CITIBANK N.A. v. EXPRESS SHIP MANAGEMENT SERVICE LTD AND ANOTHER

Civil Appeal No. 34 of 1987

Courts, practice and procedure - discharge of ex parte Mareva injunctions for non-disclosure of material facts

Observations of the Court:

Per Fuad J.A.: "While the courts must be vigilant and insist that full and frank disclosure be made in grounding affidavits for ex parte applications for injunctions, Anton Piller orders etc., it is essential to bear in mind the true principle upon which this rule is based. Unless the courts use the sanctions which the practice gives them only when the non-disclosure is of facts which are relevant to the ex parte judge's "weighing operation", an impossible burden would be placed upon applicants and their advisers, and affidavits, ex abundanti, will tend to contain all sorts of facts and exhibits which are not really necessary for the proper exercise of the court's discretion when ex parte relief is sought."

Per Macdougal1 J.: "It would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the courts have intended to give active encouragement to undeserving defendants to search ingeniously for facts which a plaintiff might innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge the injunction. Commonsense must prevail. The heavy burden cast on a plaintiff must not be allowed to become so onerous as to be intolerable."

IN COURT OF APPEAL

1987, No. 34
(Civil)

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JUDGMENT

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Fuad, J.A.:

1. This is an appeal from the decision of Liu J. given in an ex tempore judgment dated 20 March 1987 whereby, after a hearing inter partes, he discharged Mareva injunctionsgranted ex parte:

(a) by Nazareth J. on 26 February against the 1st Defendant, and

(b) by Wong J. on 9 March against the 2^nd Defendant.

New injunctions were granted pending this appeal to preserve the position.

2. The Plaintiff, Citibank N.A., is a bank which has a branch in Hong Kong. The 1st Defendant, Express Ship Management Services Limited ("Express") is a Hong Kong company. Their managing director Miss Julie Ng is the 2nd Defendant. She holds 499,999 shares in Express, of an issued share capital of 2 million shares.

3. The history of the matter is as follows. I take the principal facts from the affidavit of Mr. Timothy Freeman dated 26 February. He is one of the Vice-Presidents of Citibank, Hong Kong. By a Memorandum of Agreement dated 23 January 1987, Citibank's nominee, a Liberian company named Calliope Shipping Limited sold the vessel “BOBO KW” to another Liberian company, Caswell Enterprises Limited ("Caswell"). The purchase price was US$581,620. of which 10% was payable by 27 January and the balance, US$523,458, on the delivery of the vessel. Under the terms of the Memorandum of Agreement, by Clause 3, it was stipulated that “the purchase money shall be paid by telegraphic transfer free of bank charges to Citibank. New York for the account of Citibank, Hong Kong Account No. 10990845: Attn: Shipping Division.”

4. The delivery date of the vessel, under Clause 5, was to be 27/28 January 1987.

5. Express acted as Caswell's agents for the purchase of the vessel. Miss Ng was furnished with a Power of Attorney for this purpose by Caswell, dated 27 January, which describes her as a Director and President of Caswell. The Power of Attorney authorised her, amongst other things, to sign documents and do acts under the Memorandum of Agreement to enable Caswell to take delivery of the vessel.

6. On 28January Miss Ng showed a letter signed by the Ka Wah Bank (Caswell's bank) to Mr. Kenneth Wu, one of Citibank's Assistant Managers, confirming that they had effected a telegraphic transfer of US$523,458 by order of Express, to Citibank, New York, for the account of Citibank, Hong Kong, Account No. 10990845.

7. When Citibank, New York, received the relevant remittance advice from the Ka Wah Bank, since it had omitted the indication "Attn. Shipping Division", they did not know what to do with the sum remitted. They, therefore, credited it to Citibank, Hong Kong, with a telex credit advice. This was on 2 February. The advice mentioned the sum which was being credited (US$523,458) and continued:

"RSPORG/EXPRESS SHIP MANAGEMENT SERVICES LIMITED. OB1/90 PCT DEPOSIT FOR MV BOBO to W …."

8. Confusion was added to confusion because Express also has a current account with Citibank, Hong Kong. One of their account officers, a Miss Mary Fung, thought that this money was probably for the credit of Express but she wanted to make sure. In response to her enquiry, a Miss Yeung of Express confirmed on the telephone that it was, indeed, intended for them, and so Miss Fun, credited the sum to their account on the same day.

9. The relevant credit advice was in these terms:

"DFTAILS OF PAYMFNT
TT FM OUR MY OFFICE
B/O EXPRESS SHIP MANAGEMENT SERVICE
MSC 90 PCT DEPOSIT FOR MV BOBO KW

BENEFICIARY
EXPRESS SHIP MANAGEMEFT SERVICES LTD.
[their address]

CREDiT-ADVICE N/S-1
US$523,458 VALUE. 02.02.87
WE CREDIT YOUR ACCOUNT NO. 08088403”

10. Before the credit was effected to Express, there bad been no movement in their account with Citibank, Hong Kong, for the past nine months or so, and their credit balance stood at 82 US cents.

11. One week later, Express's account was depleted by U5$523,119. On 9 February, Miss Ng, on behalf of Express, made applications to Citibank, Hong Kong, to draw one draft and to effect four telegraphic transfers (“TTs”) totalling that sum, and to debit their account accordingly. Before these instructions were carried out, a Miss Liza Chan of the bank thought it wise to enquire from Express whether the payments to be made were in accordance with Express's wishes. This was because of the size of the amounts involved and the fact that the account had lain dormant for so long. Miss Yeung of Express gave the confirmation Miss Chan sought. The transactions were effected on the same day, as follows:

1. Draft issuance for U5$23,119 in favour of Holman, Fenwick & Willan (this draft was cashed on 13 February);

2. TT for US$95,000 to K.K. Yeung, Midland Bank, Enfield, England.

3. TT for USD$95,000 to Ashaye Far Fast Line Ltd., Bank of Credit & Commerce, Gilbratar, for the account of Bank of Credit & Commerce (Nigeria) Ltd.;

4. TT for US$60,000 to Antines International Co. Ltd., International Commercial Bank of China;

5. TT for US$250,000 to Fahnstock & Co., c/o Manufactures Hanover Trust, New York.

Citibank, Hong Kong, discovered the mistake on 18 February in the course of a routine reconciliation. On the following day a telex was sent to Miss Ng by Citibank's solicitors. The effect of the telex was that Miss Ng must have known that a mistake had been made, and yet almost all the money had been transferred out of Express's account. The return of the money was demanded and "appropriate further steps" threatened. Further, a meeting with Miss Ng was demanded to take place before noon on the same day for her to explain the position.

12. Holman, Fenwick & Willan, a firm of solicitors, who were acting for Express and Miss Ng, replied by telex on the same day explaining that Miss Ng was of the view that the credit for USS523,458 related to a payment for the hire of the M.V. “EXRPESS” under a charter dated 18 January; their clients were checking with the charterers and would receive confirmation of the payment overnight; Miss Ng would attend a meeting at 11:00 a.m. on the following day; she had made the payments as a director of Express in settlement of their debts and had gained no personal benefit from the sums involved.

13. The meeting duly took place in the offices of Citibank's solicitors on 21 February. Miss Ng was accompanied by a member of her solicitors firm. She did not accept that the credit had been made in error. She said that Express had been expecting to receive a sum approximately equal to the sum credited to their account in respect of a time-charter dated 13 January. She produced a copy of the charter, with the name of the charterer deleted. This was done because Express would not otherwise show the charter to Citibank. She also produced a copy of the head-charter. The originals were not produced. She explained in respect of what obligations the payments by the four ITs had been made.

14. Miss Ng also told the meeting that she had been trying to contact the charterers to see if they had sent a remittance. It was agreed that there would be a further meeting on 23 February to give Miss Ng more time to find out the true position. Mr. Freeman made it clear that at that meeting he would expect a discussion about how and when the money would be repaid by Express.

15. On 23 February, before the meeting due for that day could be held, it was cancelled. Citibank's solicitors were told by Miss Ng's solicitors that she had still not been able to obtain the confirmation she sought. No indication was given as to when Miss Ng expected to be in a position to produce the evidence she was seeking.

16. On 25 February Citibank instituted this action against Express as the only defendant, with a generally endorsed writ, for the sum of US$523,458, being money had and received.

17. Nazareth J. granted ex parte Mareva relief against Express on 26 February, and the order was varied on an application made by Express, on 5 March. On the same day, Citibank, Hong Kong, took out a summons to amend the writ to add Miss Ng as a defendant. Wong J. granted a Mareva injunction against her, ex parte on notice, on 9 March. The grounding affidavit upon which that application had been based was also sworn by Mr. Freeman.

18. The matter came before Liu J. on 13 March. Before he began the hearing of the summons taken out by the defendants to discharge the Mareva injunctions, the judge made an order, by consent, granting Citibank leave to amend the generally endorsed writ, inter alia, by adding Miss Ng as the 2nd defendant.

19. In her affirmation of 12 March, Miss Ng complained that in his affidavit Mr. Freeman had not mentioned Citibank's attempts to block the four TTs to Express's trade customers, attempts which may have been partly successful. She referred particularly to the rewittances to Ashaye and Antines. She then listed the principal allegations made by Mr. Freeman in his affidavit. In view of what Miss Ng, and later the judge, said about them, I will read these paragraphs:

"(i) The Citibank Account No. 08088403 had been dormant before the sum of US$523,458 was credited;

(ii) I did not agree on 21st February 1987 that the funds were credited in error;

(iii) I allegedly made the payments in question knowing the funds had been credited in error;

(iv) I have not supplied evidence in the form of original documents that a very similar sum was expected to be paid into the Citibank bank account.

(v) I must have been fully aware that $523,458 was identical to the sum remitted for purchase of the m.v. 'BOBO KW', whereas it was $904.50 less than the sum expected for the charterparty deposit.

(vi) If a sum had been due under a charterparty it would have been needed to pay hire under the bareboat charter, pay the crew and other major incidentals and was therefore not available for general trade debts.

(vii) The sum of $524,362.50 I claimed to be due under the charter party has not yet been received, therefore, my explanation must have been false.

(viii) It is unusual for a charterer to pay 6 months' hire in advance.

(ix) US$250,000 was disbursed to a firm of stockbrokers, therefore this was unlikely to be in payment of a trade debt.

(x) US$95,000 was disbursed to Ashaye Far East Line Limited, allegedly an associated company, which leans to the suspicion that the payment way not have been made in good faith.

(xi) The original credit advice of the bank's remittance makes specific reference by name to the 'BOBO KW' and should have been received by the defendant in the post in normal way."

20. Miss Ng's affirmation continued by saying that she had been advised by her lawyers not to provide Express with evidence refuting the allegations said to point to her culpability until the Statement of Clam was served "so that consideration can be given to the precise way the plaintiff puts its case." She added that the fact that neither she nor Express had produced such evidence did not mean that it did not exist. Documents existed to show that all the payments were to meet pre-existing trade debts due and payable and a sum of US$524,362 was expected being a charter hire deposit based on six months' hire.

21. The principal ground upon which the learned judge decided to discharge the injunctions was material non-disclosure at the ex parte stages. The judge said that he had reached his conclusion with reluctance because the facts, viewed superficially, cast “not too good an impression on the defendants.” He felt that this impression' must have driven him, subconsciously, to be wholly against the defendants right from the start. He thought it only necessary to refer to the summary Miss Ng had made in her affirmation of the allegations against her and Express “for the events which I regard as prima facie against both defendants bona fide in the transmission of funds" and he highlighted, particularly, paragraphs (i), (ii), (iii), (v), (vii), (ix) and (xi). He also mentioned the telephone conversation between Miss Fung of Citibank and Miss Yeung of Express and noted that the defendants (albeit on legal advice) had declined to respond to the accusations. On this issue he concluded:

“These events I have just enumerated are sufficient to show a real risk of disposal of property so that judgment or award in favour of the bank would, in the end, remain wholly or in part unsatisfied. The transactions as revealed in these proceedings are such as would arouse suspicion and lead to an inference of dishonesty or fraud.”

On this,

22. Although it is not, perhaps, entirely clear precisely what facts the learned judge considered were material which had not been disclosed, I gain the impression from his judgment, read as a whole, that he found material non-disclosure by Citibank about the results of. their efforts to recoup the money only in relation to the TT for US$250,000 in favour of Fahnstock, and the TT for US$95,000 to Ashaye. Mr. Richard Leung, another Vice-President of Citibank, Hong Kong, explained what had happened in relation to all four sums transferred by TT, in his affirmation of 13 March.

23. As to the US$250,000 sent to Fahnstock's New York bank, Mr. Leung said that on 26 February Mr. Paul Fung of Citibank telephoned the N.Y. bank and asked that the money be the re-transferred to Citibank. Mr. Fung was asked to confirm the request by telex, which he did. On 23 February Mr. Fung spoke to a Mr. Bede of the N.Y. bank who said that they had been in touch with Fahnstock and that he would let them know if they received permission to refund the money. On 24 February, when Mr. Fung telephoned Mr. Bede again, he was told that Fahnstock would not allow the refund to be made.

24. The judge reviewed the telexes which were exchanged when Citibank tried to recover their loss of this sum. He formed the view that they showed that as at 5 March Citibank still considered that they had been reimbursed the US$250,000 by a re-credit and that the position up to 10 March was that Citibank had been paid that sum; and they had not divested themselves of it or relinquished their right to it until that date.

25. With all respect to the approach of the judge, it seems to me that the essential facts are that on 24 February Mr. Fung had been told that Fahnstock were not willing to refund the money. This was followed up by a telex from the N.Y. bank, dated 24 February which included the words “FAHNSTOCK AND CO HAVE REFUNDED TO REFUND PAYMENT” It is true that by their telex of 5 March Citibank sought clarification and asked if these words should have been "REFUSED TO REFUND" but surely this was merely for the record because they could have meant nothing else in the light of the reason given by the N.Y. bank for Fahnstock's attitude: “[They] HAVE REFUNDED TO REFUND PAYMENT AS THEY CLAIMED THAT THEY WERE EXPECTING FUNDS AND MOREOVER THEY HAVE ALREADY APPLIED PAYMENT.” The telex then suggests that Citibank apply direct to Fahnstock to request a refund. The learned judge did not recite the rest of the telex.

26. In my respectful judgment, it was not right to regard the matter as still "fairly fluid", as the judge put it, after the telephone message and the telex. At the end of their telex of 24 February the N.Y. bank had said "WE CLOSE OUR FILF". Nor do I see how the position was changed by the fact that a re-credit of the US$250,000 at one time stood in the internal account of Citibank, Hong Kong, with Citibank, New York. There had been no transfer of funds from third parties to Citibank, Hong Kong and the entry was later reversed. I do not consider that the fact that the books were only corrected on 10 March made any difference to the reality of the position. It was not right to say that Citibank had been paid that sum up to 10 March.

27. The position is, perhaps, a little different in relation to the US$95,000 ultimately received by Ashaye. The evidence showed that Mr. Fung telephoned the Gibraltar bank on 20 February asking for help in recovering the money. He was told that they would contact the Bank in Nigeria into whose account the money had been credited, for Ashaye, on 11 February. When Mr. Fung telephoned Gibraltar again on 24 February he was promised a confirmation by telex. No telex had been sent by 26 February when the matter came before Nazareth J. Again the "re-credit" of this sum on 23 February was no more than a book entry in Citibank New York's books. The relevant telex showed that no funds had actually been returned. I do not see how it could be said that this sum, too, had been paid to Citibank up to 10 March.

28. There is no Respondents' Notice to suggest that the judge should have found material non-disclosure about the attempts to recover the US$95,000 from K.K. Yeung or the US$60,000 from Antines. But for completeness sake, I will mention that as regards the former sum, the position as at 26 February was that the Midland Bank had told Mr. Fung on 20 February that no refund would he possible without K.K. Yeung's consent. When Mr. Fung telephoned again on 23 and 24 February he was told that the position had still not been confirmed. In relation to the latter sum, Citibank received a telex on 24 February indicating that in the absence of legal intervention by Citibank, Hong Kong, they would have to release the money to Antines by mid-day on the following day.

29. In my view the facts surrounding the attempts by Citibank to recover theUS$250,000 paid to Fahnstock and the US$95,000 which reached Ashaye (and, indeed, the facts relating to the other two sums involved) were not material fact, the non-disclosure of which would entitle the judge to discharge the ex parte orders.

30. The cases show what are to be regarded as material facts in this context: "all facts that are relevant to the weighing operation which the court has to make in deciding whether or riot to grant the order": per Browne-Wilkinson J. (as he then was) in Thermax v. Schott Industrial Glass [1981] F.S.R. 289, 298. His test has been applied in several cases. I find the decision of Goulding J. in Wardle Fabrics Ltd. v. G. Myristis Ltd. [1984] F.S.R. 263 to be particularly helpful, for in that case, the judge emphasized that the correct test is not simply whether, if the non-disclosure had not occurred, the ex parte judge would, nevertheless, have made the order, but whether the facts not disclosed, being relevant, should have been in the scales.

31. In my judgment, with very great respect to the judge, the facts which were not brought to the attention, in turn, of Nazareth J. and Wong J. did not go to the "weighing operation" they were required to perform. If Express had been in any way involved in the efforts by Citibank to recover their money (and there is no doubt on the unchallenged evidence that it was their money, whatever Express may have thought when it was credited to their account) the position might have been different, but they were not. How would the facts, if revealed, have helped the ex parte judges to reach their respective decisions? Citibank had not communicated with the four beneficiaries direct, but only with the banks involved. These banks could not possibly have refunded the money without the consent of their clients into whose accounts the sums had been credited, unless they were prepared to take a risk which banks just do not take. There was nothing wrong with the TTs in themselves. The receiving banks could not have assumed that their clients would accept that the money should not have been paid to them although they were willing to enquire. Citibank might have had hopes, but without knowing what stand the beneficiaries would take, their hopes could hardly have been commercially realistic.

32. While the courts must be vigilant and insist that full and frank disclosure be made in grounding affidavits for ex parte applications for injunctions, Anton Piller orders etc., it is essential to bear in mind the true principle upon which this rule is based. Unless the court's use the sanctions which the practice gives them only when the non-disclosure is of facts which are relevant to the ex parte judge's “weighing operation”, an impossible burden would be placed upon applicants and their advisers, and affidavits, ex abundanti, will tend to contain all sorts of facts and exhibits which are not really necessary for the proper exercise of the court’s discretion when ex parte relief is sought.

33. Mr. Ribeiro, who had a difficult brief, and who argued the appeal with ability, concedes that if this Court decides that there had been not material non-disclosure, there were no grounds for not continuing the Mareva injunctions, and indicated that he would not be in a position to oppose the making of appropriate orders on appeal.

34. Mr. Ribeiro no longer wishes to rely on what I wil1 call "the pleading point" raised in the Court below by Counsel who then appeared for Express. As well as submitting that there had been material non-disclosure, Counsel had objected to the grant of the injunctions because, if I understand his argument's correctly, there were allegations of fraudulent conduct against the defendant's in the two affidavits sworn by Mr. Freeman, and yet fraud had not been averred in the general indorsement on the writ. Without the unpleaded allegation of fraud, which could therefore not be relied upon, there was no foundation for the Mareva injunctions. In the circumstances, it is only necessary to express my respectful view that this submission was misconceived and should not have succeeded.

35. I would, therefore, allow the appeal.

Cons, V.-P.:

36. I agree. This was a clear case for the ex parte injunctions to be allowed to continue. The judge would himself have taken that view had he not felt himself constrained to set aside the injunctions because, as I understand him, Mr. Freeman had not himself put on record any explanation as to what the judge thought to be material non-disclosure in the original applications. In that respect, the judge relied upon two matters, details of which have already been explained by my Lord Fuad J.A.

37. With regard to one of them, the Fahnstock transfer, the judge had, with respect, misunderstood the situation. By the time of the first application to Nazareth J., it was perfectly plain that the plaintiff was not going to get its money back. As to the other, it was also then known that the money had, in fact, been paid to the bank in which Ashaye held its account and it could, therefore, only be repaid with the express consent of Ashaye. The position had not changed by the time proceedings came before Wong J.

38. The remittance to Ashaye is said by the defendants to have been made in payment of a trade debt. The chances of Ashaye then repaying to the Plaintiff would seem to me to be extremely remote. Moreover, had any such consent been forthcoming, the defendants would, from the family connection between the companies, have known immediately and been able to cause the quantum of the Mareva injunctions to be accordingly reduced. It seems to me, in those circumstances, quite unreasonable to suggest that that was a situation which should have been brought to the notice of the two judges below as a material factor to be taken into account in the weighing balance. As such, it is, in my view, a non starter.

39. I wish to make it clear that in coming to that conclusion I do not in any way, detract from the views I ventured to express in Guess? Inc. v. Lee Seck Mon & Others [1987] F.S.R. 125 at page 129. I need only say in this respect that I am in complete agreement with what my Lord has already said and with the sentiments that I understand my Lord Macdougall J. is about to express.

Macdougall, J.

40. I agree with what my brethren have just said and wish only to add one very brief observation. It is this: it would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the courts have intended to give active encouragement to undeserving defendants to search ingeniously for facts which a plaintiff might innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge the injunction. Commonsense must prevail. The heavy burden cast on a plaintiff must not be allowed to become so onerous as to be intolerable.

41. I, too, would allow this appeal.