AKBANK T.A.S. v. MAINFORD LTD AND OTHERS

HCA 3264/2016

[2018] HKCFI 363

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3264 OF 2016

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REASONS FOR DECISION

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The application

1.  This is the plaintiff’s application by summons of 22 January 2018 for production by the Standard Chartered Bank (“SCB”) of certain banker’s records in relation to all accounts maintained with it by a company in the name of Real Friendship Limited (“Real Friendship”).  SCB is not a party to the action.  The present application is made pursuant to section 21 of the Evidence Ordinance, Cap 8 and the common law.  SCB has been notified of the application.  It did not seek to be heard, but has indicated that it will abide by any order which the court may make.

The facts in gist leading to the present application

2.  In gist, the plaintiff is the victim of a large-scale cyber fraud that first started on or about 7 or 8 December 2016.  It is the plaintiff’s case that some unidentified perpetrators, by divers fraudulent means, were able to cause funds in accounts which the plaintiff maintained with two banks to be transferred out through the international banking system to multiple recipient accounts in various jurisdictions.  Such jurisdictions included Hong Kong.  In total US$100,309,972 was so transferred out and misappropriated.  Evidence that has so far been gathered shows a strong case that the proceeds of the fraud have been diverted and laundered through layers of bank accounts maintained by many different companies and entities in different jurisdictions.  

3.  Since discovery of the fraud, the plaintiff has sought and been granted a number of Mareva injunctions and discovery orders similar to the one which it is seeking before me.  With the benefit of such orders (the latest of which being the Order dated 25 October 2017 granted by Deputy Judge Seagroatt), and in so far as relevant to the present application, the plaintiff in early December 2017 became aware of the involvement of Real Friendship.  It discovered that on 8 December 2016, sums in the total amount of approximately US$2.19 million were transferred from a bank account maintained by Real Friendship with the SCB to an account maintained by the 5^th defendant with the DBS.  One day later, two outward transfers in the total sum of US$2.19 million were effected by the 5^th defendant from that DBS account through a money exchanger to two third parties, one of whom being the sole director and shareholder of the 2^nd defendant.  It is noted that according to the pleaded case of the plaintiff, the 5^th defendant was one of the first level recipients of the fraudulent transfers, and received on 8 December 2016 from one of the plaintiff’s account six sums in the total amount of US$3,297,328.97.  It should further be noted that despite service of the Writ herein upon the 5^th defendant, no acknowledgement of service has been filed by it, and default judgment (in the sum of US$2,814,316.07, being 5 of the 6 pleaded transfers) and garnishee order absolute have been entered against it.  The 2^nd defendant was another first level recipient according to the plaintiff’s pleaded case.  Default judgment has also been entered against it.

4.  In the circumstances, the plaintiff makes the present application for further discovery from SCB of records in relation to Real Friendship so as to, amongst other things, ascertain the source(s) of those funds that it had transferred to the 5^th defendant.

Service of the application

5.  Section 21 of the Evidence Ordinance provides inter alia that:

“ (1) On the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings.

(2) An order under this section may be made either with or without summoning the bank or any other party, and shall be served on the bank 3 clear days before the same is to be obeyed, unless the court or judge otherwise directs.

It is clear from the wording of section 21(2) that there is no statutory prerequisite or requirement for an application pursuant to section 21 to be served on the account holder.  Indeed, an order under the section may be made “without summoning … any other party.”

6.  In Chan Wai Sun & Anor v Law Shiu Kai [2003] 3 HKLRD 954, Chu J (as she then was) observed at paragraph 15 of the judgment that:

“ On the question of notice of this application, the authorities had considered that it is necessary to give notice of the application to both the bank and the holder of the account. In the present case, the summons and the affirmation had been served on Hongkong Bank, and it has no objection to it. In the case of General Profits, the difficulty is that no information about it can be obtained from the public records. It is simply not possible to serve on General Profits or to give due notice of the present application, a fact that the court has to bear in mind when deciding in what way it should exercise its discretion.”

7.  The authorities which Chu J had in mind would have included Arnott v Hayes (1887) 36 Ch D 731, where Cotton LJ, having considered the wording of section 7 of the Bankers’ Books Evidence Act, 1879 (which is materially the same as section 21 of our Evidence Ordinance), observed at page 736 of the judgment that:

“ Various objections are taken to the order. The first was that the order ought not to have been made ex parte. … I am of opinion that the [Bankers’ Books Evidence Act, 1879, s.7] does give the Judge such jurisdiction. It says that the order may be made ‘either with or without summoning the bank or any other party.’ It is urged that ‘party’ here does not mean ‘party to the action,’ but it must include parties to the action. There is, therefore, power to make the order ex parte, though under ordinary circumstances I think it better that the person whose account is to be looked at should be served.”

8.  It will no doubt be fairer to serve an application under section 21 upon the person whose account is to be inspected.  However, the bottom line remains that such service is not a statutory requirement, and the preference suggested by Cotton LJ was qualified by the words “under ordinary circumstances.”

9.  In the present case, as mentioned above, SCB has been notified of the application.  It did not seek to be heard.

10.  The 5^th defendant has also been served with the summons and the affirmation in support.  It did not appear.

11.  Real Friendship was dissolved by way of deregistration on 1 September 2017.  Notice of this application could not be served upon it.  But as I have observed above, service of the application upon Real Friendship is not a statutory prerequisite.  I find that its deregistration constitutes a special circumstance which justifies the court in proceeding with the application despite the fact that it has not been served with the summons.  The fact that Real Friendship has not been served is however a fact relevant to my exercise of discretion, which I will come back to.  I note that Chu J in Chan Wai Sun in effect adopted the same approach.  I however add that the Companies Registry has as a matter of prudence been served with the application papers, and no objection has been heard from it.

Consideration of the substantive application

12.  Whilst Mr Ng has submitted to me a number of authorities said to be relevant to the test to be applied in applications of the present nature, I note that most of them relate to cases where the underlying claims were proprietary in nature.  In that type of cases [1], the court will be more disposed towards exercising its discretion in allowing inspection of bankers’ record. The reason is obvious.  The party seeking inspection is trying to trace properties which in equity belong to him.  However, in the present case, when obtaining judgments against some of the defendants, including that against the 5^th defendant, the plaintiff abandoned its proprietary claims.  That being the case, those authorities have no direct application here.

13.  On the other hand, I find the case of Chan Wai Sun relevant and helpful.  In that case, Chu J (as she then was) adopted and applied the approach explained by Barnett J in Assets Investment PT Ltd v The United Islamic Investments Foundation (HCA 4392/1993, 21 January 1994, unreported), that:

“ In my judgment, the matters which must be demonstrated to a court before it can consider making an order under section 21 of the Evidence Ordinance are that the other party has a bank account and that there is a probability that that account will contain material germane to an issue which is to be tried between the parties. Put shortly, perhaps, the test is relevance.”

14.  At paragraph 9 of her judgment in Chan Wai Sun, Chu J further observed that:

“ The authorities have stated that the power for inspection under s.21 of the Evidence Ordinance should be exercised with great caution. In my view, that must be right especially if the inspection is directed at an account held in the name of party who is not a party to a proceeding.”

This I entirely agree.  The privacy of the account holder, and banker / customer confidence have to be respected.  Chu J then went on to observe:

“ It has been said that the power should only be exercised where it is clearly established that the account is really that of the party to the proceedings or that the party is so closely connected with it that it would be evidence against him: South Staffordshire Tramways Co v Ebbsmith [1895] 2 QB 669 at p.675.”

The relevant part of the judgment in South Staffordshire Tramways reads as follows:

“ With regard to the application for inspection of the banking account of the Dickinson Tramway Appliance Company, in that case also I think it clear that the Court has jurisdiction to order such an inspection for the reasons given by Mathew J. in Howard v. Beall; but I think that is a jurisdiction which ought to be exercised with great caution. The application is for an order to inspect before the trial an account which is primâ facie not that of a party to the suit. I am disposed to think that the rule of conduct which the Court would observe in relation to such an application—though it is impossible to define it exhaustively‌—‌would be that, if the Court were satisfied that in truth the account which purported to be that of a third person was the account of the party to the action against whom the order was applied for, or that, though not his account, it was one with which he was so much concerned that items in it would be evidence against him at the trial, and there were no reason for refusing inspection, then they might order the inspection; but, unless they were so satisfied, they ought not to do so.” (pp 674 – 675, per Lord Esher MR, emphasis added.)

15.  Whilst those italicized criteria were no doubt correct at the time when the judgment was pronounced, I have reservation as to whether it has become too restrictive in modern time.  These days, bank accounts in the international banking system can be exploited to syphon off and launder funds even though there is absolutely no connection between the holders of the accounts involved, and when one holder may not at all be concerned with the operation of the other accounts.  The imposition of such stringent and restrictive criteria in my view may unnecessarily fetter the court’s discretion under section 21.  In my view, the pivotal test should be that, and should remain that, of relevance as explained by Barnett J in Assets Investment.

16.  I have read the 14^th Affirmation of Mr Desmond Steward filed in support of the present application, and the affirmation of service of Mr Fung Wai Man.  I have heard submissions made by Mr Ng on behalf of the plaintiff.  I approach the application with great caution.  I note the scale of the fraud, that the 2^nd and 5^th defendants were according to the pleaded case of the plaintiff two of the first level recipients, and that default judgments have been entered against them.  I note the close proximity in time between the fraudulent transfers from the plaintiff’s accounts on the one hand and the transfers from Real Friendship to the 5^th defendant on the other.  I further note the outward transfers by the 5^thdefendant on the following day, and that one of the transfers was to the sole director and shareholder of the 2^nd defendant.  The information sought is clearly relevantto the fundflow of the proceeds of the fraud, to the relationship between Real Friendship and the 5^th defendant, and is potentially admissible evidence against both of them.  When exercising my discretion, I have considered the fact that Real Friendship has been deregistered and could not be served with the summons.  I have considered the importance of the maintenance of banker/customer confidence.  On the other hand, neither the 5^th defendant nor Real Friendship is going to be irreparably harmed or even inconvenienced by the order.  I put in the balance also the important policy consideration that, Hong Kong being an international city, the law should be facilitative but not obstructive when a victim of a cybercrime (like what the plaintiff is according to its case) comes to our courts for lawful redresses against the true culprits.  On the facts of this case, the balance tips clearly in favour of me exercising my discretion granting the order.  I am in all the circumstances satisfied that an order in terms of the summons ought to be made.

17.  I make no order as to costs.