AMERICAN INTERNATIONAL ASSURANCE CO (BERMUDA) LTD v. CHEUNG SIN MAN

HCA 1556/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1556 OF 2011

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BETWEEN

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DECISION AND REASONS FOR DECISION

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1.  There are two summonses before me:

(i) the Plaintiff’s summons dated 14 September 2011 for the continuation of the Mareva injunction granted by Line J on 12 September 2011 as varied by M Chan DHCJ on 30 September 2011; and

(ii) the Plaintiff’s summons dated 17 September 2011 for an order to inspect and take copies of certain entries in the Defendant’s bank account in Bank of China (“the Defendant’s Account”).

2.  Although the Defendant had not taken out a proper summons, the parties agreed for the court to deal with the Defendant’s application to discharge the ex parte injunction on the ground of material non-disclosure together with the said applications.  In the hearing on 21 November 2011, I allowed the Plaintiff’s application to continue the Mareva injunction and refused the Defendant’s application for the discharge of the ex parte injunction.  I now give my reasons.  The decision on the inspection order was reserved and I now also hand down the decision on such application.

BACKGROUND

3.  The Plaintiff carries on the business of an insurance company in Hong Kong.  Apart from general insurance policies, the Plaintiff also offers investment-linked assurance plans and policies to its customers.

4.  The Defendant was employed as one of its Associate Financial Planners.  She received substantial amount of commissions in the sum of US$788,852.94 in respect of four investment-linked plans and policies issued by the Plaintiff to two of the customers, namely Mr Sun Kin Yan Dennis (“Mr Sun”) and Mr Wong Ming Kerry (“Mr Wong”) in 2011.

5.  The Defendant purported to resign on 17 August 2011.  After that, the Plaintiff had contacts with Mr Sun and Mr Wong. According to these two customers, the terms presented by the Defendant about these investment plans and policies were different from the ones actually issued by the Plaintiff.  Further, Mr Sun had received from the Defendant two special quotations relating to the investment-linked plans and policies purportedly issued by the Plaintiff’s Actuarial Department.  It was later found out that the Actuarial Department had issued no such documents.  In fact, the Defendant had not shown the quotations actually issued by the Plaintiff’s Actuarial Department to these two customers.

6.  On 12 September 2011, the Plaintiff commenced the present action against the Defendant.  The Plaintiff’s causes of action against the Defendant include: (i) claim for money had and received; (ii) claim for return of money paid under a mistake of fact, with the Plaintiff having been mistaken as to the entitlement of the Defendant to the commissions as a result of the Defendant’s fraud; (iii) claim for the Defendant to account to the Plaintiff for the commissions paid on the ground of the Defendant’s breach of fiduciary duty and/or breach of trust; and (iv) claim for damages for breach of contract and/or deceit.

7.  On the same day, the Plaintiff obtained an ex parte Mareva injunction against the Defendant up to the sum of US$584,307.68. On 30 September 2010, the Plaintiff obtained a variation by the court increasing the limit of the injunction to the sum of US$788,852.94.

8.  On 14 September 2011, the Plaintiff also reported the matter to the police for investigation.  The Defendant was arrested by the police on 27 October 2011 and she has been released on police bail.

APPLICATION FOR THE CONTINUATION OF THE MAREVA INJUNCTION

9.  I first deal with the application for the continuation of the Mareva injunction.  For such kind of application, the plaintiff must establish the following:

(i) the plaintiff has a good arguable case on a substantive claim over which the court has jurisdiction;

(ii) the defendant has assets within the jurisdiction;

(iii) there is a real risk of dissipation of assets, or removal of assets from the jurisdiction, which would render the plaintiff’s judgment of no effect; and

(iv) the balance of convenience is in favour of the grant of the injunction.

(i)   Good arguable case

10.  It is the Plaintiff’s case that the Defendant had obtained the commissions by making fraudulent misrepresentations to Mr Sun and Mr Wong about the investment-linked plans and policies.  As the commissions were obtained by fraud, the Plaintiff claims that equity imposes a constructive trust on the Defendant and the Plaintiff therefore has a proprietary claim over the commissions paid to the Defendant.

11.  To a certain extent, the Plaintiff has to rely on the oral assertions of Mr Sun and Mr Wong to establish its claim.  Although the Defendant disputes that she had made such misrepresentations to Mr Sun and Mr Wong, there is certainly some more objective evidence to support the Plaintiff’s claim.

12.  Firstly, the Plaintiff was required by the Hong Kong Federation of Insurers to make Investment-linked Assurance Scheme welcome calls (“Welcome Calls”) to Mr Sun and Mr Wong to confirm that, inter alia, the latter understood the terms and risks of the policies.  It is the Plaintiff’s case that, in order to avoid the Plaintiff in making contacts with these two customers, the Defendant had put down false mobile numbers of Mr Sun and Mr Wong in the Plaintiff’s records.  The Defendant then arranged someone to receive the Welcome Calls posing as Mr Sun and Mr Wong.  Further, around the time when the Plaintiff made such Welcome Calls, the Defendant made a number of calls to the Plaintiff’s Call Centre to ascertain, inter alia, the time when the Welcome Calls would be made and whether there would be further Welcome Calls to the said customers.  All the telephone conversations of the Call Centre were recorded and the Plaintiff is able to produce the transcripts of the relevant telephone conversations to substantiate its claim.  Further, Mr Sun and Mr Wong confirm that their mobile numbers in the Plaintiff’s records were false.

13.  Secondly, Mr Sun is able to say that the Defendant had shown him two special quotations for extra special bonus which were not actually issued by the Actuarial Department of the Plaintiff.  Mr Sun also supplied copies of such quotations to the Plaintiff.  Based on the evidence mentioned in these two paragraphs, I accept that the Plaintiff has managed to establish a good arguable claim against the Defendant.

14.  Further, I would add one more observation.  If what the Defendant tells the court were the truth, it would virtually mean that both Mr Sun and Mr Wong were trying to defraud the Plaintiff by producing forged documents and supplying false contact mobile numbers.  However, it does not quite make sense to me as to why Mr Sun and Mr Wong had to defraud the Plaintiff in such manner.  Firstly, they had to pay considerable amounts of premiums to the Plaintiff at the outset: Mr Sun paid a total of HK$16,000,000 for two investment-linked plans and policies in 2011, and Mr Wong paid a total of HK$4,256,900 for two investment-linked plans and policies in the same year.  Secondly, the whole purpose of the fraudulent schemes was, apparently, to defraud the Plaintiff in paying higher bonuses under the investment policies or to obtain bonuses at earlier times.  In so doing, they forged the special quotations.  However, their schemes were bound to be discovered because their special quotations would not tally with the ones issued by the Plaintiff’s Actuarial Department.  Investigation would then follow and their conduct would be examined under the spotlight.  If their schemes were discovered, there was a real danger that they would lose the substantial premiums paid at the outset.  As I see it, these were not very workable “fraudulent” schemes.  Thirdly, if Mr Sun and Mr Wong wanted to defraud the Plaintiff, it served no purpose for them to supply false contact numbers to the Plaintiff.  On the other hand, the supply of such false contact numbers is consistent with the Plaintiff’s allegation that the Defendant had tried to cover up the fraud and to obtain the commissions from the Plaintiff fraudulently.

15.  In any event, these are only the preliminary observations based on the evidence available at this stage.  For the purpose of the existing applications, it is suffice for me that to say that the Plaintiff has managed to establish a good arguable claim against the Defendant.

(ii)     Assets within the jurisdiction

16.  There is no dispute that the Defendant has money in the Defendant’s Account in Hong Kong.

(iii) Risk of dissipation of assets

17.  There is evidence to support that the Defendant had obtained the commissions by fraud.  After she tendered her resignation, she left Hong Kong for a brief period of time.  Apart from the money in the Defendant’s Account or perhaps another account in Hang Seng Bank, the Defendant has no other fixed asset in Hong Kong. In such circumstances, I accept that there is a real risk of dissipation of assets if a Mareva injunction is not made against the Defendant.

(iv) Balance of convenience

18.  The Plaintiff is a well known insurance company in Hong Kong.  Even if the Mareva injunction is wrongly granted, I am satisfied that the Defendant’s potential loss will be sufficiently covered by the undertaking as to damages given by the Plaintiff.  On the other hand, the Defendant has no fixed asset in Hong Kong.  If she removes the fund from the Defendant’s Account, the Plaintiff will be left with no protection at all. Hence, balance of convenience favours the granting of the injunction.

19.  Based on these considerations, I allowed the Plaintiff’s application for the continuation of the Mareva injunction. I now turn to the Defendant’s application for the discharge of the ex parte injunction.

APPLICATION FOR THE DISCHARGE OF THE EX PARTE INJUNCTION

20.  Mr Chan, counsel for the Defendant, has provided a whole list of particulars of material non-disclosure in his written submissions.  However, Mr Chan accepts that only the following points deserve consideration by the court:

(i)   the Plaintiff has failed to disclose that the Defendant’s superior, Mr Marcus Wong, had withheld the resignation of the Defendant, which means that the Defendant is still an agent of the Plaintiff on record as the Defendant’s agent licence has not yet been deregistered; and

(ii)   the present status of the investment-linked plans and policies of Mr Sun and Mr Wong is unknown, and it is also unclear whether the Plaintiff has refunded the premiums paid by Mr Sun and Mr Wong under the investment policies.

21.  Again I see no merit in the Defendant’s argument.  It is the Plaintiff’s claim that the Defendant has obtained the commissions by fraud, and so whether the Defendant technically is still an agent of the Plaintiff is quite irrelevant.  In respect of the status of the investment policies and the possible refund of the premiums, I am of the view that these are legal and technical matters which the Plaintiff needs time to resolve in due course.  In determining whether to grant the ex parte injunction, the court was only concerned whether there was evidence to support the Plaintiff’s claim on fraud and the other matters relevant to the granting of the Mareva injunction as mentioned in paragraph 9 above.  I therefore refused the Defendant’s application for the discharge of the ex parte injunction.

COSTS

22.  The normal costs order for interlocutory injunction is costs in the cause.  Despite that, I take the view that the Defendant should not have contested the Plaintiff’s inter parte summons for the continuation of the Mareva injunction after she had the opportunity of perusing all the affidavit evidence of the Plaintiff.  If the court just blindly follows the normal costs rule, it would encourage parties to contest such kind of applications even without merits.  I therefore ordered that, save that the costs of the hearing on 21 November 2011 be the Plaintiff’s costs in the cause, the costs of the Plaintiff’s summons dated 14 September 2011 be costs in the cause.

APPLICATION FOR THE INSPECTION OF THE BANK RECORDS

23.  The commissions were paid into the Defendant’s Account.  In order to track the movement of the funds in the Defendant’s Account, the Plaintiff also applies to inspect the bank records of the Defendant’s Account pursuant to s 21 of the Evidence Ordinance, Cap 8.

24.  A summary of the legal principles relating to s 21 application can be found in the judgement of Poon DHCJ, as he then was, in CTO (HK) Ltd v Li Man Chiu & Others [2002] 2 HKLRD 875 at pp 876-877:

“10. To make a Mareva injunction effective, the court has a discretion to order the defendant to make a statement of his assets and to give discovery of documents for the purpose of ascertaining the existence, nature and location of assets and in the case of a proprietary claim, the whereabouts of the missing trust funds: A v C (No. 1) [1981] QB 956 (note). The primary purpose of the discovery order is to preserve the assets or property which might otherwise be dissipated notwithstanding the injunction.

11. It is not uncommon that a plaintiff, like the plaintiff here, seeks to invoke s. 21 of the Evidence Ordinance (Cap. 8) for an order that it may inspect and take copies of any entries in a banker’s record. The bank may or may not be summonsed before the court when such an application is taken out: see sub-s. (2).

12. Though the court would not lightly use its powers to order disclosure of full information touching the confidential relationship of banker and customer, such an order is justified even at the early interlocutory stages of an action where the plaintiff sought to trace funds which, in equity, belonged to it and of which there was strong evidence that it had been fraudulently deprived and delay might result in the dissipation of the funds before trial: Bankers Trust Co v Shapira [1980] 1 WLR 1274. The plaintiff would normally be required to give an undertaking that such information would be used only for the purposes of the action to trace the funds and not for any other purposes.

13. In Arab Monetary Fund v Hashim (No 5) [1992] 2 All ER 911, Hoffmann J (as he then was) imposed three limits on the Bankers Trust Co v Shapira [1980] 1 WLR 1274 jurisdiction at pp. 918E-920A.  First, the plaintiff must demonstrate a real prospect that the information may lead to the location or preservation of assets to which he is making a proprietary claim.  For the jurisdiction rests upon the proposition that unless the assets in question can be located and secured, the ultimate determination of ownership of those assets may be frustrated by their removal or dissipation and there will be no point in calling on the third party at the trial to produce the required documents or give the requested information.  Second, the jurisdiction is more restricted than a request to a party for general discovery on an issue.  When documents are required to be disclosed, the third party should be entitled to the same specificity in the documents he is asked to produce as he would be served with a subpoena.  Likewise, if he is asked for information, the questions should be directed with specificity to ascertaining the whereabouts of the assets in question.  Third, even if the application is prima facie falling [within] the Bankers Trust principle, the court needs to balance the potential advantage against the detriment to the person against whom the order is sought, not merely in terms of costs (for which he is ordinarily compensated on an indemnity basis by the terms of the order) but by way of invasion of privacy and requiring breach of obligations of confidence to others.”

25.  There is evidence in the present case to show that the Defendant had obtained the commissions by fraud.  As the Plaintiff has a potential proprietary claim over the money paid to the Defendant, the Plaintiff should be allowed to trace the funds paid by the Plaintiff into the Defendant’s Account.  Further, I do not see that there is any real detriment to the bank or the Defendant by the making of the inspection order, and so the Plaintiff should entitle to the inspection order under the Bankers Trust principle.

26.  It seems that Mr Chan is not challenging the inspection order as a matter of principle.  Nevertheless, Mr Chan makes the following two observations.

27.  Firstly, the Plaintiff should give an undertaking to the court that the information obtained from the inspection order would only be used for the purposes of the action to trace the funds and not for any other purposes.  The Plaintiff is prepared to provide such undertaking.

28.  Secondly, the order proposed in the summons is simply too wide: sub-paragraph (a) requires the bank to produce all account opening forms, signature specimen cards, application forms, indemnities, counter-indemnities and mandates in whatever form; sub-paragraph (f) requires the bank to produce all cheques paid into the Defendant’s Account during the relevant period; and sub-paragraph (h) requires the bank to produce all credit vouchers and other documentation relating to funds paid into the Defendant’s Account and the sources of those funds.

29.  I agree with such observations.  For the purpose of tracing the movement of funds paid by the Plaintiff and not other persons, it is not necessary for the Plaintiff to obtain the opening forms, signatures specimen cards, incoming cheques and credit vouchers relating to the Defendant’s Account.  In any event, the Plaintiff would be able to obtain all the bank statements of the Defendant’s Account in the relevant period, and so the production of these documents is quite unnecessary and would amount to an invasion of the Defendant’s privacy.  Ms Wu, counsel for the Plaintiff, does not seek to argue otherwise.  Hence, subject to the undertaking as mentioned in paragraph 27 above and the deletion of sub-paragraphs (a), (f) and (h) of paragraph 2 of the summons, I make an order in terms of the summons dated 17 September 2011.  However, if it later becomes necessary to inspect the incoming cheques and credit vouchers for the purpose of the tracing exercise, there will be liberty to the Plaintiff to make an application to the court to inspect such documents.