RE ROBIN POTTS QC

HCMP 4108/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4108 of 1999

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J U D G M E N T

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Chan, CJHC :

This is an application by Mr Robin Potts QC for admission to the Hong Kong Bar for the purpose of a particular case under section 27 of the Legal Practitioners Ordinance, Cap.159. The Department of Justice has no objection but the Bar opposes the application.

2. The applicant relies basically on two grounds for the present application. First, the case in which he is to be briefed is a case of unusual difficulty and complexity and secondly, this is a case which involves the determination of some legal principles which may have an impact on the development of local jurisprudence.

3. Those instructing the applicant act for Commerzbank in a High Court action against Peregrine Fixed Income Limited (Peregrine) which is now in liquidation. The allegations are briefly as follows. On 8 January 1998, Commerzbank and Peregrine entered into a swap agreement whereby Commerzbank would on 9 January 1998 pay to Peregrine DM73 million in consideration of Peregrine on the same day paying to Commerzbank US$40 million. On the morning of 9 January, Commerzbank paid DM73 million to Peregrine which was then transferred to an overseas bank, probably pursuant to an ISDA Master Agreement. In the afternoon, certain events concerning Peregrine and other companies within the group occurred. Peregrine failed to pay the US$40 million to Commerzbank. It is alleged that Peregrine had no intention or ability to honour its obligation under the swap agreement and yet accepted the payment by Commerzbank. It is also alleged that the conscience of Peregrine was impinged through the knowledge of the directors. In these circumstances, it would be unconscionable for Peregrine to retain the DM73 million which would be subject to a constructive trust in favour of Commerzbank.

4. In the defence which was subsequently filed by Peregrine, these allegations are denied and it is pleaded that there was no breach of trust. It is further denied that there was any constructive trust and that there was any sum or other asset into which Commerzbank can now trace or in respect of which Peregrine is liable to account to Commerzbank.

5. The applicant is regarded as an expert in this area of the law. There is no dispute that he is a Queen's Counsel of high standing and ability. He has been briefed at the outset. Since February 1998, he has given advice to the solicitors acting for Commerzbank. It is only fair to say that upon his advice, Commerzbank had applied for and obtained leave from the Companies Court to commence proceedings against Peregrine. I am told that the case has now reached a stage where a trial date is necessary and hence solicitors for Commerzbank are anxious to get the services of the applicant for the trial and matters relating thereto as early as possible.

6. Mr Sarony SC, counsel for the applicant, submits that the law on constructive trust is difficult and complex. There were recent decisions of the English Court of Appeal and House of Lords on this area and it is now in a state of flux and evolution. Counsel also submits that this case involves a determination on points of law which may have an impact on the local jurisprudence.

7. On the other hand, Mr Ismail, counsel for the Bar, submits that this is not a case of unusual difficulty or complexity since the law relating to constructive trust has been settled in the House of Lords case of Westdeutsche Landebank [1996] AC 669. Counsel argues that this case involves the application of the settled legal principles on the disputed facts and does not need a determination by our highest court. It is also submitted that the applicant's solicitors have not shown that no local senior counsel of appropriate skill and experience can be found.

8. I have considered the submissions of counsel and the materials placed before me including the judgments of Madam Justice Yuen who dealt with the application for leave to commence proceedings against Peregrine. In my view, one of the questions involved in this case is whether Peregrine's conscience had been so impinged as to have a constructive trust created in the circumstances. This, I think, is a question of mixed law and fact. It would require extensive discovery and vigorous cross-examination in order to ascertain the facts. I am given to understand that this case is complicated by the existence of an International Swap Derivatives Association (ISDA) Master Agreement between Peregrine and the First National Bank of Chicago. This bank had in fact been involved in the discussion of an operation with the intention of saving the Peregrine group. Further, in my view, this case also requires a thorough investigation and analysis of the legal principles as to what would amount to an impingement of the conscience of the company and the extent of such impingement which is sufficient or necessary to give rise to a constructive trust. The law on constructive trust is in my view far from straightforward or settled. As pointed out by Lord Goff, this area of the law is a matter of great difficulty. Particularly the differences between a vogue remedial constructive trust and an institutional and substantive constructive trust, together with the consequences of such differences are difficult points of law which may need a determination by the highest court.

9. In my view, the swap agreement is a special type of transaction which clearly involves international elements. This is an area of the law in which the experience and contribution of overseas experts would be invaluable. The issues involved will grow in importance as commercial transactions of this type increase in number and complexity in Hong Kong.

10. Both counsel fairly accept that even if this case is one of unusual difficulty and complexity, it does not mean that instructing solicitors need not look for local counsel first before turning overseas. As I have said in another case, the fact that a case is unusually difficult and complicated simply means the pool of local counsel would be smaller. If, on the other hand, it is not a case of unusual difficulty or complexity, it would normally be quite difficult for the solicitors to show that there is no local counsel of appropriate skill and experience available. With regard to the attempts made by the applicant's solicitors to look for local counsel of appropriate skill and experience, I would accept on the evidence of Mr Jojo that the attempts made were indeed genuine. The only criticism which may perhaps be levied is that having briefed Mr Potts to advise on the matter at the very outset, solicitors might have set the requirements in the search for local senior counsel unduly high. But this, in my view, is only one of the factors to be considered.

11. Having looked at all the matters before me, I take the view that the case in which the applicant is to be briefed to appear is one of unusual difficulty and complexity. It would also involve a determination of some difficult points of law which are important to Hong Kong as an international financial centre. Such determination may have an impact on the development of local jurisdiction.

12. For these reasons, I am satisfied that it is in the public interest to admit Mr Potts. The application is therefore granted.