YOUNG CRYSTAL LTD AND OTHERS v. HANG SENG BANK LTD

HCA 1710/2021

[2024] HKCFI 525

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1710 OF 2021

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DECISION

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A. Introduction

1.  This is D’s application to strike out Ps’ Statement of Claim (the SoC).

2.  In gist, Ps’ grievance concerns the operation of the letter of no consent (LONC)  regime under ss 25 and 25A of the Organized and Serious Crimes Ordinance (Cap 455)(OSCO)  – something which had recently been the subject of repeated challenge (eg, Interush Limited v Commissioner of Police [2019] 1 HKLRD 892 and Tam Sze Leung v Commissioner of Police [2023] 2 HKLRD 839 – appeal to CFA pending).  

3.  Unlike Interush and Tam Sze Leung, however, the present case is not a challenge against law enforcement’s operation of the LONC regime. Instead, the target of attack is the bank (D)  which froze P1 and P2’s bank accounts after the Customs and Excise Department (C&ED)  decided, on 12 Jan 2012, to inform the bank of its suspicions [see WS of Lee Ming Kong at §6], and recommended the bank to file a suspicious transaction report (STR), pursuant to which C&ED issued a LONC on 17 Jan 2012.  

B.  The SoC

4.  In gist, Ps’ factual case in the SoC is as follows:-

(a)  P1, P2 and P3 are all part of the Keen Lloyd Group (KLG). 

(b)  P1 and P2 are long-standing clients of D. Both took out mortgages with D as to their properties. 

(c)  P3 is not D’s client.  P3, instead, is an entity which invested in the “Project of Chengao Port” [§3]. 

(d)  In 2011, the C&ED suspected KLG of smuggling and money laundering. A search, described as illegal, took place on KLG’s premises on 12 Jan 2012 [§10]. 

(e)  On the same day, D was informed by C&ED of the suspicion they had on inter alia P1 and P2 re smuggling. C&ED recommended the Bank to submit a STR, which the Bank did on the same day – which was followed by a LONC issued C&ED on 17 Jan 2012 [Lee Ming Kong §§6-9]. 

(f)  On 16 Jan 2012, P1 and P3 entered into a loan agreement with Guangdong Hongsen Group Ltd (GHGL), whereby P1 and P3 would borrow RMB 50M to invest into a port project by providing mortgages over four properties, including the two which had been mortgaged to D [§12]. 

(g)  On 20 Jan 2012, Ps expressed the wish to redeem the mortgages taken out with D [§14] (presumably to facilitate re-mortgaging such to GHGL to secure the intended loan).  

(h)  However, Ps were unsuccessful. According to Ps, D’s staff replied that “all accounts of the Plaintiffs are restricted by the [C&ED] and [D] is unable to deal with these bank accounts and properties.  If you have any enquiries, please contact Mr Lee of the [C&ED].” (emphasis added)  [§14].  

(i)  Words to similar effect were allegedly repeated on other occasions by the bank’s staff on:-

(i)  23 Jan 2012 (“all accounts of the Plaintiffs are restricted by the [C&ED] and [D] is unable to deal with these bank accounts and properties.”)  [§15];

(ii)  21 Aug 2012 (“We are informed by the [C&ED] that the proposed discharge is not allowed”)  [§18];

(iii)  24 Aug 2012 (“Regarding your letter dated 21 August 2012 about the discharge of the subject property, we are writing to confirm we are unable to provide the relevant notice by the [C&ED]”)  [§20];

(iv)  15 July 2023 (“restriction issued by the [C&ED] against the subject account remains effective and we are not allowed to unfreeze the title deeds or proceed to further actions relating to the said property.” [emphasis added])  [§21]. 

(j)  Ps’ representatives then allegedly met with their lawyers, Messrs. Ho Tse Wai, Philip Li & Partners, who advised them that:-

(i)  Given the so many responses from D’s staff which are “identical”, the responses should be true. 

(ii)  “the C&ED is required under section 15(4)(c)  of Cap.455 to give notice of the No Consent Letter to the Defendant affected by the restraint order which prohibits the Defendant from dealing with the plaintiff’s accounts and their properties”, and D would not otherwise have been acted upon recklessly [§22]. 

(k)  As a result, Ps’ representatives “ceased to pursue [D] of the letter provided by the C&ED and/or the restraint order issued by the court.” [§22]

(l)  On 16 Mar 2015, the DoJ obtained a restraint order (RO)  under s.15(1)  of the OSCO [§23]. 

(m)  Since then, D enforced the mortgages leading to the sale of the charged real properties [§24]. 

(n)  On 25 Oct 2019, after acquittal of most defendants in the criminal trial in relation to KLG, the RO was discharged [§27].  

(o)  Since then, Ps demanded D to produce the “No Consent Letter attached with the Restraint Order provided by the C&ED to [D] in January 2012…”, but D prevaricated [§28]. 

(p)  Instead, on 24 Jun 2020, Ps received a notice of cancellation of account [§28]. 

(q)  It was only on 14 May 2021 that Mayer Brown, acting on behalf of HSBC in a separate case (HCA 329/2015), disclosed “the Disclosure Order and the No Consent Letter attached with the restraint order…which were expressly stated by the C&ED that they were issued to HSBC under s.25A(2)  of Cap 455” in that case [§31(2)]. 

5.  We then come to the most important pleas in the whole SoC, which are the allegations of deceit and breaches of various duties. It alleges as follows:-

“32. [D] is one of the principal members of HSBC…The “Defendant’s Defence” of the proceedings HCA 329/2015 disclosed…to the plaintiffs’ affiliates clearly states that the notice of the Disclosure Letter was issued by the C&ED to the authorized institution in capacity of an authorized officer under section 25A(2)  of Cap.455. …[D] made the material statement in the paragraphs 14, 15, 18, 20 and 21 above which they knew the statement were false. [D]…did not believe that the statements were true.

33. At the material time, [D] refused to proceed the instructions made by…[Ps]…which is in violation of the agreements of account opening, the agreement of mortgage for the property and unlawful deprivation of the right to dispose of property. This has resulted in the properties being sold at a low price by [D]…the breach of the loan agreement with [GHGL] by [P1] and [P3] and [P1] and [P3]’s right to invest in the “Project of Chengao Port of the Sandu Gulf” being revoked.

34. …[D’s] deceitful conduct was reckless, misrepresented, unlawfully deprived the right to dispose of properties. [D] deceitfully forced [P1] and [P2] to make deposits. [Ps] shall be entitled to compensation for the unlawful deprivation of properties and for any pecuniary loss and damages suffered as a result of such properties….

35. [D] has unlawfully deprived [Ps] of their properties by deceitful conducts….At the material time, [D] must have known clearly and unequivocally that there was no notice of the No Consent Letter required to be given to [D] affected by the restraint order under s.15(4)(c)  of Cap.455 which prohibits [D] from dealing with [Ps’] accounts and their properties. But…[D], still made the false statements and deceptive conducts which is an offence to contravene s.93 and s.94 of the Banking Ordinance, Cap.155, to breach the signed agreements for mortgage of the property…and to infringe the plaintiffs’ right to the disposal of property under Article 105 of the Basic Law…” [emphasis added]

6.  Ps allege that these breaches led to huge losses.  While the losses are to the tens of millions in relation to P1 and P2 (which appears primarily related to the forced enforcement of the mortgages), the losses plead by P3 are particularly colossal – with a figure of approximately RMB14 billion being put forward, being loss of the “right of use of the “Project of Chengao Port of the Sandu Gulf”” [§34(3)]. 

C.  F&BPs Sought and Unless Order

7.  With respect, even on a casual glance, the SoC (which, for the avoidance of doubt, was not drafted by Prof Young) is next to impossible to understand.  

8.  One crucial difficulty concerns the plea of fraud/deceit – simply reading the SoC, it is not clear:-

(a)  why the statements made by D’s staff (see §4(i)  above)  are false;

(b)  even if the statements were false, why D is alleged to have knowledge of falsity. 

9.  Indeed, the only bits that is supposed to give hints in relation thereto (ie, the underlined bits in SoC §§32, 35, as extracted at §5 above) are extremely cryptic, and I find them next to impossible to correlate to the alleged false statements.  

10.  It is thus understandable that D tried to obtain more clarity by seeking Further and Better Particulars (F&BP).  Ps did answer, but not immediately, leading to an unless order by consent made by Master Matthew Leung on 18 Aug 2022. The order reads as follows:-

“Unless by 4:00pm on 22 August 2022, the Plaintiffs do file and serve an Answer to the [Relevant Requests], paragraphs 11 to 15, 22, 28, 29 and 31 to 35 of the Statement of Claim be struck out.”

11.  Against all of the above, Mr Man SC contends that:-

(a)  Ps are in breach of the unless order. If so, by way of the self-executing unless order, all the essential parts of the SoC had been struck out. All that remains is for the remaining, limping SoC to be struck out, and for the Action to be dismissed.

(b)  Further or alternatively, Mr Man SC contends that the SoC ought to be struck out in any event as it is clearly unsustainable and discloses no reasonable cause of action.  

12.  I will deal with these arguments in turn.  

D.  Effect of Unless Order

13.  In this case, after the unless order, Ps did file an Answer to the F&BPs requested on 22 Aug 2022 (the Answer).  This is not a case where nothing had been done in response to the order at all – however what is alleged is gross inadequacy.  

14.  One framework of analysis is to ask whether the unless order is:-

(a)  a mere “time order” (ie, an order that would only be defaulted upon if nothing is done at all, or the compliance is so inadequate that it could be described as not being made in good faith or illusory); or

(b)  a “qualitative order” (ie, an order that would be defaulted upon if it does not pass a quality threshold).  

15.  In general, unless orders should be construed as time orders: see Soemarto Sulistio v Stukan Yetty Fang [2020] HKCFI 292 at §21. 

16.  In Chan Luen v Chan Kwong Chi [2019] HKCFI 2829, however, Recorder Stewart Wong SC took a more nuanced approach.  

(a)  In that case, like this one, an unless order was made for filing of Answers to F&BPs.  

(b)  A document titled “Answer” was filed, but the content was generally “Nil” answers, eg, “Not entitled, as the Request is for evidence”.  

(c)  Rather than focusing on bifurcating between “time orders” and “qualitative orders”, the Court simply focused on whether or not the “Nil” answers were adequate upon a proper construction of the order in all the circumstances [§28].

(d)  In concluding that it was not, the Court put emphasis on the point that what was ordered was the filing of an “Answer”, not merely a “response” [§30]; and that a “Nil” answer in effect questions the appropriateness of the F&BP requests and are properly put “objections” (which does not constitute an “Answer”); and if they had to be raised, they ought to have been raised earlier, ie, prior to the order being made [§31].

17.  In my view, whichever line of reasoning is adopted, I think there are adequate grounds upon which to hold that at least some of the F&BPs had not been properly answered and that the “Answers” did not comply with the unless order. 

(a)  In this case, Ps had not answered the requests by giving “Nil” answers.  However, as against some of the crucial questions, the only response was to ask one to refer back to the SoC.  

(b)  In particular, F&BPs on crucial parts of the SoC, where the alleged breaches had been set out, had not been adequately answered, eg:

(i)  requests for particulars to SoC §§32, 33 and 34, are answered by referring back to the SoC.  With respect, this is in substance no different from a “Nil” answer, which is insufficient based on the same reasoning as in Chan Luen, a fact aggravated by the seriousness of the pleas therein, ie, allegations of fraud/deceit; 

(ii)  requests for particulars to SoC §35, is even more curiously answered – rather than providing particulars, Ps alleged that “the Defendant should seek their own legal advice”.  This makes no sense at all and borders on the absurd.  Again, in my view, this is no different from a “Nil” answer. 

18.  The insufficiency is so blatant that, even if one were to adopt the bifurcation approach between “time orders” and “qualitative orders”, and construe the unless order as a “time order”, the “Answer” would still be regarded as an illusory attempt to comply, and thus not qualify as compliance. 

19.  At this juncture, it is apt to quickly deal with Prof Young's counter-arguments:-

(a)  First, Prof Young argues that there is nothing wrong with referring back to the SoC, as the pleas of fraud/deceit had always been adequate.  In doing so, he relied on his own case/interpretation of the SoC (which is discussed below). 

(b)  With respect, I cannot accede to this argument.  As noted below, I do not agree that the case put forward by Prof Young (as discussed below)  can reasonably be discerned from the SoC, as drafted.  As drafted, I find the SoC incoherent and sorely lacking in particularity, especially given the seriousness of the charge.  

(c)  Second, Prof Young argues that D had delayed in raising the point – while the Answers were filed in Aug 2022, complaints of non-compliance were only raised in Oct 2023.  In the meanwhile, the case had proceeded, and Ps had expended time and money.  As such, he argues, D should be, in effect, estopped from complaining.  

(d)  I also cannot accede to this argument, as the premise thereof is that D somehow has to “enforce” the unless order.  This is incorrect.  As Mr Man SC pointed out:-

“…the sanction imposed in any unless order takes effect automatically and immediately upon default unless relief from sanction is obtained. The non-defaulting party need not make any application in order to render the sanction effective or to enforce the sanction. Accordingly, once a breach of the unless order occurs, the only recourse is to apply for relief from sanction…” [White Book 2024, §2/4/2]

(e)  As it stands, before I even entertain the current strike out application, I have to first ascertain the current state of the pleadings.  My conclusion is that the relevant paragraphs of the SoC had already been struck out. 

20.  To conclude, therefore, at the very least and in my view, the crucial SoC §§32-35 had already been struck out by the unless order.  Without relief from sanction (nor even any intimation of applying for it), the limping SoC makes no coherent sense at all at present.  I agree with Mr Man SC that such limping SoC, as it stands, ought to be struck out, for the remaining parts cannot meaningfully sustain any reasonable cause(s)  of action. 

E.  Deceit

21.  Having dealt with the technical objection, I move on to the substantive attack against the viability of Ps’ pleaded case.  I do so out of an abundance of caution (in case I were wrong on the unless order analysis), and also because, in deciding whether or not to not only strike out the SoC but also dismiss the Action, I would have to consider, as Mr Man SC rightly pointed out, inter alia:-

(a)  whether or not the claim can possibly be salvaged by an amendment;

(b)  whether sufficient opportunity had previously been provided; and

(c)  the balance of prejudice, taking into account the staleness of the events. 

22.  In this regard, the parties have sensibly agreed that there are four potential causes of action that I have to consider. They are:-

(a)  Deceit.

(b)  Breach of the banking contracts inter se.

(c)  Breach of the Banking Ordinance.

(d)  Breach of the Basic Law. 

23.  I consider them in turn. 

24.  As regards deceit, I had already stated at §§7-9 above why I regard the plea to be prima facie unfathomable and liable to be struck out.  

25.  The question, for me, is whether Prof Young can demonstrate that it can somehow be clarified and salvaged.  In his Skeleton, he elaborated as follows:-

“7. The Plaintiff’s case for deceit is straight forward…In January 2012, when redemption of their mortgages was refused by the [D], the Plaintiffs obviously wanted to know why….They were told by [D] that their accounts were “restricted” by the [C&ED] and that was the reason why redemption was not allowed…When further queries were made in 2012 and 2013, [D] repeated the same answer…This led [Ps] to believe a judicial restraint order attached to their accounts…It turns out this was not true….

8. The restraint order was only obtained and put in place in March 2015…

9. In short, [D] gave a false reason for why [Ps] were being denied services in 2012, and it knew it was false because:

(a)  the terms of the Disclosure Letter and No Consent Letter were self-evidently not a restraint order…

(b)  if a restraint order was in place, [D] would have received notice of such pursuant to section 15(4)(c)…

(c)  [D] knew the restraint order was only made by the court in March 2015….”

26.  This was elaborated upon in the hearing. In gist, the misrepresentation case that is being put forward is that:-

(a)  The gist of the representations made by D's staff (as alleged by Ps)  is that it was C&ED who “restricted” the bank accounts.  This is a representation that there had been a judicial restraint order. 

(b)  Ds knew that this was false as, at the time, D only received the LONC; and they must have known that these are not judicial restraint orders, as they did not, under OSCO s 15(4)(c)  receive any notice. 

27.  I would start by stressing that, whatever the merits or de-merits of this new formulation, this new formulation is clearly not what had currently been pleaded in the SoC (despite Prof Young's valiant contentions to the contrary).  Prof Young's formulation rests heavily on the representation being one of the existence of a judicial restraint order (in sharp contradistinction to a LONC).  However, this cannot be detected from the pleadings at all. 

28.  The issue, then, is whether or not the new formulation can form the basis of a claim which is salvageable. Mr. Man SC submitted that it could not, for inter alia the following reasons:-

(a)  First, Ps’ revised case, in gist, seeks to make the argument that, via the pleaded primary factual representations by D’s staff, it could be inferred/interpreted that, in effect, D had represented that there existed a judicial restraint order.  This argument is hopeless, and by no stretch of the imagination could one make such an inference/interpretation. 

(b)  Second, Ps’ revised case, if one thinks it through, does not make sense.  On Ps’ own case, they were legally advised.  As quoted in §4(j)(ii)  above, Ps’ own lawyers well knew about the effect of OSCO s 15(4)(c), ie, “A restraint order…shall provide for notice to be given to persons affected by the order”, which must include Ps.  As Ps had not received any such notice, they must have known that there had been no judicial Restraint Order and could not have been misled by d. 

29.  As to the second argument, while I agree there is a lot of common sense to it, the point appears to be fact-sensitive.  Since this point had not previously been squarely raised, I would refrain from relying upon it for strike out purposes.  

30.  More pertinent is the first argument. I agree with Mr Man SC that the “interpretation” required in the present case is simply too stretched.  There has been no mention of anything about a judicial restraint order at all in the alleged representations by D's staff. Indeed, on Ps’ case, D's staff had said that it was the C&ED which “issued” the restriction, or that the restriction was “by” the C&ED[1]. It is not clear how Ps could interpret such as being restrictions arising from a judicial restraint order.  

31.  If so, this does tend to suggest that, even after re-formulation, the claim in deceit is unlikely to be sustainable.  

32.  Indeed, the situation becomes even grimmer when one looks at the other elements of deceit, eg, that D intended Ps to rely on the misrepresentation, that there is reliance, causation and loss, which do not seem to be properly pleaded (if pleaded at all).  For example, it is glaring that, in terms of reliance and causation, all one can find in the SoC is that, as Ps thought there was a restraint order, they “ceased to pursue [D] of the letter provided by the C&ED and/or the restraint order” [§22].  There is no follow-up elaboration whatsoever as to why this would cause loss to Ps.  The assumption, it seems, is that had they known there was no restraint order and only a LONC, P1 and P2 would have been able to operate their accounts and redeem their mortgages etc – but no explanation had been given as to why this would be the case especially when it is not disputed that a LONC is in place.  While these points had not been taken by D specifically in this strike-out, it does affect the Court’s impression of the viability of the cause of action. 

F.  Breach of the Banking Contract and Limitation

33.  One then turns to the claim for breach of the banking contract. 

34.  With due respect, the pleas in this regard are also faulty.  The only plea is at SoC §33, ie:-

“at the material time, the Defendant refused to proceed the instructions made by…the plaintiffs…which is in violation of the agreement of account opening, the agreement of mortgage for the property….”

35.  However, not even the relevant terms of the relevant agreements had been pleaded.  This is simply not acceptable and a pleading as defective as such is liable to be struck out on this ground alone. 

36.  Be that as it may, D's strike out in relation to this point however seems to be focused upon the Limitation Ordinance (LO), which goes like this. 

37.  First, the breach, D says, occurred in 2012.  The Writ herein, however, was only taken out on 11 Nov 2021.  6 years had clearly elapsed under LO s 4(1). 

38.  Second, D also says Ps cannot rely upon LO s 26, as:-

(a)  LO s 26(1)(a)  and (c)  are only applicable to claims where fraud is an essential ingredient of the cause of action: Beaman v ARTS Ltd [1949] 1 KB 550 at 558.  Fraud, however, is not integral to the breach of banking contract claim. 

(b)  LO s 26(1)(b)  is only applicable if D has deliberately concealed a fact that forms a necessary ingredient of P’s cause of action: Frank Lee v HSBC [2022] HKCFI 3680 at §76.  The oft-cited passage in Hong Kong is from Lee Tsan Sum v Wong Pui Hon David [2010] 4 HKLRD 219 at §39, where Fok J (as he then was)  had this to say:-

“(3)  A fact relevant to a plaintiff’s cause of action is an act without which the cause of action would be incomplete. It is not relevant that a defendant may have concealed a fact which, if known, would merely go to strengthen an existing case…”

(c)  Indeed, the proposition that only a fact which goes to the cause of action, as opposed to a defence, would trigger s 26(1)(b)  seems well established: see C v Mirror Group Newspapers and Others [1997] 1 WLR 131 at 138-139. 

(d)  In the present case, the facts alleged to be concealed are not essential elements of the cause of action of breach of contract ie, the “Disclosure Letter” and the LONC.  A prima facie breach of contract existed once D refused Ps’ instructions. The “Disclosure Letter” or LONC at best only goes to a “justification for refusing to fulfil Ps’ alleged requests. In other words, they relate to the bank’s defences rather than Ps’ cause of action.” [D Skel §65] 

39.  In response, Prof Young's argument on behalf of Ps is as follows:-

“the true reason for why their accounts were frozen was deliberately concealed until 2021 when the relevant documentation was finally provided. The Disclosure Letter and the [LONC] reveal and confirm that no restriction or restraint had been applied by the ced to the accounts from 2012 to 2015. With respect, [D] is wrong to suggest that this issue is not a necessary part of [Ps’] cause of action.” [Ps Skel §19]

40.  My analysis is as follows. 

41.  First, Ps had not specifically answered D's law point in relation to LO s 26(1)(a)  and (c).  I agree with Mr Man SC that fraud and mistake cannot be a necessary element of the cause of action of breach of contract.  Any reliance on these provisions must fail.  

42.  Second, in relation to LO s 26(1)(b), Ps’ answer, it seems, is that the relevant fact that had been concealed is the “true reason for why their accounts were frozen”, ie, that it was by way of the effect of LONC.  Ps’ case is that, had they been informed of the LONC, they would have known that there was no restraint order; and if so, presumably, they would have known that they had a cause of action for breach of contract against the bank.  However, because the information was concealed, they did not think they had a cause of action – the information is thus a “necessary part” of its cause of action.  

43.  As I see it, the point is thus a fairly fine one – does the fact of whether or not the restraint order existed go to the availability of the cause of action, or does it simply go to a defence?  

44.  The difficulty in answering the question is not helped by the fact that Ps have not even taken the elementary step of properly pleading its breach of contract case by specifying the terms thereof. 

45.  While the SoC as it stands is demurrable, I would still have to analyse the matter from the perspective of a very preliminary assessment of the salvageability of Ps’ Action.  In this regard, the dicta of G Lam JA in Tam Sze Leung concerning the bank’s position may render some assistance:-

“55.. This puts the bank in an unenviable position. On the one hand, it has contractual duties to and a commercial relationship with its customers, who is entitled to give instructions for operating his account. On the other hand, it may incur criminal liability if it releases any funds with the requisite mental element.

56. The bank’s position can be alleviated in two ways. First, the bank’s contractual duties may be suspended by operation of law where their performance has been rendered temporarily illegal by statute…alternatively, its duties may be tempered by an implied term that it can refuse to operate the account in any way where to do so may expose it or its staff to criminal liability, or by similar express terms. When these terms apply, the bank may refuse to follow the customer’s instructions without incurring civil liability…” [emphasis added]

46.  As helpfully observed, there is more than one way the impact of a LONC/restraint order can be framed.  

(a)  One way of thinking about it is that the existence of a LONC/restraint order is relevant only to an issue of defence, ie, the defence of (performance)  illegality.  

(b)  Another way of thinking about it, however, is to think in terms of implied terms.  Presumably, the implied term could be somewhere along the lines of a proviso to the general duty to honour instructions, eg there is a duty to honour instructions provided that there is no restraint order (in which case there is no duty to honour).  If so, the issue of whether or not there is a restraint order may be relevant to whether or not P1 and P2 have a cause of action at all, rather than an issue of defence.  

47.  Having considered all of the above, it would seem to me that the line may be not easy to draw.  At the strike-out stage, I am of the view that I cannot rule out the possibility that LO s 26(1)(b)  can be applicable.  For the avoidance of doubt, this should not be seen as indicating the opposite – ie, that such postponement had been made out. Indeed, there are various other issues that may arise – for example:-

(a)  There is the interesting question of whether D could be said to be in “deliberate” concealment when its non-disclosure may well be motivated by statutory secrecy under s 26 of the OSCO. 

(b)  There is still the issue of “reasonable diligence” under LO s 26 - even on Ps’ own case, a restraint order was in fact granted on 16 Mar 2015.  Under s 15(4)(c)  of the OSCO “a restraint order – …(c)  shall provide for notice to be given to persons affected by the order.”.  There is clearly an argument that Ps must therefore have been so informed shortly thereafter 16 Mar 2015.  As such, even if it had not known about the lack of a restraint order prior to Mar 2015, questions may legitimately be raised as to whether they could have realized this by then. 

48.  However, since these points had not been raised by D and Ps had not had an opportunity to answer them, I would not comment further for present purposes.  

G.  Breach of the Banking Ordinance

49.  Banking Ordinance (BO)  s 94(1)  provides as follows:-

“Any person who, by any fraudulent, reckless or negligent misrepresentation, induces another person to make a deposit with him or any other person shall be liable to pay compensation to the person so induced for any pecuniary loss that such person has sustained by reason of his reliance on that misrepresentation.”

50.  D’s point is simple – the SoC does not make any pleas to this effect. All we have in the SoC is that:-

“34. …The Defendant deceitfully forced the 1^st Plaintiff and the 2^nd Plaintiff to make deposits.

35. …the Defendant, still made the false statements and deceptive conducts which is an offence to contravene s.93 and s.84 of the Banking Ordinance…”

51.  Prof Young, in response, argues that, while there was no direct deposit as a result of the claimed misrepresentations:- 

“20…the Defendant’s misrepresentations induced the 1^st and 2^nd Plaintiffs to allow their properties to be sold at a low price and for the remaining proceeds of those deposits to be deposited into their accounts. The amounts deposited is pleaded…

21…It is submitted in the circumstances of this case the 1^st and 2^nd Plaintiffs were induced to make an indirect or constructive deposit that comes within the statutory tort in section 94(1). Whether this submission is correct in law is not a straightforward issue…” [Ps Skel §§20-21]

52.  My view, in this regard, is simple – the issue concerning the proper interpretation of BO is a posterior question.  The anterior question is whether Ps have properly pleaded the alleged misrepresentations.  While the threshold under BO s 94(1)  is lower than deceit (negligence can suffice), the fundamental flaw in Ps’ pleading, ie, the lack of a proper plea of the existence of a false representation (as already discussed above)  remains.   

53.  If so, Ps’ plea is demurrable without even being engaging the issue of statutory interpretation. 

H.  Basic Law Claim

54.  The fourth cause of action is the so-called Basic Law (BL)  claim.

55.  The short point, similar to the BO claim, is this – the only effective plea in the SoC in this regard is as follows:-

“35. …the Defendant, still made the false statements and deceptive conducts …infringe the plaintiff’s right to the disposal of property under Article 105 of the Basic Law of the Hong Kong Special Administrative Region.”

56.  The whole plea, again, rests on the alleged “false statements and deceptive conducts” – but, as noted above, the whole plea of misrepresentation/deceit is simply faulty.  For such reasons, Ps’ plea is demurrable without even engaging the BL question.  

57.  In any event, out of deference to Counsel’s industry, I will also express my views in relation to the point. 

58.  Mr Man SC’s argument, in gist, goes like this:-

(a)  This Court had in Yinggao Resources Ltd v HSBC [2022] HKCFI 306 at §5(d), referring to Harvest Good Development Ltd v Secretary for Justice (HCAL 32/2006, 16 Jul 2007)  at §138, already held that BL 105 would not spawn any directly enforceable private law rights.  This Court should therefore follow its earlier decision. 

(b)  In any event, the formulation in the SoC is simply hopeless. While praying in aid of a “BL” cause of action, not even an attempt had been made to inform the Court what elements such a cause of action would include.  It is impossible to imagine what such a cause of action would look like and it is a “pie in the sky”. 

(c)  Prof Young, in his Skeleton submission, had made it clear that P3’s claim is based solely on this BL claim.  If I accede to the above arguments, P3’s claim must in any event be dismissed. 

59.  Prof Young’s argument, in gist, goes like this:-

(a)  Harvest Good is not applicable, as that case is only concerned with the second limb of BL 105(1), ie, “right to compensation for lawful deprivation of their property”, as opposed to the first limb, ie, “protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property”.  In fact, the Court of Appeal in Interush Limited v The Commissioner of Police [2019] 1 HKLRD 892 had held that a LONC does trigger the first limb of BL 105 [§6.18]. 

(b)  There are a number of academic articles which support (1) the proposition that BL 105’s interpretation is evolving; and (2) BL 105 should be conferred horizontal effect: 

(i)  In Law of the Hong Kong Constitution (3^rd Ed)  at §§31.038-31.042, the learned author traced the history of interpretation of BL 105.  It noted that while older cases focused upon the second limb (the “deprivation” limb), later cases had made it clear that this is only one part of BL 105 and there also exists the first limb (the “use” limb).  This supports the distinction made in relation to the proper interpretation of Harvest Good; it is further submitted that this shows the proper interpretation of BL 105 is evolving, and the Court should not, at the strike-out stage, easily conclude that BL 105 can have no horizontal effect.  

(ii)  In any event, two academic articles suggest that BL ought to “strong” horizontal effect, in the sense that it may spawn new causes of action if necessary:-

1.  ‘Horizontal effect’ of the Hong Kong Basic Law (2016)  45 Common Law World Review 101;

2.  ‘Horizontal Effect’ of the Basic Law and the Hong Kong Bill of Rights Ordinance under the New Constitutional Order (2018)  12 HKJLS 35.

(c)  Finally, Prof Young impresses upon me that the law in relation to LONCs and their illegality is still in a state of flux, given the decision of Tam Sze Leung v Commissioner of Police [2022] 1 HKLRD 480 (overturned by the Court of Appeal in [2023] 2 HKLRD 839, with a further appeal to be heard by the CFA on 4 Mar 2024). 

60.  Having considered all of the above, my views are as follows. 

(a)  I accept that Harvest Good, in deciding that BL 105 is only between Government and private individuals, focuses on the deprivation limb of BL 105, especially the meaning for the Chinese word for such.  Harvest Good therefore may not be definitive on the issue of whether or not BL 105 has “strong” horizontal effect (nor, by extension, the Yinggao case). 

(b)  I also accept that there are academic articles which (i) suggest that limited horizontal effect had already been given to BL provisions (eg, in determining the scope of the fair comment defence[2], in interpreting the scope of the tort of trespass[3], and in determining the scope of defences to public nuisance[4]); and (ii) advocate in favour of “strong” horizontal effect of BL 105, i.e. if necessary, new causes of action can be spawned based on the BL:

“judges should not feel constrained by legislative inaction, but should take the initiative to fill perceived gaps in the common law in order to fulfil their obligation to adjudicate in accordance with the Basic Law. In the final analysis, it is suggested that this obligation may even necessitate the creation of a new cause of action or require the judge to rule inconsistently with a superior court’s decision”[5].

(c)  However, the same articles also note that:-

“…it is argued that the (market-based)  civil society and the private law securing it have indispensable roles in maintaining the city’s freedom and prosperity. It would also mean that Hong Kong courts should adopt an indirect horiziontal approach and develop the private common law with due regard to the pre-existing legal framework of private common law…

It is also contended that the courts may create new causes of action in the process of developing the existing private common law…the distinction between extending or developing causes of actions and creating a new cause of action is one without real difference. Both approaches are in fact creating the ‘missing tool’ for private common law so that it can effectively respond to the demand of the new constitutional order…

However, while the creation of new causes of actions is justifiable, courts should do so with much care. As enunciated by Lord Toulson in Michael v Chief Constable of New South Wales:-

The development of the law … has been by an incremental process rather than giant steps. The established method of the court involves examining the decided cases to see how far the law has gone and where it has refrained from going. From that analysis it looks to see whether there is an argument by analogy for extending liability to a new situation, or whether an earlier limitation is no longer logically or socially justifiable…

Hence, it is argued that while the courts can create new causes of action to ensure consistency between the constitutional fundamental rights and private common law, courts can only do so provided it is no more than an incremental development of the existing law. ”[6] [emphasis added]

(d) The above passage is really just a reflection of common sense. Even if one were to entertain the possibility of “strong” horizontal effect at all, any such exercise must start with identifying the lacuna in the existing private law in protecting BL rights, and suggesting how it could be rectified by modification of existing causes of action or the creation of a new cause of action.  

(e) This, with respect, is not something that Ps had even attempted to do. This is all the more glaring when the fact that Ps had been able to identify 4 potential causes of action suggests that the law does already contain much armoury in determining and protecting property rights between a bank and the client; see also Tam Sze Leung at §56.  Just exactly how they are unable to protect property rights under BL 105 is wholly unexplained. No reasonable cause of action had even been formulated.  

61.  In the circumstances, I cannot discern any reasonable cause of action based on BL 105. The plea in relation thereto is clearly demurrable.  

I.  Conclusion and Costs

62.  Having reached the conclusions above, it remains for me to take stock and decide on the proper orders to be made.  

63.  For the reasons above, the SoC, in its current form, must be struck out. It is simply completely not fit for purpose. The only issue is whether or not the Action ought to be dismissed, or whether Ps should be given one last chance to try to put forward a coherent SoC. Running through the various considerations helpfully put forward by Mr Man SC (as noted at §20 above):-

(a)  Salvageable? – Based on the arguments before me, the deceit, BO and BL 105 claims are unlikely to be salvageable. For the contract claim, as noted above, there may be something arguable on postponement, but the claim itself is extremely ill-defined and unsatisfactory.  

(b)  Sufficient Opportunity to Amend? – As Mr Man SC had noted, Ps had been given opportunity to give F&BP; further, Counsel had also been instructed on this occasion, and yet no amendment had been attempted (although, to be fair, it is unclear whether Prof Young had been given the time/instructions to consider any amendment).  

(c)  Balance of Prejudice – Mr Man SC noted that any further chance should be balanced against the prejudice suffered by his client (including the staff members who had been repeatedly pestered by allegations of fraud). On the other hand, the case had only been commenced in 2021.  

64.  Taking all of the above into account, in my view, the proper approach is as follows.  

65.  As, in my view, the claim by P3 based on BL 105 is totally unsustainable, the Action by P3 against D ought to be dismissed. 

66.  As for the claims by P1 and P2, I am prepared to give them one last chance to put their house in order, and I will therefore not dismiss the Action at this stage. I would however urge them to consider the points that had already been discussed above, and consider whether or not it is still realistic to proceed. As the SoC is struck out, it would be illogical to give leave to apply to amend – instead, leave will be given to apply to put in a fresh SoC, although this should not change the principles - any leave application to put in the fresh SoC should be heard as though amendment principles apply.

67.  Given the highly unsatisfactory state of the SoC and the fact that this Court is in effect granting an indulgence, however, I am of the view that Ps should be put under a strict timetable; and Ps should pay the costs of the present Summons on an indemnity basis.  

68.  I therefore make the following orders:-

(a)  P3’s Action against D be dismissed.

(b)  The SoC be struck out.

(c)  P1 and P2 do have liberty to apply for leave to file a fresh SoC by way of Summons on or before 4:00 pm on 21 March 2024.

(d)  Unless P1 and P2 make an application as per para.(c) above by 4:00pm on 21 March 2024, this Action shall be dismissed in its entirety, with costs of this Action (including all reserved costs) to D, to be taxed if not agreed.

(e)  Costs of the Summons dated 27 Oct 2023 be payable by Ps to D on an indemnity basis, with certificate for counsel, to be summarily assessed. For such purposes:-

(i)  D to lodge and serve its statement of costs within 3 days of this Order;

(ii)  Ps do lodge and serve its opposition, if any, within 2 days thereafter.

69.  I thank Counsel for their helpful assistance.