WEALTHY CENTURY INVESTMENT LTD v. DBS BANK (HK) LTD

DCCJ 1519/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL JURISDICTION NO.1519 OF 2009

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D E C I S I O N

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1.  There are 2 summonses before the court, both issued by the Defendant dated 5 October 2009.  The first summons seeks interpleader relief under Order 17 Rule 1 of the Rules of the District Court.  The second seeks the disposal of the case on a point of law under Order 14A Rule 1 and summary judgment under Order 14 Rule 5.

Background

2.  The Defendant is a licensed bank in Hong Kong.  In 2006 the Plaintiff, which runs an estate agency business, opened 2 bank accounts with the Defendant in the names of “Wealthy Century Investment Ltd” and “Kin Fu Realty o/b Wealthy Century Investment Ltd” respectively (“the Accounts”).

3.  Before the dispute in this action arose, the mandates, or the signing arrangements, for the Accounts had required signatures from all 3 authorised signatories, i.e., Mr Sin To Keung (“Sin”), Madam Chui Siu Heung (“Chui”) and Mr Lui Chi Keung (“Lui”), together with the company chop for the respective accounts.  All 3 signatories were shareholders and directors of the Plaintiff.  These mandates took effect in late October and early November 2007.

4.  On 23 May 2008 the Defendant received an instruction to alter the mandates from Sin and a Mr Fong Kin Yee, the husband and alternate director of Chui (“Fong”), together with a copy of the minutes of a board meeting of the Plaintiff dated 22 May 2008 which resolved that the Accounts be operated by Sin and Fong jointly.  Also on 22 May 2008, the board resolved to remove Lui as a director.  On 24 May 2008 the Defendant received a letter from Lui stating that there were disputes among the shareholders and directors and requesting the Defendant to freeze the operation of the Accounts immediately until resolution of the disputes or until further notice.

5.  Following further correspondence among the parties, the further details of which I shall deal with later on in this judgment, the Defendant informed the Plaintiff and Lui by letter dated 6 June 2008 that in the light of the conflicting instructions and the disputes among the shareholders and directors, it would freeze the Accounts with immediate effect, pending:

(a) a duly passed board resolution with unanimous consent of all directors with regard to the operation and maintenance of the Accounts; and

(b)    the execution of a new Mandate for the Accounts pursuant to the resolution after the disputes between the directors had been resolved.

6.  The shareholders were unable to come to any agreement.  They did not take any legal action against each other either to have their disputes resolved.  By letter dated 3 February 2009, the Plaintiff’s solicitors requested the Defendant to close the Accounts and return the balance of monies in the Accounts (“the Funds”) to the Plaintiff, failing which proceedings would be instituted against the Defendant.  The Defendant having declined the request, the Plaintiff issued the writ in this action on 26 March 2009.  Since then, pleadings have been filed, including the Defendant’s Defence and Counterclaim.

7.  On 12 June 2009, the Defendant issued an interpleader summons (“the First Interpleader Summons) under Order 17 Rule 1 of the RDC, which was also served on Lui as the Claimant.  By that summons, the Defendant sought to interplead between the Plaintiff and Lui, who was represented at the hearing of that summons.  Registrar S.T. Poon, as he then was, dismissed the summons on 7 August 2009.  As appears from a transcript of the hearing, one of the grounds on which the learned Registrar dismissed the summons was that Lui had no valid claim or interest in respect of the Funds.  In the course of the hearing, Lui’s solicitor also stated that his client did not intend to issue proceedings against the Defendant to recover the Funds.  The Defendant did not lodge any appeal against the dismissal.

8.  After further correspondence among the parties, the Defendant took out the 2 summonses which are now before the court, including the summons under Order 17, to which I shall refer as “the Second Interpleader Summons”.  By the time of the hearing of these 2 summonses, Lui, the Claimant in the interpleader summons, was no longer represented and he also failed to appear at the hearing.

Shareholders’ Dispute

9.  The dispute between Sin, Chui and Fong on the one hand (“the majority shareholders), and Lui on the other, consists of allegations and counter-allegations.  The majority shareholders alleged that Lui had duplicated more than 2,000 records of the Plaintiff’s clients from its computer without proper authorisation.  It was this discovery that precipitated their decision to remove Lui from the board and change the mandates for the Accounts in order, so they claim, to protect the Plaintiff’s interests.  Soon afterwards they also discovered that Lui had misappropriated commissions belonging to the Plaintiff, and set up a competing business called ‘New Home Realty Ltd” in breach of his duty as a director.

10.  Lui on the other hand alleged that he joined as a shareholder on the agreed basis that all decisions of the Plaintiff had to be taken unanimously by the 3 shareholders, and all bank accounts were to be operated by all 3 shareholders jointly, as evidenced in paragraphs 1 and 2 of the minutes of the shareholders’ meeting of 25 October 2007.  His removal from the board and the alteration of the mandates for the Accounts were contrary to that agreement.  He also alleged that he had been deceived by Sin into investing $350,000 in the Plaintiff as a 33% shareholder in September/October 2007.  He soon discovered that a substantial amount of money on the Plaintiff’s books had gone missing.

11.  The majority shareholders’ response to Lui’s allegation was that all assets shown on the Plaintiff’s books when Lui joined as a shareholder were properly accounted for, and that the matter had been resolved between the two sides at the time.

The Second Interpleader Summons

12.  I now turn to the Second Interpleader Summons.  The Plaintiff’s position is that the summons should be dismissed as being an abuse of process, it being based on the same facts involving the same parties on the same issue as the First Interpleader Summons which was dismissed by the court.  The Defendant submits that it was justified in issuing the Second Interpleader Summons because there had been a change of circumstance, in that while previously Lui did not properly formulate his claim, further correspondence since the dismissal of the First Interpleader Summons has shown the legal basis of Lui’s competing claim in respect of the Funds.

13.  The correspondence relied on by the Defendant is as follows.  The First Interpleader Summons having been dismissed on 7 August 2009, the Defendant wrote to Lui’s solicitors on 27 August 2009 stating that in the light of the decision by the court that Lui had no valid claim to the Funds and the confirmation given on his behalf at the hearing that he did not intend to sue the Defendant for the recovery of the Funds, the Defendant would be approaching the Plaintiff with a view to paying the Funds over to the Plaintiff.  Lui then replied on 28 August 2009, maintaining his stance, and reserving his rights against the Defendant.  On 15 September 2009, Lui’s solicitors also wrote, saying that Lui would claim against the Plaintiff for the amount of $825,240, urging the Defendant not to release the Funds (which by then was just over $528,000).  On 18 September 2009, the Defendant’s solicitors wrote to Lui’s solicitors, stating their understanding of Lui’s claim, which was that the Plaintiff company had been formed as a quasi-partnership of the shareholders with the common intention that each of them would be involved in the management of the Plaintiff, and that Lui had a beneficial interest in the Funds which Lui was now asserting against the Plaintiff or the two other shareholders.

14.  It is on the basis of this correspondence that the Defendant now claims that there has been a change of circumstance since the First Interpleader Summons.  Unfortunately for the Defendant, the alleged facts on which Lui’s claim based on a quasi-partnership were not new at all.  Soon after the dispute arose, Lui wrote a letter dated 23 May 2008 (received by the Defendant on 26 May 2008), enclosing a copy of the minutes of a shareholders’ meeting of the Plaintiff held on 25 October 2007.  Whether or not Lui’s “adverse claim” was presented to Registrar Poon in the same way as it has been put before me, Lui’s letter to the Defendant dated 23 May 2008 and the relevant minutes of the shareholders’ meeting were both before the court in the First Interpleader Summons.  The Defendant may have since then given a new shape to Lui’s “claim”, but I cannot see how there has been a change of circumstance.  I agree with the Plaintiff’s submission that the Defendant may not issue a fresh summons in the circumstances of this case.

15.  Mr Justin Wang, counsel for the Plaintiff, further argues that the Defendant does not satisfy the criteria for relief under Order 17, including the requirement that the applicant does not collude with any of the claimants to the subject-matter in dispute.  I agree with him, for a number of reasons.  The Defendant, instead of interpleading at a much earlier stage, decided to freeze the Accounts, which was what Lui requested.  Even after the Plaintiff issued the writ (by which time the Accounts had been frozen for 9 months), the Defendant chose not to interplead there and then, but filed a Defence and Counterclaim, maintaining that it was entitled to freeze the Accounts.  Even after the court ruling on the First Interpleader Summons, the Defendant yet again wrote to Lui asking if he had a valid claim to the Funds (a question which had already been decided by the court), and even formulated a claim for him, in effect “playing the same game” as Lui.  See Staryork Investment Limited v Cheung Chi Keung (unrep, HCA 2176/2003, Reyes J, 15 October 2003).  For all the above reasons, I dismiss the Second Interpleader Summons.

Order 14A Summons

16.  Both the Plaintiff and the Defendant submit that this is a proper case for determination under Order 14A, and these two parties are desirous of bringing the matter to a close, if at all possible.  The 2 main questions to be determined are contained in paragraph 1 of the summons:

(a) whether the Defendant in freezing the Accounts from 6 June 2008 onwards acted in accordance with the terms of the Mandates and Terms and Conditions of the Defendant which governed the operation of the Accounts; and

(b)    whether the Defendant was “put on inquiry” of possible fraud, misappropriation of company funds or irregularities at the Plaintiff such that it was reasonable for the Defendant as the Plaintiff’s banker to freeze the Accounts from 6 June 2008 onwards.

The remaining questions are largely consequential upon the answers given to the above questions.

Evidence

17.  The evidence in this case is mainly contained in the correspondence among the three parties.  I have earlier referred to the instruction from Sin and Fong to the Defendant to change the mandates for the Accounts on 23 May 2008 (enclosing the board minutes which purported to record a resolution that the mandates be changed), and Lui’s letters to the Defendant dated 23 and 24 May 2008, and the minutes of a shareholders’ meeting dated 25 October 2007.

18.  On 26 May 2008, the Defendant received from Sin a letter dated 22 May 2008 signed by Sin allegedly on behalf of the Plaintiff and addressed to Lui, stating that the board had resolved to terminate Lui’s directorship with immediate effect.

19.  On 27 May 2008, Lui spoke on the telephone to Ms Alice Sze, Assistant Vice President and Customer Service Manager of the Defendant, claiming there had been past incidents of misappropriation of the Plaintiff’s funds by the other directors (although Ms Sze has not specified in her affirmation what exactly she was told by Lui) and had reported the matter to the police.

20.  On 2 June 2008, the Defendant received a letter from Lui’s solicitors repeating Lui’s complaints against the other directors, and his request to withhold any changes of the mandates for the Accounts.

21.  On 3 June 2008, Sin provided the Defendant with a copy of the statement he gave to the police dated 30 May 2008 in which he complained about misappropriation of funds by Lui.  See Defence and Counterclaim paragraph 6(1)(k).  None of the parties have exhibited this statement in the affidavit evidence.

22.  Then on 6 June 2008, the Defendant wrote to both parties informing them of its decision to freeze the Accounts.

23.  On 10 June 2008, the Defendant received a copy of Lui’s police statement dated 4 June 2008 from his solicitors.  In this police statement, Lui complained about the earlier dispute in October 2007 when he first invested in the Plaintiff, his more recent removal as a director, and the attempt to change the signing arrangement for the Accounts.

24.  On 19 June 2008, the Defendant received from Sin and Fong a certified true copy of the minutes of the AGM of the Plaintiff dated 19 June 2008, which stated that all directors (including Lui) had completed their office as directors and retired, all stood for election, and Chui and Sin (but not Lui) were elected as directors, with Fong as alternate director of Chui.  Also received was a certified true copy of a resolution of the new board that the Accounts should be operated by Sin and Fong jointly.  On the same day, new mandates were executed for the Accounts, so that the new authorised signatories were Sin and Fong only.  One of the new mandates was witnessed by Ms Alice Sze of the Defendant.

25.  After the execution of the new mandates, the Plaintiff requested the Defendant to release the Funds while Lui continued to demand that the Accounts be frozen.  In the meantime, the Accounts remained frozen.

26.  The Plaintiff’s solicitors then informed the Defendant, by letter dated 2 January 2009, that the police had completed the investigation and had confirmed that there would be no prosecution against either Sin or Lui.  The Plaintiff’s solicitors requested the Defendant to reactivate the Accounts.  Lui’s solicitors on the other hand responded to the effect that the shareholders’ dispute had still not been resolved.

27.  On or about 23 January 2009, the Plaintiff’s share capital was increased from $10,000 to $510,000, the additional shares having been allotted to Chui and Sin equally.  Sin explains in his affirmation that the increase in share capital represented the amount frozen in the Accounts as a result of Lui’s request to the Defendant to freeze the Accounts.  Lui was given the opportunity to subscribe to the new shares which he turned down.

28.  On 3 February 2009, the Plaintiff’s solicitors by letter requested the Defendant to close the Accounts and release the Funds.  The Defendant did not comply with the request, and the Plaintiff issued the writ in March.

Submissions

29.  Mr Wang for the Plaintiff submits that a banker is not entitled to refuse to carry out a customer’s instructions unless the authorised signatories are misusing their authority for the purpose of defrauding their principal or otherwise defeating his true intention, and that for this purpose, mere suspicion is not sufficient: Gray v Johnston (1868) LR 3 HL 1.  Mr Norman Nip, counsel for the Defendant, submits that a banker has a duty to take reasonable care in the operation of a bank account, and when it has notice of possible fraud, misappropriation of funds or other irregularities, it is bound to make inquiries to satisfy itself that it is proper to carry out an instruction.  Mr Nip mainly relies on the case of DEX Asia Ltd v DBS Bank (Hong Kong) Ltd [2009] 5 HKLRD 160, which itself refers to a number of other authorities.  Mr Nip also argues that the Defendant was entitled to freeze the Accounts pursuant to the Terms and Conditions under which the Accounts operated.  Although counsel have taken different starting points for their legal submissions, they do not take issue with the relevant legal principles.  Where they differ is in the conclusions to be drawn applying those principles to the facts of this case.

30.  Mr Wang submits that any suspicion cast upon the majority shareholders should have been dispelled when the police decided, in January 2009, that there would be no prosecution against the majority shareholders.

31.  Mr Nip on the other hand submits that a bank is justified in not complying with a customer’s instruction if it has notice of any fraud or irregularity or is put on inquiry, i.e. has reasonable grounds (although not necessarily proof) for believing that the instruction is an attempt to misappropriate the customer’s funds or for believing that the customer might be the victim of a fraud, an irregularity or other improper and extraneous purpose: Lipkin Gorman v Karpnale Ltd [1989] 1 WLR 1340; Barclays Bank plc v Quincecare Ltd [1992] 4 All ER 363.  Once a banker comes under a duty to make inquiries, then until the banker obtains information as a result of such inquiries or from other sources which would satisfy a reasonable and honest banker that it is proper to carry out the disputed instruction, the duty to inquire and to refuse to carry out the instruction continues: Baden v Societe Generale du Commerce SA [1983] BCLC 325.

32.  Mr Nip also relies on provisions in the Mandates, and the Terms and Conditions governing the Accounts.  Clause 7(a) of the Mandates provides that the Authorised Signatories will remain unchanged until the Defendant receives a duly certified copy of an amending resolution duly passed by the Plaintiff’s board of directors and has had an opportunity to act upon the amending resolution.  Under the Terms and Conditions, Clause 8 provides that the Defendant shall be entitled at any time to refuse to honour and comply with the Plaintiff’s instructions by reason of notice which the Defendant may have of any third party’s interest in or claim in respect of the relevant monies.  Clause 19 provides that the Defendant may reject the Plaintiff’s instructions at its discretion, with or without prior notice or giving reasons.  Under Clause 20, the Defendant reserves the right to suspend or terminate any account at any time without giving notice or reason if any legal or regulatory requirement prohibits or renders illegal the maintenance and operation of the account, or if the account is being used or is suspected of being used for unlawful activities such as illegal gambling.

33.  I would pause here to note that these general provisions reflect the statements of legal principles referred to above with which both counsel do not take issue, and do not add substantially to Mr Nip’s arguments.

34.  Mr Nip argues that having received the complaint by Lui about the misappropriation of funds by the majority shareholders, the Defendant came under a duty to make inquiries.  He relies on the following circumstances.  The copy of the board minutes dated 22 May 2008 purported to record that Lui was present, but Lui told the Defendant that he was not, and that he was given an hour’s notice when he was physically in Shenzhen.  The minutes of the shareholders’ meeting on 25 October 2007 supplied by Lui recorded the shareholders’ agreement that all bank accounts had to be operated by all shareholders jointly, and the new signing arrangement requested by the Plaintiff was inconsistent with that agreement.  The letter dated 22 May 2008 signed by Sin purporting to terminate Lui’s directorship contained no written acknowledgement by Lui, and did not enclose with it any copy of the board resolution pursuant to which the termination was effected; there was also no indication that Lui was present at the board meeting.  Subsequently, Lui complained to the Defendant of incidents of illegal activities by the majority shareholders.

35.  These circumstances, Mr Nip submits, entitled the Defendant to freeze the Accounts as from 6 June 2008.  Subsequent events, he goes on, raised further suspicion in the mind of the Defendant as a prudent banker about the Plaintiff’s instructions.  He refers to the police statement dated 4 June 2008 given by Lui.  He also points out that the minutes of the AGM on 19 June 2008, which recorded the retirement of the existing directors (including Lui) “did not sit well” with the purported termination of Lui’s directorship on 22 May 2008.  The increase in share capital in January 2009, with the new shares being allotted to the majority shareholders and not to Lui, was also inconsistent with the shareholders’ agreement of 25 October 2007.

Discussion

36.  The relationship between a banker and his customer, in respect of the balance of money in an account, is that of debtor and creditor.  Money from time to time deposited into the Accounts was the Plaintiff’s money, which became the Plaintiff’s chose in action.  There is no suggestion in this case that any money deposited into the Accounts was ever the subject matter of a trust held by the Plaintiff as trustee for any other party.

37.  Lui’s complaints appear to run as follows.  Firstly, on 22 May 2008, the majority shareholders or directors attempted to dismiss or remove him as a director, in contravention of the shareholders’ agreement made on 25 October 2007.  Secondly, the majority shareholders had misappropriated company funds when Lui first invested in the Plaintiff, back in September/October 2007.  For present purposes, I cannot and do not express any views on the truth of these allegations or those made by the majority shareholders. I only consider them in respect of how it might affect the Defendant.

38.  The attempt to remove Lui as a director, by itself, could provide no justification for freezing the Accounts.  Even if the Plaintiff company was intended by the shareholders to operate as a quasi-partnership as from October 2007 as alleged by Lui and as formulated by the Defendant for him, and the attempted removal of Lui as a director was a breach of the shareholders’ agreement, his remedy would be to invoke the court’s jurisdiction to grant him appropriate relief or to wind up the Plaintiff under the relevant provisions of the Companies Ordinance.  Furthermore, the Funds remained the property of the Plaintiff.  Lui did not have any direct legal or equitable interest therein, as has already been held by Registrar Poon against Lui and the Defendant in the First Interpleader Summons.  In so far as the Defendant purported to protect Lui’s interest in the Funds, there was no such interest to protect.

39.  The alleged misappropriation of company funds by the majority shareholders back in October 2007, again by itself, could provide no justification for freezing the Accounts.  Any alleged loss was the Plaintiff’s loss, not Lui’s.  Alternatively, if Lui had any claim for any loss which he may have suffered, his remedy would be against the majority shareholders, not in respect of the Funds which remained the Plaintiff’s property.  Therefore freezing the Accounts could not serve the purpose of protecting Lui’s interest in the Funds, which there was none.

40.  I now deal with the third aspect of Lui’s complaint (which was not really clearly spelled out but could potentially arise), that in the light of these two allegations, namely, the earlier misappropriation and the attempt to remove Lui as a director, there was a concern that the request to change the mandates for the Accounts might lead to further misappropriation of company funds by the majority shareholders.  Here we are concerned with the Plaintiff’s interest, and the Defendant’s duty to take reasonable care in respect of the operation of the Accounts.

41.  First of all, it should be noted that the thrust of Lui’s first letters to the Defendant dated 23 and 24 May 2008 respectively which immediately followed the board meeting on 22 May 2008, was that there was a dispute among the shareholders/directors, not about the earlier misappropriation of company funds, or any alleged apprehension of further misappropriation.  He did subsequently on 27 May 2008 in a telephone conversation with Ms Alice Sze of the Defendant refer to the earlier alleged misappropriation.  The fact that there is an allegation that certain directors have in the past stolen company funds does not necessarily justify a banker in refusing to carry out a valid instruction given by those directors on behalf of the company, unless there is some indication that further misappropriation might follow.  See Gray v Johnston (1868) LR 3 HL 1, at 12-13.  Every case will depend on its particular facts.  As it happened, the Defendant obtained copies of the police statements of Sin and Lui, respectively made on 28 May and 4 June 2008, and given to the Defendant on 3 and 10 June 2008.  I have not been provided with a copy of Sin’s police statement.  According to the Defendant’s letter dated 6 June 2008, Sin in that statement referred to misappropriations of company funds by Lui.

42.  In any event, even on Lui’s own account, he agreed to make a further investment in the Plaintiff in the sum of $100,000 (despite the discovery of the alleged misappropriation), and later accepted a payment of $171,901.71 being about one-third of the amount which Lui alleged was missing from the Plaintiff’s books.  That matter would appear to have been resolved between the parties already.

43.  Having seen the evidence of the parties’ correspondence and the allegations which have been made, I cannot help but conclude that ultimately it was a shareholders’ dispute over the management of the company in which on the one hand, the attempts by the majority shareholders to remove Lui as a director and to change the mandates for the Accounts, and on the other, Lui’s request to the Defendant to freeze the Accounts and his subsequent complaint about prior misappropriation by the other directors, were strategic manoeuvres made by both sides to fortify their own positions in the dispute.  The factual allegations were such that it was not a matter that could be resolved by the Defendant in correspondence.

44.  In particular, there was no real evidence to suggest that the majority shareholders were going to misappropriate funds from the Plaintiff if they were allowed to operate the Accounts without the signature of Lui.  What evidence there was at the time was that the majority shareholders were attempting to oust Lui from the board.  Whether they were justified in doing so was a matter of internal management of the Plaintiff with which the Defendant should not be concerned, as long as the validity of the instruction purportedly given on behalf of the Plaintiff to the Defendant was not in question.

45.  Mr Nip for the Defendant submits that a corollary of the duty to inquire is that unless and until a banker receives information, either as a result of its inquiries or from some other source which would satisfy an honest and reasonable banker that it would be proper to carry out the disputed instruction, the banker must continue to refuse to carry out the transaction.  As a general statement I do not disagree with it, although I would add that co-existing with the duty to inquire is also the duty to carry out a customer’s valid instruction.  Mr Nip’s statement of principle also presupposes that there was something to inquire about in the first place, but on the evidence in this case, I have found that there was insufficient material to suggest that proceeding with the new mandates might result in misappropriation of funds by the majority shareholders.

46.  What the Defendant then decided to do, in the light of the material supplied to it by the two sides to the dispute, was to freeze the Accounts (which was Lui’s request) as from 6 June 2008.  Not only that, the stance which the Defendant took was that it would continue to freeze the Accounts until they received a board resolution made with the unanimous consent of all the shareholders/directors, with regard to the mandates and operation of the Accounts.

47.  In the absence of provisions to the contrary in the articles of association, a company’s board acts by majority.  I have not been shown that the Plaintiff’s articles of association require board decisions to be made unanimously.  Therefore, any board resolution made by a majority of the directors of the Plaintiff would be valid, certainly vis-à-vis the Defendant.  The condition imposed by the Defendant for the reactivation of the Accounts was clearly one upon which the Defendant was not entitled to insist, either as a matter of company law, or under the contract between the Plaintiff and the Defendant.  Clause 7(b) of the Mandates provides: “A copy of any resolution of a meeting of the Company’s Board of Directors, if purporting to be certified as correct by the Chairman of the Meeting, shall, as between the Bank and the Company, be conclusive evidence of the passing of such resolution and once so delivered to the Bank, shall be binding on the Company.”  The Defendant was entitled to require a valid board resolution, but not a unanimous resolution of the board.

48.  As to the shareholders’ agreement which provides that all bank accounts should be operated jointly by all shareholders/directors, that was a matter between the shareholders themselves, and its enforceability by Lui would not have been a foregone conclusion, given the two sides’ allegations against each other.  It was not for the Defendant to involve itself with the internal management of the Plaintiff, and certainly not for the Defendant to enforce the shareholders’ agreement on behalf of Lui, as the Defendant’s letter of 6 June effectively sought to do.

49.  I mentioned earlier the need for a valid board resolution in order to change the mandates.  If there was any doubt initially about the validity of the board resolution of 22 May 2008, due to insufficient notice given to Lui or for other reasons, any such doubt was removed at the AGM on 19 June 2008, when Lui was not re-elected.  Mr Nip argues that there is inconsistency between the purported removal of Lui earlier in May (22 May 2008 letter), and his retirement as director in June (minutes of AGM on 19 June 2008).  But clearly this was corrective action on the part of the Plaintiff or the majority shareholders as a matter of caution, in case the validity of the earlier removal of Lui as a director was challenged.  Therefore by 19 June 2008 the latest there was a validly reconstituted board (with Lui being ousted) after the holding of the AGM, and a valid board resolution to change the mandates for the Accounts, a certified true copy of which was given to the Defendant, in accordance with Clause 7(b) of the Mandate.

50.  I am not unsympathetic to the Defendant’s position in this case, and do not intend to be over-critical of it.  It was caught in the middle of a shareholders’ dispute to which it was not privy.  Its duty towards the Plaintiff was to take reasonable care and to act prudently, but prudence does not normally require a bank to go into the internal management of a corporate customer.  As regards Lui’s possible claims and the Defendant’s concern, if any, about dealing with assets potentially resulting in assisting in a breach of trust, the benchmark for such accessory liability is one of honesty.  See Royal Brunei Airlines v Philip Tan Kok Ming [1995] 2 AC 378.  If there was any lingering doubt that either Lui’s or the Plaintiff’s interest might be jeopardised by allowing the Accounts to be operated on the new mandates, the solution would have been to give notice to Lui that the Defendant, having been given a valid board resolution to change the mandates for the Accounts, and not being in a position to resolve the conflicting allegations made by the two sides concerning the right to manage the company, was under a duty to proceed with the use of the new mandates, and Lui could take whatever steps he considered appropriate to protect his or the Plaintiff’s interest, including obtaining interim injunctive relief.  By doing so, the Defendant would have discharged its duty to the Plaintiff to take reasonable care, and acted honestly with regard to Lui in case his claims of interest in the Funds should turn out to be well-founded.

Conclusion

51.  Therefore the answers to the questions raised in paragraph 1 of the Order 14A summons are as follows:

(a) Whether the Defendant in freezing the Accounts from 6 June 2008 onwards acted in accordance with the terms of the mandates and/or Terms and Conditions: the answer is no.

(b)    Whether the Defendant was “put on inquiry” of possible fraud, misappropriation of company funds or irregularities at the Plaintiff such that it was reasonable for the Defendant as the Plaintiff’s banker to freeze the Accounts from 6 June 2008 onwards: the answer is no.

(c)    Since the answers to (a) and (b) are in the negative, the Defendant is not entitled to the declaration sought in the Counterclaim.

(d)    The sums standing in credit in the Accounts should, in the light of the answers given above, be paid out to the Plaintiff.

52.  I therefore give judgment to the Plaintiff in the sum of $528,006.56, being the total amount of the Funds in the Accounts at the close of business on 25 March 2009, just before the writ was issued, and interest thereon from the date of the writ to the date of judgment at the prime rate, and thereafter at the judgment rate until payment.  The Counterclaim is dismissed.  The application for final judgment under paragraph 3 of the summons is also dismissed.  Since the outcome of the Order14A summons disposes of the entire action, I make an order nisi that the Defendant should pay the Plaintiff’s costs of the action, including the 2 summonses before me, to be taxed if not agreed, with certificate for counsel.