Zhang Junxian v. Ubs Ag and Others
Read the full judgment text of HCA 2907/2016 on BabelCite. This High Court CFI judgment was delivered on 29 June 2020.
1. This is the 2 nd and 3 rd Defendants’ application under O 18 r 19 and O 14A r 1 seeking this Court to determine the following questions, namely: -
Cited by 1 case · Cites 7 cases
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HCA 2907/2016 [2020] HKCFI 1254 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2907 OF 2016 ________________________
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_________________________________ DECISION _________________________________ INTRODUCTION 1.This is the 2nd and 3rd Defendants’ application under O 18 r 19 and O 14A r 1 seeking this Court to determine the following questions, namely: -
As shall be seen below, the real question is whether the Plaintiff’s claim for loss and damage suffered as a result of the Plaintiff’s payment of the bribe is sustainable in the light of the illegality. 2.Further, the 2nd and 3rd Defendants apply to strike out the Plaintiff’s claim on the ground of, inter alia, abuse of process. 3.Further or alternatively, the 2nd and 3rd Defendants contend that the Plaintiff’s claim is barred by the Limitation Ordinance (Cap 347). UNDISPUTED BACKGROUND 4.I shall set out the undisputed background first. 5.In May 2006, the Plaintiff opened an investment account with UBS. At that time, the 2nd Defendant was an assistant director of UBS, the Plaintiff’s claim against which as the 1st Defendant has been discontinued. 6.Stocks were purchased through the account. In or about June 2007, the 2nd Defendant sold certain stock to realise the profit. At the request of the 2nd Defendant, the Plaintiff paid an aggregate of commissions of HK$1,459,239 (the “Commission Payments”) by way of two cheques (dated 16 July 2007 and 23 October 2007) drawn in favour of the 3rd Defendant, not UBS. 7.The Plaintiff terminated the account in about January 2010 because the 2nd Defendant had made some unauthorised transactions via the account. Then in about June 2014, the Plaintiff made formal complaints to UBS about the unauthorised transactions. In the course of the ensuing correspondence, in particular by letters dated 18 July 2014 and 29 September 2015, UBS informed the Plaintiff that the Commission Payments were requested and received by the 2nd Defendant without UBS’s knowledge. 8.On 27 October 2017, the 2nd Defendant was charged in DCCC No 295 of 2017 for the offence of conspiracy for an agent to accept advantage contrary to section 9(1)(a) of the Prevention of Bribery Ordinance (Cap 201), in relation to the Commission Payments paid by the Plaintiff to the 3rd Defendant. 9.At that trial, the Plaintiff was a prosecution witness under immunity granted from the prosecution. At the end of the trial, the 2nd Defendant was convicted. In paragraph 13 of the verdict, the trial judge born in mind that the Plaintiff was a co-conspirator and was a prosecution witness granted immunity from prosecution. In this connection, the particulars of offence in the charge sheet made it clear that the 2nd Defendant conspired with the Plaintiff in respect of the bribery. As Mr Stony Chan, counsel for the Plaintiff, fairly accepts, the prosecution had to prove each and every particular stated in the charge sheet, and given that the conspiracy between the Plaintiff and the 2nd Defendant was one of the particulars, the trial judge must have come to the finding as he stated in paragraph 13 of the verdict that the Plaintiff was indeed a co-conspirator, meaning that he had all the necessary mens rea for the offence. 10.The 2nd Defendant’s application for leave to appeal was rejected by the Court of Appeal in CACC No 378 of 2017. The Commission Payments were forfeited to the Government on 20 August 2019 upon the Secretary for Justice’s application. 11.While the verdict is not a conviction of the Plaintiff, and I am prepared to accept that the verdict is not a finding conclusive against the Plaintiff, in the absence of any evidence from the Plaintiff to explain why he would accept immunity from the prosecution rather than defending himself, and in the absence of any evidence to explain why the criminal court would come to such a finding against the Plaintiff, I find that the evidence is overwhelming before me in a civil court, and I accept as a fact here, that the Plaintiff was indeed a co-conspirator. PLAINTIFF’S CLAIM 12.Against the above background, the Plaintiff claims that he made the Commission Payments because he relied upon certain misrepresentations fraudulently made by the 2nd Defendant to the Plaintiff (the “Commission Representations”) in or about June 2007 that: -
13.I add a note here that the finding apparently made in the verdict that the Plaintiff did rely on the representation by 2nd Defendant that UBS would charge 20% commission is not inconsistent with the finding that he was also at the same time a co-conspirator. He could be misled to think that by paying the bribe which he well knew to be illegal, he could benefit. 14.The Plaintiff claims that he discovered this fraud in July 2014 or September 2015, when he received the reply letters from UBS as mentioned above. 15.Thus, by Writ of Summons issued on 7 November 2016, the Plaintiff thus claims against the 2nd and 3rd Defendants HK$1,459,239, based on the (1) fraudulent misrepresentation against the 2nd Defendant; (2) unjust enrichment against the 3rd Defendant; and (3) constructive trust against the 3rd Defendant. The Plaintiff’s claim, as it stands now against the 2nd and 3rd Defendants, must be personal only, because the proceeds of the Commission Payments themselves have already been forfeited by the Government. Hence, the questions posed by the 2nd and 3rd Defendants in their summons, namely, whether the proceeds themselves are recoverable, must be answered in the negative. 16.In the circumstances, the real issue between the parties, as has all along been clear to the parties, is whether the Plaintiff’s claim for loss and damage suffered as a result of the Commission Payments is sustainable in the light of the illegality. 2ND AND 3RD DEFENDANTS’ DEFENCE 17.As regards the 2nd and 3rd Defendants’ defences, they filed their defences separately. In his defence, the 2nd Defendant denies making the Commission Representations and receiving the Commission Payments. Instead, he claims that the Commission Payments were rewards paid by the Plaintiff to the 3rd Defendant for the 3rd Defendant’s research on the stock market. 18.In his defence, the 3rd Defendant claims that the Commission Payments were rewards to him for his advice to the Plaintiff on the stock market. The 3rd Defendant has not been prosecuted. Nor did he feature in the charge sheet in the prosecution against the 2nd Defendant. RECOVERABILITY OF THE COMMISSION PAYMENTS 19.In the present application, Ms Sezen Chong, counsel for the 2nd and 3rd Defendants contends that the Commissions Payments were proceeds of crime under Part III of the Organized and Serious Crimes Ordinance (Cap 455) made under an illegal contract to pay by the Plaintiff to the 3rd Defendant, and thus, they are not recoverable because the Ordinance prohibits dealing with such proceeds and/or an order of refund would be contrary to public policy as a matter of contract law. To this I of course agree. 20.However, as pointed out above, the Plaintiff is not claiming the proceeds themselves (which have now been forfeited in any event), but staging a personal claim against the 2nd and 3rd Defendant for loss and damage rather than the very payment under the illegal act itself. This requires some further analysis. DEFENCE OF ILLEGALITY IN TORT 21.The Plaintiff’s cause of action against the 2nd Defendant is misrepresentation. In essence, the Plaintiff says that he relied upon the representation by the 2nd Defendant that UBS would charge 20% commission (which turned out to be false), he paid the 20% commission to the 3rd Defendant upon the 2nd Defendant’s request instead to UBS. 22.“Where a claimant’s success in tort depends on establishing a contract, and that contract is tainted by illegality, the claim in tort may also fail”: see Clerk & Lindsell on Torts (22nd ed) para 3-03. In Chung Man Yau v Sihon Co Ltd [1997] HKLRD 1221, the Court of Appeal (comprised of Mortimer VP, Godfrey JA and V Bokhary J) held at 1227D that in relation to damages in tort said to be irrecoverable as tainted by illegality: -
23.This all-factor approach applied in Chung Man Yau, supra is actually more akin to the flexible approach pronounced by the majority of the Supreme Court of the United Kingdom in Patel v Mirza [2017] AC 467, a case of unjust enrichment, by which the court is to take a balancing exercise considering the factors like the public interest, the public policy, the underlying purposes of the prohibition, the harms to be caused by the illegality and proportionality: see at paragraph 120. 24.I must say that this all-factor test applied in tort cases is inconsistent with the relatively rigid approach adopted in Tinsley v Milligan [1994] 1 AC 340, namely, once the claimant has to rely on the illegality in question to establish his claim, the court would not lend any assistance to the claim. The Tinsley approach has been confirmed by the Court of Final Appeal in HKSAR v Lau Kam Ying (2013) 16 HKCFAR 595 at paragraph 20 and Ryder Industries Limited v Chan Shui Woo (2015) 18 HKCFAR 544 to the current Hong Kong law. However, insofar as I am aware, the Tinsley approach has been applied in Hong Kong in contract cases only, while at least insofar as tort cases are concerned, Bebe Chu J in Tse Chun Wai v Leung Kwok Kin Joseph [2017] 4 HKLRD 563 strived to rationalise the distinction between the two different approaches adopted in tort cases and contract cases respectively, by pointing out at paragraph 54 of her judgment that the policy consideration in personal injuries cases are different from those in cases where the court is asked to enforce an illegal contract because in personal injuries cases, the plaintiff merely relies on the wrong of the defendant to establish the right to compensation. In other words, the distinction between the treatment in contract cases and that in tort cases remains. 25.While a single approach is desirable in relation to the defence of illegality in all private law area: see Tinsley, supra at 375B-C per Lord Browne-Wilkinson, it seems to me that the current status of the law in Hong Kong is, as observed above, that different approaches have been adopted in the law of contract and the law of tort. However unsatisfactory it may seem, because misrepresentation is a cause of action in tort, I shall apply the all-factor approach in Chung Man Yau, given that the same rationale identified by Bebe Chu J applies here - the plaintiff relies upon the wrong of the defendant to establish its right to compensation. 26.In the present case, the Plaintiff was a co-conspirator, well knowing the illegality of the act he was misled into by the alleged fraudulent misrepresentation. The moral and criminal culpability of the Plaintiff’s such conduct is significant. Further, the Commission Payments were forfeited as proceeds of crime. Although there has been criticism over the illusiveness of the concept of “affront the public conscience or offend the ordinary right-thinking citizen”, in my view, at least in the present case, it is plain and obvious enough that any recovery of any loss arising from the Commission Payments made by the Plaintiff “would affront the public conscience or offence the ordinary right-thinking citizen”. 27.In the premises, as a matter of law, the Plaintiff cannot claim any compensation from the 2nd Defendant. 28.For the sake of completeness, even if I am to apply the Tinsley approach, I am still satisfied that the Plaintiff’s claim should fail. This is because the Plaintiff still has to rely on his payment of the illegal bribe to establish loss suffered as a result of the misrepresentation. Thus, the Plaintiff’s claim would still be defeated by the defence of illegality under Tinsley. DEFENCE OF ILLEGALITY TO UNJUST ENRICHMENT 29.As regards the Plaintiff’s claim against the 3rd Defendant on unjust enrichment, illegality is a defence: see DBS Bank (Hong Kong) Ltd v Pan Jing, HCA 3299/2016, 24 January 2020. At paragraph 41, DHCJ Blair held that: -
30.It is not clear from that case how to assess what are contrary to public law and engage public interest. Insofar as necessary, I adopt the Tinsley approach in the present case because the Plaintiff here would rely on the receipt of the money by the 3rd Defendant without justification (the receipt being the very receipt of the bribery in the conviction), but not any wrong of the 3rd Defendant which is something other than the illegality in question. As the Plaintiff would have to rely upon his own illegal payment of the bribe to the 2nd and 3rd Defendants to establish his claim, applying the Tinsley approach, the Court would not lend any assistance to the Plaintiff’s claim. 31.I am aware that Patel is a case of unjust enrichment, but without full argument before me, I do not need to express any view on whether it should be adopted in cases of unjust enrichment in Hong Kong, save and except that I note the obiter expressed by Ma CJ in paragraph 1 of Ryder Industries Ltd v Chan Shui Woo (2015) 18 HKCFAR 544 that he would prefer the Tinsley approach to avoid or minimise exercise of judicial discretion. 32.In any event, even if Patel is to apply here, for the same reasons set out in paragraph 26 above, I would come to the same conclusion that the Court would not lend any assistance to the Plaintiff’s claim. DEFENCE OF ILLEGALITY AND CLEAN HANDS IN CONSTRUCTIVE TRUST 33.In respect of the cause of action of constructive trust against the 3rd Defendant, the defence of illegality, as a general defence in private law, is available. For the same reason as for unjust enrichment, I adopt the Tinsley approach, and also for the same reason, this defence is established here. 34.Further, again, even if Patel is to apply here, for the same reasons set out in paragraph 26 above, I would come to the same conclusion that the Court would not lend any assistance to the Plaintiff’s claim. 35.Further, the Plaintiff, being a co-conspirator of the bribery, comes to the Court without clean hands when claiming for his loss caused by the very same bribery. The Court would also on this ground refuse remedy to the Plaintiff. 36.Thus, this cause of action is not sustainable. LIMITATION 37.A further ground raised in support of the 2nd and 3rd Defendants’ application is that the wrong was committed more than 6 years ago and thus has been barred by the Limitation Ordinance. In the light of my decision above, it is unnecessary for me to consider this ground. ABUSE OF PROCESS 38.The defence of illegality is a general defence available in private law. As held above, whether under the Tinsley approach or the Patel approach, the Plaintiff’s claim is plainly and obviously barred by this defence. In a word, the Plaintiff’s claim is a “hopeless claim”: see Hong Kong Civil Procedure 2020 Vol 1 at paragraph 18/19/15. 39.Added to this is an outrageous nature of the Plaintiff’s claim – as found above, he is a co-conspirator of the illegal conduct, as a result of which he made the illegal payment and now alleges to have suffered loss and damage. It is outrageous that he would still commence the present action to claim for such loss and damage as if he were a victim. In such context, commencing the present civil action only adds to the abusive nature of the hopeless claim. CONCLUSION AND ORDER 40.In conclusion: -
41.Thus, I make the following order: -
42.In respect of costs, I make a costs order nisi that the Plaintiff shall pay the 2nd and 3rd Defendant costs of this application (including the present application) with certificate for counsel, to be summarily assessed. Also, on my finding that it is a plain and obvious case of an abuse of process of the court by the plaintiff, I make an order nisi that the costs be assessed on an indemnity basis. 43.For the purpose of summary assessment, I direct that upon the costs order nisi turning absolute in 14 days, the 2nd and 3rd Defendants shall lodge and serve a statement of costs of the whole action within 3 days, and the Plaintiff shall lodge and serve a list of objections within 3 days thereafter. The assessment of costs shall be disposed of on paper.
Mr Tony Chow, instructed by Fu & Cheng, for the plaintiff Ms Sezen Chong, instructed by Wat & Co, for the 2nd & 3rd defendants |
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