summarily, to determine whether it is right or wrong for the US authority to designate him as such and add him to the SDN List under the US law.

37. The simple and undeniable fact is that Pa has been so designed, and added to the SDN List. At the hearing, Mr Chan accepted that such fact provided a sufficient basis to empower HSBC to invoke the contractual power to carry out FCRMA in respect of the plaintiffs’ accounts. In other words, the plaintiffs accept that the pre‑condition for invoking HSBC’s power to freeze the Accounts under the two‑stage approach I mentioned above has been satisfied.

I. Investigations done by HSBC so far

38. Fong stated in his affirmation made on 17 June 2015 that:

(a) The FCRMA conducted by HSBC in this case is “to conduct a comprehensive review of its relationship and dealings with [Pa] and his Connected Persons, which would in turn permit it to assess its legal and regulatory obligations (whether under Hong Kong law or otherwise) arising from [Pa]’s designation by OFAC”. (§12)
(b) HSBC possesses a reasonable belief that Pa’s property may be contained (or have been contained) in the accounts of the other plaintiffs, and its review has therefore been extended to include such accounts.
(c) While HSBC had already unblocked the accounts of R Fung and Lee, and their accounts had been closed and the balances had been repaid to them, HSBC’s FCRMA in respect of the accounts of Pa and V Fung remained ongoing as at 17 June 2015.

39. Wu stated in his affirmation made on 4 February 2016 that:

(a) In the course of its investigations, HSBC has discovered that the network of companies with which Pa and V Fung are associated is a highly complex one: over 30 separate entities have been identified in the so‑called Queensway Group, in various jurisdictions across Africa, Latin America, Southeast Asia and the United States. While there is information suggesting that Pa is the boss of the Queensway Group, neither his name nor any of his known alias appears on any corporate filings for the entities within the Queensway Group.
(b) Among these companies, the most prominent example is a company called China Sonangol International Holding Ltd (“CSIHL”). CSIHL is partially owned by Angola’s state‑owned energy firm, Sonangol. It is understood to be a key pillar of Angola’s government, which is a key African oil supplier to the PRC. Both CSIHL and Pa have recently been implicated in a corruption investigation being carried out by the PRC authorities. It has been reported that CSIHL was previously 70% beneficially owned indirectly by close associates of Pa, who in 2012 transferred their interests to a BVI company called Magic Wonder Holding Ltd, the beneficial ownership thereof is opaque. On the other hand, V Fung is known to be a director of CSIHL and an active partner in its business. HSBC continues to investigate the beneficial ownership of CSIHL to determine the nature and extent of Pa and V Fung’s association with and interest in CSIHL.
(c) The complexity of Pa’s network and his apparent efforts to conceal his involvement by not listing his name on any public filings (resulting in a lack of transparency) mean that the examination of the accounts held by HSBC and its related entities globally which Pa may control is a substantial and extensive process. The opacity of such corporate structures alone would warrant further investigation by HSBC in light of its attendant risk of Financial Crime.
(d) When one considers the apparently questionable nature of some of the transactions in which CSIHL and the Queensway Group are involved, the fact that Pa had been included in the SDN List by OFAC and that Pa is apparently the subject of a corruption investigation carried out by the PRC authorities, such a combination of factors must give rise to significant concerns on the part of HSBC which warrant thorough and detailed investigation.
(e) The progress of the FCRMA has also been affected by media reports of Pa’s alleged involvement in public corruption in various countries which emerged since the commencement of this action. These countries include Zimbabwe, North Korea and PRC. Most importantly, on 8 October 2015, Pa was arrested in Beijing and reportedly detained by the PRC authorities in connection with an ongoing corruption investigation into the former chairman of Sinopec and Sinopec’s ties with CSIHL. Such information served only to increase HSBC’s concerns in respect of its legal and regulatory obligations to combat financial crime.
(f) It is therefore HSBC’s case that:
“… its [FCRMA] must continue until HSBC is able to make an informed determination of its own position and that of the HSBC Group more generally.” (§17)
“It is clear … that, given the nature of the 1^st and 2^nd Plaintiffs’ business and global footprint of the HSBC Group, HSBC will need to investigate not only its own position as a matter of Hong Kong law but also the obligations of its affiliated entities under — as a minimum — the laws of the United States. I am advised that individuals on the SDN List are subject to asset freezes and that US persons (both natural and legal) are generally prohibited from transacting with such individuals, meaning that any such person within the HSBC Group face potential criminal liability if they transact with the 1^st Plaintiff (or any entity owned or controlled by him) or facilitate such transactions.” (§20)
(g) In conclusion:
“… HSBC’s [FCRMA] is still ongoing. In accordance with the General Terms and the Integrated Account Terms, such activity will continue until HSBC has completed an examination of all the bank accounts connected to the 1^st Plaintiff and can be confident that its relationship with the 1^st and 2^nd Plaintiffs do not conflict with any of its legal and regulatory obligations. In the meantime, instructions of the 1^st and 2^nd Plaintiffs cannot be processed until the investigation is completed.” (§21)

J. Legal limits on HSBC’s contractual power to freeze the accounts

40. It is clear that HSBC will continue to freeze the accounts of Pa and V Fung, and will not entertain their instructions to release the funds in those accounts in the meantime. As Wu stated in §9 of his affirmation, the Accounts are frozen “pending completion of the [FCRMA]”. According to the evidence of HSBC, the FCRMA in respect of the accounts of Pa and V Fung is still ongoing. There is no indication as to when it will be completed. The crucial and natural question must be for how long may such FCRMA continue as a matter of law?

41. Mr Chan submitted that HSBC has no right to freeze the Accounts “for an indefinite period to enable it to consider what its legal or regulatory obligations are” (plaintiffs’ skeleton submissions, §24). He said that it would be startling if a bank were entitled to freeze its customer’s accounts indefinitely just to enable it to decide what to do; such an unbridled right for HSBC to take its time would run coach and horses through the debtor‑creditor relationship between bank and customer; it would wreak intolerable havoc to the financial system in Hong Kong; HSBC is, after all, a bank not a law enforcement agency, it cannot have untrammeled power to refuse to pay an undisputed debt indefinitely on the basis that it is considering its options (plaintiffs’ skeleton submissions, §25).

42. Ms Ismail submitted that HSBC had not suggested that “it can take as long as it likes to carry on an investigation while freezing the Accounts but the Accounts might potentially be frozen for an indefinite period if it is established that the funds are indeed illicit or proceeds of crime” (defendant’s skeleton submissions, §18).

43. The question is, in the absence of any express term in the contract between the plaintiffs and HSBC setting a time limit within which HSBC must complete its FCRMA, does it mean that, in law, HSBC can take as long as it wishes? If not, how and by what criteria can and should the court judge whether HSBC has taken “too long” so that it can no longer justify freezing the accounts of Pa and V Fung on the ground of carrying out FCRMA?

44. Ms Ismail accepted that HSBC’s exercise of contractual discretionary power must not be unreasonable, in a sense analogous to Wednesbury unreasonableness, citing in support the English House of Lords’ judgment in Braganza v BP Shipping Ltd [2015] 1 WLR 1661 at §§17–30 (defendant’s skeleton submissions, §18). Mr Chan did not dispute with the principles but submitted that they are irrelevant because that authority was concerned with the proper approach of a contractual fact‑finder who was considering whether a person may have committed suicide. He submitted that HSBC was and is not engaged in any fact‑finding exercise.

45. Mr Chan might have construed that judgment too narrowly. In my view, the judgment stands for and reaffirms the following principles concerning the exercise of contractual discretion:

(a) Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to rewrite the parties’ bargain for them, still less to substitute themselves for the contractually agreed decision‑maker.
(b) However, the courts have sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given.
(c) Generally speaking, a contractual decision‑maker’s discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality.
(d) It is vital to note the difference between “irrationality” or “Wednesbury unreasonableness” (a well‑established concept used in administrative law) on the one hand, and “unreasonableness” in the ordinary sense on the other hand. “Reasonableness” (or “unreasonableness”) in the ordinary sense are concepts often used in private law: for instance, in some situations, the court may imply a term requiring a contractual obligation to be discharged within a reasonable time. In this sense, the concept of “reasonableness” is entirely mutual and guided by objective criteria.
(e) Pursuant to the “irrationality” test, the decision remains that of the decision‑maker, but pursuant to the ordinary “reasonableness” test, the decision‑maker becomes the court itself.
(f) The “irrationality” test under the public law requires the court to consider both the decision‑making process and the outcome. However, one must note that concentrating on the outcome runs the risk that the court will substitute its own decision for that of the primary decision‑maker.
(g) Nevertheless, whatever term may be implied will depend on the terms and the context of the particular contract involved. The precise extent to which an implied contractual term may differ from the principles applicable to judicial review of administrative action may not be capable of a precise answer given that the question may arise in so many different contractual contexts.

46. Bearing in mind that this is an Order 14 application, it is unnecessary and inappropriate for me to define precisely the implied contractual term which restricts HSBC’s exercise of contractual power in the present context. Having said that, applying the above general principles, I am inclined to the view that HSBC must not exercise its contractual power to carry out FCRMA and to freeze the Accounts pending the completion of such FCRMA “irrationally” as correctly conceded by Ms Ismail.

K. Whether arguable that HSBC is entitled to freeze the accounts up to date

47. The burden is on HSBC to put forward a “real or bona fide” defence. Having regard to my view on the legal restrictions on HSBC’s contractual power in the present context, HSBC needs to show that it is arguable that HSBC’s decision to exercise its contractual power to carry out FCRMA and to freeze the accounts of Pa and V Fung up to date pending the completion of such FRRMA is a rational one. Put it another way, I will give summary judgment if I come to the conclusion that this is a clear case that HSBC’s said decision is irrational so that no triable issue in this respect arises, and any suggestion otherwise is not even arguable.

48. Here comes Mr Chan’s main point: he submitted that HSBC has failed to condescend upon particulars in explaining what Compliance Obligations it must potentially meet which justifies the indefinite freezing of the Accounts. He submitted that there is no clear indication as to what specific laws (Hong Kong or otherwise) and legal provisions HSBC must have to comply with, which arise from Pa’s designation on the SDN List and which require the freezing of the Accounts; and that the ambiguous reference to the Anti‑Money Laundering and Counter‑Terrorist Financing (Financial Institutions) Ordinance and the Organized and Serious Crimes Ordinance in §9 of Fong’s affirmation clearly does not meet the required threshold of condescending to particulars, as it does not identify why the freezing of the Accounts is necessary to meet the obligation “to carry out effective monitoring of [HSBC’s] customers”. He stressed that the burden is on HSBC to properly identify the relevant statutory provision(s) which it says it is presently assessing, which HSBC has hopelessly failed. In his oral submissions, Mr Chan stressed that, in the absence of such particulars which go to the question of “to do what”, one cannot begin to consider “for how long” the Accounts may be lawfully frozen by HSBC.

49. In response, Ms Ismail submitted that:

(a) HSBC is not in a position to disclose the details of the investigations because it is subject to various confidentiality requirements imposed by the laws, regulations or practices of different countries or the international community.
(b) Under the contract between the plaintiffs and HSBC, the plaintiffs do not have any right to demand HSBC to explain why it has decided to freeze the Accounts.
(c) It will be sufficient for HSBC to plead in the defence that it has frozen the Accounts pursuant to its contractual power. And if the plaintiffs take the view that HSBC did not and does not have the contractual power to do so, or has abused such power, on whatever grounds, it will be for the plaintiffs to plead such allegation in their reply. And if and only if the plaintiffs raise such allegation, and depending on the nature of the allegation, will HSBC be obliged to provide the relevant particulars concerning the Compliance Obligations.

50. Ms Ismail’s said submissions do not appear to provide adequate answers to Mr Chan’s submissions:

(a) As to the first point made by Ms Ismail, Mr Chan replied that the plaintiffs are not seeking the details of the investigations at all; they are merely asking for particulars of the Compliance Obligations which are engaged in this case. Further, Ms Ismail accepted that there is no evidence that, in this case, HSBC is forbidden by any confidentially requirement imposed any laws, regulations or practices to provide such particulars.
(b) As to the second point made by Ms Ismail, it is correct that the contract between the parties does not impose any express obligation on HSBC to explain to the plaintiffs why the Accounts have been frozen. However, Mr Chan’s submissions are concerned with a defendant’s duty to condescend upon particular in an Order 14 application.
(c) As to the third point made by Ms Ismail, Mr Chan submitted that the particulars of Compliance Obligations engaged in this case are material facts that HSBC must plead in its defence if it intends to justify its freezing of the Accounts pursuant to its contractual power. It is not for me to determine the requirements on pleadings in this respect. As I just said, what I need to consider is whether HSBC has met the requirement that a defendant shall condescend upon particulars in an Order 14 application.

51. However, this is not the end of the matter. While it is trite that a defendant in summary judgment proceedings is obliged to condescend upon particulars (see Hong Kong Civil Procedure 2016, vol 1, §14/4/4 at p 268), it is necessary to bear in mind the purpose of such requirement. As Ma CJHC (as he then was) held in Toy Major Trading Co Ltd v Hang Shun Plastic Toys Ltd [2007] 3 HKLRD 345 at 349F–G, §12:

“... In my view, the Defendant’s evidence goes nowhere near the obligation on a defendant in summary judgment proceedings to condescend to particulars. This obligation is to ensure that where a plaintiff raises a plausible and prima facie sustainable case, a defendant can convince the court there exists a triable issue so that leave to defend is given or the application for summary judgment is dismissed. In other words, that the Defendant is expected to show a fair probability or reasonable grounds that a bona fide defence exists.”

In other words, to consider whether and to what extent a defendant has been able to condescend upon particulars will assist the court in answering the ultimate question, ie whether the defendant has shown an arguable defence, or raised a triable issue.

52. Returning to this case, to begin with, as I indicated at the hearing, it appears to me that HSBC may face difficulties in pinpointing precisely what Compliance Obligations are engaged. The whole purpose of carrying out FCRMA is to ascertain what risks arising out of Compliance Obligations HSBC (and the members of the HSBC Group) may be exposed to in handling the Accounts; what HSBC (and the members of the HSBC Group) should do in order to comply with the Compliance Obligations (if any), and to minimize the risks of beaching any of them. Unless and until the investigations are completed, it may be difficult for HSBC to identify precisely and accurately the Compliance Obligations actually engaged (if any). I suppose, at best, what HSBC may be able to disclose is what Compliance Obligations it is worried about for the time being, and why it is worried. However, in order to explain why HSBC is worried, it might be necessary for HSBC to disclose the results of the investigations conducted so far. But it may well be inappropriate and undesirable to do so. Wu stated in his affirmation that:

“At this stage, given that the Financial Crime Risk Management Activity is still ongoing, HSBC neither wishes to nor considers it appropriate to disclose full details of its investigation.” (§8)

I am not suggesting that HSBC should be excused from the obligation to condescend upon particulars. What I wish to say is that, in considering whether HSBC has sufficiently discharged its obligation to condescend upon particulars in the present context, it is pertinent to bear in mind these practical considerations.

53. Nevertheless, secondly, I shall consider whether, and if so to what extent, HSBC has failed to condescend upon particulars. I agree with Mr Chan that HSBC has not identified or pinpointed the Compliance Obligations which are allegedly engaged in this case. I also agree that when Fong referred to the Anti‑Money Laundering and Counter‑Terrorist Financing (Financial Institutions) Ordinance and the Organized and Serious Crimes Ordinance in his affirmation, he was not saying that any of these Hong Kong statutes is actually engaged in this case. However, it does not seem to be entirely accurate to say that HSBC’s explanation is wholly lacking in particulars. Wu stated in §20 of his affirmation that individuals on the SDN Lists are subject to asset freezes and that US persons (both natural and legal) are generally prohibited from transacting with such individuals, meaning any persons within the HSBC Group will face potential criminal liability if they transact with Pa (or an entity owned or controlled by him) or facilitate such transactions.

54. I am aware that Wu has not referred to any specific US law or regulation. However, what he said is supported by the press release of the US Department of the Treasury, which expressly states that:

“As a result of the Treasury’s actions, any assets of the individuals or entity designated today that are within US jurisdiction must be frozen. Additionally, transactions by US persons or with the United States involving these individuals and entities are generally prohibited.”

There is no suggestion, let alone evidence, that the above statement is not a correct description of the legal effect under US law of designating Pa on the SDN List pursuant to Executive Order 13469 (as stated in the said press release). I am satisfied that HSBC has provided some particulars supported by credible evidence that one of the Compliance Obligations that HSBC is concerned about is that a member of the HSBC Group may commit criminal offence under the US law if it transacts with Pa (or an entity owned or controlled by him) or facilitate such transactions. It must be borne in mind that under the contract between the plaintiffs and HSBC, Compliance Obligations include not merely HSBC’s obligations under Hong Kong law but also those of any member of the HSBC Group under any foreign law, which must include US law. In the circumstances, I am not convinced that HSBC has completely failed in its obligation to condescend upon particulars.

55. Thirdly, it appears to me that, in effect, Mr Chan was relying on the “failure to condescend upon particulars” point to invite me to conclude that the Accounts had been frozen for an unreasonably long period of time. In the plaintiffs’ skeleton submissions, after referring to Fong’s evidence, they submitted that:

“16. What D pointedly does not say is that it is freezing the Accounts pursuant to any particular Hong Kong or international law. D is only saying that Ps’ accounts are frozen to enable D to assess its own obligations.
17. This is remarkable, given that the first demand to unfreeze the Accounts was made in as early as 27 March 2015 … i.e. nearly 1 year ago.
18. On any view, this is an unacceptably long time for a bank to freeze its customer’s money just to determine what its obligations (whether under Hong Kong law or otherwise) are.”

56. I take the view that it is inappropriate for me to determine summarily whether HSBC has abused its contractual power, and has frozen the Accounts for a period longer than what the contract permits. In particular, I am not satisfied that HSBC’s alleged failure to condescend upon particulars supports or leads to the conclusion that HSBC does not even have an arguable case that it has been exercising its contractual power lawfully up to date. I shall explain why.

57. As I said earlier, it is arguable that HSBC’s contractual power to freeze the Accounts must not be exercised irrationally. In considering whether HSBC has acted irrationally, it is necessary to consider both the decision‑making process and the outcome.

58. I shall consider the decision-making process first. The main concern is whether the decision‑maker is acting in bad faith (or capriciously), or for an improper purpose; or has taken into account irrelevant considerations or ignored relevant considerations. Considering the decision‑making process, on the evidence before me, I am satisfied that it is arguable that HSBC’s decision is rational, and it has not abused its power:

(a) There is no suggestion that Fong or Wu are dishonest, and that their evidence is incredible or unbelievable. There is no evidential basis to support any suggestion that HSBC was acting in bad faith or dishonestly. Had there been such suggestion, I would have no hesitation to reject it.
(b) Both Fong and Wu have confirmed in their affirmations that the purpose of freezing the Accounts was to carry out FCRMA. This is a legitimate purpose under the contract between the plaintiffs and HSBC. As just mentioned, the evidence of Wu and Fong is credible and believable. And as Wu explained in his affirmation, FRCMA:
“… are necessary in order to assess and mitigate its risk in respect of the Financial Crime: HSBC needs to conduct due diligence as necessary and proportionate to the scale of the possible breach of its Compliance Obligations (as defined in the General Terms and Integrated Account Terms) and the potential impact of such breach upon HSBC’s business.” (§6)
(c) There is no suggestion, let alone evidence, that HSBC decided to freeze the Accounts for any improper purpose, or ulterior motive. Fong and Wu have not said that HSBC froze the Accounts because HSBC is investigating whether Pa (or V Fung) has committed any criminal acts as if it were a law enforcement agency.
(d) I am unaware of any suggestion that, so far, in deciding to freeze the Accounts, HSBC has taken into account any irrelevant considerations or ignored any relevant considerations.

59. I turn to the outcome. The outcome of HSBC’s decision to exercise its contractual power is that the Accounts have been frozen, and remain frozen, for almost one year. Considering the outcome, on the evidence before me, I am satisfied that it is arguable that HSBC’s decision is rational, and it has not abused its power:

(a) To begin with, it is essential to bear in mind that the court is not the decision‑maker; it would intervene if and only if the outcome is so unreasonable that no reasonable bank in the circumstances would have frozen the Accounts in such manner. There is no evidence supporting such a conclusion.
(b) One cannot consider the length of the time for which the Accounts have been frozen in isolation. It must depend on the facts on each case. As Wu pointed out in his affirmation:
“The time required to complete an investigation depends on various factors including the complexity of the case, the number of entities, jurisdictions and types of assets involved and the workload and resources of the relevant compliance departments responsible for the investigation. Invariably, some cases (such as the current case) will take longer to resolve than others.” (§7)
There is no suggestion or evidence that what Wu said is untrue or incorrect.
(c) In this case, it is necessary to bear in mind the following factors:
(i) The amounts in the Accounts are extremely substantial. Suffice for me to give one example: among other things, Pa and V Fung claim for the return of the sum of US$86,770,677.36 in Account No 627830607888.
(ii) There is an apparent lack of transparency in relation to the ownership of entities which appear to be linked to Pa and V Fung as explained by Wu.
(iii) In the course of the investigations, HSBC discovered more and more information about alleged wrongdoings and criminal acts committed by Pa. The last piece of information disclosed by Wu in his affirmation is a news article dated 27 December 2015, ie about two months ago.
(iv) The alleged wrongdoings and criminal acts committed by Pa involve serious financial crimes including corruption involving foreign governments.
(v) The alleged wrongdoings and criminal acts committed by Pa took place in many different jurisdictions.
(vi) HSBC is not merely concerned with its obligations under Hong Kong law. It is also concerned with the obligations of all members of the HSBC Group under the law as well as practice in Hong Kong, foreign jurisdictions or internationally.

60. Lastly, I take the view that I am entitled to take into account the fact that HSBC released the monies in the accounts of the 3^rd and 4^th plaintiffs upon completion of the FCRMA in relation to their accounts shortly after the commencement of these proceedings. This fact gives me an impression that HSBC does not appear to be a bank which would abuse its contractual power and freeze its customer’s account for any period of time irrationally.

61. I need to stress that I have no intention of expressing any view (provisional or otherwise) on whether HSBC has abused its contractual power in fact. This is not the function of the court in an Order 14 application. I have decided to explain in detail why I disagree with Mr Chan in order to do justice to his forceful and persuasive submissions.

62. In what Mr Chan himself described as an “emotional” speech, he said forcefully that it is utmost unreasonable and unacceptable for HSBC to freeze the Accounts, in particular, for so long. He said that, in essence, HSBC is saying to his clients “Trust me”, and that such attitude as the “Big Brother” has no place in Hong Kong; and he found it unbelievable that the largest bank in Hong Kong would behave in such high‑handed manner. I am afraid that there are the following flaws in his remarks:

(a) Accepting that what has happened must appear to be unreasonable, unsatisfactory and even unacceptable to any customer of the bank in the position of Mr Chan’s clients, this is beside the point. The question is not whether HSBC’s acts are unreasonable or unacceptable from the perspective of the plaintiffs. The question is whether HSBC’s acts are permissible under the contract between it and the plaintiffs. It is trite that even though the application of a contractual provision may turn out to be harsh and unreasonable to one of the parties, the court cannot rewrite the contractual bargain for the parties. Here, the relevant contract has conferred a wide discretionary power on HSBC to carry out FCRMA and to freeze the Accounts in the meantime for such purpose.
(b) Having said that, in law, HSBC is not entitled to do whatever it likes, or to freeze the Accounts for as long as it wishes, in these circumstances. As I explained above, the court will ensure that HSBC would not abuse its contractual power, or exercise its contractual power irrationally.

63. For the above reasons, I am satisfied that HSBC has shown a real and bona fide defence. Whether HSBC has abused its contractual power in these circumstances is a matter that requires investigations and ought to be resolved at a trial. I should add that the precise scope of the term that ought to be implied in order to ensure that HSBC would not abuse its contractual power in the present context is also a matter that should be determined definitively at the trial.

64. Although it will take some time for the case to go to trial, I am sure HSBC will understand that, on its own case, it is under a continuous legal obligation to ensure that it would not exercise its contractual power irrationally. Naturally, the longer the Accounts are frozen, the heavier the burden will be on HSBC to justify its decision at the trial.

L. R Fung and Lee’s application for costs

65. R Fung and Lee ask for costs on the ground that they have been wholly successful in their claims because HSBC released the funds in their accounts shortly after the issuance of the writ herein.

66. As a matter of procedural law, and bearing in mind that this is an Order 14 application, I have reservations whether I can and should entertain their application for costs when they need not apply and have not applied for any summary judgment.

67. Nevertheless, in any event, I am not prepared to accede to their application for the following reasons. As I said at the hearing, the mere fact that HSBC released the funds back to them shortly after the commencement of these proceedings does not necessarily mean that HSBC did not have the power to freeze their accounts in the first place. In fact, their accounts had only been frozen for a relatively short period of time. Whether HSBC had lawfully frozen their accounts up to the time the funds were released is a matter that cannot be resolved summarily for reasons similar to those I set out above in relation to the claims made by Pa and V Fung.

68. Hence, I take the view that the issue of costs relating to the claims of R Fung and Lee against HSBC should be resolved at one go in the trial.

M. Conclusion

69. For the above reasons, I refuse to grant summary judgment to Pa and V Fung. However, I will not dismiss the Order 14 summons as suggested by Ms Ismail. Before commencing these proceedings, HSBC has not even told the plaintiffs that their accounts had been frozen because it was engaged in FCRMA in relation to those accounts. I take the view that the appropriate order that I shall make is to give unconditional leave to defend to HSBC.

70. Under Order 14, rule 6(1)(a) of the RHC, I shall give directions as to the further conduct of the action. Having considered Order 18, rule 2(1), Order 18, rule 3(4) and Practice Form No 56, the directions that I give are as follows:

(a) the defendant do file and serve a defence and counterclaim (if any) within 28 days hereof;
(b) the plaintiffs do file and serve a reply and defence to counterclaim (if any) within 28 days thereafter;
(c) each party do mutually exchange and file in court their respective List of Documents within 21 days thereafter;
(d) there be inspection of documents within 14 days of the service of the lists;
(e) each party do mutually exchange and file in court signed statements of its witnesses as to facts within 28 days after the expiry of the time for the inspection of documents set out in paragraph (d) above, such statements do stand as evidence‑in‑chief unless the trial judge otherwise directs;
(f) the plaintiffs do take out a summons to apply to set the case down for trial upon the completion of the procedural steps in accordance with the timetable set out above (or such time as the court may extend).

71. As to costs, I shall make a costs order nisi that the costs of the Order 14 summons be in the cause with a certificate for two counsel for this hearing, to be taxed if not agreed. I note that the plaintiffs were represented by three counsel. I am grateful to the able assistance of all counsel appearing before me but I am not convinced that I should give a certificate for three counsel in this case. The costs order nisi shall become absolute unless, within 14 days hereof, any party makes written submissions on costs (in such event, I shall dispose of the issue on costs on paper).

	(Paul Lam SC)
	Deputy High Court Judge

Mr Warren Chan SC and Mr Bernard Man SC, leading Mr Justin Ho, instructed by Anthony Siu & Co, for the plaintiffs

Ms Roxanne Ismail SC, leading Mr Val Chow, instructed by Freshfields Bruckhaus Deringer, for the defendant

PA SAM NANG AND OTHERS v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD

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