STANDARD CHARTERED BANK (HONG KONG) LTD v. LAU LAI WENDY AND ANOTHER

HCA 1478/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1478 OF 2017

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R U L I N G

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1.  The plaintiff is a well-known bank in Hong Kong. The defendant was an employee of the bank of long standing. The 2nd defendant is a customer of the bank, maintaining an account or accounts with the bank.

2.  Following from a customer complaint, the plaintiff investigated into the conduct of the 1st defendant.  In the course of this investigation, the 1st defendant admitted to misappropriation of a large sum, approximately US$24 million, and transfer of that sum into the 2nd defendant’s accounts with the plaintiff.  Although the 1st defendant herself has obtained the benefit of some of the misappropriated funds, the vast majority went to the 2nd defendant.  A report was made to the police, D1 was arrested, has been charged, and is currently in custody. 

3.  The plaintiff applied for an injunction against the 1st and 2nd defendants on an ex parte basis.  This was granted on 21 June 2017 and terms of the injunction were subsequently amended.  There is no significance to the amendments.  This is the substantive hearing of the application for the injunction on an inter partes basis.  Plaintiff seeks continuation of the injunction.  The 2nd defendant seeks discharge of the injunction.  The 1st defendant is apparently still in custody, she has not appeared, and takes no part in these proceedings. 

4.  The background is that the 1st defendant was first employed by the plaintiff in 1987, rose through the ranks, becoming a senior branch service manager. On 31 May 2017, as a result of complaints, the plaintiff conducted internal investigations. In the course of those investigations, the 1st defendant was interviewed by plaintiff’s shared investigative services.  She admitted to theft, told the investigators that she had misappropriated funds from the 2nd defendant’s accounts, that the 2nd defendant had discovered this, and thereafter, she, the 1st defendant, had been pressured into making illegitimate payments to the 2nd defendant. The bank reviewed its documents and discovered that apparently large sums of money had been transferred to the 2nd defendant’s accounts. 

5.  Of note is that the moneys came from either the plaintiff’s own suspense accounts or from other customer accounts.  There is no allegation that the 2nd defendant is in any way entitled to receive money coming from other customers of the plaintiff.  On that basis, the plaintiff made the application ex parte, and the injunction was granted. 

6.  The plaintiff claims against the 2nd defendant on the basis that she holds the moneys on constructive trust with the plaintiff asserting knowing receipt or dishonest assistance, alternatively, that the 2nd defendant was unjustly enriched.

7.  The plaintiff’s case is that this injunction is a proprietary injunction and/or alternatively a Mareva injunction. 

8.  The 2nd defendant’s case or assertions can be found in her 2nd affidavit, which she filed in these proceedings, and which was deposed to on 10 November 2017.  She starts off by describing herself as an investment manager, a dealmaker by profession, with a Master’s degree in business administration, which she obtained in 1994.  She describes her working life in Global China Investment Group, becoming Chief Executive Officer and General Manager and vice president of the board in 2001, involved in deals such as bringing CDMA to Shandong, bringing Lear Corporation to Shanghai, acquisition of Singtao Daily News in Hong Kong, and after Global China, she joined a securities and investment company, becoming the managing director, handling mergers and acquisitions, listing and investments.  Those are some of the matters to which she deposes her experience.  She then describes how she first became a customer of the plaintiff bank,  that in around 1997 (although she cannot be accurate about the dates)  she had about HK$15 to 20 million in her account with the plaintiff. She wished to purchase property with that money, but in 1997, she was approached by staff of the plaintiff, including the 1st defendant, who ultimately persuaded her to leave her money with the plaintiff, instead of using it to purchase landed property. 

9.  The 2nd defendant’s case is that in an effort to persuade her to retain her moneys with the plaintiff, she was offered 20 per cent interest per annum on her time deposits. 

10.  In view of this inducement by the 1st defendant who represented the plaintiff, she agreed to keep the money with the plaintiff.  This was subsequently increased in circumstances detailed in her affirmation, but which I will not go into detail here. Some time in 2011, the 2nd defendant said that she further wanted to withdraw moneys to purchase properties again.  She was then further persuaded not to withdraw her moneys, and this time, by the promise of another special interest rate of 40 per cent per annum.  And it was in those circumstances that she decided not to withdraw her money. In around 2015, she checked on her accounts, and discovered that the promised interest did not appear to have materialised in her account, and then there were some discussions with the 1st defendant, and also she enlisted the help of a Mr Ge to negotiate with the 1st defendant, resulting in money being moved into her account in 2016. 

11.  In essence, the 2nd defendant is saying that she was entitled to the money.  It was offered by the 1st defendant as a special interest rate.  There was nothing fraudulent.  She had no knowledge of any fraud on the part of the 1st defendant.  She was therefore not caught by any constructive trust, there is no element of unjust enrichment. 

12.  This is an application for an interlocutory injunction, so I will not say much about the merits of the case, save to say that on the 2nd defendant’s case, some eyebrows are raised, and it is safe for me to say that there is certainly a serious issue to be tried. 

13.  As to the law on injunctions, there is little dispute between the parties.  The parties have between them cited various of the cases on interlocutory injunctions, pertaining to proprietary injunctions and there are Mareva injunctions.  Taking the summary of the principles from the plaintiff’s submissions on proprietary injunctions, the plaintiff must show a serious issue to be tried, balance of convenience in his favour, and it being just and convenient to grant the injunction. 

14.  On  a Mareva injunction, plaintiff must establish that it has a good, arguable case, defendant’s assets are within the jurisdiction, and there is a real risk of dissipation. 

15.  As I have said, I am satisfied that that there is a serious issue to be tried/a good, arguable case as against the 2nd defendant.  Simply from the fact of the money coming into the 2nd defendant’s accounts, coming from not only the plaintiff’s suspense accounts, but the other customer accounts of the plaintiff. This raises, at the very least, a prima facie case as against the 2nd defendant.  This is coupled with the allegation by the 1st defendant that she was in some way or form pressurised by the 2nd defendant. 

16.  I make no finding as to the merits, and no findings as to the truth or otherwise of the assertions raised.  That can only be done at trial after hearing the testimony from the witnesses.  However, at least a prima facie case is made out. 

17.  The real issue on this application is whether there is material non-disclosure. 

18.  On the question of material non-disclosure, the 2nd defendant  has very helpfully referred me to the summary of the principles in Valatel Global Communication v Chinacom Ltd (Unreported, HCA 1978/2011) at paragraphs 25 to 31

25. There is no dispute on principles.  An applicant must make full and frank disclosure in an ex parte application.

“On any ex parte application, the applicant must proceed with the highest good faith. The fact that the court is asked to grant relief without the person against whom the relief is sought having the opportunity to be heard makes it imperative that the applicant should make full and frank disclosure of all material facts …” Hong Kong Civil Procedure 2012, Vol 1, para 29/1/39.

26. What is material is for the judge to decide.  Suppression of material facts will cause the court to discharge an ex parte order without going into the merits. 

“(1) The duty of the applicant is to make “a full and fair disclosure of all the material facts:” sec Rex v. Kensington Income Tax Commissioners, Ex parte Princess Edmond de Polignac [1917] 1 K.B. 486, 514, per Scrutton L.J.

(2) The material facts are those which it is material for the judge to know in dealing with the application as made: materiality is to be decided by the court and not by the assessment of the applicant or his legal advisers: see Rex v. Kensington Income Tax Commissioners, per Lord Cozens-Hardy M.R., at p. 504, citing Dalglish v. Jarvie (1850) 2 Mac. & G. 231, 238, and Browne-Wilkinson J. in Thermax Ltd. v. Schott Industrial Glass Ltd. [1981] F.S.R. 289, 295.

(3) The applicant must make proper inquiries before making the application: see Bank Mellat v. Nikpour [1985] F.S.R. 87. The duty of disclosure therefore applies not only to material facts known to the applicant but also to any additional facts which he would have known if he had made such inquiries.

(4) The extent of the inquiries which will be held to be proper, and therefore necessary, must depend on all the circumstances of the case including (a) the nature of the case which the applicant is making when he makes the application; and (b) the order for which application is made and the probable effect of the order on the defendant: see, for example, the examination by Scott J. of the possible effect of an Anton Piller order in Columbia Picture Industries Inc. v. Robinson [1987] Ch. 38; and (c) the degree of legitimate urgency and the time available for the making of inquiries: see per Slade L.J. in Bank Mellat v. Nikpour [1985] F.S.R. 87, 92-93.

(5) If material non-disclosure is established the court will be “astute to ensure that a plaintiff who obtains [an ex parte injunction] without full disclosure ... is deprived of any advantage he may have derived by that breach of duty:” see per Donaldson L.J. in Bank Mellat v. Nikpour, at p. 91, citing Warrington L.J. in the Kensington Income Tax Commissioners’ case [1917] 1 K.B. 486, 509.

(6) Whether the fact not disclosed is of sufficient materiality to justify or require immediate discharge of the order without examination of the merits depends on the importance of the fact to the issues which were to be decided by the judge on the application. The answer to the question whether the non-disclosure was innocent, in the sense that the fact was not known to the applicant or that its relevance was not perceived, is an important consideration but not decisive by reason of the duty on the applicant to make all proper inquiries and to give careful consideration to the case being presented.

(7) Finally, it ‘is not for every omission that the injunction will be automatically discharged.  A locus penitential may sometimes be afforded’: per Lord Denning M.R. in Bank Mellat v. Nikpour [1985] F.S.R. 87, 90.  The court has a discretion, notwithstanding proof of material non-disclosure which justifies or requires the immediate discharge of the ex parte order, nevertheless to continue the order, or to make a new order on terms

‘when the whole of the facts, including that of the original non-disclosure, are before [the court, it] may well grant … a second injunction if the original non-disclosure was innocent and if an injunction could properly be granted even had the facts been disclosed:’ per Glidewell L.J. in Lloyds Bowmaker Ltd. v. Britannia Arrow Holdings Plc.”

In Brink’s Mat Ltd v Elcombe [1988] 1 WLR 1350, at 1356F-1357F, per Gibson LJ.  See also Gee on Commercial Injunctions, 5th ed, at p 241.

27. In considering what matters should be disclosed to the court, the test is whether the facts are relevant to the exercise of the discretion, regardless of whether they are relevant to the merits of the claim, and irrespective of whether the matters, if disclosed, would have caused the court to refuse to grant the ex parte application.  The court was not concerned with whether the matters not disclosed would, if they had been disclosed, have caused it to refuse to grant the ex parte order.  The test was whether the court should have these matters in the weighing scales: Standard Chartered Securities Ltd v Lai Arthur & ors [1993] 1 HKC 375, at 380-381.

28. The test of materiality is objective.

“The duty extends to placing before the court all matters which are relevant to the court’s assessment of the application, and it is no answer to a complaint of non-disclosure that if the relevant matters had been placed before the court, the decision would have been the same. The test as to materiality is an objective one, and it is not for the applicant or his advisers to decide the question; hence it is no excuse of the applicant subsequently to say that he was genuinely unaware, or did not believe, that the facts were relevant or important. All matters which are relevant to the ‘weighing operation’ that the court has to make in deciding whether or not to grant the order must be disclosed.” (Gee on Commercial Injunctions, 5th ed at para 9.002)

29. The materiality of matters undisclosed or misstated, if relevant, will depend on the importance of the facts to the issues which were to be decided by the judge on the ex parte application: Pacific Base Services Ltd & Anor v Silver Gain Development Ltd & ors [1996] 1 HKC 610 at 617I-618A.

30. The duty to disclose cannot be fulfilled by simply exhibiting voluminous documents mentioned in the supporting affidavit without making any distinct reference to the points in the body of the affidavit itself or when addressing the judge at the hearing: Standard Chartered Securities Ltd v Lai Arthur, page 388G followed in Rever (AMA) Salon Ltd v Kung Wai For Danny & others [2001] 1 HKC 241, 246E-F.

31. Where there has been material non-disclosure in an ex parte application, the practice of the court is to discharge the order without going into the merits: R v Kensington Income Tax Commissioners, ex parte de Poliganc [1917] 1 KB 486, 514-515; Manor Electronics Ltd & Anor v Dickson & ors [1988] RPC 618 at 624.:

19.  In support of the allegation that there has been material non-disclosure, the 2nd defendant says that the plaintiff has failed to disclose the interview statements which were made in the course of the plaintiff’s internal investigations, and they say that by doing so the judge granting the ex parte order was deprived of the opportunity to consider various matters which has been raised in the 2nd defendant’s skeleton submissions, but which essentially boiled down to inconsistencies internally, particularly as to the dates when certain events occurred and the alleged threat made by the 2nd defendant against the 1st defendant, dates of transfers and so on and so forth. 

20.  There is also an allegation of a failure to disclose at the ex parte stage the details of WeChat text messages, both between the 1st and 2nd defendants, and between the 1st defendant and Mr Ge.

21.  These are relevant, it is said, because the 1st defendant provided details of interest payments, that there was an oral agreement for interest payments, and it is said that the tenor of the WeChat messages show that there was a legitimate reason for the receipt of the moneys in D2’s account.  Further complaint is made on the lack of risk of dissipation and possible defences available to the 2nd defendant.  That really is subsumed within the WeChat message point. 

22.  There are certain other minor matters which have been raised, both in the skeleton and in Mr Khaw’s oral submissions. The fact that I do not necessarily refer to each and every one of those does not mean that I have not considered them. 

23.  Having considered all the matters available before me, I am of the view that there has been no material non-disclosure.  In relation to the statements, the gist of the statement has been reproduced in, or has been summarised in the affidavit of Mr Howard, which was relied upon at the ex parte hearing. In particular, Mr Howard has said that the investigation is still ongoing.  Large amounts of banking documentation needed to be examined, that in relation to the 1st defendant’s recollection it was said that her account was piecemeal, that she only recalled certain transactions after being presented with copies of the relevant documentation, and particularly that the extent to which the entirety of her recollection can be relied upon was not yet clear. 

24.  So Mr Howard was there clearly indicating that the 1st defendant was not necessarily a reliable source of information. Since the essence of Mr. Khaw’s complaint and the basis upon which it is said that there was material non-disclosure is the unreliability of the 1^st defendant’s account, the salient points had already been drawn to the ex parte judge’s attention, and the exhibiting of the statements themselves would not have added significantly to the matters requiring disclosure. 

25.  In relation to the WeChat messages and the possible defence of a special interest rate, it is true that there is mention of an oral agreement to pay interest to the 2^nd Defendant, but that has to be taken in the context of reading the whole of the WeChat messages together. If we look at the whole of the statements, it is clear that if one looks at the WeChat statements in context, there is clearly a threat to report the 1st defendant to the regulatory bodies, there is reference to blackmail, and in general, the WeChat messages, read in context, do not exhibit or show any possible or realistic defence or cause for the receipt of the moneys into D2’s accounts. 

26.  In any event, there has been a disclosure in Mr Howard’s affidavit that, as part of the 1st defendant’s statement or disclosure to the plaintiff, that D2 claimed D1 promised her a high interest rate, and there was a recording of this conversation.  Mr Khaw says that this mention of a high interest rate underlines the point that there should have been disclosure of “special interest rate” as a possible defence, but high interest rate comes nowhere near the “special” interest rate of 20% or 40% for time deposits as relied on.   

27.  Although with hindsight, it would have been better to have exhibited the statements and the WeChat messages in the affidavit of Mr Howards, to adopt a “belt and braces” approach and to head off any allegations of non-disclosure, I do not find that the failure to do so is a material non-disclosure in the circumstances of this case. 

28.  On the question of the injunction order deviating from the standard form, Mr Sussex has drawn my attention to the relevant standard form of injunction order in the Practice Directions, and the fact that those extra passages were, in fact, not relevant to a domestic injunction, but relevant to a world-wide injunction, and I am of the view that nothing turns on that. 

29.  There is an allegation that there is no real risk of dissipation, or at the very least, there is no mention by the plaintiff to the judge dealing with the ex parte application that the 2nd defendant had maintained her account with the plaintiff without making any withdrawals for some 19 years, so this indicates that there is no real risk of dissipation. 

30.  On the question of real risk of dissipation, the allegation by the 1st defendant is serious, involving very large amounts of money, the 2nd defendant, by any account, is not resident in Hong Kong, although she may have had or she may have a Hong Kong identity card, and has right of abode in Hong Kong, but she is currently not in Hong Kong.  There is no evidence of any strong ties with Hong Kong, the money is in the form of cash, easily removable, from the jurisdiction, easily dissipated. 

31.  The allegations that have been made together with the other evidence which supports those allegations by the 1st defendant, points to serious wrongdoing, if made out, and therefore a real risk of dissipation. 

32.  But in any event, there is also the question of this being a proprietary injunction, or at least part of it being a proprietary injunction, and I am satisfied that the balance of convenience on a proprietary injunction lies with the maintenance of the status quo, ie preventing  the moneys being made available to be distributed out of Hong Kong, or to be otherwise dissipated.  In other words, this is keeping the money in suspense until the whole thing is sorted out. 

33.  On this issue, I take into account that the plaintiff is a substantial bank in Hong Kong, has given the usual undertakings, and there is no question that the plaintiff is good for the undertakings. The 2nd defendant is a person of professed means.  She has not had to resort to the money in question for 19 years, and so it is not a question of her needing to utilise the money at short or urgent notice.  The money will be in Hong Kong, it will be kept safe, until all this is sorted out at trial. If at the end of the day, she is victorious and is able to establish her defence, no doubt she will be entitled to the money with interest and damages, such damages as she is able to make out.

34.  On the other hand, if no injunction is granted, or the injunction is not continued, then there is a real danger that the money may disappear and may not be recovered again. 

35.  I would add that if I am wrong on the question of material non-disclosure, I would, in any event, have granted a fresh injunction despite any supposed non-disclosure.  Any alleged non-disclosure in relation to the statements or in relation to the WeChat messages or the other matters which have been set out are not, to my mind, of such seriousness that I should refuse a new grant of an injunction if I found that there had been such non-disclosure. 

36.  So in the circumstances, the order for injunction dated 21 June 2017 made by Deputy High Court Judge N. Francis (as amended and re-amended by the order of the Deputy High Court Judge N. Francis dated 30 June 2017 and the order of Deputy High Court Judge To dated 8 September 2017 respectively) be continued pending trial of this action or until further order of this court and the 2nd defendant’s Discharge summons filed on 10 November 2017 be dismissed. 

37.  As to costs, I intend to reserve costs, seeing that this is an injunction application and the matter will have to be sorted out at trial. 

(Discussion re costs)

38.  I would reserve the costs, it would be the safest course to take.  You can always take it up at the end and if you are proved right, you will get the costs in the end.