Yaron Brown and Others v. Lexinta Ltd and Others

HCA 2610/2017

[2018] HKCFI 2302

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2610 OF 2017

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REASONS FOR DECISION

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1.There are a total of five summonses before this court. The first two summonses relate to the Plaintiffs’ applications pursuant to section 21 of the Evidence Ordinance, Cap 8, for orders that the banks identified in Schedule 2 of the Summons and all other “banks” in Hong Kong (as defined in the Banking Ordinance, Cap 155) (together the “Banks”) do disclose to the Plaintiffs details of each and every bank account maintained by the Defendants. The first summons was dated 16 July 2018 (“the First Summons”). On 13 September 2018, the Plaintiffs took out a summons to amend the First Summons principally to seek leave that “the information and documents contained in all the affirmations of Yu Kwai Manand exhibits thereto filed in this action by providing them (or copies thereof) to the Zurich Public Prosecutor’s Office, Switzerland (Staatsanwaltschaft IIIdes Kantons Zurich) for the purposes of assisting them in their investigationsinto the misappropriation of the Plaintiffs’ and other investors’ monies andin any subsequent proceedings against the 1^st to 6^th Defendants”. (Together “the Section 21 Summonses”.)

2.The second set of summonses relate to the Plaintiffs’ application pursuant to section 25A of the High Court Ordinance, Cap 4 (“the Ordinance”) and the court’s inherent jurisdiction for orders that the Defendants do sign, or procure a signature for, the letters annexed to the summons dated 29 August 2018 as Schedule 2 (“the Authorisation Letters”) authorising DBS Vickers (Hong Kong) Limited to disclose to the Plaintiffs, details of each and every account maintained by any of the Defendants with them, if any Defendants (or any one of them) fail to comply, the court do execute the Authorisation Letters on behalf of the Defendants. On 26 September 2018, the Plaintiff took out a summons to amend the summons dated 29 August 2018 so as to enlarge the scope of their application under section 25A of the Ordinance to include all securities accounts which the Defendants hold or maintain as legal or beneficial owners, or of which they are signatories (“the Section 25A Summonses”).

3.On 3 October 2018, the Plaintiffs also took out a further summons under section 21L of the High Court Ordinance, Cap 4 and the inherent jurisdiction of the court for an order that DBS Vickers (Hong Kong) Limited do disclose the list of documents set out therein and leave for the Plaintiffs to be released from the implied undertaking to deploy such documents for the purpose of proceedings (actual or contemplated) against the Defendants to these proceedings in Hong Kong or elsewhere, including without limitation, providing them (or copies thereof) to the Zurich Public Prosecutor’s Office, Switzerland (Staatsanwaltschaft III des Kantons Zurich) for the purposes of assisting them in their investigations into the misappropriation of the Plaintiffs’ and other investors’ monies and in any subsequent proceedings against the Defendants (“the Section 21L Summons”). 

4.The Defendants were originally represented by Messrs Wai & Co and all the summonses were served on Messrs Wai & Co, Solicitors.  However, before the hearing on 2 October 2018, this Court was informed that Messrs Wai & Co, Solicitors is applying to cease to act for the Defendants and therefore could not attend court for the hearing as scheduled.  Mr Dobby, for the Plaintiffs, submitted that the Defendants were duly informed of this hearing and the court should proceed on the basis that the Defendants chose to be absent.  I agree.

5.I shall deal with the Section 21 Summonses, the Section 25A Summonses and the Section 21L Summons sequentially in that order. 

SECTION 21 SUMMONSES AND BANKERS’ TRUST ORDER

Material facts

6.The Plaintiffs obtained an ex parte world-wide freezing injunction against the Defendants on 10 November 2017 (the “Injunction Order”).

7.On 19 January 2018, in light of the Defendants’ continued failure to comply with their disclosure obligations under the Injunction Order, Madam Justice Lisa Wong made a further disclosure order (the “Disclosure Order”) that the Defendants do give full and proper disclosure within 14 days.  

8.On 9 February 2018, the Defendants having, again, failed to discharge their disclosure obligations, Madam Justice B Chu made an orderthat unless the Defendants do give full and proper disclosure, the Defendants be debarred from defending the action, any defences filed on behalf of the Defendants be struck out and the Plaintiffs be at liberty to enter judgment against the Defendants with costs (the “Unless Order”).

9.On 13 March 2018, the Defendants having failed to comply with the Unless Order and having failed to file defences within the time prescribed under the Rules of the High Court, Madam Justice B Chu made an order (i) debarring the Defendants from defending the action, (ii) that judgment be entered against the Defendants and (iii) continuing the Injunction Order post-judgment, until further order of the court (the “Judgment”).

10.By the Judgment, the Defendants, inter alia, were adjudicatedto pay the judgment debt in the sum of US$24,239,747 to the Plaintiffs (the“Judgment Debt”) and it was further declared that the Defendants hold the misappropriated funds on trust for the Plaintiffs as constructive trustees.

11.The Judgment Debt remains unpaid and, in the light of the repeated and continuing failure on the part of the Defendants to discharge their disclosure obligations, I agree that there is no realistic prospect that the Defendants will provide disclosure of their assets, including details of the whereabouts of the sums paid to them by the Plaintiffs.

12.The Plaintiffs have previously obtained two rounds of disclosure of bank documents from HSBC, Hang Seng Bank Limited and DBS pursuant to the orders of Madam Justice Lisa Wong dated 24 November 2017 and 26 January 2018.

13.The Plaintiffs’ concern is that they cannot determine from disclosures so far made by the three banks whether there are other undisclosed bank accounts held in the name of the Defendants in Hong Kong.  It is submitted that in the absence of proper disclosure from the Defendants, the Plaintiffs cannot ascertain whether their monies have been remitted into different accounts in Hong Kong.

14.It is against the above background that the Plaintiffs took out the Section 21 Summonses and the Bankers’ Trust applications so as to (a) police the Injunction Order; (b) identify the whereabouts of their assets; and (c) identify any assets of the Defendants for the purpose of execution of the Judgment.

Applicable legal principles

15.Section 21 of Evidence Ordinance provides:

“ (1) On the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings.”

16.In CTO (HK) Ltd v Li Man Chiu & Ors [2002] 2 HKLRD 875, Deputy High Court Judge Poon (as he then was) helpfully set out the following legal principles:

(1) It is not uncommon for a plaintiff to seek a section 21 order to inspect and take entries in a banker’s record in order to make a Mareva injunction effective.  This is consistent with the common discovery that would be ordered to facilitate a Mareva injunction: §§10 – 11.

(2) A section 21 order is justified where the plaintiff seeks to trace funds which, in equity, belong to him and of which there was strong evidence that he had been fraudulently deprived: §12.

(3) A section 21 order is also justified where delay might result in the dissipation of the funds before trial; §12 citing Bankers Trust Co v Shapira [1980] 1 WLR 1274 with approval.

(4) The jurisdiction of the court rests on the proposition that unlessthe assets in question can be located and secured, the ultimate determination of ownership of those assets may be frustrated by their dissipation and there will be no point in requiring the production of documents or information at trial: §13.

(5) There are three limits on the Bankers Trust jurisdiction which equally apply to the section 21 jurisdiction (§13):

(a) First, the plaintiff must demonstrate a real prospect thatthe information may lead to the location or preservation of assets to which he is making a proprietary claim.

(b) Secondly, the documents sought to be disclosed must be identified with some specificityas would be expected of a subpoena.

(c) Thirdly, the court needs to balance the potential advantage against the detriment to the person against whom the order is sought, not merely in terms of costs but by way of invasion of privacy and requiring breach of obligations of confidence to others.

17.The court’s powers under section 21 of the Evidence Ordinance (Cap 8) must be exercised in conformity with the general principles of discovery as stated by Ma J (as he then was) in A Co v B Co [2002] 3 HKLRD 111; see §49 of Pacific King Shipping Holdings Pte Ltd (in Liquidation) v Huang Ziqiang [2015] 2 HKC 68 per Poon J (as he then was) at 77H – 79I.

18.Accordingly, as a general rule, where innocent parties are caught up or have become involved in the tortious or wrongful activities ofothers, justice may require that they come under a duty to assist the victim by the provision of information.

19.Where the account is held by a non-party, the court has to be satisfied that in truth the account is really that of the party to the proceedings, or that the party is so closely connected with the account that items in it would be evidence against him: §9 of Chan Wai Sun & Anor v Law Shiu Kai [2003] 3 HKLRD 954 per Chu J (as she then was).

20.Significantly, I am of the view that there must be a nexus between the bank accounts to be discovered and the misappropriated funds.  In Matthews and Malek, Disclosure (5^thed, 2017) at para 3.20, the learned editors stated that:

“ These orders are usually made against banks or other entities through whom stolen or misappropriated funds or their proceeds have passed. A claimant must show a prima facie case that his funds have been the subject of a fraud or some other misappropriation and that the funds or their proceeds have been paid into or through the bank from which discovery is sought.” (Emphasis added)

21.The need to establish a sufficient nexus between a particular account and a particular wrongdoing is stressed in a number of cases:

(1) In Tiger Resort Asia Limited v Kazuo Okada and Others [2018] HKCFI 472 (HCA 3017/2017, unreported, 16 March 2018), Deputy High Court Judge Keith Yeung SC at paragraphs 28 and 29 said:

“ 28. … I have considered the approach explained by Barnett J in Assets Investment PT Ltd v The United Islamic Investments Foundation HCA 4392/1993 (21 January 1994, unreported), Chan Wai Sun and South Staffordshire Tramways Co v Ebbsmith [1895] 2 QB 669. I also referred AKBANK T.A.S. v Mainford Limited where I have considered those similar authorities. In my view, when considering an application under section 21, the main test is relevance. I am on the facts satisfied that the accountswhich the plaintiff seeks to inspect contain material relevant to itsclaim. They are in fact highly germane to the issue of fund flow and the identities of the parties involved. In AKBANK T.A.S. v Mainford Limited, I express reservation as to whether, as observed by Lord Esher MR at pp 674 and 675 of South Staffordshire Tramways Co v Ebbsmith, the applicant should be required to establish that the account is really that of the party to the proceedings or that the party is so closely connected with it that it would be evidence against him. However, in the light of the facts set out above, I am satisfied that, even if I were to apply thismore stringent test, the plaintiff has passed the necessary threshold.

29. The authorities mentioned above have stated that the power for inspection under section 21 should be exercised with great caution. I agree. The privacy of the account holder, and banker/customer confidence have to be respected. I have indeedapproached the application with great caution. I have taken intoaccount the fact that neither the 4^th defendant nor Skyrise has beenserved at this stage. I have on the other hand considered carefully the evidence as set out above which included an investigation report prepared by the Special Investigation Committee set up by the UE. I have considered the directions of the remittances or transfers involved, the amounts of those sums, and their time proximity. On the face of the pleadings and as supported by theaffirmatory evidence before me, there is a clear prima facie caseof breach of fiduciary duties on the part of the 1^st defendant, andknowing receipt or assistance by the other defendants (including Skyrise). The allegations are serious, and the total amount involved was substantial. The records which the plaintiff are seeking to inspect are highly relevant. The scope of the order which the plaintiff is now seeking has been narrowed down and specifically defined. I have also taken into account the neutral stance adopted by the 1^stdefendant. There is no evidence suggesting that the 1^stdefendant, the 4^thdefendant or Skyrise would suffer any damage on top of the limited infringement of their banker/client confidence. I am in all the circumstances satisfied that an order in terms of the summons as has been narrowed down ought to be made.” (Emphasis added)

(2) At paragraph 30, the learned judge further said:

“ The evidence in my view demonstrates a real prospect that the information sought may lead to the location or preservation of assets to the claim. The order sought is specific.”

(3) In BDW Trading Limited v Michael Neil Fitzpatrick [2015]EWHC 3490 (Ch), Behrens J went through the jurisdictional basis for a banker’s trust order and made the following observations:

(i) A claimant must demonstrate a real prospect that the information will lead to location or preservation of assets: Arab Monetary Fund v Hashim (No 5) [1992] 2 All ER 911 at 916;

(ii) The jurisdiction must be carefully exercised.  It should only be done where there is a good ground for thinking the money in the bank is the plaintiff’s money, as for instance when the customer has got the money by fraudor other wrongdoing, and paid it into his account at the bank: Banker’s Trust v Shapira [1980] 3 All ER 353 at 357 – 358.

ANALYSIS

22.Applying the above legal principles to the facts of the presentcase, I have no difficulties in allowing the disclosure of the requested bank documents in relation to specific banks.  I told Mr Dobby, for the Plaintiffs, that this court will, within its powers, render every possible assistance to the Plaintiffs.  As there is evidence that the Defendants have bank accounts in some specific banks, I am prepared to make a disclosure order covering those specific banks.  Paragraph 28 of Mr Dobby’s sixth affidavit reads:

“ At least, the 6^th Defendant repeatedly claimed, in conversations with various of the Plaintiffs, that he or the Lexinta group maintained banking relationships with:

(a) Bank of China Limited

(b) Citibank (Hong Kong) Limited

(c) Hang Seng Bank Limited

(d) The Hongkong & Shanghai Banking Corporation Limited

(e) Nomura International (Hong Kong) Limited

(f)     Standard Chartered Bank.”

23.However, I am of the view that no matter how this Court is inclined to help the Plaintiffs, this Court cannot make an order covering allother banks as defined under the Banking Ordinance so that armed with the order, the Plaintiffs can contact each and every bank in Hong Kong to see if the Defendants did or still maintain any bank account with them.

24.Section 21 of the Evidence Ordinance and the Bankers’ Trust jurisdiction are not to be invoked so as to facilitate a plaintiff to fish for assets for the purpose of enforcement.  

25.The relevant jurisdictions must be exercised carefully and cautiously.  It should be invoked where there is a good ground for thinking that the money in a particular bank account is a plaintiff’s money, as for instance when the customer has got the money by fraud or other wrongdoing, and paid it into his account at a particular bank.

26.Further, there are many banks in Hong Kong.  It cannot be right that because the Plaintiffs are interested to find out whether the Defendants have any bank accounts with any of the banks in Hong Kong, in the absence of a nexus between the relevant banks and the wrongdoing, this Court should make a blanket disclosure order against all banks in HongKong.  Accordingly, the Plaintiffs’ application in relation to all other banks in Hong Kong is dismissed.

RELEASE FROM IMPLIED UNDERTAKING

27.In respect of the Plaintiffs’ application to be released from the implied undertaking to use banking documents discovered in these proceedings for the purpose of proceedings (actual or contemplated) againstthe Defendants in these proceedings in Hong Kong or elsewhere, I have nodifficulties in allowing the same.  This is basically a case of fraud and the Plaintiffs are victims of fraud. Judicial discretion should be exercised in favour of the Plaintiffs, particularly as in the present case, the Defendants chose to be absent in these proceedings.

28.I further make an order that the Plaintiffs be at liberty to deploy the information and documents contained in all the affirmations of Yu Kwai Man and exhibits thereto filed in this action by providing them (or copies thereof) to the Zurich Public Prosecutor’s Office, Switzerland (Staatsanwaltschaft III des Kantons Zurich) for the purposes of assisting them in their investigations into the misappropriation of the Plaintiffs’ and other investors’ monies and in any subsequent proceedings against the Defendants.

29.This court has also duly considered the issue of privilege against self-incrimination.  In the present case, the Defendants have not claimed such privilege.  Privilege against self-incrimination, unlike other forms of privilege, must be claimed by oath by the person asserting it on his own behalf: see Phipson on Evidence (19^th ed, 2017) at para 24-44, citing Downie v Coe (unreported, English Court of Appeal, 28 November 1997), which in turn cites National Association of Operative Plasters v Smithies [1906] AC 434 at 437:

“ It always has been the practice of the Court of Chancery, and that practice is now, under the Act of 1873, s.25, sub-s.11, universal, that it is no objection to an interrogatory and no ground for taking the interrogatory off the file, if relevant, that the answer might tend to incriminate the party to whom it is exhibited. He may say, if he thinks fit, ‘I refuse to answer on the ground that the answer may tend to criminate me’; but then he must take the objection on his oath, and if he does raise that objection on his oath in the proper way he is not bound to answer the interrogatory.”

30.In O Ltd v Z [2005] EWHC 238 (Ch), Lindsay J held that a person would lose his privilege against self-incrimination if he was not heard to have claimed it before producing the incriminating documents, whether or not he knew of the privilege.  That privilege against self-‌incrimination could be lost simply by reason of its not being claimed was accepted by Madam Justice B Chu in Anite Telecoms v World Best Cargo-‌Link Co Ltd (unreported, HCA 2560/2013, 19 October 2016) at paras 131 and 139.  The witness will suffer the consequences and no retrospectivity of protection was available: see paras 140 – 141.

SECTION 25A SUMMONSES

31.As for the Plaintiffs’ applications under section 25A of the High Court Ordinance, Cap 4, after deliberation, I am of the view that no matter how eager this court is in helping the Plaintiffs, such applications should not be granted.

32.Section 25A of the High Court Ordinance, Cap 4 provides:

“ (1) Where the Court of First Instance has given or made a judgment or order directing a person to execute any conveyance, contract or other document, or to endorse any negotiable instrument, then, if that person—

(a) neglects or refuses to comply with the judgment or order; or

(b) cannot after reasonable inquiry be found,

the Court of First Instance may, on such terms and conditions, if any, as may be just, order that the conveyancing, contractor other document shall be executed, or that the negotiable instrument shall be endorsed by such person as the Court may nominate for that purpose.

(2)     A conveyance, contract, document or instrument executed or endorsed in accordance with subsection (1) shall have the same effect as if it had been executed or endorsed by the person originally directed to execute or endorse it.”

33.Mr Dobby, for the Plaintiffs, submitted that this Court can firstmake an order that the Defendants were to execute the Authorisation Lettersto request their securities companies to disclose the classes of documents as set out in the said Authorisation Letters.  As there is no prospect that the Defendants are going to execute the Authorisation Letters, then this Court can make a further order that the Registrar of the High Court be directed to sign the Authorisation Letters on behalf of the Defendants. The Authorisation Letters will then be sent to all securities companies in Hong Kong to find out whether the Defendants hold or maintain any securities account with any securities firms in Hong Kong.

34.This is an ingenious idea.  I fully appreciate that Mr Dobby istrying his very best to assist the Plaintiffs who are victims of fraud.  However, I am of the view that it will be wrong for the court to make such orders.  First, as a matter of logic, the Defendants could only be ordered to authorise securities firms which they have an account to disclose the requested classes of documents.  They cannot be ordered to send the Authorisation Letters to all securities firms in Hong Kong.  If the Defendants fail to execute such Authorisation Letters, there is no reason why the Registrar of the High Court should then be directed to sign the Authorisation Letters and send them to all securities firms in Hong Kong.  The Registrar of the High Court and indeed no one, other than the Defendants, would have the requisite knowledge. It would mean that ironically failure on the part of the Defendants to execute the Authorisation Letters would result in widening the scope which the Authorisation Letters could be issued and circulated.  I do not think this is right.

35.Section 25A is to be invoked when there are sufficient reasonsto order a party to a set of proceedings to sign a specific document or a set of specific documents.  If that party fails to comply or he could not be found after reasonable inquiry, then the court can exercise its discretion to direct the Registrar of the High Court to execute that specific document or that set of specific documents.  If it is impossible for the Registrar of the High Court to execute that specific document or that set of specific documents, then the court should not make such an order.

36.Secondly, if this court can make such direction to the Registrarof the High Court, presumably, the court can also direct the Registrar of the High Court to execute the Authorisation Letters and be sent to all banks, all financial institutions, and even to every individual or every legal entity in Hong Kong.  This can hardly be right.  Mr Dobby submitted that it is a matter of proportionality to be exercised in each individual case.  However, I am of the view that it is simply incorrect as a matter of principle.  In our legal system, a plaintiff who obtains a judgment against a defendant can apply to enforce his or her judgment by various means including applying for charging orders or presenting bankruptcy or winding up petitions, but I am of the view that it is not right to invoke section 25A of the High CourtOrdinance, knowing full well that a defendant would not comply with such order.  It cannot be right that an application can be taken out under section 25A of the High Court Ordinance to direct the Registrar of the High Court to execute an authorisation letter to be sent to, basically, the world at large.

37.Thirdly, the Plaintiffs, as judgment creditors, could well present bankruptcy and/or winding up petitions to put in trustee in bankruptcy and/or liquidators.  The appointed trustee in bankruptcy and/or liquidatorswould then have the relevant powers to do whatever investigations that he or she considers appropriate and necessary, without resorting to directing the Registrar of the High Court to execute various documents for the purpose of enforcement of judgments.

38.Mr Dobby has referred to cases where an order under section 25A was made by the court citing Bayer AG v Winter & Others (No 2) [1986] FSR 357 at 365 per Hoffmann J (as he then was); Billington v Davies and Soane Capital Limited [2017] EWHC 3725 (Ch) per Barling J at para 15 and Gee on Commercial Injunctions (6^th ed) at 23-001.  However, these authorities all concerned with a specific document rather than the blanket letters of authorization that the Plaintiffs are seeking in the present case.

39.Accordingly, I exercise my discretion to disallow the applications.  For the avoidance of doubt, I also disallow the original Section 25A Summons because courts do not act in vain.  When it is clearthat the Defendants would not have complied the orders and the application was taken out in order to get the Registrar of the High Court to execute documents for the purpose of asset recovery, this court should not grant the order as it will be a futile exercise.

40.Indeed, subsequent to the hearing, the Plaintiffs have taken out the Section 21L Summons to seek disclosure against DBS Vickers (Hong Kong) Limited on 3 October 2018.  DBS Vickers (Hong Kong) Limited has replied on 4 October 2018 that it has no objection to the application.  Accordingly, I make an order in terms of the Section 21L Summons.

DISPOSITION

41.For the reasons set out above, I make the following orders:

(1) save and except as references to all other banks in Hong Kong, I make an order in terms of the Section 21 Summonses as amended;

(2) the Section 25A Summonses are dismissed; and

(3) an order in terms of the Section 21L Summons.

42.As the Defendants chose to be absent from this hearing, save and except the costs provisions as set out in the summonses that are allowed, I make no further order as to costs.

43.Finally, it remains for me to thank Mr Dobby for the Plaintiffs for his helpful assistance rendered to this Court.

Mr C Dobby, of Hogan Lovells, for the plaintiffs

Attendance of Wai & Co, Solicitors, for the 1^st to 6^th defendants,  was excused