XCHRX THE HONGKONG CHINESE BANK, LTD. v. MARY YU PIK MAN AND OTHERS

HCA 8372/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8372 OF 2000

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REASONS FOR DECISION

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Introduction

1. The Plaintiff is a licensed bank. D1 and D3 were its former employees:-

(a) D1 was the assistant branch manager of the Plaintiff's Lippo Centre Branch;

(b) D3 was the branch manager of the Plaintiff's Central Branch.

D2 is D1's elder sister and used to work as an account executive for a stock-broker called "Prosperous Securities Limited" ("Prosperous"). Prosperous has a bank account with the Plaintiff's Lippo Centre Branch. One Madam Huang Li, Lillian ("Mdm Huang") was one of Prosperous' customers but she was not the Plaintiff's customer.

2. The Plaintiff brings this action against the 3 Defendants for:-

(a) (against D1 and D3) damages for breach of fiduciary duty and/or breach of duties under their respective employment contracts;

(b) (against D1 and D3) damages for breach of trust;

(c) (against D2) damages for dishonestly assisting D1 and D3 in their breach of trust;

(d) (against all Defendants) damages for conversion;

(e) (against all Defendants) an indemnity against such damages as the Plaintiff may be held liable (and/or may reasonably pay) in respect of the claim of Prosperous.

3. The facts alleged by the Plaintiff to give rise to the said claims were as follows. 3 cheques respectively in the sums of $896,436 ("the 1st cheque"), $352,597.66 ("the 2nd cheque") and $517,051.30 ("the 3rd cheque") were drawn by Prosperous (on the Plaintiff) and payable to Mdm Huang. Instead, they were paid into D2's account with the Plaintiff. The Plaintiff alleges that D2 was not entitled to the total sum of $1,766,084.96 ("the Sum") and she converted the Sum (which, according to the Plaintiff, was already withdrawn by D2). The Plaintiff further alleges that D1 and D3 dishonestly assisted D2 to do so in essence by abusing their former positions in the Plaintiff.

The Application to Discharge the Ex Parte Mareva Order

4. Further to the commencement of this action, on 20 August, 2000, the Plaintiff obtained an ex parte Mareva injunction order against the Defendants enjoining them from disposing of assets up to $2 million (being the Sum together with interest).

5. At the hearing on 1 September, 2000, Mr Hung appeared for D1 and Ms Munro appeared for D3. D2 was served at her last known address but she failed to appear. D1 and D3 argued that the ex parte order ought to be discharged but did not oppose the adjournment of the Plaintiff's summons for the continuation of the ex parte order. At the end of that hearing, I refused their application for the discharge of the order. The following are the reasons.

6. The application to discharge was put forth on 2 main grounds:-

(a) the Plaintiff has failed to establish a good arguable case;

(b) the Plaintiff has failed to make material disclosure.

7. Quite a number of affirmations were filed after the ex parte order was granted. However, the parties agreed that I should only consider the Plaintiff's affirmation filed in support of the ex parte application, namely, the affirmation of Mr Lewis Lai dated 20 August, 2000 ("the P's affirmation") and need not consider the other affirmations.

Good Arguable Case

8. One of the matters referred to in the P's affirmation was that Prosperous threatened to sue the Plaintiff for the loss of the Sum. In short, the argument advanced by D1 and D3 regarding this part of their application was that even on the Plaintiff's case, it does not have a claim against the Defendants.

9. Mr Hung argued that Prosperous can only sue the Plaintiff for the conversion of the 3 cheques. The Plaintiff will have a good defence to such a claim by relying on ss. 83 (Protection of bankers paying unindorsed or irregularly indorsed cheques, etc.) and 86 (Protection of bankers collecting payment of cheques, etc.) of the Bills of Exchange Ordinance, Cap. 19. Hence, no loss will be suffered by the Plaintiff. The claim for an indemnity will fail and therefore there was no basis for a Mareva order to be made.

10. For the reasons given below in this paragraph, I do not find it necessary to go into the merits of this argument. Assuming that the Plaintiff does have a good defence against Prosperous' claim, this does not mean its other claims will fail. As stated above, there are claims based on alleged breaches of fiduciary and/or contractual duties, breach of trust and act(s) of conversion. These are claims brought by the Plaintiff in its own right. I do not understand Mr Hung's basis for arguing that the Plaintiff has not established a good arguable case was related to these claims. Even if he had, I would have found that such a case has been established.

11. Criticisms were levied against para. 12 of the P's affirmation. This paragraph alleges that D3 cleared the 1st cheque at D1's request. D1 and D3 complained this paragraph lacks particulars. I do not understand why an alleged lack of particulars of a paragraph in an affirmation should be relevant to the discharge of the ex parte order. I agree that this is a brief paragraph but it has to be read in the context of the P's affirmation. When so read, all the necessary ingredients in support of the Plaintiff's claims are set out. Thus, I do not find this alleged lack of particulars warrant the ex parte order to be discharged.

12. Ms Munro in essence adopted Mr Hung's submissions. The only additional point she made was that the Plaintiff's case against D3 was based only on the 1st cheque. That may be the case but I consider the Plaintiff has (through the P's affirmation) nevertheless been able to establish a good arguable case against him.

Material Non-disclosure

13. Mr Hung argued that the Plaintiff has failed to make disclosure of the following matters:-

(a) D1 and D3 have been employed by the Plaintiff for a substantial period of time and faced a risk to lose such employment and their provident funds if they committed any act of fraud or dishonesty;

(b) the clearance of the 3 cheques involved other bank officers;

(c) the Plaintiff's defence to the claim of Prosperous pursuant to ss. 83 and 86 of Cap. 19;

(d) there were circumstances adverse to the finding of a risk of dissipation of assets.

Further, the Plaintiff misled the ex parte Judge on the law relating to cheques marked "Non-negotiable".

14. I will start by observing that the P's affirmation is not a perfect model of an affirmation in support of an ex parte application. However, the materiality of any non-disclosure has to be judged in the context of each case, since the factual circumstances of each are different.

15. In relation to Mr Hung's point (a) above, I do not find that there was any material non-disclosure. The P's affirmation essentially put forward a case of a tort committed by D1 and D3, who were its former employees, jointly with D2. Ordinarily, the honesty and integrity of bank employees (or indeed of any ordinary citizen) will not be questioned in the absence of evidence to the contrary. It is reasonable to expect the ex parte Judge would also adopt the same approach. Evidence to the contrary has been put forth by the Plaintiff. It is therefore unnecessary to inform the Judge of matters tending to show that D1 and D3 used to be honest and law-abiding. Further, the P's affirmation already stated that the Plaintiff had reported the matter to the police and that D1 and D3 have been suspended from duties. It would have been obvious to the ex parte Judge that they stood a great risk of being dismissed and losing whatever employment benefit they might enjoy from their employment with the Plaintiff.

16. I also do not find Mr Hung's point (b) above to be material non-disclosure. The pay-in slips were already exhibited to the P's affirmation (exhibit "LLWK-5") and it is apparent that more than one initial was made thereon. Further, it has always been the Plaintiff's case that the clearance of the cheques was procured by D1 and/or D3. Even if the Plaintiff had expressly referred to the other initials in the P's affirmation, the Plaintiff would have (and it has in fact done so in subsequent affirmations) stated that those initials were also procured by D1 and/or D3.

17. Mr Hung's point (c) above is not a material non-disclosure either. The defence provided by ss. 83 and 86 of Cap. 19 can at most be relevant to the indemnity claim. As stated above, the Plaintiff's other claims are brought in its right as owner of the Sum. It is undisputed that the Plaintiff has a good arguable case regarding those claims. The discretion of ex parte Judge would thus not have been affected by the disclosure of a possible defence under ss. 83 and 86 of Cap. 19.

18. It is unfortunate that the Plaintiff should have included an erroneous legal proposition in the P's affirmation. It is settled law that a cheque marked "Non-negotiable" does not mean it is non-transferable: Great Western Ry. V. London and County Bank [1901] A.C. 414. However, this would in all probabilities have been known to the ex parte Judge. More importantly, the Plaintiff's case regarding non-transferability of the cheques was based primarily on the banking practice stated in the P's affirmation. For this reason, I do not find the misleading statement of law to have been material.

19. Ms Munro adopted Mr Hung's submissions regarding this part of the application to discharge and did not advance other grounds in addition.

Conclusion

20. For the above reasons, the application to discharge the ex parte order was refused.