RE APPLICATION OF SHÂN WARNOCK-SMITH QC

HCMP 226/2018

[2018] HKCFI 689

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 226 OF 2018

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REASONS FOR JUDGMENT

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Introduction

1.  This was an application by Mrs Shân Warnock-Smith QC for admission as a barrister of the Hong Kong Special Administrative Region pursuant to section 27(4) of the Legal Practitioners Ordinance (Cap 159).  The applicant sought admission for the purpose of advising, preparing and appearing on behalf of the defendants, in the further conduct of proceedings between Mr Zhang Hong Li and others as plaintiffs and DBS Bank (Hong Kong) Ltd and others as defendants. Such further conduct of the proceedings included a pending appeal in the Court of Appeal fixed for a 4‑day hearing in May this year, any applications for leave to appeal to the Court of Final Appeal and any substantive appeal to the Court of Final Appeal.

2.  The application was opposed by the Hong Kong Bar Association and the Secretary for Justice.  At the conclusion of the hearing, I dismissed the application, and indicated that I would give reasons for doing so later.  These are the reasons for my decision.

3.  The underlying legal proceedings involve a dispute in respect of private banking, investment management and trust services provided by DBS Bank and its affiliates to Mr Zhang and his family.  The plaintiffs were Mr Zhang (the 1^st plaintiff), his wife Ji Zhengrong (the 2^nd plaintiff), the replacement trustees of the Amsun Trust (the 3^rd plaintiff) and the BVI-incorporated investment company of the Amsun Trust, Wise Lords Limited (the 4^th plaintiff).  The defendants consisted of the bank (the 1^st defendant), its trust management subsidiary (the 2^nd defendant), its corporate secretarial subsidiary (the 3^rd defendant), its BVI corporate management subsidiary (the 4^th defendant) and three of its employees, the head of its Trust and Corporate Services division (the 5^th defendant), the executive head of its Private Banking division (the 6^th defendant) and a vice‑president and relationship manager in its Private Banking division (the 7^th defendant).

4.  The litigation had its origins in the lead up to the 2008 global financial crisis.  In brief, the 1^st and 2^nd plaintiffs were private banking clients of the bank and its subsidiaries.  They entered into an investment and asset management structure involving the use of a Jersey trust (ie the Amsun Trust), the sole asset of which was the 4^th plaintiff, which made and held investments using funds and assets provided by the 1^st and 2^nd plaintiffs who were the settlors of the trust, and were, along with their two children, its beneficiaries.  The 2^nd plaintiff was appointed to be the 4^th plaintiff’s investment adviser, and the trial judge, Bharwaney J, found that she took a very active role in the investment decisions of the 4^th plaintiff.  The 2^nd defendant was the trustee of the Amsun Trust, the 3^rd defendant provided corporate secretarial support to the trust structure, the 4^th defendant was the corporate director of the 4^th plaintiff, and the 7^th defendant was the relationship manager for the 1^st and 2^nd plaintiffs.

5.  The plaintiffs advanced a wide range of claims against the defendants.  The main claims related to mis-selling of financial products by the 1^st, 5^th, 6^th and 7^th defendants, alleged breaches of duties by the 2^nd defendant as trustee of the Amsun Trust, by the 4^th defendant as director of the 4^th plaintiff, and by the 3^rd defendant in the course of providing its services to the trust structure.

6.  The trial involved the consideration of events from 2003, just before the establishment of the Amsun Trust, until late 2008. In that time, the Amsun Trust, through the 4^th plaintiff and at the direction of the 2^nd plaintiff, invested aggressively, first in mutual funds, and later in foreign exchange products and currencies, making use of increasingly large credit facilities advanced by the 1^st defendant to the 4^th plaintiff (such facilities having been applied for at the direction of the 2^nd plaintiff).

7.  Following a 24-day trial, at which some 70 box files consisting of over 18,000 documents were placed before him, Bharwaney J delivered a judgment running to 379 pages, by which he dismissed many of the claims, but found that the 2^nd defendant, as trustee of the Amsun Trust, and the 4^th defendant, as a director of the 4^th plaintiff, had acted with a serious or flagrant degree of negligence in allowing the 4^th plaintiff to purchase US$83 million worth of Australian Dollars with 13 days in late July to early August 2008, to increase its credit facilities with the 1^st defendant from US$58 million to US$100 million in late August 2008, and to purchase three Australian Dollar decumulators in August 2008.  All of these transactions had been entered into at the recommendation (and apparent insistence) of the 2^nd plaintiff.  In the light of these findings, Bharwaney J held that the 2^nd defendant was liable to the 3^rd plaintiff for failing to discharge the “high level supervisory duty” which he held that it owed in respect of investments made, and facilities obtained, by the 4^th plaintiff.  The judge also found that the 4^th defendant, as director of the 4^th plaintiff, was in breach of its duties as a director to act in the 4^th plaintiff’s best interests, and with reasonable care, skill and diligence in the performance of its functions.  Having found the 2^nd and 4^th defendants liable to pay equitable compensation to the 3^rd and 4^th plaintiffs respectively, the judge went on to set out the approach to the quantification of such equitable compensation.

8.  The 2^nd and 4^th defendants have appealed against the decisions on liability, and the approach to assessing quantum.  In a separate appeal, the 3^rd and 4^th plaintiffs are appealing against the dismissal of some of their other claims, and in consequence all the defendants will be involved in the forthcoming appeals.

9.  The principles applicable to the ad hoc admission of overseas counsel are now well established.  They were recently summarised by McWalters JA in Re Perry QC [2016] 2 HKLRD 647, at paragraphs 24 to 26.  It is not necessary to repeat them here. It suffices to note that in coming to a decision, the court is concerned to do what is in the public interest, in all the circumstances of the case.  The public interest has many facets, but a number of factors will commonly come into play when making this assessment.  These include the need to maintain a strong and independent local bar, which militates against the admission of overseas counsel.  However, there are countervailing matters that will point in favour of admission – those relevant here include the desirability of admitting specialist overseas counsel in cases which involve the development of legal principles which may substantially impact on the development of local jurisprudence, or in cases of unusual difficulty or complexity.

10.  In this case, Mr Burns SC (who, with Mr Abraham Chan SC and Ms Bonnie Cheng represented the defendant the defendants at the trial, and would appear with the applicant if she were admitted) appearing for the applicant, argued that the appeal was one which was likely to have a substantial impact on the development of local jurisprudence, and was also one of unusual complexity and difficulty.  It was therefore, he said, an eminently suitable case for the admission of overseas counsel, particularly as the applicant’s admission would not have any detrimental effect on the development of the local bar (as he, Mr Chan and Ms Cheng would continue to be instructed to appear for the defendants), and the applicant was, as her curriculum vitae demonstrated, clearly very well qualified, and highly experienced in the areas of law which would arise for consideration on the appeal, and any further appeal to the Court of Final Appeal.  Mr Burns also submitted that it was highly likely that the case would go to the Court of Final Appeal whichever way it was decided in the Court of Appeal, and that this was a further reason why the applicant should be admitted.

11.  Mr Maurellet SC, for the Hong Kong Bar Association, and Ms Frances Lok, for the Secretary of Justice, disagreed.  In their submission, this was not a case where there was likely to be any substantial impact on the development of local jurisprudence, nor was it (although clearly a very heavy case of some factual and legal complexity) unusually difficult or complex. They also submitted that it was not necessarily a case that would reach the Court of Final Appeal, and that a further application could be made (and would be considered on its merits then) should that actually happen.

12.  I shall consider first the suggestion that the case is likely to have a substantial impact on the development of local jurisprudence.

13.  Mr Burns suggested that although there had, following the 2008 global financial crisis, been a series of cases involving mis-selling of financial products by banks, this was the first case in which the court was required to adjudicate on the nature and extent of the duties of a professional trustee and corporate director in respect of a trust and company set up for the purposes of investment.  He said that the structure adopted in this case, with an overseas incorporated investment vehicle held by a trust governed by foreign law (frequently, as in this case, Jersey law), in which one of the settlors was investment adviser to the investment vehicle (thus retaining ultimate investment control) was very commonly used by high net worth families, both in Hong Kong and elsewhere.  It would therefore be of widespread interest and relevance both in Hong Kong and other jurisdictions, in relation to the until now unconsidered questions of the scope of the duties owed by the trustees and the directors of the investment vehicle, and in particular the degree of control that they should be expected to (and could) exercise over the investment adviser driving the investment decisions (who would, as noted, commonly be one of the settlors).   In these respects, it could (according to Mr Burns) fairly be expected that the ultimate resolution of the dispute through the appellate process would have a substantial impact on Hong Kong’s jurisprudence, which would be of interest both in Hong Kong and other common law jurisdictions in which such investment and trust structures were in common use.

14.  With respect, I do not think that this is the case.  On the contrary, as Mr Maurellet pointed out, the trust in the present case was governed by Jersey law, and the investment vehicle was a BVI company. Thus, Hong Kong law did not apply either to the duties of the trustee, or to the duties of the director of the investment vehicle.  It was therefore inherently unlikely that the determination of the case would make any, let alone any substantial, impact on Hong Kong jurisprudence.  Further, it could not be said that it was likely that the determination of our courts as to the duties and liabilities of the trustee or director in this case would be of particular interest in either of those, or other common law, jurisdictions, as that determination would be heavily based (as was apparent from the judgment) on expert evidence as to foreign (Jersey) trust law, and the interpretation of the relevant trust deed.  The determination of the content of Jersey law was a question of fact, dependent on the expert evidence placed before the court, and the interpretation of the trust deed would turn on the specific terms of that document.  In a different case, where the terms of the trust deed might be different, the decision here would be of little relevance.  The same would be true in respect of the findings as to Jersey law and their application to this case, as they would be dependent on the evidence of such law, which might again be different in another case.

15.  Quite apart from the reasons explained by Mr Maurellet, with which I agree, I do not think that it can be said that the case is likely to substantially impact the development of local jurisprudence for more fundamental reasons.  First, it seems to me that the question of the duties of the 2^nd defendant will depend on the interpretation of the relevant provisions of Jersey trust law, and on the interpretation of the trust deed applicable to the Amsun Trust.  Even if the Jersey law aspect is put to one side, these issues do not appear to raise questions of statutory interpretation or construction which can be said to be likely to lead to a significant or substantial development in the jurisprudence relating to these topics.  On the contrary, it appears to me that it is very likely that these issues would be determined by the application of well-established legal principles to the circumstances of this case.  The same is true in respect of the duties owed by the 4^th defendant as a director of the investment vehicle – on the assumption that BVI law is the same as Hong Kong law (no evidence to the contrary having been deployed at the trial), the questions arising in relation to the existence and scope of the 4^th defendant’s duties appear to turn largely on the application of settled law in relation to the factual situation here.  The mere fact that the situation may be a novel one, in the sense that it involves a factual scenario that has not previously been considered by the courts, does not mean that it will necessary involve a substantial development of the existing jurisprudence.  In my view, this issue too is likely to involve no more than an application of existing legal principles to the situation at hand.

16.  For the foregoing reasons, I do not think that it has been established that the case is likely to have a substantial impact on the development of local (or common law) jurisprudence.  This factor is therefore not one which is available to support the application for admission.

17.  For similar reasons, it seems to me that it cannot be said that this case is inevitably (or almost inevitably) going to reach the Court of Final Appeal for consideration.  Given the fact and context specific nature of many of the issues that arise, and the absence of identifiable areas of potential development of the law (whether in relation to statutory interpretation, construction, trustee’s duties or director’s duties), it is far from clear whether or not the case will reach our highest court, however much the losing party in the Court of Appeal might wish it to do so. If, in the light of the Court of Appeal judgment, some question of great general and public importance can be identified, it will be open to the defendants (or the plaintiffs) to seek the admission of overseas counsel at that stage, and any such application will be considered on its merits then.

18.  Thus, what is sometimes termed the “CFA factor” is, in my view, likewise unavailable to support the application.

19.  The other matter relied upon by Mr Burns to justify the applicant’s admission was the alleged unusual difficulty and complexity of the case.  Mr Burns emphasised the length of the trial, the volume of documentation and witness evidence, and the complexity of the factual aspects of the case, involving as it did frequent communications, and a very large number of transactions entered into, over a period of some five years. He also suggested that questions such as: whether the 2^nd defendant had a duty of supervision over the 4^th plaintiff’s investments, and had a duty not to act grossly negligently; whether there was in fact gross negligence established against the 2^nd defendant; whether the 3^rd defendant acted grossly negligently, and should be regarded as the agent of the 4^th defendant; whether the 2^nd and 4^th defendants could invoke various exclusionary and indemnity provisions in their favour; whether the 3^rd plaintiff’s claims (as trustees) were irrecoverable as being reflective loss; and the appropriate approach to equitable compensation, were all matters of great difficulty and complexity.

20.  I would readily accept that this is a heavy and complex piece of litigation.  However, the question of the degree of difficulty and complexity, and whether it is such as to qualify as a factor in favour of the admission of overseas counsel, is to some extent at least, a matter of feel.  Despite Mr Burn’s submissions, I am not persuaded that the case is one which is so unusually heavy, difficult or complex as to justify the admission of overseas counsel.  As I have already indicated in the context of the other grounds relied upon, the case turns more on the application of fairly well-established legal principles to the facts of the case, and this is a further reason why I do not feel able to say that it is of the requisite degree of difficulty or complexity.

21.  I would also add that while this was undoubtedly an onerous and complex trial (although not necessarily one which would have justified the admission of overseas counsel), it might well be thought that on appeal, when the arguments will be more focussed and precisely targeted, the degree of difficulty and complexity might turn out to be (at least) somewhat less.  In other cases, such as Re Dinah Rose QC and Re Monica Carss-Frisk QC (unreported, Kwan JA, HCMP 350 and 415/2017, 5 April 2017) where the key issue is a matter of great legal difficulty and real novelty, there might be no significant difference between the level of complexity and difficulty at first instance and appeal, but that is not, I think, the position here.

22.  Thus, I am also unable to agree with Mr Burns that the admission of the applicant can be justified on the basis of unusual difficulty or complexity.

23.  It follows from this that none of the positive factors in favour of admission put forward on behalf of the application have been made out.  Although I would readily accept that the applicant is of sufficient eminence and ability to be suitable for admission in an appropriate case, and that (on the basis that I was assured that all three counsel previously engaged would continue to be instructed for the appeal) there is no reason to think that the strength and development of the local bar would be adversely affected by her admission, these negative factors are insufficient to justify the making of an order for admission in the absence of any positive public interest reason for doing so.

24.  I therefore dismissed the application, and in accordance with the usual practice, made no order as to costs.