ZHANG HONG LI AND OTHERS v. DBS BANK (HONG KONG) LTD AND OTHERS

CACV 138/2017

[2018] HKCA 917

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 138 OF 2017

(ON APPEAL FROM HCCL NO. 2 OF 2011)

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D E C I S I O N

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Hon Cheung JA (giving the Decision of the Court) :

1.  DBS Trustee (2^nd defendant) and DHJ Management (4^th defendant) apply for leave to appeal to the Court of Final Appeal against our judgment of 27 July 2018. We will deal with the application on the basis of the Amended Notice of Motion, the summons for which was filed on 9 October 2018.

1)   Time

2.  The first point to consider is whether the application is made out of time.  The Notice of Motion for leave was filed on 20 September 2018.  The plaintiffs contend the time for applying for leave expired on 24 August 2018.  Section 24(2) of the Hong Kong Court of Final Appeal Ordinance (Cap. 484) requires the application to be filed 28 days from the date of the judgment to be appealed against.  In my view, the application was not filed out of time because of section 31(1) of the High Court Ordinance (Cap. 4) which excludes vacation from the computation of time.  The month of August being a vacation, the days in that month are to be excluded in the calculation of time.

2)   The questions

3.  DBS Trustee and DHJ Management contend that issues of great general or public importance are engaged in the following questions :

(1)(a)   Whether the de facto assumption by a trustee of an undefined role of supervision in respect of investment decisions made by the investment adviser to a company, the shares of which are held by the trustee on trust, and/or the de facto assumption by a trustee of a role involving the after-the-event review and/or the giving of after-the-event approvals of investments made by the company is capable in law of (i) giving rise to a duty owed by the trustee to the beneficiaries or (ii) conferring a power on the trustee in circumstances where neither the express terms of the trust deed nor the applicable statutory provisions impose any such duty or confer any such power, and; on the contrary, expressly exclude such duty or power;

(1)(b)   If the answer to (i) and/or (ii) above is in the affirmative, what is the precise nature and scope of such duty or power, as the case might be;

(2)(a)   Whether the Court is entitled to interpret and/or add a gloss to the evidence of an expert on foreign law in a manner which is inconsistent with the express terms of the document under consideration by the expert when an interpretation or meaning which is fully consistent with such terms is available to it.  Alternatively, is the Court itself permitted, entitled or required to construe the document and come to its own conclusions as to the meaning of such express terms in order to enable it to properly interpret, give effective meaning and make findings based on such evidence;

(2)(b)   Specifically, in this case, whether the Court should have determined that, by reason of the anti-Bartlett provisions in the Trust Deed, the residual obligation cast on the 2^nd defendant to which reference was made in paragraph 88 of the Opinion of Professor Matthews only arose in circumstances where the 2^nd defendant had actual notice of dishonesty;

(2A)     Whether the Court can apply Hong Kong law on a point governed by foreign law (specifically, in this case, whether the ‘high level supervisory role’ assumed by the 2^nd defendant imposed on it a duty of supervision) when neither the plaintiffs nor the defendants have pleaded the point or addressed the point in their expert evidence on foreign law;

(3)   Whether it was open to the Court of Appeal to hold that the 2^nd defendant was in breach of trust on the basis of an alleged failure to exercise a power, when the plaintiffs did not plead or argue at trial any of the following :

(a) the 2^nd defendant had certain identifiable power which it could have exercised to prevent loss to the trust fund;

(b) failing to exercise such power amounted to a breach of trust;

(c) failing to exercise such power at particular identified times caused loss to the trust fund;

(d) the 2^nd defendant is not exonerated from a breach of trust of that kind under the trust deed and/or the applicable statutory provisions.

(4)   What is the appropriate standard which should be adopted to assess the conduct of a trustee in the light of comprehensive anti-Bartlett provisions in a trust deed, specifically in this case in light of the provisions of the Trust Deed; the circumstances surrounding the establishment of the Trust; the appointment of the 2^nd plaintiff as investment adviser to the 4^th plaintiff, the delegation by the 4^th plaintiff of investment decision making to the 2^nd plaintiff and the conduct of the 2^nd plaintiff in those roles;

(5)   Similarly, what is the appropriate standard which should be adopted to assess the conduct of a corporate director of a company which has properly delegated investment management and investment decision making to an investment adviser as its agent or delegate?  Specifically in this case what was the position of the 4^th defendant as such director with regard to the decision-making of the 2^nd plaintiff as investment adviser and the 4^th plaintiff’s delegate in relation to investment strategy and decision making, in light of such standard and, in particular, the exonerations and indemnities available to the 4^th defendant;

(6)   What is the standard of care applicable to a director in the position of the 4^th defendant whose mandate is expressly limited by agreement to administrative functions only;

(7)(a)   Whether in assessing causation on the ‘but for’ basis, it is necessary to consider and determine (and, if necessary, speculate) as to what would have occurred or is likely to have occurred had the defendant in question not acted in breach of trust or fiduciary duty;

(7)(b)   Specifically, in this case, whether, in assessing causation, the Court was required to consider and determine (and if necessary, speculate) as to what the 2^nd defendant and the 4^th defendant could have done and/or the 2^nd plaintiff would or might have done had the 2^nd and 4^th defendants not given their after-the-event approval to the impugned transactions carried out on the 2^nd plaintiff’s instructions as investment adviser and the 4^th plaintiff’s delegate;

(7)(c)   What is the correct and/or appropriate formula for assessing equitable compensation in the light of the proper approach to assessing causation.  Specifically, in this case, whether it was right for the Court to have determined which of the transactions were to be included or excluded in the computation of equitable compensation before according the 2^nd and 4^th defendants the opportunity to address the Court on the causal connection (or lack thereof) between the breach of trust or fiduciary duty and the loss arising from the transactions.

3)   Our view

4.1   These 12 questions can be divided into four groups.  First, questions (1), (2), (3) and (4) relate specifically to DBS Trustee. Second, questions (5) and (6) relate to DHJ Management.  Third, questions 7(a) and (b) deal with causation.  Fourth, question 7(c) deals with equitable compensation.

4.2   We do not consider issues of general or public importance are engaged by the first and second groups of questions due to the way these questions are formulated, namely, in relation to the first group, the de facto assumption by DBS Trustee of the high supervisory role in the context of a trust deed with anti‑Bartlett provisions. This must be a fact specific issue unique to this particular case in which there are specific concurrent findings of the assumption of this role.  The same applies to the second group of questions in relation to DHJ Management.

4.3   As to the causation issue we do not see any difference in the applicable test propounded by the Court of Final Appeal in Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681 and the United Kingdom Supreme Court judgment of AIB Group (UK) plc v Mark Redler & Co Solicitors [2015] AC 1503, where both cases adopt the same emphasis that principles of causation developed in other contexts cannot be applied automatically in an equitable setting (Ribeiro PJ in the former at [75], Lord Reed JSC in the latter at [94]).  Ultimately, as Lord Reed said, the matter is one of legal analysis.

4.4   The argument that the defendants should be given the opportunity to address the Court on the causal connection (or lack thereof) between the breach of trust or fiduciary duty and the loss arising from the transactions cannot be a matter of great general or public importance.  This is a case specific issue.  In any event Bharwaney J has yet to receive the submissions from the parties.

4)   ‘Or otherwise’ grounds

5.  DBS Trustee and DHJ Management also rely on the ‘or otherwise’ ground.  This is a matter for the Court of Final Appeal. 

5)   Conclusion

6.  Accordingly the application for leave together with the summons to amend the Notice of Motion is dismissed with costs to the plaintiffs which we summarily assessed at $190,000.