OTSUKA SHUICHI v. USHIYAMA MASAHARU

HCA 1608/2021

[2022] HKCFI 738

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1608 OF 2021

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D E C I S I O N

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1.  This is the Plaintiff’s application for summary judgment under O.14, alternatively judgment on admission under O.27, 3, Rules of the High Court.

2.  The Plaintiff and the Defendant are Japanese nationals.  The Defendant has been the Plaintiff’s financial advisor since the 1990s.

3.  In 2006, on the advice and arrangement of the Defendant (who at the time was an insurance agent of a financial intermediary in Hong Kong), the Plaintiff took out an insurance policy with Zurich International Life Limited with a contribution value of HK$6,900,000 under policy number 0774073 (“Policy”).  It appears that the Defendant was responsible for managing the Policy for the Plaintiff vis-à-vis Zurich, and the Defendant’s Hong Kong address was given as the Plaintiff’s correspondence address.

4.  Around the same time, pursuant to the advice of the Defendant the Plaintiff opened a bank account with OCBC Wing Hang Bank Ltd in his own name (“Bank Account”), and appointed the Defendant his attorney to operate the Bank Account on his behalf.

5.  The Plaintiff has never given instructions to redeem the Policy.  In September 2018, the Plaintiff needed funds for his personal purposes and asked the Defendant to remit funds in the Bank Account to his order.  The funds never arrived.  On 27 February 2019 the Plaintiff through email demanded the Defendant to provide an explanation as to why the funds never arrived.  The Defendant reverted on 5 March 2019 stating that the delay was due to late arrival of funds from Zurich, and he expected the funds to arrive in a day or so, failing which he would arrange to remit his own funds first.  The promised funds never arrived.

6.  Meanwhile, the Plaintiff became suspicious and reached out to Zurich for information.  On 18 March 2019, he was informed by Zurich that the Policy had already been surrendered on 7 December 2017 without his knowledge and all the proceeds had been remitted to the Bank Account.

7.  The Plaintiff then confronted the Defendant on email.  In his replies dated 29 and 31 March 2019, the Defendant denied having defrauded the Plaintiff, and claimed that he had arranged for the withdrawal in the interest of the Plaintiff, and had caused the proceeds of the Policy to be placed in a private bank which he would return to the Plaintiff shortly.  From April to August 2019, the Plaintiff repeatedly chased the Defendant for the funds, which the Defendant responded to using various excuses.  The funds were never returned.

8.  Since August 2019, the Plaintiff obtained various documents of Zurich and OCBC Wing Hang Bank, from which he discovered that:-

(1)  the Defendant had forged his signature on partial withdrawal requests and surrender forms for Zurich between 2009 and December 2017; and

(2)  the funds remitted by Zurich into the Bank Account were then transferred from the Bank Account to the Defendant between 2013 and December 2017, through cheques drawn on the Bank Account in favour of the Defendant and signed by the Defendant as the Plaintiff’s attorney.  The total amount of funds thus transferred from the Bank Account to the Defendant was HK$6,586,500.

9.  On 2 September 2019, the Plaintiff and the Defendant entered into a settlement agreement (“Settlement Agreement”).  The recitals to the Settlement Agreement stated that the Defendant had successively surrendered the Policy unbeknownst to the Plaintiff between July 2009 and November 2015, had unbeknownst to the Plaintiff and deposited and immediately withdrew the amount corresponding to each surrender to the Bank Account, and had caused damage to the Plaintiff of HK$6,781,715.82.  The Settlement Agreement then stated that on a no-admission-of-liability basis, the Defendant agreed to pay to the Plaintiff HK$8,138,058.98, being 120% of the abovementioned damage, which would be paid in 2 instalments, with HK$6,781,715.82 payable by 9 September 2019 and HK$1,356,343.16 by 9 October 2019.

10.  However no payment has ever been made.  The Plaintiff reported the matter to the Hong Kong Police on 20 September 2019.

11.  On 22 September 2020, the Plaintiff commenced High Court Action No. 1614 of 2020 against the Defendant (“2020 Action”).  Shortly thereafter, the Plaintiff learnt that the Defendant had already been adjudged bankrupt on 15 September 2020. The Plaintiff then discontinued the 2020 Action and filed a proof of debt against the Defendant’s estate.

12.  Upon being notified by the Official Receiver that the Defendant’s estate only had negligible assets, on 22 October 2021 the Plaintiff commenced this action.  The Statement of Claim pleads that the Defendant, as insurance agent and financial advisor of the Plaintiff, owes various fiduciary and other duties to the Plaintiff, and has breached those duties by reason of (inter alia) the unauthorized surrender of the Policy and the misappropriation of the funds in the Bank Account, and seeks (i) a declaration that the Defendant has acted in breach of duties; (ii) damages for HK$6,900,000; (iii) an account of profits; (iv) various ancillary orders relevant to the taking of the account; and (v) costs. The Plaintiff explains that he was advised to commence this action to facilitate his attempts to trace the Defendant’s assets outside Hong Kong.

13.  The Defendant, who acts in person, filed an Acknowledgement of Service on 10 November 2021 and a Defence on 8 December 2021.  The Defence consists of non-admissions and an assertion that the matter is under police investigation and he is currently on bail.

14.  By an order dated 19 November 2021, the Bankruptcy Court granted retrospective leave to the Plaintiff to commence and proceed with this action against the Defendant, on condition (inter alia) that no judgment or order the Plaintiff obtains herein shall be enforced against the Defendant’s property or estate without leave of court.

15.  On 15 February 2022 the Plaintiff took out the present application and filed an affidavit in support with exhibits comprising 2 lever arch folders.  The Defendant has not filed any evidence or submissions in opposition.

16.  The Defendant appeared in person at the hearing. He was conversant in English and made submissions in English.  The Court explained the nature of the application brought by the Plaintiff and the consequences that might follow.  He was informed that as he has filed only a bare Defence and no evidence, the Court would have to proceed on the basis of the materials before it.  The Defendant stated that as he is still under police investigation, he did not want to say or do anything that may affect the investigation, and he wishes to preserve his privilege against self-incrimination.  When asked whether he would wish to file evidence in opposition, which he would likely be given 14 days to do so, the Defendant indicated that since he is not prepared to say anything until after the police investigation comes to an end, even if he were given 14 days he would not have filed any evidence.

17.  I do not consider the position taken by the Defendant to provide a reason for me to direct on my own volition a stay of these proceedings or otherwise not proceed to consider the Plaintiff’s application.

(1)  There is no principle of law that a plaintiff in a civil action is to be debarred from pursuing that action in accordance with the normal rules of the conduct of civil actions merely because so to do would, or might, result in the defendant, if he wished to defend the action, having to disclose, by an affidavit under O.14, or in the pleading of his defence, or by way of discovery or otherwise, what his defence is or may be, in whole or in part, with the result that he might be giving an indication of what his defence was likely to be in the contemporaneous criminal proceedings: Jefferson Ltd v Bhetcha [1979] 1 WLR 898, 904H-905B.

(2)  Instead, the civil court has a discretion whether to stay the civil proceedings and a balancing exercise is called for. The burden is on the defendant in the civil action to show that it is just and convenient that the plaintiff’s ordinary rights of having his claim processed and heard and decided should be interfered with: 905D op.cit.; Yi Quan Li v Suen Kin Wing [2019] 5 HKLRD 316, §§8-9.

(3)  As to where the balance of justice falls between the parties, each case must be judged on its own facts.  Factors that the court may take into account include whether there is a real danger of the causing of injustice in the criminal proceedings: Jefferson v Bhetcha 905D. However, it is also important to bear in mind that the starting premise should be that all those carrying out their functions in the criminal proceedings (the trial judge or the prosecution) will do so properly: A v Securities and Futures Commission [2015] 1 HKLRD 47, [88].

(4)  In this case, no criminal proceedings have been commenced or are threatened against the Defendant.  The Defendant has not articulated at all why he considers that if he is to file proper pleadings or evidence to oppose the application, there would be a real danger of causing injustice in any criminal proceedings that may be brought against him.  In the circumstances, and bearing in mind the considerations identified in A v SFC, I do not consider the Defendant can show that it is just and convenient that the Plaintiff’s rights of having his claim process and heard and decided should be interfered with.  Accordingly, I would not have granted a stay of proceedings even if such an order had been sought by the Defendant.

18.  In the premises, the Plaintiff’s application must be considered on the basis of the materials available.

19.  I will first deal with the summary judgment application.

20.  The principles are well established – summary judgment is for clear cases, and should only be given when the court is satisfied that there is no defence.  Once the formal requirements for the application are satisfied, the burden is on the defendant to show triable issue.

21.  In this case, the Defendant has not put forward any substantive defence or filed evidence.  In the course of his oral submissions, he stated that the Settlement Agreement could not be relied upon as his admission of liability, as it was entered into in the particular circumstances in which he signed them, but he did not particularize what those circumstances were.

22.  Having regard to (i) the contemporaneous documents and (ii) the Defence, I am satisfied that:-

(1)  The Defendant, as the agent of the Plaintiff, owed fiduciary duties to the Plaintiff, including the duty not to put himself in a position of conflict and not to misappropriate the Plaintiff’s assets.

(2)  The Defendant has caused the surrender of the Policy and, more importantly, the transfer of its proceeds in the Bank Account to himself.

(3)  It is not suggested that the Defendant has ever obtained the Plaintiff’s consent for the above acts.

(4)  The Defendant has to date not returned any of the funds he has removed from the Bank Account to the Plaintiff.

(5)  Accordingly, the Defendant was in breach of his fiduciary duties owed to the Plaintiff.

23.  I reach the above conclusion without having to rely on the Settlement Agreement.  In any event, I do not consider what the Defendant has asserted in §21 above to have undermined the Settlement Agreement, since the Settlement Agreement was signed by the Defendant and, unless it has been set aside by action commenced by the Defendant, would remain binding on the Defendant.

24.  As to relief:-

(1)  The first pleaded relief is for a declaration.  It is commonplace in fraud cases where a proprietary remedy is sought for a declaration to be granted, since this may facilitate the victim’s tracing exercise for recovery purposes, especially where third parties are involved.  Accordingly I consider it appropriate that a declaration should be granted in this case.

(2)  As for the second, fourth, fifth, sixth and seventh reliefs, they are concerned with the account taking exercise, seeking discovery of documents and provision of information on the whereabouts of the funds.  Mr Tong, who appeared on behalf of the Plaintiff, confirmed that the fifth relief is duplicative of the other and no longer pursues that.  Since the taking of an account is also a remedy open to a claim for breach of fiduciary duty seeking proprietary relief, I am also prepared to grant the second, fourth, sixth and seventh reliefs.

(3)  As for the third relief (damages for HK$6,900,000, more appropriately equitable compensation), it also follows from my findings above and I will grant the same, subject to the conditions in paragraph 14 above.

25.  In light of the above, it is not necessary for me to deal with the O.27, r.3 application.  I note the English authority cited by the Plaintiff and in Hong Kong Civil Procedure 2022: 27/3/3, but I confess I have some difficulties with the reasoning in Standerwick v Royal Ordnance plc [1996] CLY 672, which does not appear to sit well with the express words used in O.27, rr.1 and 3.  I also note that there does not appear to be any reasoned Hong Kong decision on this aspect.  Since this matter has not been fully argued before me, I do not consider it appropriate for me to express further views at this juncture.

26.  In light of the above, I grant summary judgment to the Plaintiff in terms of paragraphs 1 to 7 of his summons dated 15 February 2022.

27.  As to costs, I will make an order that the Defendant should pay the Plaintiff’s costs of this application and this action, to be taxed if not agreed.  This however is subject to the conditions in the order dated 19 November 2021 by the Bankruptcy Court as set out in paragraph 14 above.