Chan Lap Kit t/a Ngan Fung Exchange Co Also t/a Reliable Rmb Remittance Co and Another v. Yushun Technology Ltd

DCCJ 130/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 130 OF 2016

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DECISION

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Introduction

1.By summons dated 20 February 2017 (“the Summons”), the plaintiffs applied for leave to appeal against this court’s order of 24 January 2017 (“the Order”) dismissing their garnishee order nisi to show cause of 15 March 2016 (“the garnishee summons”).

2.The hearing of the present leave application was fixed in consultation with counsel’s diaries and it was heard before this court on 13 July 2017.

3.The background and the procedural history leading to the substantive hearing of the garnishee summons and the intervener’s application to assert proprietary claim over the debt as owed by the garnishee bank to the defendant under Order 49 rule 6 of the Rules of District Court (Cap.336H) (“the intervener’s application”) are set out at paras 1-9 and 11-13 of this court’s earlier decision dated 24 January 2017 (“the Decision”).

4.Under section 63A(2) of the District Court Ordinance (Cap 336), leave to appeal shall not be granted unless the appeal has a reasonable prospect of success, or there is some other reason in the interests of justice that the appeal should be heard.

5.In Wing Tat Haberdashery Co Ltd v Elegance Development and Industrial Co Ltd [2011] 5 HKC 474, the Court of Appeal held that the test of whether an appeal has a reasonable prospect of success under section 63A means an appeal with prospects that are more than ‘fanciful’, but which do not need to be shown to be ‘probable’ (at para 6).

The proposed grounds of appeal

6.To support this leave application, the plaintiffs set out their proposed grounds of appeal in the draft notice of appeal (at pages 3 to 6 thereof) as annexed to the Summons (“the draft notice of appeal”).  In essence, they advanced three principal proposed grounds by contending that:-

(1)   First, this court was wrong in summarily determining that the USD sub-account and two HKD sub-accounts within the business integrated bank account in question (“the Account”) which the defendant maintained with the garnishee bank ought to be viewed as ‘one single bank account’ for the purpose of the subject tracing exercise (“Proposed Ground 1”).

(2)   Second, this court was wrong in summarily determining the issue of whether the funds in the USD sub-account and the HKD sub-account constituted segregated funds or one unified debt (as owed by the garnishee bank to the defendant) in the absence of receiving evidence on the actual practice of the garnishee bank.  The court should have directed the parties for trial (“Proposed Ground 2”).

(3)   Third, this court was in any event wrong in dismissing the garnishee summons and effectively allowing the intervener to claim the entirety of the credit balance remaining in the Account when it is possible that (subject to further evidence from the garnishee as to the actual timing of deposits and withdrawals between the USD sub-account and HKD sub-account) the lowest intermediate balance of the entire Account on 29 April 2014 was USD9.95 plus HK$39,446.50 only.  Alternatively, the court should have let the plaintiffs and the intervener share such balance on a pari passu basis (“Proposed Ground 3”).

Proposed Ground 1

7.Under Order 49 rule 6 of the Rules of District Court (Cap.336H), this court was empowered to summarily determine the Intervener’s proprietary claim over the credit balances in the Account on the available affidavit evidence before it: see Goodpoint Holdings Ltd v Mark Anthony Seabrook [1997] HKLRD 869, per Keith J (as His Lordship then was) at 872F-H.

8.As a matter of fact, both parties invited this court to treat the first instance hearing as the substantive hearing of the garnishee summons and the intervener’s application.[1]  The plaintiffs asked this court to make absolute the garnishee order nisi, and the intervener sought for the setting aside of such order. Both the plaintiffs and the intervener were content to have this court summarily determined the garnishee summons and the intervener’s claim basing on the affidavit evidence.

9.Para 24 of the affirmation of Chan Lap Kit (ie the 1^st plaintiff) dated 14 July 2016[2] states that:-

“24. To conclude, we do object to the joinder of the Intervenor in this action, which does not concern the Intervenor at all. If the Intervenor wishes to oppose our application of Garnishee Order Absolute in respect of the moneys in the Defendant’s Account on the basis that it has proprietary (sic) interest in and is entitled to the same, it may do so by simply attending before this Court and stating the nature of its claim with particulars under the mechanism under Order 49 rule 6, in which case we shall abide by the determination of this Court as to whether and/or to what extent a Garnishee Order Absolute may be made.” (emphasis added)

10.Para 24 of the affidavit of Chan Hiu Fung Fung Nicholas (the intervener’s handling solicitor) dated 4 August 2016[3] states that:-

“24. Furthermore, given that (1) the Court has in the call-over hearing on 16^th June 2016 indicated that it shall deal with the substance of the proceedings including the Company’s claim[4]; (2) the 1^st and 2^nd Judgment Creditors do not object the Company from stating its claim; (3) the 1^st and 2^nd Judgment Creditors appear to have adduced all the evidence they have, the Company respectfully asks the Court to treat the substantive hearing for the Summons as the substantive hearing for the determination of the 1^st and 2^nd Judgment Creditors and make any order under Order 49 rule 6 with respect to the funds in the Account as it thinks fit, including costs order.” (emphasis added)

11.At the first instance hearing, I saw no conflicting evidence put forward by the parties on any factual matter. After carefully considered the parties’ submission in light of the relevant law and the evidence, I have no reasonable doubt on any question or issue affecting the validity of the intervener’s claim which this court should direct the parties for trial: see Go Fun Properties & Investment Ltd v So Bik Har Winfield Constructors Corp Ltd & Anor [1980] HKC 66, per Roberts CJ at 67A-C; Ying Fat Plastic Factory Ltd v Hegner Ltd [1998] 1 HKC 691, per Godfrey JA at 693G-694C[5].  I considered it appropriate to summarily determine the garnishee summons and the intervener’s claim basing on the undisputed affidavit evidence before the court.

12.Against such a procedural background, one of the principal tasks this court at the first instance hearing was to construe the nature of the Account (which is internally divided into a USD sub-account (“the UDS sub-account”), a HKD savings sub-account and a HKD current sub-account (hereinafter the two HKD sub-accounts are collectively referred to as “the HKD sub-account”)) on the undisputed evidence so as to determine whether the respective credit balances in the HKD sub-account and the USD sub-account should be regarded as a single unified debt for the purpose of the tracing exercise (“the Issue”).  At the first instance hearing, the substantive determination of the Issue together with some other material issues involved in this case could one way or another dispose of the garnishee summons and the intervener’s application. (see: the Decision, paras 25-26, 27, 30 and 45).

13.It is not disputed that the intervener was a victim of email fraud and part of the fraud proceeds in the sum of USD880,131 was transferred through an intermediate account to the USD sub-account on 28 April 2014.  The fund in the USD sub-account was subsequently depleted.  When the garnishee order nisi was served on HSBC (the garnishee bank) on 30 March 2016, there were a credit balance of USD6.87 and another credit balance of HK$504,224.21 with the Account[6]. In these circumstances, if the funds in the USD sub-account and the HKD sub-account should be so regarded as a single unified debt for tracing purpose, the intervener would be able to trace into and assert proprietary claim not only over the credit balance in USD but also the credit balance in HKD as well.

14.In this application, the plaintiffs have not sought leave to appeal against this court’s holding that the intervener can assert proprietary claim over the credit balances in both HKD and USD in the Account if this court had rightly held that the intervener could trace into the same. (see: the Decision, para 25)  In other words, the plaintiffs in this application do not take issue that the intervener could trace into the fund in the USD sub-account, their intended appeal only focuses on the issue as to whether the intervener could trace into the fund in the HKD sub-account.  As regards this court’s reasoning on why the intervener could assert proprietary claim over the funds in the two sub-accounts (so long as they are traceable), it can be found at paras 18 to 24 and 27 to 30 of the Decision.

15.On this occasion, Mr Ho on the plaintiffs’ behalf referred this court to some new authorities seeking to re-argue that the funds in the HKD sub-account and the USD sub-account should be segregated but not to be treated as one unified debt for the present tracing exercise.  With respect, I do not accept Mr Ho’s submission after carefully going through these additional authorities.

16.First of all, it is this court’s holding that the relationship between the defendant and the garnishee bank is a single relationship of creditor and debtor in respect of all the funds in the Account on the undisputed evidence before this court.  Although there are sub-accounts within the Account, these sub-accounts can in law be treated as one single account in the absence of any special contract between the banker and its customer that they should be kept separate.  And, this court found no evidence of such special contract in this case.  On the contrary, it is the undisputed evidence that any payment in and out of the Account, whether in HKD or USD, would be transacted via its single bank account number[7].  And, the net position of the Account (being the aggregate of the HKD and USD balances held in the sub-accounts) would be shown in each monthly bank statement in HKD currency rather than in two separate currencies.[8] (see also: the Decision, para 39) 

17.In Re European Bank.  Agra Bank Claim (1872) LR 8 Ch App 41 (CA), James LJ did not treat the three bank accounts maintained with the same bank as ‘distinct matters’.  At p 44 of the judgment, His Lordship held that:-

“… But when we look at the books, it is clear that there was no particular reason for treating these three accounts as distinct matters. It was only for convenience that the loan account was kept separately. It was admitted by the Appellant that the bills in question might have been applied to discharge the balance of the loan account, without regard to the particular transaction in respect of which they were deposited. In truth, as between banker and customer, whatever number of accounts are kept in the books, the whole is really but one account, and it is not open to the customer, in the absence of some special contract, to say that the securities which he deposits are only applicable to one account.” (emphasis supplied)

18.In Holesowen Presswork v Westminster Bank [1971] 1 QB 1 Buckley LJ at p 46E-G cited Re European Bank case and other authorities which were decided along the same line, and His Lordship made similar observation about the legal relationship of the banker and its customer as embodied in a number of bank accounts as follows:-

“Where the relationship of the banker and customer is a single relationship such as I have already mentioned, albeit embodied in a number of accounts, the situation is not, in my judgment, a situation of lien at all. A lien postulates property of the debtor in the possession or under the control of the creditor. Nor is it a set-off situation, which postulates mutual but independent obligations between the two parties. It is an accounting situation, in which the existence and amount of one party's liability to the other can only be ascertained by discovering the ultimate balance of their mutual dealings. The following cases are examples of such a situation: Garnett v. M'Kewan(1872) L.R. 8 Ex. 10; In re European Bank. Agra Bank Claim(1872) L.R. 8 Ch. App. 41; T. & H. Greenwood Teale v. William Williams, Brown & Co. (1894) 11 T.L.R. 56; Mutton v. Peat [1900] 2 Ch 79….”

19.In light of the aforesaid authorities, there is thus a proper legal base for this court’s earlier holding that the funds in the HKD sub-account and the USD sub-account can be treated as a unified debt as owed by the garnishee bank to the defendant at all material times for the subject tracing exercise. (see: the Decision, para 40)

20.Such view is also consistent with the general tracing principle that although one may conveniently speak of tracing into ‘the money in the account’, one in truth only traces into the value of what was ultimately owed by the bank to its customer.  Therefore, despite the outward appearance of different funds being deposited into and withdrawn out of the sub-accounts at different times, it is in my view legitimate to treat all the money in these sub-accounts as one mixture of value, or to put in another way, a unified debt as owed by the bank to the defendant and represented by the final balance standing to the credit under the Account for tracing purpose.

21.In Foskett v McKeown [2001] 1 AC 102, Lord Millett at pp 127-128 said:-

“We speak of money at the bank, and of money passing into and out of a bank account. But of course the account holder has no money at the bank. Money paid into a bank account belongs legally and beneficially to the bank and not to the account holder. The bank gives value for it, and it is accordingly not usually possible to make the money itself the subject of an adverse claim. Instead a claimant normally sues the account holder rather than the bank and lays claim to the proceeds of the money in his hands. These consist of the debt or part of the debt due to him from the bank. We speak of tracing money into and out of the account, but there is no money in the account. There is merely a single debt of an amount equal to the final balance standing to the credit of the account holder. No money passes from paying bank to receiving bank or through the clearing system (where the money flows may be in the opposite direction). There is simply a series of debits and credits which are causally and transactionally linked. We also speak of tracing one asset into another, but this too is inaccurate. The original asset still exists in the hands of the new owner, or it may have become untraceable. The claimant claims the new asset because it was acquired in whole or in part with the original asset. What he traces, therefore, is not the physical asset itself but the value inherent in it.” (emphasis added)

22.It is appreciated that the fund in one of the sub-accounts is in foreign currency.  But this fact per se would not in my view alter the legal nature of these sub-accounts being one account in law or otherwise prevent them from being viewed as one account for the present tracing exercise in light of the aforesaid authorities.  

23.In particular, all the credit balances (in USD currency) in the USD sub-account can be freely converted to HKD currency at all material times at the agreed exchange rates between HSBC and the defendant, and vice versa. Mr Ho urged me to take judicial notice that HSBC would charge its customers a handling fee for each currency conversion in such type of integrated bank account, though he could not produce any authority to that effect.  I do not accept that the individual banking practice of how a particular bank would charge its customers on conversion of funds from one currency to another for a particular type of bank account would fall into the proper scope of judicial notice.  At any rate, such fee-charging arrangement (even if exists) would essentially be a separate contractual matter building on top of the underlying single creditor-debtor relationship between HSBC and the defendant, and therefore should not alter the basic legal nature of these sub-accounts.

24.Mr Ho further submits that if the HKD current sub-account was overdrawn, the Court could not view the credit balances in all the sub-accounts as a single unified debt as this would involve consolidation of an overdrawn account with other accounts with credit balances. Mr Ho cited Shalson v Russo [2005] Ch 281 to support his argument.  (see: Rimer J’s judgment at paras 136-140)

25.With respect, I reject such argument. First, it is strictly speaking unnecessary for this court to deal with such hypothetical scenario.  There is simply no evidence that the HKD current sub-account was at any time overdrawn.  Second, such argument is a non-starter since there is likewise no evidence of any prior agreement as between HSBC and the defendant allowing any overdraft to be made under the HKD current sub-account.  Under common law, a bank is not obliged to allow its customer to overdraw an account unless it has contractually committed to do so.  (See: Cunliffe Brooks & Co v Blackburn and District Benefit Society (1884) 9 App Cas 857 (HL), per Lord Blackburn at p 864; Barclays Bank Ltd v WJ  Simms Son & Cooke (Southern) Ltd [1980] QB 677, per Goff J at p 699.)  In other words, the mere existence of a current sub-account likewise would not alter the underlying debtor-creditor relationship between the bank and the customer, but would only amount to a superadded obligation on the bank to honour the customer’s cheques so long as there is sufficient fund in such sub-account. (See: Garnett v M’Kewan (1872) L R 8 Ex 10, at p 13)

26.Third, the point now raised by Mr Ho was never canvassed at the first instance hearing.  The plaintiffs should not be allowed to run such new point on appeal bearing particularly in mind its fact-sensitive nature which if allowed would require the court to investigate into whether there really existed any prior agreement of overdraft between HSBC and the defendant, and yet neither party has adduced such evidence at the first instance hearing: see Lehmanbrown Ltd v Union Trade Holdings Inc & Ors, HCMP 977 of 2015, 17 June 2015, per Lam VP at para 10.

27.All in all, the above approach for treating the funds in the sub-accounts within the Account as a unified debt as owed by the garnishee bank to the defendant for tracing purpose is principle-based, giving due recognition to Lord Browne-Wilkinson’s observation made in Foskett v McKeown (at p 109C-D) that tracing is a matter of ‘hard-nosed property rights, not on what is fair just and reasonable’.

28.Given the above proper legal perspective, I now turn to deal with Mr Ho’s other arguments made in purported reliance of the additional authorities he submitted for this leave application.

29.Mr Ho resorted to Boscawen v Bajwa [1996] 1 WLR 328 and Re Global Finance (supra) and argued that if ‘client ledgers’ made by a solicitor are sufficient to ‘segregate’ or ‘earmark’ funds deposited into a single general client account, the segregation of funds in the HKD sub-account and the USD sub-account by the ‘garnishee bank’ should operate to the same effect.[9] With respect, I cannot accept such argument, which is fundamentally flawed in two respects.

30.First, it is inappropriate to compare the position of the relevant account holders in both authorities with that of the garnishee bank here in the discussion of the topic of ‘segregation of funds’.  Even if one desires to explore whether there was any segregation of funds in different sub-accounts of such kind that may prevent the intervener from tracing into the HKD sub-account (and in my view there was no such case here and I shall return to this point later), it would be the intention of the defendant, but not the garnishee bank, that counts.  As pointed out in para 39 of the Decision, HSBC only provided the integrated banking service to the defendant enabling the latter to carry out its banking transactions in different currencies conveniently within one single bank account. It would be entirely up to the defendant to decide what funds were to be deposited in or withdrawn from which sub-accounts at all material times. 

31.In my opinion, the significance of the bank’s role here only lies in how this court should construe its legal relationship with the defendant in respect of the funds in the sub-accounts when considering the question at the fundamental level as to whether the funds in these sub-accounts can legitimately be viewed as one mixture of value for the purpose of tracing.  And this court already addressed such issue at paras 16 to 27 above.  The question of segregation of funds would only come into the picture at the next level when there is evidence of the intention of the defendant (but not the garnishee bank) to ‘segregate’ or ‘earmark’ any part of the mixed fund for the other innocent contributor(s).  In this light, Mr Ho has apparently got the two questions mixed up whilst he advanced his argument.

32.Second, Mr Ho’s reliance on these two authorities would in any event be misplaced even his submission is to be modified by referring to the intention of the defendant (instead of the garnishee bank) so as to explore the question of ‘segregation’ of funds in the sub-accounts.

33.Their material facts of the two authorities are entirely different from the present one. The relevant account holders in those two cases set up ‘ledger accounts’ so as to appropriate the funds in a single bank account for the benefit of their different clients.

34.In stark contrast, the present case is not a case of multiple claimants.  This court has found that the intervener was the sole legitimate proprietary claimant in respect of all the funds in the Account, and the plaintiffs have no proprietary interest in any part thereof. (see: the Decision, paras 49 to 51)  The plaintiffs have not sought any leave to appeal against that part of the Decision.

35.Evidentially, there was nothing to show that the fund in the HKD sub-account was deliberately segregated or earmarked by the defendant for the benefit of any other particular person or purpose than for his own use.  The HKD current sub-account was irrelevant for the present purpose since there is no evidence that it was overdrawn at any material time as pointed out above.

36.At any rate, it would be unrealistic to expect any evidence of such kind of segregating the funds in different ledger accounts as in the cases of Boscawen and Re Global Finance to be forthcoming in the present proceedings. It is undisputed between the parties that the defendant was the fraudster’s accomplice knowingly received the fraud proceeds as deposited into the Account; and at the first instance hearing nobody had ever suggested the defendant or any other innocent co-contributor would show up to give evidence in this case.

37.In these circumstances, any suggestion that the defendant might have the intention to treat the funds in the HKD sub-account as segregated from the USD sub-account for any other particular person or purpose is thus fanciful and sheer speculation.

38.Purely for the sake of argument, even assuming the fact of the existence of the two sub-accounts in question may be seen as a kind of division of mixed fund by the defendant, the fact remains it is a division as between his own share and the intervener’s share only given the findings of this court. (see: paragraph 34 above)  And yet, no matter how clearly the wrongdoing mixer seeks to divide ‘his share’ from that of the innocent contributor’s share, the innocent contributor here (ie the intervener whom this court found to have been capable of asserting proprietary claim over the mixed fund) can in principle still trace into and assert its interest in any division of such mixed fund (including the wrongdoing mixer’s share).

39.In Smith on The Law of Tracing, 1997, the learned author at pp 205 and 206 said:-

“(d) Withdrawals and Third Parties

Against a wrongdoing contributor, a contributor can assert her interest in any division of mixture, including a withdrawal…. A wrongdoing contributor, though, does not have the power to ‘unmix’ the mixture and so destroy an innocent contributor’s liberty to assert that his contribution is in the portion removed.

…

(e) Unmixing of Value by a Wrongful Mixer

The preceding discussion mentioned that, as in physical mixtures, a wrongdoing contributor lacks the ability to withdraw his own contribution free from the claims of non-wrongdoing contributors. …

The effect of this must be considered in light of the victim’s ability to assert her contribution in any division of the mixture to which she contributed. The reconciliation appears to lie in the idea of ratification. The division having been made for the benefit of someone, or at least on their behalf, that person can ratify the division so as to make it effective. No matter how clearly the mixer divides the mixture into ‘his’ share and the victim’s share, ‘his’ share remains liable to the victim’s ability to trace until the victim, with full information, ratifies the division…” (emphasis added)

40.The next authority cited by Mr Ho is Grocers of Wyong v Retech Global [2004] NSWSC 488.  In that case, Campbell J did not actually express any preferred view one way or another in relation to the arguments concerning ‘whether sub-accounts (for a group of companies created through some computer software[10] for a single bank account) ought to be regarded as being like bank accounts, so that there could not be tracing through a negative balance in them, or whether they were mere internal arrangements of the group of companies to which the defendants belonged’ (para 35).  The learned Judge indicated that it was unnecessary for him to consider such question since he was not persuaded there was any trust relationship existed between the parties in the first place.  Therefore, with respect, I am not persuaded that Mr Ho could gain any mileage out of Retech Global.

41.As for the remaining three authorities, viz FHR European Ventures LLP v Mankarious [2016] EWHC 359 (Ch); Shalson (supra); and CY Foundation Group v Cheung Chee Tock [2012] 1 HKLRD 532, I likewise reject Mr Ho’s argument that these authorities would prevent this court from treating the credit balances in the HKD sub-account and the USD sub-account within the Account as one mixed fund for tracing purpose in this case.

42.In FHR, Cedar LLC (the second defendant) had maintained three bank accounts with the same bank in three different currencies.  Master Clark took the view that the claimant was effectively asking the court to treat the funds in the three separate accounts as one mixed fund for tracing purpose but he refused to do so (para 36).

43.At para 40 of the judgment, the learned Master said:-

“40. One way of testing the claimants’ counsel’s submissions is to consider the following scenarios where money from the Fee[11] and the defendants’ money are both used to purchase an asset:

(1) the Fee is retained in cash (not paid into an account) and the defendants’ money is in an account;

(2) the Fee is paid into an account and the defendants’ money is retained as cash;

(3) the Fee is paid into an account with one bank and the defendants’ money is paid into an account with a different bank.

(4) the Fee is paid into an account with one bank and the defendants’ money is paid into another account with the same bank – as in this case.

In the first 3 cases it cannot be said that the Fee has been paid into a mixed account and Re Oatway would not apply. In my judgment, there is no distinction in principle to be drawn between these cases and the fourth case even though the accounts are at the same bank – as a matter of fact, the funds are not mixed. As the defendants’ counsel submitted, tracing is a matter of “hard-nosed property rights”, not on whether it is fair, just and reasonable to treat the claimants as entitled to the entirety of the deposit (see Foskett v McKeown at p109C-D).” (emphasis supplied)

44.My observation is that, firstly, the learned Master’s refusal to treat the funds in the three bank accounts in question as mixed was basing on his factual finding that the funds in those separate bank accounts are not mixed.  I do not think that the learned Master went so far to hold that funds in different bank accounts maintained with the same bank cannot as a matter of law be viewed as one mixed fund for tracing purpose in all circumstances.   If he had really gone that far, with respect, I would beg to differ from the learned Master’s view due to the authorities of Re European Bank and Holesowen Presswork (as quoted in paras 17 and 18 above) and my above legal reasoning premised on such authorities.

45.Secondly, the special factual features about the sub-accounts within a single bank account in this case (as identified at para 39 of the Decision and some of which are reiterated in para 16 above) should in my view justify this court’s holding that the funds in these sub-accounts can be and should be viewed as one mixed fund for tracing purpose.  The special fact here as materially distinguishable from FHR case is that all the sub-accounts in question can also be practically viewed as parts of one integrated business bank account.  Thus, any tracing into any part of the fund in the Account does not require ‘consolidation’ of the sub-accounts speaking in terms of their actual operation, because all these sub-accounts have always been integrated with each other under one single bank account by design.  To say the least, such view can in my judgment be legitimately taken for tracing purpose on the undisputed evidence before this court.  As such, irrespective of whether one looks from the legal perspective or the actual functioning of the sub-accounts, the Account (with these internally divided sub-accounts) can function as one single bank account in respect of the all the funds deposited into and withdrawn out of the same.  In other words, all banking transactions are in fact carried out within the confines of one integrated bank account.

46.In Shalson, Rimer J refused to consolidate an overdrawn account (into which the funds in question were deposited[12]) with some other bank accounts with credit balances.  Rimer J took the view that the overdrawn account must be looked at in isolation, ignoring the fact that the other accounts were in credit (paras 138 and 139).  However, no question of consolidation of such kind would arise in this case as the HKD current sub-account was not overdrawn at any material time.  The subject fund of USD880,131[13] was not deposited into an overdrawn account either. (see also: the Decision, paras 31, 35-36, 41-44)

47.For completeness sake, I should mention that Mr Ho also referred to CY Foundation Group v Cheng Chee Tock [2012] 1 HKLRD 532 in this application.  This court had fully dealt with Mr Ho’s argument made in respect of this authority at paras 41-44 of the Decision, and I have no intention to repeat here.  I do not see Mr Ho could advance any new or further argument out of CY Foundation in this leave application.

48.In light of the above analysis, none of the authorities submitted by Mr Ho in this leave application can effectively prevent this court from treating the funds in the sub-accounts within the Account as one mixed fund for the subject tracing exercise.  The essential factual matrix of each of these additional authorities is substantially distinguishable from the present case as illustrated above. Having said so, Master Clark’s decision in FHR case (in particular his reasoning at para 40 of his judgment) does have some bearing on this court’s holding, and yet both parties’ counsel could not refer this court to any authority from this jurisdiction, which either directly supports or goes contrary to the learned Master’s reasoning and decision on the tracing point in FHR case.

49.Apart from the aforesaid arguments as advanced by Mr Ho, the plaintiff also raised an evidential point under Proposed Ground 1. (See para 1(5) of the draft notice of appeal.)

50.They seek to introduce in this leave application a new piece of evidence consisting of a single sheet of information from HSBC entitled “What is Total Relationship Balance” (“the Information Sheet”) by merely annexing the same in their counsel’s written submission.

51.This is an impermissible course to take.  It would be too late for the plaintiffs to adduce fresh evidence at this stage unless they satisfy the court that the requirements laid down in Ladd v Marshall [1954] 1 WLR 1489 can be met.

52.Mr Ng, counsel representing the intervener, rightly submits that the plaintiffs have failed to explain why this document could not have been made available at the first instance hearing with reasonable diligence.  Obviously, the first condition of Ladd v Marshall cannot be fulfilled.  I agree that such new evidence is inadmissible in this leave application.

53.However, purely for completeness sake, even if such new evidence is considered de bene esse, I do not think that it would make any material difference to the final outcome either.  By referring to the new documentary evidence, Mr Ho submits that the ‘total relationship balance’ (“the TRB”) is only relevant in determining whether a particular customer is entitled to a waiver of monthly service fee charged by HSBC.  With respect, I disagree.  The fact of HSBC mentioning the average ‘total relationship balance’ in each monthly bank statement is significant in the sense that the bank would look at the ‘total balance’ for the whole Account rather than the ‘individual balances’ in each sub-account in deciding whether waiver fee would be charged.  Further, as pointed out in paragraph 16 above, HSBC would also state in every monthly statement the net position of the funds in the sub-accounts in one single sum (in HKD currency).  Viewing thus, these features are also in a way consistent with the HKD and USD credit balances within the single integrated bank account being treated as a unified debt as owed by the bank to the defendant for tracing purpose.

54.On the other hand, even if the TRB is to be ignored, the fact remains that the Account is a dual currency business integrated account to facilitate the bank customer to carry out its banking transactions at any time in two different currencies conveniently in one single account; any payment in and out of the Account, whether in HKD or USD, would be transacted via its single bank account number; the net position of the Account for each month would premise its calculation on the aggregate sum of HKD and USD held in the Account. All these undisputed evidence are pointed out in para 39 of the Decision.  However, the plaintiffs have not sought to challenge in the first instance hearing or even in this hearing that the court is not entitled to take any of these other undisputed evidence into account in treating the credit balances in the sub-accounts as one mixed fund for the subject tracing exercise.

55.In the premises, I have no doubt the evidential point raised under para 1(5) of the draft notice of appeal is also totally without merits.

56.However, concerning the point of law raised by the plaintiffs as to whether it is possible or permissible to treat the funds in the HKD sub-account and the USD sub-account within the subject integrated banking account as one mixed fund for the tracing exercise here, this court cannot fairly say that it is fanciful for the plaintiffs to run their legal argument by resorting to FHR case.  It is one thing that their legal argument cannot win this court’s favour for reasons as given above, it is another thing and I tend to agree with Mr Ho’s submission that in the interest of justice, this court should grant the plaintiffs leave to appeal in respect of such point of law. (see also: paragraph 48 above) It would be to the public advantage for the Court of Appeal to consider and express its view on such legal question which would have important implication on the tracing exercise into bank accounts, a litigation topic frequently visited upon. (see: Hong Kong Civil Procedure 2017, vo1 1, para 59/2A/4)

Proposed Ground 2

57.As explained above, the issue about ‘the practice of or the treatment by the garnishee bank in segregating the funds in the Account’ is improperly raised by the plaintiffs. It is a non-point. Further, no matter how the defendant tried to divide the funds in the Account, those funds belonged to either the defendant or the intervener, but no other third party on the undisputed evidence and given the findings of this court.  Viewing thus, the raising of such issue by the plaintiffs is just a red herring, and has no bearing on the determination of the intervener’s claim. (see: paras 30 to 39 above)

58.Following from this, Mr Ho’s submission that there is no evidential basis for the court to view the funds in the HKD sub-account and the USD sub-account as one unified debt for tracing purpose in the absence of such evidence of the garnishee’s practice in segregating the funds is totally misconceived.  The undisputed evidence as relied on by this court in reaching its conclusion that the funds in the two sub-accounts are one mixed fund for tracing purpose are clearly pointed out in para 39 of the Decision. (see also: the discussion at paras 16, 30, 45 and 54 above)

59.In this light, there is thus no substance in Mr Ho’s submission or it is otherwise misconceived for him to argue that if this court is uncertain about the garnishee bank’s actual practice or treatment in ‘segregating’ the balances in the sub-accounts, the proper course was for this court to investigate into the issue by way of an order for trial under Order 49 rule 6(2).

60.For completeness sake, I should also mention that in purported support of his submission, Mr Ho referred this court to some ‘agreed issues and draft directions for trial’ prepared by the parties at the first instance hearing as to the further conduct of the proceedings.  Such ‘agreed issues and draft directions’ are also quoted in the draft notice of appeal.  However, Mr Ho failed to mention that these agreed issues and draft directions were prepared by the parties upon this court’s invitation but also subject to this court’s clear indication to both parties’ counsel that these agreed issues and draft directions would be necessary only if the court is minded to direct the parties for trial.  After giving full deliberation of both parties’ submissions in light of the relevant law and the undisputed evidence, this court saw it appropriate and gave its final and substantive ruling of the intervener’s claim and the garnishee summons as submitted by the parties for summary determination in such circumstances as mentioned in paragraph 11 above.  In this light, the agreed issues and draft directions prepared by the parties purely for the purpose of such contingency can in no way advance the plaintiffs’ case in this leave application.

61.In the premises, I see no merits in Proposed Ground 2 at all.

Proposed Ground 3

62.First, Mr Ho submits that although the daily total for the HKD savings sub-account was HK$2,449,491.61[14] on 29 April 2014, the credit balance for such sub-account in the midst of that day had once gone down to HK$39,446.85[15]. On the other hand, Mr Ho admits that there were a deposit of USD156,120 and a subsequent withdrawal of USD157,208 made under the USD sub-account yielding a resultant credit balance of USD9.95 on the same transaction day of 29 April 2014.[16]  On that day, the balance in the HKD current sub-account is nil.[17]  In other words, if the sum of USD156,120 had been deposited in the USD sub-account before the credit balance in the HKD savings sub-account went down to HK$39,446.85, and the subsequent withdrawal of USD157,208 had not been made under the USD sub-account before the next deposit entry of HK$1,500,000[18] was made under the HKD savings sub-account, the lowest intermediate balance rule would not be engaged.  However if, say, the sum of USD156,120 had not been deposited before the HKD credit balance went down to HK$39,446.85, the rule would be engaged.

63.On that premise, Mr Ho now submits that, without receiving further evidence from the garnishee bank, it is not possible to tell from the sequence of the series of withdrawals and deposits (as shown in the bank statement) whether ‘the lowest intermediate balance rule’ was engaged or not, even if the funds in the HKD sub-account and the USD sub-account are considered together. 

64.It is noteworthy that such figure of HK$39,446.85 now pointed out by Mr Ho is not readily apparent from the relevant bank statement.  One has to work out such figure by adding and subtracting a series of figures for the preceding deposits and withdrawals made under the HKD savings sub-account for the transaction day of 29 April 2014 as shown in the bank statement.  I agree that this can qualify as a triable issue if the plaintiffs raised such point at the first instance hearing.  But the plaintiff did not do so, and asked this court to summarily determine the intervener’s claim on the available affidavit evidence instead.

65.Not only that, when this court specifically asked Mr Ho at the first instance hearing whether the lowest intermediate balance rule is engaged if this court is minded to consider the HKD sub-account and USD sub-account together.  In reply, Mr Ho gave a clear indication to this court that the plaintiffs have to accept that such rule is not so engaged; and he even stressed that it is only when this court treat the HKD sub-account and USD sub-account as segregated then the lowest intermediate balance rule would be triggered. [19] (see also: the Decision, para 38)

66.In these circumstances, it would be neither just nor fair to allow the plaintiffs to reopen this point in light of their conducts at the first instance hearing.  Generally speaking, a litigant was bound by his indication (whether made by himself or through his legal representative) made to the court at trial that certain matters were not in issue. In Yorkshire Insurance Company Ltd v Craine [1922] 2 AC 541, an appeal from the High Court of Australia heard by the Judicial Committee of the Privy Council, Lord Atkinson at pp 552-553 said,

“ The judge at the trial on the suggestion, or indeed rather at the request of the counsel for the companies, left only one question to the jury — namely, this: Did the defendants represent to the plaintiff that they did not intend to rely upon the claims having been put in too late? To which the jury answered: Yes, they waived their claims.

It will be observed that no question was left to the jury touching the alleged omissions of the plaintiff to furnish to Leslie the copious information demanded by the numerous requisitions addressed to him by the latter. Neither is any question left to them as to the insufficiency or defectiveness in form of the claims when ultimately delivered corrected. The timely delivery of the claims was treated as the question on which the case turned. Their Lordships thoroughly concur with the following observations made by Isaacs J. in the High Court. He said: “Having regard to the well-known principles as to the conduct of a party at a trial laid down and acted on in Brown v Dunn, in Nevill v Fine Art Insurance Co., and Seaton v Burnand, it must, we think, be taken as against the defendants that they did not really contest, or did not act as if they contested, the two elements of ‘inducement’ and ‘prejudice’, if once the element of ‘representation’ was established, any more than they contested the fact of actual knowledge with reference to waiver. It must be taken, consequently, that they cannot be permitted to raise them now.” (emphasis added)

67.In Browne v Dunn (1893) 6 R 67 (HL), Lord Halsbury at p 76 said:-

“My Lords, it is one of the most familiar principles in the conduct of causes at Nisi Prius, that if you take one thing as the question to be determined by the jury, and apply yourself to that one thing, no Court would afterwards permit you to raise any other question. It would be intolerable, and it would lead to incessant litigation, if the rule were otherwise…. you cannot take advantage afterwards of what was open to you on the pleadings, and what was open to you upon the evidence, if you have deliberately elected to fight another question.” (emphasis added)

68.Although the determination of the intervener’s claim in the context of Order 49 rule 6 was not by way of trial, it is nonetheless a final and substantive determination of such claim on the undisputed evidence before this court.  In that respect, I think a meaningful analogy can be drawn with a summary determination under Order 14A.  The principles enunciated in the above passages should thus in my view be applicable mutatis mutandis here.

69.To debar the plaintiffs from taking such evidential point on appeal in the circumstances would also in my view be consistent with the spirit of Order 1A rule 1: see Lehmanbrown Ltd v Union Trade Holdings Inc & Ors, HCMP 977 of 2015, 17 June 2015, per Lam VP at paras 10, 12 and 15. This is because if a party is to be lightly allowed to withdraw from its concession on certain evidential point expressly indicated to the court at the substantive hearing, this may lead to incessant litigation, thereby adding substantially and disproportionately to the costs and time required for the resolution of litigation.  Further, the plaintiffs have not even bothered to explain by way of affidavit for the purpose of this leave application as to what attempts they have made to obtain the requisite further evidence from the bank (if they had indeed done so), and why they could not make available such evidence before this court for its consideration at this hearing.  The facts remains there is still a chance that the outcome may remain the same even if the Order is set aside and such matter be directed for a trial.  In these circumstances, this court do not see that the plaintiffs can make out any exceptional case to justify raising such new point on appeal.

70.Apart from the aforesaid, Mr Ho also submits under this proposed appeal ground that both the plaintiffs and the Intervener are innocent contributors to the funds in the Account so that the plaintiffs should be allowed to share such funds with the intervener pari passu in any event.  With respect, I cannot accept such submission, which is again a non-starter.  This is because this court already found that the plaintiffs do not have any proprietary interests in any fund in the Account for reasons as explained in paragraphs 49 to 51 of the Decision.  As such, they are not in a position to share the mixed fund in the Account with the intervener.  In this leave application, Mr Ho has not made any submission that this court has erred in any part of its reasoning under the said paragraphs 49 to 51 either.

71.In these circumstances, Proposed Ground 3 is also in my view wholly unmeritorious.

Conclusion and Order

72.Due to the above reasons, this court is satisfied that there is a reasonable prospect of success only in respect of the point of law as mentioned in paragraph 56 above (which concerns paragraph 1(3) of the draft notice of appeal[20] only).  And in the interest of justice such point of law should also be heard in the appeal.  Subject to that, this court is not satisfied that the plaintiffs can successfully demonstrate a reasonable prospect of success in any other proposed appeal grounds as formulated in the draft notice of appeal.  Neither do this court see any reason to invoke the ‘interest of justice’ limb to grant leave to appeal on those matters.

73.In the premises, in respect of the Summons this court grant leave to the plaintiff to appeal solely on the point of law as to whether it is legally permissible to treat the funds in the HKD sub-account and USD sub-account within the Account as one mixed fund for the purpose of the present tracing exercise in light of the decision of FHR European Ventures LLP v Mankarious [2016] EWHC 359 (Ch).  Save as the aforesaid, I order that the plaintiff’s present application basing on the proposed appeal grounds set out at paragraph 1(1), (2), (4), (5) and (6) and paragraphs 2 and 3 of the draft notice of appeal[21] be dismissed.

Costs

74.Costs should normally follow the event. The plaintiffs should pay costs to the intervener on those proposed grounds which they fail.  Thus, this court order that the costs of the plaintiffs’ present application basing on the proposed grounds set out in paragraphs 1(1), (2), (4), (5) and (6), and paragraphs 2 and 3 of the draft notice of appeal be to the Intervener, to be taxed if not agreed, with certificate for counsel.  Whereas, the costs of the plaintiffs’ present application basing on the proposed ground set out at paragraph 1(3) of the draft notice of appeal be in the cause of the appeal.

75.Lastly, it remains for me to thank counsel on both sides for their assistance rendered to this court.

Mr Martin Ho, instructed by Charles Yeung Clement Lam Liu & Yip, for the plaintiffs

The defendant was not represented and did not appear

The garnishee was not represented and did not appear

Mr Ernest Ng, instructed by Squire Patton Boggs, for the Intervener