UNICREDIT BANK AUSTRIA AG v. DRAGON WISE TRADING LTD

HCA 2110/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2110 OF 2012

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BETWEEN

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D E C I S I O N

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1.  This is an application by the plaintiff (an Austrian bank) for an order that the information obtained from the defendant’s bank be disclosed to the police. The summons has been served on the defendant but it does not appear today.

The background

2.  Acting on false mandates, the plaintiff (“the Bank”) transferred funds from 2 customers’ accounts (“the funds”) to the defendant (owned by Taiwanese directors and shareholders).  The plaintiff seeks restitution of money had and received by the defendant under a mistake of fact and return of monies as constructive trustee.

3.  A Mareva injunction and disclosure order have been issued against the defendant.  The disclosure order has not been complied with.  The defendant has on 19 November 2012 given an unsigned letter to the plaintiff’s solicitor stating,

“Regarding your COMPLAINT (HCA 2110/2012) I would kindly request that you confirm the details with your client. I think he very well understands the status of this matter.”

4.  A disclosure order has been issued for the Bank of China (“BOC”) to disclose information in relation to the defendant’s account into which the funds had been transferred and to produce banker’s books to facilitate tracing of the funds.  BOC has disclosed details of transactions showing that the funds had been withdrawn by way of cash or transferred to DBS Bank (Hong Kong) Ltd (“DBS”).  There are no funds now standing in the BOC or DBS accounts. 

5.  The plaintiff has since repaid its customers and so the real victim is really the plaintiff.  The Bank now seeks an order for the disclosure of the information obtained from BOC to the Hong Kong police or the police of other jurisdictions for investigation purposes.

The legal principles

6.  There is an implied undertaking on the part of the plaintiff that the information obtained under the disclosure order should not be used other than for the purpose of the present proceedings: Bankers Trust Co v. Shapira [1980] 1 WLR 1274, 1282E and 1283F.

7.  The underlying rationale of the implied undertaking was described in the judgment of Sir Thomas Bingham MR in Process Development Ltd v. Hogg [1966] FSR 45, at 51:

“The rule is, I think, the offspring of two principles. One is that the administration of justice is, in general, promoted if opposing parties make full discovery of all relevant documents, whether they are helpful or unhelpful to their case; a second principle is that the disclosure of a party’s own private documents to his opponent represents an invasion of his personal right to keep his documents to himself. The rule, accordingly, requires disclosure but gives a party a substantial measure of protection against the use of his documents for ulterior purposes.”

8.  The implied undertaking may be relaxed to permit disclosure to relevant authorities for special reasons.  In Re NDT (BVI) Trading Ltd (No 2) [2009] 5 HKLRD 615, the plaintiff had wanted to lodge a criminal complaint of perjury and a complaint to the Law Society.  It applied to the court for leave to use documents obtained in discovery.  Kwan JA says as follows:

“5. Thus, the court has a discretion to relax or modify the implied undertaking for special reasons. The general principle is that any release or modification of this undertaking should not occasion injustice to the person giving discovery (Crest Homes Plc v Marks [1987] 1 AC 829 at p.860B-C).

6. In exercising this discretion, the court may have regard to many factors and they vary from case to case. It is not possible to give an exhaustive list. A number of these factors were mentioned in Mead Corp v Carbonless Papers (Australia) Pty Ltd [2002] WASC 237, para. 45. They include the nature of the document, the nature of the information in the document, any prejudice the author of the document may sustain, and the likely contribution of the document to achieving justice in the second proceedings.

7. Leave of the court is required before reporting any wrongdoings revealed by documents disclosed on discovery to the appropriate authorities (Matthews and Malek, Disclosure2nd ed., 2000, para. 13.21). It is a balancing exercise whether what is sought to be achieved by relaxing the implied undertaking is more important for the administration of justice generally, such as in discouraging and punishing false evidence, than in maintaining confidentiality so as not to operate as a disincentive to full and frank discovery.

8.  In A v A (Ancillary Relief) [2000] 1 FLR 701 at pp.746H-747A, whilst acknowledging the public interest in full and frank disclosure on discovery, Charles J stated that if a court is satisfied there had been illegal or unlawful conduct which it had no power to deal with itself, it should generally report the relevant material to the relevant public authority. In Marlwood Commercial Inc v Kozeny [2005] 1 WLR 104 at para 52, the English Court of Appeal stated that in the absence of any other factors argued to constitute some injustice, the public interest in the investigation or prosecution of serious fraud should take precedence over the general concern of courts to control the collateral use of compulsorily disclosed documents. It was reasoned that the court’s exceptional permission for relaxing the rule against collateral use in cases of serious fraud in the international context does not give cause for thinking that proper disclosure in the general run of cases will be undermined. See also Capital Television Group v Northern Rivers Television Pty Limited [1995] NSWSC 75 at para. 10.”

9.  Although NDT’s case concerns information obtained under inter parte discovery, I cannot see why the same principles should not apply where the information obtained was banker’s books.

Application of the legal principles

10.  The present case shows a strong case of fraud committed on the plaintiff. The public interest in the combat of serious and extra-territorial fraud should take precedence over the general concern of courts to control the collateral use of banker’s documents disclosed under compulsion of a court order.

11.  The funds were dissipated swiftly after deposits into the defendant’s account.  Further tracing of the fraudsters would be something beyond the power of the court without the assistance of the police.

12.  The defendant clearly knows about these proceedings but has not complied with the disclosure order.  The company which used to provide the registered office for the defendant has ceased to provide mailing service to the defendant as of 1 November 2012, claiming to have lost contact with the defendant’s director.  The defendant’s conduct was nothing but stealthy and evasive.

13.  There will be no cause for thinking that the proper disclosure in the general run of cases or under a disclosure order against a bank would be undermined in circumstances like these.

14.  If there is any prejudice to the defendant, it is due to its own fraudulent act.  It is not at liberty to hide behind the veil of confidential banker-customer relationship.

15.  The plaintiff has made out a case for relaxing the implied undertaking.  I grant leave for the plaintiff to disclose the information and/or provide copies of documents obtained by the plaintiff from BOC under the disclosure order made by Deputy Judge Seagroatt to the Hong Kong police or the police of Austria for investigation purposes.

Other orders sought

16.  I have in the course of the hearing considered the application for leave to amend to reflect the true meaning of the order granted by Deputy Judge Seagroatt.  In addition, the variations seeking to limit the date range of the disclosure by the bank and to provide for indemnity costs in favour of BOC are proper orders to make.  

17.  I grant an order in terms of the draft orders lodged to me today as amended by me.

18.  There will be no order as to costs save that the costs of BOC be taxed on indemnity basis to be paid by the plaintiff in the first instance and to form part of the costs of this action.  Costs of today’s hearing for BOC shall be $1,200.