Bay Capital Asia Fund, Lp (in Official Liquidation) v. Dbs Bank (Hong Kong) Ltd

HCMP 3104/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3104 OF 2015

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REASONS FOR DECISION

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1.Bay Capital Asia Fund, LP (“Fund”) is in liquidation in the Cayman Islands in which it is incorporated. The Liquidators of the Company have applied by originating summons for orders recognising their appointment, having all powers granted to them by the Grand Court of the Cayman Islands and that the balances of bank accounts with DBS be delivered up to them.

2.This matter has come on twice before me.  The first time I adjourned the application for further evidence to be filed addressing the legal character of the Fund under Cayman Islands Law.  By the time this matter came back before me the parties had agreed the substantive terms of the order and the only matter that remained for determination was costs.

3.The argument about costs arises because it would appear that the solicitors for neither party understood my decision in A Co v B [1]. In paragraphs 4 and 5 of my judgment I say this:

“4. These rules recognise that, as one would expect, generally matters concerning the constitution and management of the affairs of a foreign company are determined by the laws of the place of its incorporation. The authors ofConflict of Lawsexplain in paras.30‑102 of the 2nd volume that Rule 179 is justified because the law of the place of incorporation determines who is entitled to act on behalf of a corporation and in footnote 430 various authorities are cited as establishing this principle. The authors go on in the same paragraph to explain that “If under that law [the law of the place of incorporation] a liquidator is appointed to act then his authority should be recognised here”. It follows that if a person in Hong Kong receives a request or instruction from a liquidator of a foreign corporation, with which if it had come from the board of directors of that foreign corporation he would have complied, he should once he is satisfied that the liquidator was properly appointed in the place of incorporation act upon the request or instruction. In practice this is not what happens. It appears to be a common response of banks and other parties to a request for information from a foreign liquidator, and was so in the present case, that his appointment is not effective in Hong Kong and that they require an order from the Hong Kong Courts before they will act.

5. This lack of cooperation from banks, and also in my experience auditors, has been cited to me on a number of occasions as one of the reasons why a foreign liquidator has sought to wind up in Hong Kong the company over which he has been appointed in its place of incorporation.  It should not be necessary to do this simply to enable a foreign liquidator to obtain information and documents in Hong Kong…”

4.I would have thought that these paragraphs made it clear that if a bank receives a request from liquidators of a company which has an account with them, once it is satisfied, which should be straightforward, that the liquidators have been properly appointed by the court of the place of the company’s incorporation they will hand over documents to which the directors of the company would have been entitled.  However, Wilkinson & Grist, DBS’s solicitors, seem to have taken the view that because in A Co v B I made an order, it followed that I did not mean what I appeared to have said and that an order was still necessary, thus  overlooking the precise nature of the case before me in A Co v B and that, as far as I am aware, it was the first application of its type in Hong Kong.  Wilkinson & Grist were clearly wrong and their correspondence with the Liquidators reads as an unattractive exercise in obtuseness, which served no other purpose than to run up costs. If all that had been sought was recognition, I would have ordered that DBS pay the Liquidators costs on an indemnity basis.

5.However, as I have mentioned the Liquidators also sought an order for the transfer by DBS of the money standing to the credit of the Fund in its account with DBS.  In correspondence with DBS the Liquidators took the view that it was necessary for them to get an order from the Hong Kong Court effectively authorising the transfers.  In this

they were incorrect.  As I explain in paragraph 6 of my decision in A Co v B:

“6. A distinction does, however, need to be made between information and assets. Unlike the position in personal bankruptcy the common law maintains that a foreign liquidation has no automatic consequences in relation to the property of a foreign company in a local jurisdiction.[2] As a consequence an application needs to be made by a foreign liquidator for an order vesting him with the title to the local property.”

6.The Liquidators have taken the view that as what they sought was the transfer of the monies in the DBS accounts to new company accounts opened by them as opposed to their own liquidation account they do not need a court order.  It seems to me that in practice this is a distinction without a difference.  If a foreign liquidator wishes to deal with the assets of the company in Hong Kong he should obtain an order from the Court authorising him to do so and, if relevant, vest him with title.  In the case of bank accounts or other moveable property this will probably be straightforward.  This accords with the approach discussed by Professor Fletcher in Insolvency in Private International Law (2^nd ed) referred to in footnote 2 to A Co v B.

7.It follows that it was necessary for the Liquidators to make an application to court for an order authorising transfer of the balances in the DBS accounts, but not the routine banking documents that they sought from the bank. 

8.It was argued on behalf of the bank that the court should clarify how and in what circumstances a lay person in Hong Kong should be satisfied that a liquidator was properly appointed in the company’s place of incorporation.  The question seems to me to have been formulated more with a view to deflecting criticism of DBS and its solicitors than because the present case highlights difficulties that the recipient of requests for documents may face.  The Company is incorporated in the Cayman Islands.  If DBS in Hong Kong is willing to allow such companies to open accounts with it presumably it has already ascertained who is, as a matter of the Cayman Islands Law, authorised to direct the operation of the account and request documents.  As the correspondence DBS’s solicitors generated demonstrates, DBS is quite capable of obtaining advise about the status of a foreign liquidator whose legal system is familiar in Hong Kong. And I note that it has not been suggested that DBS had any doubt about the status of the Liquidators.

9.I can understand that there may be jurisdictions whose system are less familiar and as a result cases in which it is reasonable for a bank to request a recognition order, but to suggest that DBS were not capable of assessing whether the Liquidators had been properly appointed in the present case seems to me to be disingenuous.  I also accept that regard must be had to the recipient of the request.  I would expect a sensible liquidator to recognise that when dealing with unsophisticated parties it may be more straightforward and fairer to seek a recognition order, but an international bank in Hong Kong asked to provide a liquidator appointed in the Cayman Islands with bank statements is in a very different position and if advised responsibly should have no difficulty in establishing quickly that they should comply with the request.

10.The second question I was asked to consider as a matter of principle is whether a lay person once satisfied that a foreign liquidator has been properly appointed in the place of incorporation should accord automatic recognition to the foreign liquidator and accede to his request for information and documents even in the absence of a recognition order?  This is not a question that falls for determination in the present case and like the first question smacks of an attempt to make a simple matter appear complex in order to deflect criticism of DBS and its solicitors’ conduct.  In the present case what was asked for by the Liquidators in their letter of 7 October 2015, which was met with a refusal to provide anything without a court order, was this:

“4.  Provide us with a list of all accounts in the name of the Fund and include details of the current balance of each account.

5.  Provide us with a listing of all transactions (i.e. deposits and withdrawals) for the past 12 months for each account. If any accounts were closed by the Fund, please provide us with a listing of all transactions for the 12 months preceding the closure of the accounts.

6.  Provide us with a list of all documents in the name of the Fund held by you for safe custody.

7.  Inform us of any security you may hold from the Fund or let us have confirmation that you hold no such security.

8.  Provide us with up-to-date details of your claims against the Fund, if any.

9.  Provide us with copies of Guarantee Documents, if any.”

11.There was nothing problematic in this list.  What the Liquidators asked for was routine and once DBS was satisfied that the Liquidators had been properly appointed (which could have been done by asking for a letter confirming this from Cayman Island lawyers if DBS was not satisfied with copies of the order), it should have provided them.

12.Finally, DBS argues that under clause 11.1 of its standard terms and conditions it is entitled to be indemnified by the Company for its costs in dealing with any dispute it has with the Company concerning the opening, managing or maintaining of the account.  Such conditions will normally be given effect to but the authorities establish that they remain a starting point for the exercise of the court’s discretion on costs[3].

13.The Liquidators would have had to come to court for an order even if DBS had provided the documents voluntarily and this needs to be reflected in the costs order.  However, it seems to me that DBS has made this application more complex than that was necessary.  In the circumstances I will make no order as to costs as between the parties and order that the Liquidators’ costs are paid out of the assets of the Company.

Mr Toby Brown, instructed by Bird & Bird, for the plaintiff

Mr Michael Lok, instructed by Wilkinson & Grist, for the defendant