Asiya Asset Management (Cayman) Ltd v. Dipper Trading Co., Ltd

HCA 384/2019

[2019] HKCFI 1090

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 384 OF 2019

____________

____________

_____________________________

REASONS FOR DECISION

_____________________________

Introduction

1.In the afternoon of 8 March 2019, I heard on an ex parte and without notice basis the applications of the plaintiff (“P”) for:

(1)   a Mareva/proprietary injunction order against the defendant (“D”) being a corporate defendant; and

(2)   a disclosure order against a bank (“the Bank”).

2.The underlying basis of the applications was that P was the victim of a fraud and wished to trace the proceeds of that fraud, and freeze such monies in so far as it was able to.

3.I was satisfied that the requirements for an injunction against D were met and made the usual injunction order against it.  That order was continued until the return date of the inter partes summons which I heard on Friday 15 March 2019.  I ordered that injunction to be continued until further order.

4.As explained above, the disclosure order had also been sought by P so as to ascertain the identity of the wrongdoers, as well as the identity and whereabouts of the recipients of the funds obtained from P by virtue of the fraudulent scheme.

5.These are conventional reasons for seeking such information against banks.  P prayed in aid of the Norwich Pharmacal jurisdiction (“NP jurisdiction”).  As is explained below, I had no difficulty in principle in making a disclosure order against the Bank.

6.I however declined to make any disclosure order against the Bank on an ex parte without notice basis, save that I ordered that:

(1)   the Bank had to provide P with the current bank balance; and

(2)   there be a gagging order such that the Bank should not disclose to any party (including D) of the existence of the present proceedings until 22 March 2019 or such further period as the Court may allow, so that there should be sufficient time for P to take such steps as may be necessary to safeguard its interests before the Bank (as it is obliged to) informs D of the existence of the present proceedings.

7.In these reasons, I will explain why I refused to make that order on an ex parte without notice basis and instead made the order as set out in the preceding paragraph.

8.The remainder of the disclosure application against the Bank was adjourned to 12 March 2019 to be fixed before me at 9:30 am.

9.On 11 March 2019, solicitors acting for the Bank indicated what their position was in writing.

10.On 12 March 2019, having considered the Bank’s position and P’s submissions, I made a disclosure order against the Bank.

Procedure and requirements for notice against the bank

11.There has been in recent years a surge in the number of fraud cases either involving identity theft or other means.  The victims of such dishonest schemes have turned to the Courts for relief, and Mareva injunction applications coupled with disclosure order applications or banker’s books applications (pursuant to section 21 of the Evidence Ordinance) have become common place.

12.It is not uncommon for plaintiffs to seek, at the same time as they are seeking on an ex parte without notice basis a Mareva injunction order against a defendant, for a disclosure order to be made against a bank based on the NP jurisdiction.

13.In so far as a freezing order is being sought, it is fairly obvious why it would not be feasible to give notice to the alleged wrongdoer as it would be self-defeating and the plaintiff’s purpose would thereby be frustrated.

14.The starting point is that natural justice requires all parties to beheard save in the most exceptional circumstances where extreme secrecy or urgency so requires (Slik Hong Kong Co Ltd v Gerald Rhoslyn, per Lam J (as Lam VP then was) [1]).

15.Even in cases where genuine urgency can be shown, the proper course is often to apply on an inter partes basis with time to be abridged, and if not possible to make an ex parte application at least on notice.

16.In A Co v B Co [2002] 3 HKLRD 111, Ma J (as the Chief Justice then was) comprehensively reviewed both the existence and the availability of the NP jurisdiction and set out how in practice practitioners should proceed.

17.In that case the Court had been asked and indeed did grant a gagging order against the bank pending an application for NP discovery which was about to be made.  This allowed the bank to make submissions to the Court on whether an order should be made, and if so on what terms.

18.It is critical to bear in mind that the bank’s client is of course not aware of the application and cannot make submissions to the Court to protect his own interests.  The importance of the bank being able to make submissions in this context is thus one of the important safeguards for the client.  After all, what the bank is being asked to do is to override the customer–bank confidentiality.

19.I recognise that in many, if not the majority of cases, banks, having regard to the state of the evidence disclosed by the plaintiffs, may choose to remain neutral or perhaps on occasions simply highlight some factors which may be germane to the Court’s exercise of discretion without actually opposing or instructing legal representatives to appear in Court when given the chance to do so.

20.As a result, it would appear that some practitioners have thus taken the view that it was either unnecessary and perhaps a waste of costs, to go through the two stages highlighted above and therefore instead seek an ex parte order against the bank without giving notice to it as it is apparently being thought that going through that extra step would not achieve anything of value[2].

21.This is incorrect.

22.While the Court may well have jurisdiction to make an ex parteorder against a bank without notice to it for NP discovery, it would howeverbe hard to think of any appropriate case where it should exercise its discretion to do so on that basis.

23.Applicants would recognise that it would take a few working days for banks to produce the relevant documents pursuant to a NP Order.  That being the case, how could it be said that giving notice a few hours or even a day or two to the bank would frustrate or defeat the relief which a plaintiff is seeking?  The existence of the gagging jurisdiction should adequately protect the plaintiff’s position pending the NP application being heard.

24.I would therefore reiterate that the provision of notice to the bank is an important safeguard to the client who at the time of the application has not been found to be guilty of anything.  At that stage, the Court is only given the plaintiff’s side of the story, and it is therefore important that there be appropriate safeguards to protect the interests of the bank’s customer.

25.In most cases, therefore, where a victim seeks a NP order against a bank and does not wish to alert the wrongdoers, unless an applicant is able to satisfy the Court that the procedure set out below would be inappropriate, I would venture to suggest that the correct procedure should be as follows:

(1)   First, a plaintiff seeks on an ex parte without notice basis a gagging order against the bank pending the hearing of NP discovery against the bank either on an inter partes basis or at the very least on an ex parte basis but with notice.  Whether one proceeds under the former or the latter, and if so, how much notice is appropriate would of course depend on the facts of thecase in question.  The notice period to be given should normally be sufficiently long so that the bank can meaningfully make submissions, if it thinks appropriate to do so.

(2)   Second, at the hearing of the NP discovery application against the bank, the Court will then have the benefit of the submissions of the bank while the plaintiff on the other hand will be protected by the gagging order until the conclusion of such proceedings.

(3)   Third, the Court can in an appropriate case grant a further brief period for the gagging order to continue to allow the plaintiff to make such applications as it sees fit to protect its interests.

26.The procedure set out above provides a proper balancing of interests between theparty seeking the information from the bank and the bank’s customer.  These safeguards cannot be avoided in the name of convenience or to save costs.  While it is understandable that victims of fraud and their advisers rightly wish to be able to obtain information as quickly and as cheaply as possible, this cannot override the safeguards required to protect the interests of parties not before the Court.

Mr Jeffrey Haydn Lane (on 8 and 12 March 2019) and Mr Derek Cheuk (on 15 March 2019), of Tanner De Witt, for the plaintiff

The defendant was not represented and did not appear