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

CACV 139 /2017

[2018] HKCA 884

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 139 OF 2017

(ON APPEAL FROM HCCL NO 2 OF 2011)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the court):

1.  On 27 July 2017, we handed down our judgment inter alia dismissing the appeal brought by the 3^rd and 4^th plaintiffs in CACV 139/2017 and made a costs order nisi in §111 that the 3^rd and 4^th plaintiffs do pay the costs of the 1^st to 7^th defendants in this appeal, with a certificate for three counsel.

2.  By a notice of motion filed on 23 August 2018 by the 3^rd and 4^th plaintiffs, the plaintiffs sought leave to appeal from our judgment to the Court of Final Appeal.

3.  By a summons issued on 5 September 2018 by the 1^st to 7^th defendants, the defendants sought to vary the costs order nisi that their costs should be taxed on an indemnity basis or on a basis higher than the standard party and party taxation.

4.  Our judgment of 27 July 2017 dealt with two appeals which were heard together.  The relevant part of the judgment dealing with CACV 139/2017 is at §§39 to 111.  For ease of reference, the terms and expressions used in the judgment will be adopted.

The plaintiffs’ application for leave to appeal to the Court of Final Appeal

5.  Two questions were set out in the notice of motion as questions of great general or public importance:

“1. Are bank owned or controlled trustees or fiduciaries subject to: (a) the principles summarised in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at 389E to 390H identifying the taking of grossly imprudent risks with the assets of others within transactions involving fiduciary self‑benefit, as being dishonest conduct? And/or (b) the formulation of the test for dishonest conduct by a trustee in Armitage v Nurse [1998] Ch 241 at 251D to F?

2. When determining the true nature of the conduct concerned, from the trial Judge’s findings of fact: (a) are our courts required to adhere to the maxim that “equity looks to the intent [or substance] rather than the form”? and (b) is the conduct of a bank in control of a customer’s trust account in causing that account to engage in transactions which the trial Judge has held to have been: irrational, high‑risk, known not to be in the interests of the beneficiaries and involving self-benefit to the bank – “not capable of amounting to dishonest assistance in [the trustee’s] breach of trust”?”

6.  The plaintiffs also relied on the “or otherwise” limb in their notice of motion but reserved their position to make submissions on this limb should leave be refused and they are to renew their application to the Appeal Committee.

7.  The notice of appeal sought to challenge two findings of Bharwaney J: the “No Dishonesty Finding” and the “No Accessory Liability Finding”[1]. Mr Barlow, SC[2] for the plaintiffs had argued that this appeal was not against the trial judge’s findings of fact.  Rather, he had “embraced and relied on” the judge’s findings, which he set out in Appendices A to C of the notice of appeal and his “Summary of Facts”, and contended that had the judge correctly applied the relevant legal principles on those facts as found, that would require verdicts in respect of the 2008 Transactions that: (a) the conduct of all the DBS Fiduciaries amounted to wilful and dishonest misconduct; and (b) all the “accessory defendants”, including DBS Bank, had knowingly assisted in those breaches.

8.  He maintained this stance in the intended appeal to the Court of Final Appeal.  For good measure, he invoked Kwong Mile Services Ltd v Commissioner of Inland Revenue (2004) 7 HKCFAR 275 at §§31 and 37 for the proposition that the appellate court is duty-bound to substitute the contrary conclusion for the one reached by the fact-finding tribunal if it regards the contrary conclusion as “the true and only reasonable one”.

9.  For the reasons fully explained in our judgment, we had rejected Mr Barlow’s submissions.  The plaintiffs’ appeal was in substance an appeal against findings of fact, in respect of which they sought to repeat submissions which had been advanced to and considered by the trial judge[3]. There was no dispute on the legal principles concerning the standard of dishonesty[4], and no basis to suggest that the judge had failed to apply the established standard in making the No Dishonesty Finding and in finding that the accessory defendants did not act dishonestly in the No Accessory Liability Finding[5].  This is particularly so in respect of findings of fact which acquit a party of fraud or dishonesty[6].  The finding that none of the individual defendants acted dishonestly is fatal to the challenge against the No Accessory Liability Finding[7]. The contention that the judge had elevated “form over substance” was fully considered and rejected[8].

10.  We do not think Questions 1 and 2 could be regarded as questions of great general or public importance.  There is no dispute on the legal principles.  The crux of the matter is whether those principles were correctly applied to the facts. For the reasons given in our judgment, the judge did not err in applying the undisputed principles.  The questions formulated are a renewed effort to turn a challenge against findings of fact to a question of law by contending that the application of the legal principles to some aspects of findings of fact would require the particular verdicts sought by the plaintiffs.  This high threshold is plainly not met.  The intended appeal is not reasonably arguable and the questions are not proper questions of law.  Besides, the Court of Final Appeal will not interfere with findings of fact concurrently made by the trial court and the Court of Appeal unless there has been some miscarriage of justice or some other violation of some principle of law or procedure to warrant such interference (Chinachem Charitable Foundation v Chan Chun Chuen (2011) 14 HKCFAR 798 at §37).  We decline to exercise our discretion to grant leave to appeal to the Court of Final Appeal.

11.  We order the 3^rd and 4^th defendants to pay the costs of the 1^st to 7^th defendants of this application.  Having considered the defendants’ statement of costs for summary assessment, we allow costs to the defendants at $274,310.

The defendants’ application to vary the costs order nisi

12.  The defendants sought to vary the costs order nisi from taxation on party and party basis to indemnity basis.  They contended that it is just and appropriate that they should be awarded costs on a higher basis because the plaintiffs’ appeal had no prospect of success and should never have been brought.  Further, the allegations of fraud and dishonesty underpinning the plaintiffs’ case both at first instance and on appeal was without foundation and were made and maintained recklessly, improperly and irresponsibly.  These matters constituted special and unusual features which would justify an order for indemnity costs.

13.  We agree with Mr Burns, SC[9] that it would be appropriate to order indemnity costs in respect of this appeal.  Quite apart from pursuing an appeal that is without merit on any of the contentions advanced, the plaintiffs persisted in making serious allegations of fraud and dishonesty against the defendants, all of which were rejected by the trial judge who frowned on their litigation conduct as “carpet bombing”, “raising multiple and serious allegations, some spurious against every individual and entity involved in the Trust” and resulting in this “complex, costly and prolonged litigation”[10].

14.  We are mindful that we are not concerned with the costs below and the scope of the appeal in CACV 139/2017 was not as extensive as the disputed issues at the trial.  Nevertheless, the allegations of fraud and dishonesty, which underpinned the plaintiffs’ case, were pursued with tenacity on appeal and sought to be re‑worked as issues of law.  These allegations are untenable and without foundation.  They should have been dropped, having been rejected by the court below.

15.  We order that the costs order nisi in CACV 139/2017 be varied to provide for taxation on an indemnity basis.

16.  We further order the 3^rd and 4^th defendants to pay the costs of the 1^st to 7^th defendants of this application.  Having considered the defendants’ statement of costs for summary assessment, we allow costs to the defendants at $191,700.