GRASBERG CAPITAL ASIA LTD v. BANK OF COMMUNICATIONS LTD

HCA 784/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 784 OF 2016

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REASONS FOR DECISION

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1.  In this hearing arises for determination apparently for the first time in the Hong Kong court the question of whether a bank notified of a Mareva injunction owes a duty of care to the party in whose favour the injunction was granted.

2.  This is an application by the defendant bank to strike out the entire Statement of Claim on the grounds that it discloses no reasonable cause of action or is otherwise frivolous or vexatious, and to consequentially dismiss the action with costs.

3.  The defendant bank further applies, as a fallback, for security for costs on the ground that the plaintiff is ordinarily resident outside of the jurisdiction.

4.  At the end of the hearing, I acceded to the defendant bank’s application to strike out and made the Order set out at the end of this Decision.

5.  Here are my reasons.

APPLICABLE LEGAL PRINCIPLES

6.  The following legal principles applicable to striking out for disclosing no reasonable cause of action are trite and undisputed :

(a) It is only in plain and obvious cases that the court should strike out.

(b) Disputed facts are to be taken in favour of the party sought to be struck out.

(c) The court should not decide difficult points of law in striking out proceedings.

(d) So long as the statement of claim discloses some cause of action, or raises some question fit to be decided by a judge or jury, the mere fact that the case is weak, and not likely to succeed, is no ground for striking it out.

(Hong Kong Civil Procedure 2018 §§18/19/4 and 18/19/5)

THE PLAINTIFF’S PLEADED CASE

7.  The plaintiff’s pleaded case is relatively straight forward.  It is in gist as follows.

8.  The plaintiff was incorporated in 2012 in BVI and has been used by Chan Ying Lok Samson (“Samson”) and Huchun Joseph Yung (“Joseph”) as a corporate vehicle to engage in private funding and stock financing businesses.

9.  On 29 April 2013, Samson in an intended derivative action obtained an ex parte Mareva injunction against Joseph, among other intended defendants.

10.  On 3 May 2013, that injunction as against Joseph was continued in the same terms (save modifications making certain provisions for Joseph, which are immaterial for present purposes) until trial or further order.

11.  As the relevant terms in the ex parte Mareva injunction and the continued injunction were the same, for convenience and save otherwise indicated, I will hereafter refer to both injunctions as “the Mareva Injunctions”.

12.  The Mareva Injunctions were in the standard form.  They enjoined the disposal of assets by Joseph in the following terms :

“(1) The defendant must not –

(a) remove from Hong Kong any of his assets which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned, up to the value of HK$35,000,000, or

(b) in any way dispose of or deal with or diminish the value of any of his assets, which are within Hong Kong, whether in his own name or not, and whether solely or jointly owned up to the value of HK$35,000,000, in particular the 170 million shares of China Bio-Med Regeneration Technology Limited originally pledged in favour of the 2^nd Defendant or any of their proceed.

(2) If the total unencumbered value of the defendant’s assets in Hong Kong exceeds HK$35,000,000, the defendant may remove any of those assets from Hong Kong or may dispose of or deal with them so long as the total unencumbered value of his assets still in Hong Kong remains above HK$35,000,000.”

13.  The Mareva Injunctions also contained the standard warning to 3^rd parties, so far as material :

“THIRD PARTIES

(1) Effect of this Order. It is a contempt of court for any person notified of this Order knowingly to assist in or permit a breach of this Order. Any person doing so may be imprisoned, fined, or have his assets seized.

(2) …

(3) …”

14.  It should be pointed out at this juncture that in the Mareva Injunctions, the 3 Bank Accounts held by “Eureka”, “Encap” and “Edenton” (all defined below) were not named therein.

15.  On respectively 30 April 2013 and 6 May 2013, Samson’s then solicitors served copies of the sealed ex parte Mareva injunction and the continued injunction to the defendant bank.

16.  Paragraph 10 of the Statement of Claim then pleaded the defendant bank owed the plaintiff a duty of care, upon acknowledging the receipt of the Mareva Injunctions, to exercise reasonable care and skill when dealing with assets which were within the ambit of these two injunctions. This duty was further particularized

(a) under sub-paragraph (4) thereof, as including a duty of care owed by the defendant bank to the plaintiff “to ascertain the assets of Joseph which are within the ambit of the Injunction”; and

(b) under sub-paragraph (5) thereof, as including a duty of care owed by the defendant bank to the plaintiff “to ensure that the terms of the Injunction are fully observed”.

17.  Paragraph 11 of the Statement of Claim then pleaded that one Eureka Group of Companies Limited (“Eureka”) and one Encap Capital Limited (“Encap”) were wholly beneficially owned and controlled by Joseph; and that one Edenton Capital Limited (“Edenton”) was at least partially beneficially owned and controlled by Joseph; and that the defendant bank ought to have known so.

18.  Paragraph 12 of the Statement of Claim pleaded that each of Eureka, Encap and Edenton held an account with the defendant bank (“the 3 Bank Accounts”).

19.  Paragraph 17 then pleaded that the defendant bank failed to observe the Mareva Injunctions by allowing various transactions in the 3 Bank Accounts to have taken place between 2 May to 3 June 2013, including 3 transfers among these 3 Bank Accounts and 5 withdrawals from them, resulted in a net withdrawal from the 3 Bank Accounts in the total sum of HK$6,506,100.

20.  The defendant bank was then said to have breached its duty and was liable to the plaintiff for its loss.

THE DEFENDANT DID NOT OWE THE PLAINTIFF ANY SUCH DUTY - NO REASONABLE CAUSE OF ACTION

21.  Ms Cheng, counsel for the defendant bank, submits that the entire cause of action by the plaintiff is premised on the existence of the alleged duty of care, which is a matter of common ground, but the existence of such duty has been definitively rejected by the UK House of Lords in Customs and Excise Commissioners v Barclays Bank plc[1].

22.  Ms Cheng further submits that the facts in the present case are not only on all fours with Customs and Excise Commissioners v Barclays Bank plc, but indeed the facts there were more favourable towards the person in whose favour the freezing injunctions (the terminology adopted in UK to describe our Mareva injunction) were granted in that there the bank account numbers and the names of the account holders were actually specified on the freezing injunctions themselves.

23.  Ms Mak, counsel for the plaintiff, cites the Hong Kong Court of Final Appeal decision of Luen Hing Fat Coating & Fishing Factory Ltd v Waan Chuen Ming[2] and submits that “considerations of fairness, justice and reasonableness could be employed to ground the imposition of duty of care” and since such considerations are so broad, the question is fit to be decided by a judge; and even though the case may be weak, it should not be struck out.

24.  I turn to consider those cases.

25.  Customs and Excise Commissioners v Barclays Bank plc originated as a trial of preliminary issue on facts assumed to be true but not proved.  The issue was

“whether a bank, notified by a third party of a freezing injunction granted to the third party against one of the bank’s customers, affecting an account held by the customer with the bank, owes a duty of care to the third party to take reasonable care to comply with the terms of the injunction.”[3]

26.  The assumed facts were succinctly set out in the judgment of Lord Bingham :

“In January 2001 Brightstar Systems Ltd and Doveblue Ltd held current accounts with the bank. Both accounts were substantially in credit, but both companies owed the commissioners large sums of unpaid VAT. The commissioners believed that both companies would dissipate their assets in order to defeat judgments which the commissioners were likely to obtain. They accordingly applied for freezing injunctions against each of the companies, which were granted on 26 and 30 January 2001 respectively. The value of the assets restrained was £1,800,000 in the first case and £3,928,130 in the second. In each order a numbered account held by the company at the bank was specified, and in the second order the branch also. The first order was served on the bank by fax at about 12.33 pm on 29 January, the second (also by fax) at about 11.38 am on 30 January 2001. At about 2.30 pm on 29 January 2001 the bank authorized payments totalling £1,240,570 to be made out of the Brightstar account, and at about 2 pm on 30 January it permitted payments totaling £1,064,289 out of the Doveblue account. In due course the commissioners entered judgment against Brightstar for £2,285,788.98 and against Doveblue for £3,944,095.85. Neither company paid any part of the judgment, although the commissioners obtained and enforced garnishee orders absolute against residual sums remaining in the accounts of the companies. In these proceedings the commissioners claim damages against the bank in the sums paid out in breach of the respective injunctions plus interest for the appropriate periods. It is alleged (and for present purposes assumed) that the bank was negligent to permit the payments to be made.”[4]

27.  Pausing it here.  Comparing the facts in Customs and Excise Commissioners v Barclays Bank plc and those pleaded in the present case, I cannot find any material facts that could distinguish that case from the present one.  Moreover, I agree with Ms Cheng that the facts in Customs and Excise Commissioners v Barclays Bank plc were more favourable, as compared to our present pleaded facts, towards the Commissioners in that the accounts were specifically named in the freezing injunctions there, and yet the House rejected such duty of care.  It is submitted, and I agree, that Customs and Excise Commissioners v Barclays Bank plc should apply a fortiori to the present facts.

28.  Customs and Excise Commissioners v Barclays Bank plc was a unanimous decision of the 5 Law Lords, albeit each applying their own reasoning which differed in various degrees to that of the others.  In my view, paragraph 2 of the holdings in the headnote of the report sufficiently summarized their reasoning, and I quote :

“That, since the bank on notification of the injunctive orders was obliged to comply with their terms and was exposed to the risk of punishment for contempt if it did not do so, and since there had been no relevant communication or act between the parties, or any reliance by the commissioners on the bank, it could not be understood as having voluntarily assumed responsibility for its actions so as to give rise to a duty of care towards them; that the court exercised its injunctive jurisdiction on the basis that its orders were enforceable only by its power to punish for contempt and the notified party’s only duty was to the court; that it would not be analogous or incremental to any previous decision if a non-consensual court order were to be recognized as giving rise to a duty owed to the party who obtained it; and that, since its operation would be productive of unjust and unreasonable results, it would not be fair just and reasonable to recognize a duty of care in such circumstances; and that, accordingly, the commissioners’ claim would be dismissed.”

29.  In short, the House held that

(a) The bank could not be understood as having voluntarily assumed responsibility so as to give rise to a duty of care;

(b) The freezing injunction was enforceable by contempt of court only and the notified party’s duty is to the court only; and

(c) It would not be fair just and reasonable to recognize a duty of care in such circumstances.

30.  Turning to the plaintiff’s submission, Luen Hing Fat Coating & Fishing Factory Ltd v Waan Chuen Ming is cited for the general legal principles that

(a) whether a duty of care existed required a holistic view of foreseeability, proximity and the need to be satisfied that it would be fair, just and reasonable to impose a duty of care; and

(b) Considerations of fairness, justice and reasonableness were an intrinsic element of the duty of care and could be employed to ground the imposition of a duty of care.

31.  Those general principles are not disputed by Ms Cheng.

32.  Indisputable though is that the court need to apply those principles to the circumstances of the case, as Bokhary PJ in Luen Hing Fat Coating & Fishing Factory Ltd did in paragraphs 38 to 47 of his judgment.

33.  Luen Hing Fat Coating & Fishing Factory Ltd dealt with an entirely different set of factual circumstances.  It was a personal injury case.  The court there was concerned whether a person owed a duty of care to the employee of an independent contractor engaged by him.  In the particular circumstances of that case and applying those principles, the CFA held that the person did.

34.  Those principles had been applied by the House of Lords in Customs and Excise Commissioners v Barclays Bank plc to factual situations that I find were more than on all fours with the present case.

35.  Moreover, contrary to the plaintiff’s submission that in this case the considerations of fairness, justice and reasonableness may impose a duty of care, 4 of the 5 Law Lords in Customs and Excise Commissioners v Barclays Bank plc expressly concluded to the effect that it was not fair, just and reasonable to impose such duty on the bank – namely, Lord Bingham (§23 @ p.196H), Lord Rodger (§66 @ p.208F-G), Lord Walker (§77 @ p.211B) and Lord Mance (§113 @ p.223EH).

36.  Though strictly UK cases are only persuasive, in the premises I have no hesitation, humbly and respectfully, to agree with and follow the high authority of Customs and Excise Commissioners v Barclays Bank plc.

37.  Thus, I reject the plaintiff’s submission and hold that it is plain and obvious that the defendant bank owed no such alleged duty of care to the plaintiff.

OTHER GROUND FOR STRIKING OUT

38.  In the hearing, Ms Cheng did not pursue the ground that the Statement of Claim is frivolous or vexatious in that clearly there was no breach of duty on the part of the defendant bank or that the plaintiff has suffered any loss.  I therefore do not find it necessary to consider them.

DISPOSAL

39.  In the hearing Ms Mak produces a draft Amended Statement of Claim and indicates an intention on the part of the plaintiff to amend to claim that the defendant bank has “dishonestly assisted” Joseph to breach the Mareva Injunctions.

40.  Ms Cheng urges me to strike out the entire Statement of Claim and dismiss the action, leaving the plaintiff to commence a new action based on such new cause of action.

41.  I decline to adopt such a course as I do not consider it would further the primary aim of securing the just resolution of disputes in accordance with the substantive rights or achieve the underlying objective of procedural economy.

42.  Rather, to achieve the primary aim and the underlying objective and as a matter of case management, I order that the entire Statement of Claim be struck out save the introductory parts, that unless the plaintiff do take out an application to amend the Statement of Claim, this action be dismissed with costs without further order, and the defendant bank’s fallback application for security for costs be adjourned sine die with liberty to restore, so that it can be brought up in the intended hearing for the amendment, if the defendant bank so desires.

43.  For the reasons set out above, I made an order at the end of the hearing in these terms :

(1) The entirety of paragraphs 10-22 and the prayer in the Statement of Claim herein be struck out as disclosing no reasonable cause of action;

(2) Unless the plaintiff files an application to amend the Statement of Claim on or before 4:00pm on 17 November 2017, this action do stand dismissed without further order with costs to the defendant to be assessed summarily;

(3) The defendant’s application for security for costs by paragraph 2 of its summons dated 19 May 2017 be adjourned sine die with liberty to restore; and

(4) Costs of the application to strike out under paragraph 1 of the defendant’s said summons be to the defendant with certificate for counsel summarily assessed at HK$188,180 to be paid by the plaintiff forthwith.

44.  I thank counsel for their assistance.