BANK OF CREDIT AND COMMERCE INTERNATIONAL (OVERSEAS) LTD. v. BANK OF CREDIT AND COMMERCE INTERNATIONAL (OVERSEAS) LTD. - MACAU BRANCH

1993, No. A6578

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is in the nature of an interpleader action in that the liquidators of the Bank of Credit and Commerce International (Overseas) Limited ("the Bank") are suing the Macau Branch of the Bank ("the Branch") for sums totalling over US$5 million which were placed with the Bank of New York in its Hong Kong Branch. It is in the nature of an interpleader action, albeit that there is a plaintiff and a defendant here, because the facts disclose (which are not in dispute) that what had occurred here was that sums of money had been placed on deposit with the Bank of New York in Hong Kong and claims have been made against that bank by the Bank and also its Branch. The Bank of New York, as it is entitled to, wishes to know what its legal obligation is in relation to this large sum of money which it has, and the money has now been paid into court.

Background

2. The factual background is very simple. The Bank as is well known, has a variety of branches and operated on an international basis. In order to obtain the licensing and the regulatory control, it made an application to the Governor of Macau to establish a branch in Macau and permission to that was given. As is common in banking practice, branches place money into other banks to be held by that bank on deposit, similar to an ordinary citizen who places his money on deposit to earn interest. Of course, the position is that when one places, for example, US dollars with the Bank of New York in Hong Kong, although one thinks one's money actually is in Hong Kong, it is being held in America. This is standard practice with currencies.

3. What happened here was that from 26 June 1991 various deposits were placed by the Branch with the Bank of New York. For example there is found at page 43 such a deposit. It is a confirmation from the Bank of New York at its branch in Ice House Street confirming to the Bank of Credit and Commerce International (Overseas) Limited in Macau the deposit of US$2 million. This was a fixed period deposit, just over a week, a rate of interest was given, and the value at maturity was given. At maturity, the account would be credited at the Bank of America International. At the bottom of the document are found these words. "This deposit obligation is payable only at the Hong Kong Branch of the Bank of New York in the currency in which it is denominated and shall be governed by and subject to the laws of Hong Kong". It is clear from the documents that these deposits all emanated from the Macau Branch of the Bank of Credit and Commerce International (Overseas) Limited. The total amount was some US$5 million.

4. As is well known, the Bank went into liquidation and with it, brought down all its branch offices. The liquidator of the Bank then made a claim on the Bank of New York and said in effect "Could we please have our money back?" By this time, the Macau Branch had gone into a separate liquidation and the liquidators there also made a claim saying that the money belonged to them.

Issue

5. The issue I have to decide is to whom does the Bank of New York pay the money which it has been holding. The first matter that has to be stated which can be done very simply is that the general principle is that branches are part and parcel of the Bank. Mr Griffiths Q.C. has kindly set out in a skeleton argument (which I read before coming into court) extracts from Pagets Law of Banking (10th Edn.) where are found words such as these at p.362 : "The head office and branches of a bank constitute for general purposes only one concern or legal entity". And at p.610 :

"A bank is rarely a partnership; it is usually a corporation, a legal entity, apart from the members composing it. Internal changes such as transfer of shares, election of directors, and so on do not work any change in the corporation; they are not a change of identity. And the opening of new branches is no change in constitution. The corporation remains the same. Branches and the heard office constitute a single undertaking. There is nothing to change the status of the corporation so as to affect the liability of a surety."

The general principle emanated from Prince v. Oriental Bank Corporation [1878] 3 App. Case 325.

6. Mr Warren Chan, Q.C. appearing as he does for the Branch, does not dispute that general principle. However, he cites a passage from a Canadian textbook on Banking Law and he submits on the authority of this Canadian book whose author is unknown to me that in certain situations branches have been treated as "separate entities" and that it is a question of looking at the justice of the case. The passage, however, reads in full :

" Nevertheless, the courts have also found that in certain situations branches are to be treated as separate entities. No unifying thesis runs through these cases; instead, they can best be explained as situations in which justice and common sense have dictated that the branches be treated separately. Such treatment is in fact a fiction, since no case denies the corporate unity of the one bank."

I have listened to that submission, but in my judgment, the general principle of banking applies here. I can see no justification for departing from the legal proposition that deposits by the Branch into the Bank of New York were deposits on behalf of the principal, namely the Bank.

7. The position therefore is simple. As at the date of the deposits, the money belonged to the Bank. The obligation on the Bank of New York - the deposit being made and creating, of course, a debt in the hands of the Bank - was that the Bank of New York's obligation was to repay a similar amount of money together with interest at maturity to the principal Bank. It may be, as a matter of banking practice, that the payment would have gone to the Branch because this is the way banks do their business. They receive money from branches and pay it back to branches, but the money has always belonged to the principal Bank and the obligation was to repay the principal Bank. Putting it in another way, the ownership of the money on deposit belonged to the principal Bank and that ownership has never been extinguished in any way, or perhaps in strict legal terms the ownership of the debt was always with the principal Bank.

8. In what way, therefore, can the Branch, say that it is entitled to the money? I know of no proposition of law which would in some way transfer the ownership of the money from the main bank to the branch bank. I suppose Parliament, or the legislature here could enact some Ordinance which would being that about, but in the absence of that, the only way the ownership could be transferred is if the plaintiff Bank itself transferred it. The ownership of this money, or the right to the debt, in my judgment, was always in the hands of the plaintiff Bank. How, therefore, can this Branch say that it is entitled to it.

The proper law

9. Lawyers, of course, are well known for putting forward propositions which benefit their clients. Therefore I have had a skillful argument by Mr Warren Chan Q.C. who submits that in some way the Branch has suddenly become the rightful owner of this money, that is the right to have it repaid. He submits that because of the separate liquidation of the Macau Branch and because when the Bank sought to establish a branch, it promised to obey the laws of Macau, then the laws of Macau apply to the problem I have to resolve, and that there is a Macanese law which allows the Branch to get their assets from outside the jurisdiction.

10. I mean no disrespect to experienced counsel but I find this proposition somewhat startling. First at all, the forum in which this dispute is taking place is Hong Kong, therefore the law which I must apply in trying this case is Hong Kong law. The issue that has to be decided is to whom does the Bank of New York pay the money. The Bank of New York, albeit an American bank, is a branch in Hong Kong and the deposit was made on the express provision that Hong Kong law applies. That sort of provision is found when payments are made into local branches of foreign banks. Therefore there can be no doubt at all that the law which is to be applied in so far as the problem I have to resolve is Hong Kong Law. What the Macau legislature do is a matter for themselves. Their law does not extend to this court. The issue, on its face appears to be between the plaintiff and the defendant, but the real issue is to whom does the Bank of New York have a legal obligation to repay the money.

Law

11. Mr Griffiths Q.C. has referred to the decision of Lord Denning, M.R. in Power Curber v. National Bank, Kuwait [1981] 1 WLR 1233, and also the citation of Parcq L.J. in Kleinwort, Sons & Co. v. Ungarische Baumwolle Industrie [1939] 2 KB 678 where at p.699 he said :

"I do not say for a moment that a sovereign state many not legislate to control the acts of its subjects beyond its borders. Of course it may. Nothing can prevent a sovereign state from so legislating, and it is a matter with which these courts have no concern. But it is right that it should be understood that, if a sovereign state legislates so as to interfere with the acts of its subjects outside its own territory and, in a sense, its own jurisdiction, then it cannot expect - and I suppose that no state would expect - that the courts of another country will enforce that legislation at the expense of their own laws. Primarily it is our business to see that English contracts are observed and carried out according to English law."

The transactions took place in Hong Kong and the proper law is that of Hong Kong.

Macanese Law

12. The petition which the Main Bank had to make was in order to establish a Branch of the Main Bank. I have read the petition. It is dealing with the establishment of a Branch and the Main Bank has to obey the laws of Macau. Mr Chan Q.C. therefore would seek to elevate this into some novel proposition by submitting that as there is a dispute between the Main Bank and a branch because of the action, then the dispute is governed by Macanese law. He therefore, and indeed the plaintiff has, filed evidence on Macanese law as to the meaning of the particular article which is s.113 of Decree-Law No.35/82, and the parties have put forward their propositions as to Macanese law and indeed have witnesses available in court to deal with this. I have heard submissions (in fact I asked for the submissions to be made) as to whether or not this evidence is relevant for the purposes of the issue I have to decide. Mr Chan submitted it was, but I, with respect, disagree. Macanese law has no part in the issues I have to decide today. The court in order to decide the liability of the Bank of New York, must do so in accordance with Hong Kong law.

13. As I said earlier there is no dispute between the plaintiff and defendant. Although they sue each other, this is in the nature of interpleader proceedings. The plaintiff Bank wishes the Bank of New York to repay its the money.

14. I end where I started. There is no doubt at all that this money belonged as at the date of deposit to the Bank. There is no dispute that as at the date of maturity of the deposit, there was a liability to repay the money to the Bank. I cannot see any way in which the right to have that money repaid has in some way been transferred to the Branch. The Branch has never had any legal right to this money. The fact that it has gone into liquidation cannot possibly create such a right and whatever Macanese law says about liquidations in Macau, again, in my judgment, that can have no extraterritorial effect. Although I have very experienced counsel in front of me and a large amount of paper has been generated, the matter can be dealt with on a simple approach. The general principle is that money belonging to a branch belongs to the main bank. I can see nothing which in any way causes me to alter that principle. This money was deposited on behalf of the Bank. That created a right in the Bank to have the money repaid on maturity and a liability on the Bank of New York to repay it to the Bank. That right and liability have never been extinguished and have never been altered by any event which happened in Macau.

15. In my judgment, therefore, there is no defence to this claim and judgment should be entered for the plaintiff. If it is necessary so to do, I would declare that there is an obligation on the Bank of New York to repay the money together with appropriate interest to the Bank, but I will listen to submissions in so far as any specific orders I have to make.

(R.A.W. Sears)

Judge of the High Court