好好國際物流股份有限公司 AND ANOTHER v. AVERE TRUST GROUP LTD

HCMP 586/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 586 OF 2016

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J U D G M E N T

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1.  This is the hearing of the plaintiffs’ Originating Summons dated 14 March 2016.  The claim is for US$940,000 in the defendant’s HSBC account number 848-122792-838 (the “Trust Account”), being trust assets held by the defendant for the 1^st plaintiff; an order for account; tracing; a post-judgment injunction to assist enforcement; interest and costs.

The Note

2.  The 1^st plaintiff is a logistic company incorporated in Taiwan.  The 2^nd plaintiff is the 1^st plaintiff’s wholly-owned subsidiary in Hong Kong.  The defendant is a Hong Kong company which provides professional trustee services.  It is a member of the Hong Kong Trustees’ Association.

3.  In May 2014, the 1^st plaintiff was approached by Wisdom Group (an investment consulting company in Taiwan) to subscribe to a bond known as the “Zero Coupon Note” (資產擔保債券) (the “Note”) with the following pertinent features:

(1) Nominal value: US$1 million;

(2) Subscription price: 91% of the nominal value (US$910,000);

(3) Interest: Nil;

(4) Issue date: 30 May 2014;

(5) Mature date: 29 May 2015;

(6) Issuer: Zavori;

(7) Beneficiary: The 1^st plaintiff;

(8) Trustee: The defendant (a professional trustee company in Hong Kong);

(9) Trust account: HSBC Hong Kong;

(10) Repayment method: entire principal (US$1 million) to be paid to the 1^st plaintiff on mature date, payment arranged by the defendant.

4.  The nutshell of the investment was that the 1^st plaintiff paid the subscription price to the defendant’s client account held with HSBC Hong Kong, the defendant held the value of the Note on trust for the 1^st plaintiff, and arranged payment of the entire principal (minus the defendant’s management fees) to the 1^st plaintiff on the mature date.  Early redemption was possible, from six months after the issue date, but at a discount.

5.  According to the Term Sheet, the Note was a low-risk investment, as the assets underlying the Note consisted of bank guarantees and standby letters of credit, all of which involved low default risk.  According to the sample Note, which is substantially the same as the Note issued to the 1^st plaintiff, the Note was secured by collaterals (the underlying assets) pledged to the defendant, who had the duty to liquidate the collaterals to pay the 1^st plaintiff if the issuer failed to do so.

The Trust Deed

6.  On 23 May 2014, a Mr Wang of Wisdom Group brought to the 1^st plaintiff copies of the defendant’s New Client Information Form, a Trust Deed, a Beneficiary’s Instruction, and the Note’s Terms and Conditions. The 1^st plaintiff executed the documents including the Trust Deed which was collected by Wang on 28 May 2014.

7.  After Wang collected those documents, he arranged for them to be sent to the defendant.

8.  Under the Trust Deed:

(1) The defendant agreed to be the 1^st plaintiff’s trustee in respect of the US$1 million under the Note;

(2) The defendant agreed to deal with the trust assets and/or all their incomes in accordance with the instructions of the 1^st plaintiff;

(3) The defendant is entitled to yearly management fee of 1% of the entrusted assets (US$10,000 in the present case);

(4) The Trust Deed is governed by Hong Kong law and subject to jurisdiction of the Hong Kong courts.

9.  Part of the factual matrix of this case is:

(1) The plaintiff has not been provided with an executed copy of the Trust Deed, and the Trust Deed executed by the 1^st plaintiff was taken away by Wang.  The copy provided by Wang in his affirmation is also undated and not executed by the defendant;

(2) In both copies of the undated Trust Deed available to the plaintiffs, the defendant and the 1^st plaintiff signed on an offer letter at the end of the Trust Deed.  The authorised signature of the defendant thereon is that of Cheng Yang (鄭揚), a director of the defendant at the time;

(3) After payment of the subscription price, the 1^st plaintiff received the Note issued by the defendant.  The original of that Note was collected by Wang on 26 December 2014, and sent to the defendant when the 1^st plaintiff applied to redeem the note.

Payment by the 1^st Plaintiff

10.  On 29 May 2014, the 1^st plaintiff remitted US$910,000, being the subscription price, to the defendant’s client account number 848-1227920-838 with HSBC Hong Kong.

11.  Wang of Wisdom Group forwarded a copy of the remittance advice to the defendant. 

Subscription and Operation of Trust Account

12.  On 30 May 2014:

(1) The defendant confirmed by email that the 1^st plaintiff’s Trust Account (信託戶口) with the defendant was put in operation.  The defendant emailed the 1^st plaintiff a Statement of Account stating a balance of US$1 million in the 1^st plaintiff’s Trust Account held by the defendant.  The 1^st plaintiff was assigned Trust Number A17071-001 (信託號碼).  The same Statement of Account show that the 1^st plaintiff’s remittance of the subscription price was received by the defendant on 30 May 2014;

(2) Note Number ZCN-145181001 was issued by the defendant to the 1^st plaintiff.  This Note is substantially the same as the sample Note provided by Wisdom Group to the 1^st plaintiff in the meeting on 12 May 2014.

13.  In mid-2014, the defendant invited the 1^st plaintiff to take up further subscription of the Note (with additional bonus as an incentive).  That offer was not taken up by the 1^st plaintiff.  The offer letter was signed by Cheng Yang for the defendant.

14.  Update Statements of Account of the Trust Account was regularly sent by the defendant to the 1^st plaintiff from July to December 2014, confirming that the defendant held US$1 million on trust for the 1^st plaintiff.

15.  The correspondence that the defendant sent to the 1^st plaintiff all bore its address and contact details.  The emails were sent from the defendant’s domain “avere-trust.com.hk”.

16.  In August 2014, the 1^st plaintiff was also provided with proof of the collaterals pledged to the defendant under the Note. 

Application to redeem the Note

17.  On 26 December 2014, the 1^st plaintiff applied to redeem the Note prior to expiry of its full term, at which time the redemption value would be US$940,000 instead of the full US$1 million.

18.  The defendant acknowledged receipt of the application.  In these correspondence, the defendant repeatedly confirmed with the 1^st plaintiff that it would liquidate the collaterals and the principal would be remitted to the 1^st plaintiff’s account.  The defendant also sent proof to Wisdom Group that Barclays Bank PLC credited €40 million to Zavori, the issuer.

19.  However, payment was not forthcoming. 

20.  On 17 March 2015, the 1^st plaintiff issued statutory demands to the defendant.  On 1 December 2014, Zavori (the issuer of the Note) paid the 1^st plaintiff US$50,000.  That was the only payment the 1^st plaintiff received.  The Note matured on 29 May 2015.  Upon maturity of the Note, the 1^st plaintiff is entitled to US$940,000, being US$1 million less US$50,000 part payment, less US$10,000 management fees. 

The Defendant is bound by the Trust Deed

21.  Based on the facts set out above and the authorities cited by the plaintiffs in their Skeleton Submissions, assuming that the Trust Deed was in fact not signed by the defendant, I agree that the 1^st plaintiff is still entitled to the relief sought because:

(1) The defendant is bound by the Trust Deed nonetheless as if it had executed the Trust Deed, for it took the benefit of the same; and

(2) In the alternative, the court can infer from the circumstances, in particular the parties’ contemporaneous correspondence and conduct, that the trust relationship on the terms set out in the Trust Deed and the Note existed between the defendant and the 1^st plaintiff.  I agree that the correct legal analysis is that the defendant accepted, by conduct, the appointment as the 1^st plaintiff’s trustee over the US$1 million, being the value of the Note, on terms as evidenced in the Trust Deed and the Note itself.

Relief

22.  The defendant, as the 1^st plaintiff’s trustee, is obliged to pay over the trust assets to the 1^st plaintiff. The defendant’s failure to do so is a breach of its fiduciary duties, which caused the 1^st plaintiff loss (being the outstanding value of the Note in the sum of US$940,000 after due credit is given).

23.  In the premises, the 1^st plaintiff is entitled to payment of US$940,000 from the defendant, with the order of accounts and tracing as set out in the Originating Summons. 

24.  Further, in all the circumstances, I agree that a post-judgment injunction is appropriate and necessary to preserve the assets.

25.  For the reasons set out above, I make an order in favour of the 1^st plaintiff in terms of paragraphs 1 to 5 of the Originating Summons, namely:

(1) An order to restrain the defendant by its directors, servants or agents, or otherwise howsoever from handling or disposing or moving the sum of US$940,000 in the defendant’s bank account number 848-122792-838, held with the Hong Kong and Shanghai Banking Corporation Limited;

(2) A declaration that the defendant is liable to account to the 1^st plaintiff the sum of US$940,000 and any gains from this sum;

(3) A declaration that the 1^st plaintiff is entitled to trace and claim equitable title to the sum of US$940,000 in the Trust Account;

(4) An order that the defendant shall pay to the 1^st plaintiff US$940,000;

(5) An order that the defendant shall pay to the 1^st plaintiff interest on the principal sum of US$940,000 from 29 May 2015 until Judgment at 1% above HSBC’s best lending rate per annum, and thereafter at the Judgment Rate until full payment.

26.  Finally, I order that the costs of these proceedings be paid by the defendant to the 1^st plaintiff, such costs are to be taxed if not agreed.