Galleria (Hong Kong), Limited (in Compulsory Liquidation) and Another v. Dbs Bank Ltd., Hong Kong Branch

HCCL 4/2016

[2018] HKCFI 773

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 4 OF 2016

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D E C I S I O N

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1.This is my decision on the applications for adducing expert evidence at the trial.

2.I start with the insolvency evidence in respect of the 1^st Plaintiff (Galleria HK).  The parties are in agreement that such evidence is necessary.  They disagree with the period of time to be covered.  They both prefer to have their own expert.

3.I should say, first of all, that it is surprising that the issue of insolvency of Galleria HK is contested by the Defendant (DBSHK) given that it was wound up by the court and its Liquidators (the 2^nd Plaintiff) have so far received 17 proofs of debts in the total sum in excessive of US$82 million. This court was informed that the identified assets of Galleria HK amount to less than HK$1 million. 

4.DBSHK is one of Galleria HK largest unpaid creditors and one of the bankers who financed its operation.  Its relationship with Galleria HK spanned a period of some 6 years.  Further, DBSHK has received the discovery made by Galleria HK in these proceedings and witness statements filed on its behalf.  In these circumstances, DBSHK ought to have a reasonably clear picture on the insolvency or otherwise of Galleria HK. 

5.Any doubt over the financial position of Galleria HK over a specific period of time can be resolved in a practical and economical manner by assessing the relevant material concerning the finance of that company, bearing in mind DBSHK’s resources and expertise in accounting. 

6.The court is not helpless in seeing the public resources which it represents wasted by unreasonable litigation.  Should this court later come to the conclusion that the insolvency of Galleria HK is not open to doubt, heavy costs consequence, including indemnity costs, may follow.

7.The issue of solvency is not a complicated one in this case, and the learning in that area is well-established.  I further bear in mind that both the Liquidators and DBSHK possess the expertise in accounting.  I am unable to see why a single joint expert should not be appointed for the present purpose (see Peace Mark (Holdings) Ltd v Chau Cham Wong Patrick, HCA 2371/2009, 2 November 2017, §§35-49), and I so direct.

8.As regards the period to be covered by the evidence, I am in agreement with Galleria HK that it should not be confined to a few months as suggested by DBSHK.  I agree with the periods identified in para 4.6 of Annexure A of the skeleton arguments of Galleria HK.

9.I further direct that the parties are to endeavour to agree the directions, including the issues, for the joint expert within 14 days from today.  In the event of reaching agreement, they are to write a joint letter to the court within 3 days thereafter setting out the agreed directions for approval.  In the event of any disagreement, the joint letter should set out, succinctly, the disputes and the respective position of the parties on the same.  The matter may then be determined by the court on paper if it sees fit. Failure to come to agreement due to any unreasonableness may be visited with costs penalty.

10.For completeness, there is suggestion that the parties have already engaged their experts and thereby incurred costs.  I need only say that they have taken a risk in doing so without the leave of the court and they must live with the consequences.  

11.Next, there is Galleria HK’s application to adduce expert evidence on trade finance banking practice and credit banking practice.  DBSHK opposes the application on both areas. 

12.I have to say that it is not apparent why the proposed expert evidence is relevant or necessary.  The crux of Galleria HK’s case is not complicated.  It is alleged that Mr and Mrs Fu, who owned and controlled that company, were conducting its business in a fraudulent manner such that the company’s creditors were cheated.  The largest creditors were the bankers of Galleria HK (including DBSHK), who granted substantial banking facilities to that client.  The fraud involved the falsification of company documents, including many of those used to obtain funds under the banking facilities. 

13.Galleria HK alleges that DBSHK is a party to the fraud because some of its staff knew about the fraud or they were wilfully blind to the truth.  Galleria HK relies upon inferences to be drawn from various alleged indicia of fraud.  In particular, DBSHK was advised in March 2006 that 19 out of 23 bills of lading, which were subjected to checking at that time, were false. 

14.When it comes to the other indicia, this court is not at all assisted by the Statement of Claim, which is a 133-page document consisting of 242 paragraphs and 2 pages of schedules.  The amount of evidence pleaded is staggering.  In the context of a CMC, it is an impossible and unjustified burden for the court to try to go through and digest this document.  

15.Fortunately, a schedule has been provided in which 26 indicia have been identified.  However, the court is none the wiser as to why those matters may justify the introduction of highly contentious expert evidence. Self-evidently, there might be a number of reasons for many of these indicia, eg, the allegation that “Galleria HK’s account being consistently at or exceeding the facility limit”.  Another example is the suggestion that “DBSLA (DBS’s Los Angeles agency) insisting that DBSHK’s questions for Cheri Fu be directed through DBSLA”. 

16.It should be noted that 5 of the 6 DBSHK employees identified as having the guilty knowledge will be giving evidence in this case.  No doubt they will be taxed in cross-examination and the court will be in the position to evaluate their evidence. 

17.I am inclined to agree with DBSHK that the real objective of this exercise is to have experts pontificate that any banker would have spotted the fraud practised by the Fus.  I also agree with DBSHK that the court should control the admission of expert evidence “more assiduously” (see Final Report of Working Party on CJR, pp 313-320). 

18.The critical finding whether DBSHK knew about or turned a wilful blind eye to the fraud is going to be one for this court.  It is trite that such serious allegations must be based on cogent evidence.  Where such evidence exists, a commercial court will have no difficulty coming to its decision. Where the quality of the evidence is lacking, I am unable to see how Galleria HK’s case may be salvaged by expert evidence. 

19.Even assuming that there were some industry practises over what would or would not be regarded as “unusual, suspicious or indicative of fraud” (I am not satisfied that there was any such practice which will be of assistance to the court in this case in light of the indicia of fraud relied upon), I am unable to see how such evidence will assist the court.  If the industry practices were at a very high standard in the sense that the threshold for indication of fraud was low, it would not follow that the 6 employees had guilty knowledge.  By the same token, if the standard was a low one, it would not inhibit this court from finding that there was indeed knowledge of the fraud. 

20.Galleria HK complains that there will be inequality of arms in that some of DBSHK’s witnesses had referred to banking practices.  Firstly, none of the bank employees has been put forward as an expert witness.  Such evidence as there is in their witness statements which touches upon banking practices is only relevant to provide the context in which they acted.  DBSHK does not quarrel with this proposition.  Secondly, the real question is whether Galleria HK can prove a case of fraud against DBSHK based upon the indicia.  I cannot see how it can rely on what is or is not said in the statements of DBSHK’s witnesses to justify the opening of a new battle front. 

21.I have been referred to a number of authorities by Mr Manzoni SC, appearing with Mr Karas for Galleria HK, on expert evidence.  With respect, it is quite obvious that such evidence was required in cases involving mis-selling of swaps products or medical negligence. 

22.In respect of case of Morris v State Bank of India [2003] BCC 735, Mr Li, appearing on behalf of DBSHK, pointed out a valid distinction in that it was a case concerning 2 loans, whereas this is a case involving the interaction between banker and client over a long period of time.  Further, I agree with the dicta of Oliver J in Midland Bank Trust Co v Hett, Stubbs & Kemp [1979] Ch 384 at 402C-E that: “… evidence which really amounts to no more than an expression of opinion by a particular practitioner of what he thinks that he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants, is of little assistance to the court; …”.  I am unable to see why this court will not be able to come to a just resolution of these proceedings with good common sense and some commercial experience.

23.Finally, I find merits in each of the 7 objections advanced by Mr Li in his skeleton submissions.  Some of them have been dealt with above. 

24.Accordingly, I decline to grant leave for the introduction of banking evidence at the trial. 

25.I shall hear the parties on costs.

Mr Charles Manzoni SC and Mr Jason Karas, instructed by Lipman Karas, for the 1^st to 2^nd Plaintiffs

Mr Laurence Li, instructed by Herbert Smith Freehills, for the Defendant