FALCON PRIVATE BANK LTD v. BORRY BERNARD EDOUARD CHARLES LTD AND ANOTHER

HCMP 2693/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 2693 OF 2012

(ON AN INTENDED APPEAL FROM HCA NO 1934 OF 2011)

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REASONS FOR DECISION

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1. This is the defendants’ application for leave to appeal from certain orders given by To J on 7 June 2012.  The judge handed down Reasons for Decision on 9 July 2012.  He refused leave to appeal on 13 November 2012. 

2. The defendants lodged an application to this court for leave to appeal on 27 November 2012.  The application was opposed by the plaintiff which filed a submission in opposition on 11 December 2012. 

3. On 1 February 2013 I refused leave to appeal and indicated that I would give brief reasons later. These are my reasons.   

The Summonses

4. There were 6 summonses before To J, 5 of which had been filed by the defendants and 1 by the plaintiff.  The defendants’ 5 summonses were:

(1)   (filed 16 January 2012) to strike out the statement of claim (“the Strike-out Summons”);

(2)   (filed 21 February 2012) to discharge an ex parte order made by Au-Yeung Dep J (now Au-Yeung J) on 10 November 2011 (“the Discharge Summons”);

(3)   (filed 10 May 2012) to recuse To J from hearing “the Strike-out Summons” and “the Discharge Summons” (“the Recusal Summons”);

(4)   (also filed 10 May 2012) to file further evidence in the form of Childs VII and Lyons I; and

(5)   (filed 31 May 2012) to file further evidence in the form of Childs X exhibiting a draft affidavit of Kramer (together with (4) “the Further Evidence Summonses”).

The proposed appeal

5. I noted that the relief sought in the Notice of Appeal did not include an order that the matter be fixed before another judge (which would have been the appropriate order had the Recusal Summons been granted), and only sought orders for Strike-Out and for Discharge of the ex parte order. Accordingly no regard was paid to the submissions regarding recusal.

Brief background

6. As for the Strike-Out and Discharge issues, the background of the matters before To J has been set out extensively in his 152-page Reasons for Decision. 

7. Very briefly, in July 2011 Bawa Financial Ltd (“Bawa”) opened an account with the Zurich Branch of the plaintiff, a Swiss bank.  Bawa deposited 4 structured notes into the account.  In turn the plaintiff deposited the notes with its custodian SIX SIS AG (“SIX SIS”). 

8. Two months later SIX SIS informed the plaintiff of a principal paydown of US$15.76m on one of the notes.  In fact under the terms of that note, only payment of interest would be made. 

9. The plaintiff credited Bawa with the payment.  Soon afterwards Bawa transferred a substantial portion of the money (“the said Sum”) to the 1^st defendant’s account in Hong Kong. 

10. The plaintiff was then made aware of the error and reversed the credit.  It immediately notified Bawa and the 1^st defendant, but apparently on the same day (7 October 2011) the said Sum was transferred from the 1^st defendant’s account in Hong Kong to the 2^nd defendant’s account in Singapore, from which funds were further distributed.  The plaintiff’s requests for repayment or information were ignored. 

11. On 10 November 2011 the plaintiff applied ex parte for interlocutory injunction and disclosure orders.  They were granted by  Au-Yeung Dep J on the same day. 

Causes of action

12. The plaintiff’s causes of action, as pleaded in the Statement of Claim filed on 21 December 2011, were as follows:

(1)   as the 1^st/ 2^nd defendants had received the said Sum as a volunteer, it/he held it subject to resulting trust, further or alternatively, subject to constructive trust (para. 25/29);

(2)   further or alternatively, the 1^st/ 2^nd  defendants were liable as constructive trustee or for damages for knowing receipt (para. 26/33) or for dishonest assistance (para. 27/34);

(3)   further or alternatively, the 1^st / 2^nd defendants were liable for restitution of the said Sum as money had and received, and for unjust enrichment (para. 28/35);

(4)   further or alternatively, the 1^st / 2^nd defendants were liable for damages for conspiracy to injure the plaintiff using unlawful means (para. 36).      

Defendants’ grounds for Strike-Out and Discharge

13. In the Discharge Summons, the defendants argued that there had been (1) misrepresentation and (2) material non-disclosure by the plaintiff when it applied for the ex parte interlocutory injunction and disclosure orders.

(1)   The misrepresentation comprised of a statement in the plaintiff’s skeleton that said the 2^nd defendant had held himself out as the chairman of an organization which was being investigated by the police for fraud.  The plaintiff’s counsel admitted that the statement should have been put the other way round, i.e. that it was the organization that had held the 2^nd defendant out as its chairman. 

(2)   The material non-disclosure comprised of the plaintiff’s failure to inform the court that the concept of trust was not known to Swiss law (“the Swiss law defence”) and other potential defences. 

14. The “Swiss law defence” and other defences are also employed as arguments in the Strike-Out Summons. 

Discussion

15. First the judge did not consider the misrepresentation to be material.  It was clear from contemporaneous written material that the 2^nd defendant was involved in the organization in question (Reasons for Decision para. 190).  The point is a small one and the defendants correctly have not placed much reliance on it in their skeleton submissions before me.

16. As for the defendants’ argument based on non-disclosure of Swiss law, To J first accepted as “at least arguable” the plaintiff’s argument that even on the defendants’ own case under Swiss law, they had a legal obligation to disgorge the benefit, thus bringing into play concepts of trust in this jurisdiction (para. 143-146).  The defendants’ submissions regarding the time when a resulting or constructive trust arises do not address this point.  In my view it cannot be said that the judge erred in law in holding that the plaintiff has shown at least a good argument to refute the “Swiss law defence”.  

17. Then as to the plaintiff’s failure to draw the attention of the ex parte judge to the arguments on the “Swiss law defence”, the defendants correctly point out that To J held that the argument should have been brought to the attention of the ex parte judge.  However that does not mean that he was bound to set aside the ex parte order, for the following reasons. 

18. First, although the Discharge Summons had been filed in November the previous year, some 6 months before the hearing,  the “Swiss law defence” did not emerge until very late.  It was not in the defendants’ skeleton submissions before To J.  A draft affidavit on Swiss law was only exhibited during the hearing, and even then some 2 weeks after it commenced.  In my view the judge was entitled to take into account in the exercise of his discretion that it was not reasonable to expect the plaintiff to have done better than the defendants and to have considered the point at the ex parte stage (paras. 148-149).

19. To J took the view that the plaintiff’s failure to do so was an oversight and was innocent (paras.148-149).  The judge was entitled to take this into account as part of the well-established 4-stage test when considering whether to set aside the ex parte order for material non-disclosure.  The weight to be given to this factor is a matter for the judge in the exercise of his discretion and as a general rule an appellate court would not interfere with it. 

20. As for the reversal of entries and the election arguments, the judge was entitled to take the view that these were not arguments of such substance that the ex parte judge should have been addressed on them.  

21. As for the other arguments on Strike-Out, the judge accepted the defendants’ argument that Bawa (not the defendants) could not be liable in resulting trust and struck out the relevant paragraph (Reasons for Decision para. 215-6).  He painstakingly went through each of the other paragraphs and concluded that the pleadings were not so plainly and obviously bad that he should strike them out.   

No leave to appeal

22. The judge’s decision was reached in the exercise of his discretion.  It is well-established law that an appellate court will not lightly interfere with a judge’s exercise of discretion and as such the defendants have no reasonable prospect of success in the intended appeal.  Accordingly, I refused leave to appeal.  There will also be an order nisi that the costs of the application be to the plaintiff.