RE THE APPLICATION OF JOHN DAVID MEREDITH WARDELL QC FOR ADMISSION AS A BARRISTER OF THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION

HCMP 860/2020

[2020] HKCFI 2886

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 860 OF 2020

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J U D G M E N T

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1.  This is an application brought under section 27(4) of the Legal Practitioners Ordinance, Cap 159 for the ad hoc admission of Mr John David Meredith Wardell QC for the purpose of advising and appearing for the 1^st and 2^nd plaintiffs in the appeal in CACV 457/2019, arising from the judgment of Anthony Chan J (“the Judge”) in HCCL 4/2016 dated 1 August 2019, to be heard by the Court of Appeal on 9 March 2021. The application is opposed by the Hong Kong Bar Association and the Secretary for Justice.

2.  Having read the parties’ written submissions, I take the view that the application can be properly disposed of without an oral hearing.  I now hand down my judgment.

The underlying proceedings

3.  The 1^st plaintiff is Galleria (Hong Kong) Limited (“GHK”), a company incorporated in Hong Kong which was ordered to be wound up in February 2010.  It was beneficially owned and controlled by its two directors, Cheri and Thomas Fu (“Fus”).  The 2^nd plaintiff is the joint and several liquidators of GHK appointed in July 2010.  The defendant is DBS Bank Limited (Hong Kong Branch), one of GHK’s bank creditors.  The plaintiffs commenced the underlying action against the defendant for knowing receipt, dishonest assistance and fraudulent trading.  In particular, the plaintiffs complained that the defendant knew or suspected that the Fus had perpetrated a significant fraud against GHK but had turned a blind eye.  The factual basis for such a complaint may be briefly stated thus.

4.  GHK carried on a purported business of exporting wholesale home furnishings from the Mainland China to retailers in the USA, which was financed by borrowings from commercial banks in Hong Kong including the defendant.  The investigation conducted by the 2^nd plaintiff after GHK’s winding up revealed that the Fus had in fact been perpetrating a fraudulent scheme involving fabrication and falsification books and records of GHK including bills of lading.  When the scheme was unveiled by another major lender of GHK in about June 2009, proceedings ensued leading to its winding up in February 2010.

5.  Back in March 2006, the defendant, in the course of investigating delays in payment, sent 23 bills of lading issued by GHK to the International Maritime Bureau (“IMB”) of the International Chamber of Commerce, an internationally recognised organization which provides authentication service for trade finance documentation, for random checking.  IMB reported that 19 out of the 23 bills of lading were false or not in order and advised the defendant to exercise extreme caution.  However, according to the plaintiffs, the defendant failed to take heed of IMB’s reports and did not make any meaningful enquiries and investigations but continued lending to GHK.  The plaintiffs averred that the defendant had actual knowledge, or alternatively blind-eye knowledge of the fraudulent trading of GHK which rendered its conduct dishonest and unconscionable.  They claimed against the defendant damages in the sum of US$117,060,849 plus interest.

6.  The defendant, among other things, denied that it had the alleged knowledge or was dishonest and asserted that its bank officers had no motive for assisting the Fus’ breaches of fiduciary duty against GHK.

7.  After a 15-day trial, the Judge dismissed the plaintiffs’ action.  Importantly, he found the defendant’s witnesses credible and accepted their evidence that they had no knowledge of the GHK’s fraud but merely treated the IMB report as inconsistencies found in GHK’s bills of lading at the material time.  The Judge further found it inherent improbable that the bank staff would have any motive to ignore or assist the fraud.  He concluded that the bank or bank staff had not committed any act of unconscionability on the facts of the case.

Ground of application

8.  The ground in support of the application is that the appeal involves legal issues of unusual difficulty and complexity, the determination of which will make a significant contribution to the development of local and overseas jurisprudence.  It is therefore in the public interest to admit the applicant, a renowned specialist counsel, to argue the appeal.  As elaborated in the Certificate of Counsel for Admission of Overseas Counsel dated 19 December 2019:

(1)  The plaintiffs’ claims involve the accessorial liability of a bank to a breach of fiduciary duty.  This is a highly specialised area of expertise.  It will require the Court of Appeal to determine a number of important legal issues, the resolution of which will have a significant effect on the development of Hong Kong jurisprudence in this area.

(2)  The case involves the application of the proper legal standards of “knowledge”, “dishonesty” and “unconscionability” to the conduct of senior and experienced bank officers over the course of a number of years.  The commercial context in which it took place, involving finance, credit and corporate banking practice, is highly technical.  It requires a proper and detailed understanding of that context in order to properly understand the issues at play.

(3)  The fact that the case is being dealt with at the appellate level adds an extra level of complexity to the above legal issues.  The Court of Appeal will be tasked with considering whether, in the event it finds that the Judge did make any factual or legal errors, whether it should set the judgment aside and substitute its own.  It will necessitate the careful and considered analysis of the judgment and the application of complex appellate legal principles.

(4)  There is a significant public interest in the full determination of these issues, which are likely to impact upon the standards of future conduct for banks and others involved in trade financing of this nature.

9.  It is not argued on behalf of the applicant that there is no senior counsel in Hong Kong suitable or able to act for the plaintiffs. Mr Charles Manzoni SC, who appeared at trial with Mr Jason Karas, will be appearing with him if admitted.  However, it is contended on his behalf that a case of this magnitude and complexity would benefit greatly from the involvement of leading counsel with a specialist expertise in large fraud cases involving accessory liability who can deal authoritatively with the complicated legal issues that arise.

Ground of opposition

10.  The principal ground of objection raised by the Bar Association and the Secretary is that the case does not involve issues of unusual difficulty and complexity which would justify the applicant’s admission.  They do not dispute the applicant’s expertise and experience in the field.  However, they maintain that there are suitable and available local senior counsel who have the requisite expertise and experience to deal with the issues involved.

Main submissions

11.  Mr Manzoni for the applicant[1] first submitted that the legal concepts of “dishonest assistance”, “knowing receipt” and “fraudulent trading”, apart from their unusual complexity, are still subject of development and have not been substantially considered by the Hong Kong appellate court. There has been no appellate-level substantial consideration of “dishonest assistance” since the UK Supreme Court’s decision in Ivey v Genting Casinos (UK) Ltd [2018] AC 391 and the English Court of Appeal’s decision in Group Seven Ltd v Nasir [2020] Ch 129 which formulated the two-stage test of dishonesty.  The Court of Appeal will be required to consider if Hong Kong would adopt the legal principles derived from the English case law and if so, whether the Judge had properly and rightly applied the principles.

12.  Mr Manzoni next submitted that the same applied to the other cause of action of knowing receipt that the Hong Kong appellate Courts have not substantially considered the notion since the Court of Final Appeal decision in Thanakharn Kasikorn Thai Cambkat (Mahachon) v Akai Holdings Ltd (No.2) (2010) 13 HKCFAR 479 and it remains uncertain in England and Hong Kong if knowing receipt can be established when assets were received under a valid contract.

13.  Mr Manzoni further submitted that there is similarly no appellate and even first instance authorities in Hong Kong on the liability of a third party for fraudulent trading under section 275 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (“CWUMPO”), nor any English authority since the decision of the Court of Appeal in Bank of India v Morris [2005] BCC 739.

14.  To conclude, Mr Manzoni submitted that the legal issues arising for determination in the appeal are unusually difficult and complex and will impact upon the standards of future conduct of the banking industry. It is therefore in the public interest that an overseas counsel with specialist expertise, like the applicant, be admitted to assist the Court of Appeal to continue the development of local and overseas jurisprudence.

15.  Mr Jeremy Bartlett SC[2], representing the Bar, submitted that the case in general does not involve issues of unusual difficulty or complexity; instead, the key legal proposition are well-settled and the complexity of factual and legal issues is well within the range of normal commercial cases.  The legal issues in dispute are guided by well-founded case law, for instance, the concepts of “dishonesty” and “unconscionability” have been considered in numerous authorities and many of them were cited and discussed by the plaintiffs before the Judge at trial as set out in the underlying judgment.

16.  Mr Bartlett further contended that the alleged error of law committed by the Judge as set out in the notice of appeal, taken at its face value, are no more than refinements of well-established principles of the existing case law and challenges to the Judge’s assessment of the evidence, application of legal test/legal principles to the facts and/or his factual findings of the case.  Those matter can hardly be construed as unusually difficult or complex or appropriate matters warrant for admission of overseas counsel.

17.  Mr Bartlett finally submitted that since the fraud and its nature are admitted and the case simply concerns the state of knowledge of the particular individual bank employees involved, it would not touch on specialist expertise in banking law nor it would impact on the universal banking practice.  The public interest argument was just overplayed on the facts of the case.  Besides, given the availability and evident suitability of local counsel and the legal issues are neither unusually difficult or lack of authorities for reference and guidance, the applicant will not add a “significant dimension” to the case, citing Re David Perry QC [2016] 2 HKLRD 647.

18.  Ms Carmen Siu, representing the Secretary for Justice, submitted that the legal issues subject to appeal in the context of “knowing receipt”, “dishonest assistance” and “fraudulent trading” are matters commonly encountered in commercial/civil fraud cases and they are not unusually difficult and complex legal concepts.  There are a plethora of local and overseas authorities on the legal principles of the dispute subjects. In particular, the approach to dishonest assistance was clearly established in Royal Brunei Airlines v Tan [1995] 2 AC 378 which was considered and discussed by the Judge at [48] of his judgment.  On the question of requisite knowledge for knowing receipt, the court will be well assisted by the Court of Final Appeal judgment in Thanakharn Kasikorn Thai Cambkat (Mahachon) v Akai Holdings Ltd (No.2), supra, and the court may involve in the application of existing legal principles rather than the development of new legal principles.

19.  Ms Siu further pointed out that the applicability of section 275 of the CWUMPO to a third party was not an issue in the lower court nor in the appeal and whether there is any relevant local authority is irrelevant in this case.

20.  Ms Siu finally submitted that there are available suitable local counsel who have the expertise and experience in dealing with the issues at stake and Mr Manzoni and Mr Karas should be capable of providing the Court of Appeal with professional assistance and the plaintiffs with proper legal representation.

My views

21.  The principles governing ad hoc admissions of overseas counsel are well-established.  It is unnecessary to rehearse them here.

22.  Although the parties have made submissions in some details on the legal issues involved in the case, debating if the law is settled or not, I do not consider it appropriate for me to express any view on them.  All the legal issues will be fully argued in the appeal.  I should not pre-empt or be seen to be pre-empting the appeal in any way.  Hence, tempting as it might be, I will not dwell on the parties’ submissions on the legal issues.

23.  Having carefully considered the matter in the round with the benefits of the written submissions, I am prepared to accept that the case is of some difficulty and complexity.  But it is not of unusual difficulty or complexity, that being the touchstone for the application, to justify the applicant’s admission.  I say so for two main reasons.

24.  First, the bulk of the grounds of appeal attacks various factual findings made by the Judge based on contemporaneous documentation, which is undisputed, and oral evidence.  Even assuming that the commercial context in which those factual findings were made might be said to be technical, they do not involve any unusual difficulty or complexity that overseas counsel’s assistance is necessary or would add a significant dimension.

25.  Second, even assuming that the law on the concepts of dishonest assistance, knowing receipt and fraudulent trading are capable of further development, having regard to the more recent authorities including Criterion Properties v Stratford UK Properties [2004] 1 WLR 1846, Thanakharn Kasikorn Thai Cambkat (Mahachon) v Akai Holdings Ltd (No.2), supra, Ivey v Genting Casinos (UK) Ltd, supra, and Group Seven Ltd v Nasir, supra (in which the English Court of Appeal after surveying the authorities confirmed the test on dishonesty formulated in Royal Brunei Airlines v Tan, supra, it does not in my view make the issues involved unusually difficult or complex: see Re Mark Bernard Hapgood QC, HCMP 101/2013, unreported, 19 February 2013, per Cheung CJHC (as he then was) at [25(1)].

26.  Mr Manzoni asked me to take into account the CFA factor as the case might well end up in the Court of Final Appeal.  However, in light of my conclusion on difficulty and complexity, the CFA factor will not take the application any further.

Conclusion

27.  For the above reasons, I hold that it is not in the public interest to admit the applicant.  The application is accordingly refused.