STANDARD CHARTERED BANK (HONG KONG) LTD v. SANJAY KHANDURI

DCCJ 1068/2022

[2023] HKDC 1007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1608 OF 2022

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DECISION

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INTRODUCTION

1.  This is a striking out application by the plaintiff seeking an order to strike out the defendant’s counterclaim as pleaded in the Amended Defence and Counterclaim filed on 17 November 2022.

2.  The plaintiff relied on the following grounds for this application:

(a)  the counterclaim discloses no reasonable cause of action;

(b)  it is frivolous and/or vexatious; and/or

(c)  it is prejudicial, embarrassing or delaying the fair trial of the action.

3.  The plaintiff is a bank, and the defendant is the plaintiff’s customer.

4.  The defendant applied to the plaintiff for credit card facilities. After the application was approved, the defendant was issued a credit card. In consideration of the plaintiff making available to the defendant the credit card facilities, the defendant agreed to be bound by the terms and conditions applicable to the credit card as may be in force from time to time.

5.  For the purpose of the present application, the following terms and conditions are relevant:

(1)  despite any other term of the banking agreement, and subject to applicable law, the plaintiff may at any time demand immediate payment of any amounts owing to it, whether or not already reflected in a statement, and whether or not due and payable as at the date of the demand; and

(2)  at any time, the plaintiff may choose to cancel or suspend the defendant’s right to use the card or end the account for the card with notice.

6.  It is the plaintiff’s case that as of 4 February 2022, the defendant was indebted to the plaintiff for the use of the card in the total sum of HK$181,010.37. By a demand letter dated 4 February 2022 issued by the plaintiff’s solicitors, the plaintiff demanded the repayment of the said sum, but the defendant failed to do so.

7.  The plaintiff issued the writ herein on 14 April 2022 and amended its statement of claim on 17 August 2022.

8.  The defendant made partial payments from March 2022 to June 2022, totalling HK$33,366.00. The amount due by the defendant as of 16 June 2022, as pleaded in the Amended Statement of Claim, was said to be HK$169,471.73 (“Sum”).

9.  The defendant filed his Amended Defence and Counterclaim on 17 November 2022.

10.  The plaintiff took out the present application on 3 February 2023.

THE DEFENDANT’S CASE

11.  In the Amended Defence and Counterclaim, in relation to the plaintiff’s claim, it was pleaded in paragraphs 6 to 7 that the defendant had paid the Sum and the accrued interest in full by 7 October 2022. Putting aside the question of costs, this effectively disposed of the whole of the plaintiff’s claim.

12.  The defendant averred that he “does not agree that the Defendant was in any default of payment obligations as per the Online Banking System of the Plaintiff, the Defendant has made the entire payment so that the attention of the Honourable Courts, HKMA and other Regulatory bodies, is solely focused on the Operational and system errors, poor customer service, integrity, lack of appropriate competence, high-handedness, unfair treatment of customers and violations of applicable Hong Kong Laws, HKMA regulations as listed in the table in Paragraph 4…”

13.  The defendant’s counterclaim appears to be as follows:

(1)  the plaintiff is a bank and an authorised institution as defined under the Banking Ordinance (Cap 155) (“BO”), as such, it is under the Hong Kong Monetary Authority (“HKMA”) regulatory regime.

(2)  in paragraph 4 of the Amended Defence, it was pleaded that “… As an AI and Licensed Bank, the Banking Ordinance Cap. 155 is applicable on the Plaintiff. In particular, the Seventh Schedule of Cap. 155 specified the Minimum Criteria for Authorization that any company which is an AI/ Licensed Bank needs to follow at all times…” The defendant made reference to the following ordinance, regulations, HKMA Supervisory Policy Manual, Statutory Guidelines, Codes of Practice and Guidance Notes, and it was said that the Plaintiff “needs to be in compliance of in handling customers like the defendant: BO, Personal Data (Privacy) Ordinance (“PDPO”), Code of Practice on Customer Credit Data, Guide to Authorization, Guideline on Minimum Criteria for Authorization, Treat Customers Fairly Charter, Principles for effective risk data aggregation and risk reporting, HKMA Supervisory Policy Manual: IC-1 Risk Management Framework, IC-6 The Sharing and Use of Consumer Credit Data through Credit Reference Agencies, OR-1 Operational Risk Management, TM-G-1 General Principle s for Technology Risk Management, TM-E-1 Risk Management of E-Banking, CR-S-5 Credit Card Business, and SA-1 Risk-Based Supervisory Approach” (collectively as the “Regulations”);

(3)  there were discrepancies between the plaintiff’s e‑banking platform and TransUnion (a credit rating agency) (“CRA”), which showed that the Sum was not overdue after the defendant made minimum payments, and the plaintiff’s debt collection agency’s record, which showed that the Sum was overdue (“Discrepancies”);

(4)  these Discrepancies “demonstrated” that there was a lack of accounting systems and systems of control, a lack of prudence and appropriate professional competence, inadequate risk management with incompatible IT systems, inadequate sharing of information and decision, lack of data integrity and reconciliation etc…, the net result being the plaintiff was in breach of the Regulations.

14.  The defendant prays for the following reliefs:

(1)  the card be restored with the then approved credit limit;

(2)  any negative entries made in and or the information provided by the plaintiff to CRA be rectified;

(3)  the plaintiff to issue a formal letter of apology to the defendant, to be co-signed by the plaintiff’s CEO as well as the group’s CEO;

(4)  comprehensive HKMA audit in the public interest of the plaintiff’s online banking system specific to credit card and collections systems impacting the general public of Hong Kong;

(5)  maximum punitive fines as the court may consider appropriate in public interest, with the plaintiff paying the fine amount to one or more charitable institutions of the defendant’s choice;

(6)  should the court deem it in the public interest to do so, transfer the case to “Higher Court” for a more appropriate Punitive Fine for the plaintiff;

(7)  disclosure made by the plaintiff to the public/customers of the system errors and relief provided to such customers.

15.  Put in a nutshell, the defendant says that he is entitled to maintain a private cause of action against the plaintiff for the alleged breaches of the Regulations, and the alleged breach of the Regulations gives rise to an action in private law. During the hearing, the defendant fairly accepted that if the court is against him on this issue, the whole of the counterclaim falls away.

THE ISSUES BEFORE COURT

16.  The two main issues before me are:

(1)  whether the Regulations provide for any private causes of action; and

(2)  whether the reliefs are viable in law.

LEGAL PRINCIPLES ON STRIKING OUT

17.  If the defendant shows a reasonable cause of action against the plaintiff supported by prima facie evidence, the court shall not strike out the counterclaim as the court will exercise this draconian power of striking out only in plain and obvious cases. The court shall not conduct a trial upon affidavit.

18.  The burden is on the applicant to show that it is plain and obvious for the pleading to be struck out. In the context of “no reasonable cause of action”, it is a drastic remedy, and the court should not give effect to it unless it is satisfied that the claim is unarguable or almost incontestably bad.

DISCUSSION

Whether the defendant may claim the plaintiff for breach of statutory duties

19.  In Kaisilk Development Ltd v Urban Renewal Authority [2004] 1 HKLRD 907, Rogers VP stated at 918D that:

“It is trite law that, in the ordinary case, a breach of statutory duty does not, by itself, give rise to any private law cause of action.”

20.  Lord Hoffmann stated in Stovin v Wise [1996] AC 923 at 952F that:

“Whether a statutory duty gives rise to a private cause of action is a question of construction: see Reg v Deputy Governor of Parkhurst Prison, Ex parte Hague [1992] 1 AC 58. It requires an examination of the policy of the statute to decide whether it was intended to confer a right to compensation for breach.”

21.  In Ko Hon Yue v Liu Ching Leung [2008] 1 HKLRD 482, Carlye Chu J (as she then was) stated at §5 that:

“… In order to maintain a claim [for breach of statutory duty simpliciter], it has to be shown that the breach gives rise to an action in private law. The plaintiff has to show, as a matter of construction of the statute, that the statutory duty was imposed for the protection of a limited class of the public and that the Legislature has intended to confer on members of that class a private right of action for breach of the duty. As emphasised by Lord Steyn in Gorringe v Calderdale Metropolitan Borough Council [2004] 1 WLR 1057, 1058 at para 3, the central question in a claim of breach of statutory duty is whether from the provisions and structure of the statute, an intention can be gathered to create a private law remedy, and not whether the statute excludes a private law remedy.”

22.  At §12, the learned judge quoted the following passage from X (Minors) v Bedfordshire Country Council [1995] 2 AC 633 at 731:

“Although regulatory or welfare legislations affecting a particular area of activity does in fact provide protection to those individuals particularly affected by that activity, the legislation is not to be treated as being passed for the benefit of those individuals but for the benefit of society in general”.

23.  Mr Chan, counsel for the plaintiff, submitted that the 7^th Schedule to BO concerns the minimum criteria that a company must satisfy before it could be authorised by the HKMA to carry on a banking business, and the HKMA shall refuse such authorization where one or more of the criteria specified in the 7^th Schedule to BO are not fulfilled. It was submitted that it is clear that the Legislature did not intend to confer individual banking customers any private right of action for breach of any of the requirements under the 7^th Schedule. In support of this proposition, the plaintiff relies on two matters:

(1)  The set of criteria is for the HKMA’s consideration in approving the status (and perhaps maintaining such status) of an authorized instructions.

(2)  Under section 7(2)(a) of the BO, the Legislature has specifically indicated that it is the HKMA which should be “responsible for supervising compliance with the provisions” of the BO.

24.  I agree. The long title of the BO is “[T]o regulate banking business and the business of taking deposits; to make provision for the supervision of authorized institutions so as to provide a measure of protection to deposits; to promote the general stability and effective working of the banking system; to make provision for the supervision of money brokers; and to provide for matters incidental thereto or connected therewith”. Section 7 of the BO provides that the principal function of the HKMA is to “promote the general stability and effective working of the banking system”.

25.  The intention of the Legislature is plain. The important function of promoting the general stability and effective working of the banking system rests with the HKMA. The regulatory requirements are clearly for the benefit and protection of the public at large, and not for individual customers. I do not agree that the BO is to be treated as being passed for the benefit of individual banking customers.

26.  The defendant submitted that because the word “depositor” was used throughout the BO, it can then be inferred that the Legislative intent is not to distinguish between the public at large and individual banking customers. I do not agree.

27.  I take the view that the BO does in fact provide protection to “depositors”, including the defendant, and those individuals might be particularly affected, but the legislation should not be treated as being passed for the benefit of those individuals but for the benefit of society in general. It is readily apparent that the BO did not intend to confer a right on the individual customers to compensation for the breach.

28.  The defendant argued that Ko Hon Yue is distinguishable because that case concerns the Education Ordinance (Cap 279) and Regulation 76, and not the BO. I do not agree. The considerations for a private cause of action for breach of statutory duty are the same.

29.  In relation to the rest of the Regulations (besides the PDPO), Mr Chan had thoroughly gone through each of the Regulations during the hearing. I accept that the Regulations are either for reference purposes or are non-statutory guidelines. I do not accept that they provide any independent cause of action to individual customers.

30.  As to the claim under the PDPO, the defendant’s complaint was that certain “inaccurate” information had been provided to the CRA.

31.  In paragraph 8 of the Amended Defence, the defendant made reference to various screen capture from the online banking system (referred to as exhibit E1 to E14), and averred that “it is [C]lear that from February 2022 to present there have been no late payments or amount past due by defendant reported to the [CRA]”. I have examined exhibits E1 to E14, they are the screen captures of various transactions and account summary from the online banking platform and the mobile banking platform for the card from February 2022 to October 2022.

32.  It is clear that the reference to “inaccurate” information supplied to the CRA was that there were “no late payments or amount past due” from February 2022.

33.  According to the credit report obtained by the defendant on 25 September 2022, it was shown that the card was reported to be in “delinquency” on 30 April 2021, and the last “reported date” was said to be 31 August 2022.

34.  Since the plaintiff has not made any adverse report to the CRA since February 2022, I do not see how the plaintiff could be said to have suffered any damages from this reporting of “inaccurate” information. I agree with the plaintiff that such “inaccurate” information actually only benefited the defendant. Even if it can be said that the plaintiff has breached the PDPO, there is simply no damage caused by such contravention.

35.  During the hearing, the defendant advanced a new case and averred that he was referring to the “delinquency” reported in April 2021. I asked whether there was any evidence before the court to show that the card account was not in delinquent and that the report made to the CRA was wrong. The defendant confirmed there were no such materials before the court. I agree with the plaintiff that such a case was never advanced by the defendant, and it would be unjust and unfair for the court to allow the defendant to introduce a brand new case which is (1) not supported by any evidence: (2) inconsistent with the pleaded case; and (3) a case which was never pleaded.

36.  Putting the defendant’s case to the highest and assuming that the plaintiff had breached all the Regulations, the defendant still has no cause of action in private law to claim against the plaintiff for damages.

Whether the reliefs are viable in law

37.  In the event that I am wrong in the above conclusion, I would go on to find that none of the reliefs are viable in law.

38.  Firstly, for the reinstatement of the card, according to the terms and conditions of the card, the plaintiff has the power to refuse the re-issuing of a card. It is also trite law that no specific performance will be granted to enforce a contract to lend: Chitty on Contracts, 34^th ed, §41-269. I agree with the plaintiff that such relief is plainly bad.

39.  Secondly, for the rectification of the CRA records, as observed at paragraph 34 above, there have been no adverse entries since February 2022. There is simply nothing to rectify.

40.  Thirdly, a letter of apology, the defendant referred to Wave Chow v Liang Jing [2021] HKDC 609 during the hearing. I am prepared to accept that the making of an apology order is within the general jurisdiction of the court, but this discretion is not to be exercised lightly. In the present case, the defendant has advanced no special grounds (nor do I see any grounds) to justify an order for an apology. The defendant has also failed to advance any grounds that would justify the apology to be signed by the CEO of the plaintiff’s parent company. I do not agree that the court would make such an apology order on such term, even if it can be established that the plaintiff was in breach of the Regulations.

41.  Fourthly, regarding the comprehensive HKMA audit in the public interest, I agree with the plaintiff that the court does not assume the regulatory role of the HKMA.

42.  Fifthly, regarding the maximum punitive fines, a penalty is punitive and deterrent in nature and not compensatory, as such, it is not a remedy available in the present type of proceedings.

43.  Lastly, disclosure by the plaintiff to the public of so-called “system errors” and “relief”, is unspecific and uncertain, both in scope and in terms. This relief is also plainly bad.

Other matters

44.  During the hearing, I questioned why the defendant, if he feels aggrieved, did not make a complaint to the HKMA, when a draft complaint letter to the HKMA is already exhibited to the Amended Defence and Counterclaim? The defendant said that he needed to have the court’s permission to do so. I have explained to the defendant that such understanding is mistaken.

45.  The defendant then invited the court to stay these proceedings pending his complaint. I refused to do so because the defendant has no reasonable cause of action against the plaintiff in this action, it would be meaningless to stay the proceedings for such purpose.

46.  The defendant also applied to transfer these proceedings to the High Court, as the High Court has the jurisdiction to make an order of mandamus. In light of my above findings, doing so would not be necessary. I would therefore dismiss the defendant’s transfer application.

47.  It is within the power of the HKMA to decide how to discharge its statutory duties. I see no merits in the defendant asking the court to make an order of mandamus, when (1) no complaint was ever made by the defendant; and (2) when HKMA was not even a party to these proceedings.

48.  In any event, as discussed above, I am not convinced that the alleged breach of statutory duties on the part of the plaintiff will confer on the defendant any cause of action to claim in private law, the defendant’s counterclaim is incontestably bad.

CONCLUSION AND COSTS

49.  As the defendant has no reasonable cause of action against the plaintiff in this action, I allow the plaintiff’s application and strike out the the counterclaim.

50.  Costs shall follow the event. The defendant shall pay the costs of the plaintiff for this application, including costs previously reserved, with certificate for counsel.

51.  According to the plaintiff’s statement of costs, the costs incurred by the plaintiff amounted to $370,375. I find room for reduction in respect of the communication with the client (item C1), preparation of documents, perusal of documents, and preparation for hearings (items D1 to D3). I find it unnecessary for two solicitors to attend the hearing and incur 66 hours of professional for a strike out application. This is particularly so when the present application turns on legal arguments, and given that I have allowed counsel’s brief in full. On a broad-brush approach, having regarded the complexity and nature of the case, I fix the plaintiff’s costs at $150,000.

DISPOSITION

52.  For all the reasons stated above, I make the following orders:

(1)  In respect of the defendant’s application for transfer dated 12 July 2023:

(i)  the summons is dismissed, with no order as to costs.

(2)  In respect of the plaintiff’s summons to strike out dated 3 February 2023:

(i)  the defendant’s Amended Counterclaim be dismissed;

(ii)  the defendant do pay the plaintiff costs (with counsel certificate) summarily assessed at HK$150,000.