Vanguard International Manufacturing Ltd, Inc v. The Chase Manhattan Bank N.A.

HCA000712/1984

BETWEEN

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1984, No.712

BETWEEN

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1984, No.713

BETWEEN

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Coram: Hon. Clough, J.

Dates of Hearing: 28, 29 and 30 March and 2 and 3 April 1984

Date of Delivery of Judgment: 24 April 1984

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JUDGMENT

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1. In these three actions the Chase Manhattan Bank ("the Bank") which is incorporated in New York and has branches in Hong Kong, is being sued by three different companies. In H.C.A. No. 711 of 1984 the Plaintiff is F.D.C. Co. Ltd. ("F.D.C."), a company incorporated and having its registered office in Hong Kong. In H.C.A. No. 713 of 1984 the Plaintiff is Garpeg Ltd. ("Garpeg"), a company incorporated and having its registered office in Hong Kong. In H.C.A No. 712 of 1984 the Plaintiff is Vanguard International Manufacturing Ltd. ("Vanguard"), a company incorporated in Panama and described in the evidence of its General Manager and director, Mr. Obonai, as "administered in Hong Kong having its registered office at 1501 Hutchison House, Hong Kong and operating address at 3708 Gloucester Tower Hong Kong."

2. By specially indorsed Writs issued on the 28th January 1984 in 3 separate actions each of the companies seeks, inter alia, to restrain the Bank from making disclosure to any of its offices outside Hong Kong or to the revenue authorities of the United States Government of any documents, records or information connected with bank accounts maintained by the respective companies with the Defendant in Hong Kong. The Bank is, for understandable reasons, not prepared to under-take in unqualified terms to maintain secrecy.

3. On the 30th January 1984 F.D.C. and Garpeg obtained ex-parte injunctions from Mayo J. imposing such a restraint and the same judge made a similar ex-parte order in favour of Vanguard on the 14th February 1984. On the 3rd April 1984, at the conclusion of the hearing of inter-partes summonses issued by the companies, I made an order in each case restraining the Bank from making the relevant disclosure until trial or further order. I reserved my reasons for my decision and I now give them in this judgment.

4. The relevant bank accounts are as follows. F.D.C. has two accounts with the Bank in Hong Kong. The first account is a Hong Kong dollar current account which was opened on the 1st October 1975 and in respect of which the signatory is Mr. Obonai. The second account is a United States dollar account opened on the 21st May 1980 in respect of which the two alternative signatories are Mr. Obonai and Mr. Aldo Gucci ("Mr. Gucci"). Garpeg has a Hong Kong dollar current account with the Defendant in Hong Kong which was opened in or about the end of 1976 or early 1977 and the alternative signatories are Mr. Obonai and Mr. Gucci. Vanguard has a United States dollar account with the Defendant in Hong Kong which it opened on the 19th July 1982 or thereabouts and the alternative signatories of this account are Mr. Obonai and Mr. Gucci.

5. The Internal Revenue Service of the United States Government ("I.R.S.") is currently investigating the tax liability and affairs of Gucci Shops, Inc. and of Mr. Gucci The evidence of the proceedings in New York by the I.R.S. in this matter indicates that the I.R.S. claims to have evidence that all three companies are really the creatures of Mr. Gucci or Gucci Shops, Inc. which are being used as conduits for income of the Gucci interests in order to evade tax liability in the United States.

6. In furtherance of its investigation the I.R.S. has issued various administrative summonses to the Bank requiring production of records and information which are expressed in terms which affect the bank acounts of the Plaintiff companies in Hong Kong. The sequence of the proceedings by the I.R.S. in New York is complicated because numerous summonses have been issued and some of them have been abandoned. Effectively the position can be summarised as follows.

7. As regards F.D.C. the relevant summons was issued by the I.R.S. on the 19^th December 1983. It is expressed to relate to the matter of Gucci Shops, Inc. and Mr. Gucci. The summons is issued to the Bank by the Commissioner of the I.R.S. and requires attendance on behalf of the Bank by the 30th January 1984 before an officer of the I.R.S. and the production of records and data concerning the affairs of F.D.C. including records in the Bank's branch at Kowloon. The summons also requires the production of the Bank's credit file on Vanguard for a stipulated period but there is no evidence that Vanguard has taken any proceedings to resist disclosure under this summons.

8. On the 27th March 1984 Goettel D.J. in the District Court of the Southern District of New York made an order for the enforcement of the I.R.S. Summons which imposes a duty upon the Bank to comply with its requirements as having the force of an order of the court.

9. In the case of Garpeg the relevant summons was issued by the I.R.S. on the 19th December 1983. As in the case of F.D.C. it is headed in the matter of Gucci Shops, Inc. and Mr. Gucci. The disclosure required of the Bank relates to the affairs of Garpeg and includes a requirement for disclosure of records and data available to the Bank in Hong Kong. On the 23rd March 1984 in the same District Court in New York Sweet D.J. modified the requirements of the summons because he considered it to be overbroad and ordered its enforcement to the extent that all records concerning any financial transactions between Garpeg and Gucci Shops or between Garpeg and Mr. Gucci, and any financial transactions between Garpeg and other persons or entities which were authorised by Mr. Gucci or Gucci Shops must be produced by the Bank whether maintained in the United States or Hong Kong. I should mention that the orders of Goettel and Sweet D.JJ. were made in proceedings of some complexity in which the Bank and F.D.C. and Garpeg respectively were availing themselves of their right to intervene to quash the summonses.

10. The position in relation to Vanguard is that the relevant summons was issued by the I.R.S. on the 22nd August 1983 in the matter of Mr. Gucci's affairs. It affects Vanguard because the records and data required to be disclosed by the Bank include accounts in respect of which Mr. Gucci is the signatory and the ambit of the summons includes information available to the Bank in Hong Kong. This Summons has been challenged in accordance with the appropriate procedure in New York by both Vanguard and the Bank. The relevant proceedings in New York were suspended by order of the court on the 1st February 1984 but my understanding is that the suspension has occurred at the instigation of the I.R.S. who are proposing to issue new summonses.

11. The Plaintiffs relied on affirmations of Mr. Obonai the General Manager and a director of all the Plaintiff companies in support of their respective applications for an injunction in each case. In the actions of F.D.C. and Garpeg the Bank relied on an affirmation of Mr. Connick sworn in each case in common form on the 12th March 1984 on the relevant law applicable in New York. In reply to Mr. Connick's evidence F.D.C. relied on the affidavit of Mr. Tuttle and Garpeg relied on the evidence of Mr. Banker. It was agreed between the parties at the hearing that all the applicaations should be heard at once and that the evidence in relation to the relevant law applicable in New York should be treated as if it had been adduced in all 3 cases.

12. Both counsel said that the guide lines of American Cyanamid v. Ethicon Ltd. [1975] A.C. 396 (H.L.) applied but counsel for the Bank said he did not wish to be taken to abandoning the contention that the decision of the English Court of Appeal in Cayne v. Global Natural Resources plc [1984] 1 All E.R. 225 (C.A.) was applicable. For my part I have arrived at my decision in these cases on the footing that the guide lines laid down by Lord Diplock in the American Cyanamid case are not intended to be treated as inflexible rules governing the exercise of the court's discretion in all cases: c.f. N.W.L. Ltd. v. Woods [1979] 1 W.L.R. 1294 [H.L.]; the Cayne case (supra) and the dicta of Megarry V.C. in Thrustcode Ltd. v. W.W. Computing Ltd. [1983] F.S.R. 502 at p.508.

13. Considering the Plaintiffs' applications in the light of the American Cyanamid guide lines, the first question is whether the Plaintiffs have shown that there is a serious question to be tried in each case.

14. The substance of the Plaintiffs' case in each of the actions is that the proper law of the banking contract between each Plaintiff and the Bank is Hong Kong law and if the Bank were to disclose the information required by an enforcement order of the New York District Court in the case of F.D.C. and Garpeg and by the I.R.S. in the case of Vanguard it would be in breach of the qualified implied contractual term of confidentiality as between banker and customer imposed under Hong Kong law.

15. The Plaintiffs' case is further that disclosure by the Bank in compliance with the requirements of foreign revenue authorities or of the order of a foreign court enforcing foreign revenue law is not a good defence in respect of the banking contract between each Plaintiff and the Bank, being a contract governed by Hong Kong law and intended to be performed in Hong Kong. c.f. Kleinwort Sons & Co. v. Ungarische Baumwolle Industrie A.G. and Hungarian General Credit bank Aktiengesells chaft [1939] 2 K.B.678.

16. The defence of the Bank, in so far as it has been foreshadowed in the submissions of coursel for the Bank, does not admit that Hong Kong law governs the banking contracts. However counsel for the Bank raised no argument to the contrary. The main thrust of his argument on the merits was that the Bank was entitled to make the disclosure required of it in New York in each of the 3 cases because the leading case of Tournier v. N.P. & Union Bank of England [1924] 1 K.B. 461 (C.A.) laid down that one of the qualifications of a banker's implied contractual duty of secrecy arose where the interests of the Bank required disclosure. Counsel for the Bank contended that, properly understood in the light of commercial considerations, this qualification extended to apply to the circumstances of the present cases.

17. As Lord Diplock observed in the American Cyanamid case at p.407 H, it is no part of the court's function in interlocutory proceedings of this nature to decide difficult questions of law which call for detailed argument and mature considerations. It suffices for the purposes of the American Cyanamid guide lines if the plaintiff can show a serious question for trial. I hold that the Plaintiffs have undoubtedly done so. Indeed this was never disputed by the Bank. I will return to the question of the relative strength of the parties' cases at a later stage in this judgment.

18. As to the balance of convenience, the governing principle under the American Cyanamid guide lines is that the court should first consider whether, if the Plaintiffs were to succeed at the trial in establishing their right to a permanent injunction, they would be adequately compensated by an award of damages for the loss sustained by them by reason of the Bank disclosing the relevant information to the I.R.S. between the time of this application and the trial. Where the answer to this question is in the affirmative and a defendant is in a financial position to pay the damages, an injunction should not normally be granted.

19. It is not disputed that the Bank is good for the relevant damages here. Furthermore this case is distinguishable from the decision of Leggatt J. in X AG v. A bank [1983] 2 All E.R. 464 in that there is no satisfactory evidence as to the nature and extent of the commercial injury that the Plaintiffs will suffer in each case if no injunction is granted.

20. In the X AG case evidence was given regarding the purposes and activities of the Plaintiff companies and regarding the reasons for the contention that serious commercial injury would be caused to the plaintiffs if the relevant disclosure was made in that case by the defendant bank. The court did its utmost to ensure secrecy regarding that evidence.

21. In the present case the Plaintiffs failed, for understandable reasons, to adduce any particularised evidence regarding the purposes and activities of the Plaintiff companies. Mr. Obonai has given some evidence on the subject but it is scant. In the case of F.D.C. he has affirmed that it has a place of business at 3708 Gloucester Tower, 11 Pedder Street, Hong Kong and that it has no place of business, no officers and no directors in the United States of America. He gives no other evidence regarding the purposes and activities of F.D.C. At the end of his affirmation in the F.D.C. case he affirms that the damage and loss suffered by F.D.C. if the Bank were to act in breach of its duty of confidentiality would be "serious and irreparable in that confidential information would be leaked to third parties without the consent or approval of the Plaintiff". He also invokes the public interest in maintaining a banker's obligation of confidentiality in Hong Kong.

22. In the course of the hearing before me I gave leave to F.D.C. to file an affidavit made by its solicitor Mr. Miles on the 30th March 1984 which included evidence which was evidently intended to counter the evidence of the I.R.S. against F.D.C. referred to in the proceedings before Goettel D.J. in the District Court in New York.

23. The gist of Mr. Miles' evidence, whose means of knowledge was evidently instructions obtained from F.D.C.'s lawyers in the United States, was that F.D.C.'s purposes were not solely to collect income attributable to Gucci interests or to manufacture expenses but that F.D.C. was authorised and entitled to receive fees paid to it as a result of arrangements with franchisees which were sensitive and confidential business information. He deposed that those arrangements "were not identical with one another" and gave as an example varying rates of fees being paid under different arrangements. As a result, he deposed, "the business operations of the current franchisor, as well as of (sic) Plaintiff, could be adversely affected if this information became available to the public, and in particular, to the individual franchisees." He added that the franchisees themselves were concerned that the information should not become public.

24. The inference from the above evidence of Mr. Miles seemed to me to be clearly that F.D.C. was not a franchisor. Moreover the evidence was so generalised, presumably in order to avoid providing information to the I.R.S. who will be watching these proceedings, that I was not persuaded that it was sufficient to establish, even for the purposes of interlocutory proceedings, any likely tangible and identifiable commercial injury which might result to F.D.C., as distinct from the Gucci interests, from disclosure of the relevant information by the Bank to the I.R.S.

25. As far as Garpeg is concerned, similar reticence has been shown. Of that Plaintiff Mr. Obonai affirmed that it had at various times performed managerial services in connection with the manufacture and supply of Italian made goods and that among its assets it held title to certain property in the United States. At the end of his affirmation he relied, as he did in the case of F.D.C., on "serious and irreparable" damage and loss arising if the Bank were to make the relevant disclosure and he also invoked the public interest on behalf of Garpeg.

26. As regards Vanguard, Mr. Obonai affirmed that among its assets Vanguard is a shareholder in F.D.C. and Garpeg and that it holds title to certain property in the United States. Again reliance was placed in Mr. Obonai's affirmation in this case on the serious and irreparable damage and loss that would be occasioned to Vanguard if the relevant disclosure were made by the Bank and on behalf of Vanguard Mr. Obonai again relied on the public interest in Hong Kong in maintaining the obligation of confidentiality imposed on banks conducting business within the jurisdiction.

27. I found all this evidence unsatisfactory and inadequate in so far as the Plaintiff in each case sought to rely on commercial injury should the Bank be permitted to disclose the relevant information to the I.R.S. in each case.

28. Counsel for the Bank has rightly seized on this point and argues that, in the absence of satisfactory evidence of likely injury or of evidence that the injury to the Plaintiffs would be of an incalculable nature for which damages in the measure recoverable at common law would not be an adequate remedy, the Plaintiffs would be adequately compensated for any disclosure by the Bank between the present time and the trial by the payment of nominal damages. He relied in this connection on the unreported decision of Du Parcq. L.J. in Sutherland v. Barclays Bank Ltd. (1938) Times, 25th November referred to in Paget on the Law of Banking (9th edition) at p.154.

29. Bearing in mind that the court is not concerned with adequacy of compensation to the Gucci interests but to each of the Plaintiffs and that none of the Plaintiffs have seen fit, for reasons which are understandable, to file clearly particularised evidence regarding their purposes or activities or the likely commercial injury they claim they will suffer if the Bank is not injuncted from disclosure of their affairs, I am not satisfied on the evidence before me that any of the Plaintiffs have shown that they would be entitled to more than nominal damages if they were to succeed in establishing their claim against the Bank at the trial.

30. However in the circumstances of this case the court should not, in my judgment, adopt a blinkered approach and should give full weight to the practical realities of the situation when considering whether or not damages would provide an adequate remedy to the Plaintiffs if they succeeded at the trial after interlocutory relief has been refused: c.f. the observations of Lord Diplock in N.W.L. Ltd. v. Woods (supra) at p.1306 B-C.

31. The reality of the situation is that if an interlocutory injunction is refused now the Bank will, as its counsel acknowledged, feel obliged to make the relevant disclosure to the I.R.S. without delay and even if the Plaintiffs were subsequently to establish their right at the trial to a permanent injunction it would be too late because breach of the implied term of confidentiality would already have occurred and remedy in the form of a permanent injunction would have been denied to the Plaintiffs.

32. Relief in the form of a permanent injunction would normally be granted at a trial to prevent a breach of a duty of confidentiality: see Halsbury's Laws of England, 4th edition, Vol.16 at para. 1455. I accordingly envisaged that if the Plaintiffs were to succeed in these actions at the trial and the relevant disclosure had not yet been made by the Bank, then the probability is that a permanent injunction would be granted.

33. In my judgment the passage in the American Cyanamid case at p.408 dealing with adequacy of damages clearly contemplates a situation where consideration is given to compensating a successful plaintiff for loss sustained by being denied an injunction to restrain the continuing activity of the defendant between the interlocutory application and trial where the plaintiff has succeeded in getting a permanent injunction at the trial. Here the effect of not injuncting the Bank before the trial would be effectively to prevent the Plaintiffs, if successful at the trial, from obtaining the principal relief they seek in the form of an injunction and, in my judgment, damages whether nominal or otherwise would not be an adequate remedy for this loss.

34. Counsel for the Plaintiffs contended that if the Bank were injuncted from disclosure now and were successful at the trial it would be adequately compensated under the Plaintiffs' undertakings as to damages. I was not satisfied that this would be the case. If the Bank were successful at the trial and had been the subject of successful committal proceedings in New York one of its officers may have been committed. There was no evidence before me that such an eventuality was not possible. Furthermore there was no evidence as to the extent of the ability of the Plaintiffs, one of which, namely Vanguard, is a Panamanian company, to pay any damages recoverable under the Plaintiffs' undertaking and the decisions of the United States courts cited in evidence indicate that financial penalties that could be imposed by the New York courts if the Bank were cited for contempt would probably be very substantial. Thus in a recent case where a bank had not complied with a subpoena duces tecum issued in Grand Jury proceedings (United States v. Bank of Nova Scotia decided on the 28th February 1984) a daily fine of US$25,000 per day was imposed for a period of 73 days of non compliance, amounting to a total of US$1,825,000.

35. As to the ultimate question of balance of convenience under the American Cyanamid guide lines, counsel for the Plaintiffs sought to persuade me to follow the decision of Leggatt J. in the X AG case and contended that this was a stronger case. For my part I treat any decision of that learned judge with the greatest respect, particularly in relation to banking law, but every case has to be decided on its own facts. Whilst I accept Leggatt J.'s exposition of the relevant law in relation to the esoteric arguments he had to consider in that case I confine myself here to dealing with the substantive argument advanced on behalf of both sides in the cases before me on its facts.

36. The substance of counsel for the Plaintiffs' argument was that the evidence of the relevant law applicable in New York given by Messrs. Tuttle and Baker for the Plaintiffs should be preferred to that of Mr. Connick for the Bank and that accordingly the likelihood of contempt proceedings being brought in New York against the Bank and of those proceedings being successful was very slim indeed. This had been the conclusion in the X AG case. No real or substantial risk of hardship would result to the Bank if it were injuncted, he contended, and in the absence of such a risk there was no reason why the Bank should be permitted to make disclosure of the Plaintiffs' affairs in breach of its banking contract.

37. As to injury to the Plaintiffs if no injunction were granted counsel for the Plaintiffs eventually accepted that there was very little evidence of commercial injury except in the case of F.D.C. where there was evidence of proper payments to F.D.C. and of the risk of franchisees being upset. However he contended that the clear breach of a customer's private right to confidentiality as against his banker was a very serious matter which normally gave rise to entitlement to an injunction even if only nominal damages could be proved.

38. He also contended that the importance of confidentiality in the context of the relationship between banker and customer was a matter of public interest in the financial centre of Hong Kong, no less than in London and New York. Such private and public interests should not, he contended, be lightly abrogated by the court unless there were serious grounds for doing so.

39. Counsel for the Bank stressed that it was enough for the Bank to show a real and not necessarily a probable risk that the Bank would be put in an intolerable position if it continued to be injuncted and he relied upon the evidence of Mr. Connick to establish such a risk and upon the recent decision on the 28th February 1984 of the District Court in New York in U.S. v. Bank of Nova Scotia referred to above. He also relied upon the enforcement decision of Sweet D.J. in the case of Garpeg in the District Court of the Southern District of New York on the 23rd March 1984 requiring the Bank to comply with the I.R.S. summons dated the 19th December 1983 as modified by the court and upon the enforcement decision of Goettel D.J. in the case of F.D.C. in the same court on the 27th March 1984 requiring the Bank to comply with the I.R.S. summons dated the 29th December 1983.

40. As against this risk, contended counsel for the Bank, there was only the notional principle of confidence and that should not be overdone by a court seeking to do equity. He argued further that in contrast to the X AG case where the plaintiffs had established that disclosure would cause them very considerable commercial harm, the Plaintiffs in the present case had not, on the evidence adduced, shown harm entitling them to anything more than nominal damages. The Plaintiffs were not under investigation by the I.R.S. and would not suffer from the disclosure by the Bank.

41. As to the issue on United States law, the Bank relies in all 3 cases before me on the evidence of Mr. Connick which Mr. Tuttle points out is virtually identical to the affidavit submitted by Mr. Connick in the X AG case. Indeed it includes an inappropriate reference, in paragraph 3, to a subpoena and to the penalty under Federal Rule of Criminal Procedure 17(g) for failure to obey a subpoena.

42. Mr. Connick and the Plaintiffs' two expert witnesses Messrs. Tuttle and Baker are on common ground in stating that when the I.R.S. seeks to enforce an I.R.S. summons in the courts for the production of records of a foreign branch of a bank in the face of conflicting law in the foreign jurisdiction the courts engage in a balancing test applying United States v. First National City Bank 396 F. 2d 897 (2d Cir. 1968) and the rationale of section 40 of the Restatement (2d), Foreign Relations Law of the United States.

43. Factors taken into consideration for the purposes of this balancing test include (a) vital national interests of each of the states involved; (b) the extent and nature of the hardship that inconsistent enforcement actions would impose upon the Bank; (c) the extent to which the required conduct is to take place in the territory of the other state; (d) the nationality of the Bank and (e) the extent to which enforcement by action of either state can reasonably be expected to achieve compliance with the rule prescribed by that state.

44. The cases cited by Mr. Connick indicate that when the U.S. court carries out the balancing test it will not shrink, in circumstances it considers appropriate, from ordering enforcement or sanctions for non-compliance with an order for enforcement despite the fact that foreign law forbids disclosure.

45. However Mr. Connick's evidence acknowledges that there are some factual differences between the cases cited by him and the present case. He also points out that in none of the cases cited by him "........ had a foreign court issued an order enjoining compliance with the subject summons or subpoena or had a foreign executive taken prohibitive action" but adds that "......... the reasoning of the cases gives no substantial assurance that different conclusions would have been reached if such acts of a foreign government had taken place".

46. Mr. Connick goes on to depose that -

" For such reasons, as well as the uncertainty of the outcome of the balancing test, it is impossible to predict with certainty what the United States Attorney, the Federal prosecutor, or the Federal Courts would do should the High Court continue the outstanding injunctions against Chase in this matter."

47. He concludes by deposing that it is "entirely possible" (as indeed subsequently happened in the case of F.D.C. and Garpeg) that an officer of the Bank would be summoned before the U.S. District Court in New York and directed to comply with the I.R.S. Summons and that the court, applying the balancing test in United States v. First National City Bank (supra) would not recognise the Hong Kong court's injunction as an adequate excuse for failure by the Bank to comply with the Summons.

48. He also regards it as "entirely possible" that if the Bank did not thereafter comply with the District Court's enforcement order that court would imprison the Bank's officer and impose a daily fine on the Bank until the documents were produced.

49. As against Mr. Connick's general and somewhat speculative evidence of uncertainty regarding the possible outcome of contempt proceedings against the Bank in the New York District Court if the Bank were (as subsequently happened in two cases) to be the subject of an enforcement order in relation to any of the I.R.S. summonses and thereafter failed to comply with the order, Mr. Tuttle and Mr. Baker have dealt with the likely outcome of contempt proceedings in more detail and by explicit reference to United States authority.

50. They both emphasised that if the Bank is injuncted in this court and for that reason only it fails to comply with an enforcement order of the New York District Court sanctions will not be automatic. They depose that if there should be contempt proceedings the Bank will be entitled to raise the defence that it made an unsuccessful effort in good faith to comply which has been frustrated by the laws of the foreign jurisdiction.

51. They both demonstrate that the cases cited by Mr. Connick recognise the availability of the "good faith effort to comply" defence and point out that on the particular facts of those cases no such defence was made out. Mr. Tuttle deposes inter alia that in S.E.C. v. Banca Della Svizzera Italiana, 92 F.R.D. 111 (S.D.N.Y. 1981) the court observed that the leading decision of the United States Supreme Court in Societe Internationale Pour Participations Industrielles Et Commerciales, S.A. v. Rogers 357 U.S. 197 (1958) "holds that good faith of the party resisting discovery is a key factor whether to impose sanctions when foreign law prohibits the requested disclosure" and that the court emphasised that a "non-complying party's good or bad faith is a vital factor to consider."

52. Both Messrs. Tuttle and Baker further depose that the defence of good faith has been expressly incorporated into section 420(2) of Tentative Draft No.3 of the Restatement of Foreign Relations Law of the United States and that that provision was relied upon by the United States Court of Appeals for the Seventh Circuit in United States v. First National Bank of Chicago 699 F.2d 341 (7th Cir. 1983).

53. Mr. Baker concludes that the Bank has made good faith efforts in this court to avoid its obligations under Hong Kong law and that these efforts will provide the Bank with a strong defence if contempt proceedings are brought against it in the United States since there appears to be no basis for a court to make a finding of bad faith against the Bank.

54. Mr. Tuttle expresses the same view in stronger terms. He expressly adopts the views of Professor Lowenfeld as reported in the X AG case at pp. 473 and 474. The Professor's summarised views appear at p.474 f where Leggatt J. observed -

" In those circumstances, the professor summarises his conclusion by saying that an injunction by a foreign court having jurisdiction over the branch where the documents are located –

'would, I believe, come within the foreign compulsion defence, provided (a) the bank at all times acted in good faith as defined; and (b) disobedience of the injunction would subject the branch and its officers to serious sanction.'"

55. Mr. Tuttle concludes by expressing the view that the Bank's jeopardy of contempt proceedings appears to be less than that of the bank in the X AG case (where contempt proceedings were never brought) because in this case (as Mr. Banker also stressed) the records sought relate to a third party witness in relation to a tax investigation of other persons whereas in the X AG case the documents were subpoenaed by a Federal grand jury in connection with a criminal investigation of the very person whose bank records were sought.

56. I have no difficulty in accepting the evidence of Mr. Tuttle and Mr. Baker in preference to that of Mr. Connick regarding the availability of the foreign compulsion and good faith defence to the Bank if, after being injuncted by this court in these proceedings, it should be faced with contempt proceedings for non-compliance with the enforcement orders of the District Court in New York in relation to the relevant I.R.S. Summonses.

57. Counsel for the Bank relied also on matters outside and subsequent to the evidence of the experts on United States law as indicating a hardening of the attitude of the United States courts.

58. The decision on the 28th February 1984 of the United States District Court of the Southern District of Florida in United States v. Bank of Nova Scotia (Exhibit 'A') was relied on as a case in which a bank was fined for contempt by reason of non-compliance with a subpoena duces tecum issued on the 1st March 1983 by a Federal grand jury requesting documents maintained by the bank at its branches in the Bahamas, the Cayman Islands and the Lesser Antilles, notwithstanding the fact that in the case of the Cayman Islands documents the Grand Court of the Cayman Islands had on the 31st May 1983 made an order prohibiting production. Counsel for the Bank stressed that the court had observed that there was no evidence that the bank in question had appealed against the order of the Grand Court.

59. However it is, in my view, clear from the reasons given by the court for its decision that in substance the bank was found wanting in good faith for a number of reasons. Thus at paragraph 15 of Exhibit 'A' there is a reference to a supplemental finding of the court that the bank had failed to persuade the court that it had made a good faith effort to comply with the subpoena. The grounds for this finding were that the bank had wrongly sought to obtain first a showing of materiality and necessity of the subpoenaed documents to the grand jury and secondly the founding of letters rogatory. Also the court considered that it had given the bank more than adequate time to exhaust remedies available under Bahamaian law and to seek other measures under Caymanian law.

60. At paragraph 17 the court criticised the bank for for not making an earlier application to the Attorney General for a ruling, which he had actually given on 11th November 1983, to the effect that the documents in the Bahamas were not protected from disclosure. At paragraph 13 the court infers that the bank had been dilatory in conducting searches for documents in the Bahamas.

61. At paragraph 20 the bank receives the strictures of the court because it appeared that the bank was aware that under Cayman legislation the Governor of the Cayman Islands had powers (which he in fact exercised in this case on 17th November 1983) to authorise the disclosure of the documents in question but, for reasons which the bank did not explain, it merely considered making a request to the Governor to exercise his powers but never did so.

62. Furthermore it seems that, as a result of the Governor's order, the Grand Court of the Cayman Islands made an order on the 18th November 1983 permitting disclosure of the relevant documents, so that on the 28th February 1984 when sanctions for contempt were imposed, there was no question of there being any order of a foreign court inhibiting the bank from complying with the subpoena and there is understandably no reference to any order of the Grand Court in the Conclusion of Law beginning at p.14. At p.15 the court concludes that the bank failed to exercise good faith.

63. Accordingly it seems to me that this is yet another case where the good faith defence has been recognised and where at the time the court came to its decision there was no order of a foreign court prohibiting compliance with the subpoena.

64. Then counsel for the Bank relies on the enforcement decisions made by Sweet D.J. in the case of Garpeg's Summons on the 23rd March and by Goettel D.J. on the 27th March in the case of F.D.C.'s Summons as indicating that both those judges are maintaining their position in the face of the injunctions granted in Hong Kong and that the United States courts may be disposed to adopt a robust approach because the evidence presented to them indicates that there is the odour of tax evasion in the air in the United States jurisdiction.

65. I emphasise that the attitude of the court in Hong Kong is not intended to give the impression of forensic sabre rattling or of conflict between the jurisdiction of Hong Kong and New York.

66. However the approach of the Hong Kong court in jurisdictional matters is the same as that of the English courts and I follow Leggatt J. in regarding the dicta of Evershed M.R. and Denning L.J. in British Nylon Spinners Ltd. v. Imperial Chemical Industries Limited (1953) Ch.19 (C.A.) as providing guidance based on settled principles. There Evershed M.R. observed at p.27 -

"............. the courts of this country will, in the natural course, pay great respect and attention to the superior courts of the United States of America, but I conceive that it is none the less the proper province of English courts, when their jurisdiction is invoked, not to refrain from exercising that jurisdiction if they think that it is their duty so to do for the protection of rights which are peculiarly subject to their protection. In so saying, I do not conceive that I am offending in any way against the principles of comity ..........."

In the same case at p.28 Denning L.J. observed -

"The writ of the United States does not run in this country, and, if due regard is had to the comity of nations, it will not seek to run here."

67. For my part I am content to observe that it seems to me to be wholly understandable and by no means unexpected, in the light of the evidence of United States law before me and of the balancing test that the New York courts apply in proceedings for enforcement of I.R.S. summonses of the kind before me, that both Sweet and Goettel D.J. should have arrived at the decisions they did in relation to the summonses affecting Garpeg and F.D.C.

68. Indeed it is apparent from the report of the X AG case at pp.469-470 that in that case the same District Court in New York made an order indorsing the bank's subpoena not-withstanding the existence of what appear to have been ex-parte orders of the English High Court injuncting the bank from complying with the subpoena.

69. However, as counsel for the Plaintiffs rightly contended, the crucial question for this court at this stage of the proceedings is whether the Bank will be in any real jeopardy of successful contempt proceedings if, by reason of its being injuncted by this court, it fails to comply with the enforcement orders of the New York District Court. Sweet D.J. himself described such non-compliance by the Bank at p.9 of his Opinion in the Garpeg case as a "potential contempt of this court".

70. Having considered all the evidence before me including the additional matters above and accepting, as I do, the evidence of Mr. Tuttle and Mr. Baker as to the state of the United States law in relation to any contempt proceedings that might be brought against the Bank in the New York District Court if it complies with the injunction of this court, I am not satisfied (in the light of events in the X AG case) that there is any real risk of contempt proceedings being brought at all or that the Bank will be in any real jeopardy if such proceedings should be instituted before the trial of this action.

71. In the course of the hearing before me I gave leave to the Plaintiffs to serve a notice under s.59 of the Evidence Ordinance (Cap.8) and Order 38 rule 7 which it was contended related to findings of Leggatt J. in the X AG case on relevant United States law. Such a notice can only affect the onus of proof in the present case and as I have been able to arrive at a firm conclusion on the United States law on the evidence before me the notice is of no practical materiality.

72. As to the likelihood of disadvantage or relative injury to the Plaintiffs if an injunction were refused in these cases the Bank's counsel has acknowledged that in that event it would feel obliged to make disclosure of the relevant information to the I.R.S. I have already indicated above that if that were to happen the Plaintiffs would effectively lose the opportunity of achieving their main objective if they succeed at the trial, namely a permanent injunction. Accordingly it is virtually certain that if interlocutory injunctions are refused now the main substratum of the action will be destroyed by the Bank making disclosure before the trial and the Plaintiffs will have effectively been deprived of a trial of their claim to a permanent injunction.

73. This seems to me to be a disadvantage which would be both serious and irreparable and fundamentally unjust. It could well produce the result that the actions would never proceed to trial.

74. Having concluded that the Bank would not be in any real jeopardy in respect of contempt proceedings in the New York courts if it were injuncted by this court I consider that the disadvantage to be occasioned to the Plaintiffs if an injunction were refused in each case here is the decisive factor in tipping the balance. The absence of evidence regarding the financial means of the Plaintiffs to meet any claim under their undertaking as to damages ceases to be a significant factor once it is concluded that the Bank will not be in real jeopardy.

75. I add that, to the extent that consideration of the relative strength of the Plaintiffs' and the Bank's case may or should be brought in to the balance in the circum-stances of this case I consider, on the material before me, that the Plaintiffs' case is strong in the light of the decision of Leggatt J. in the X AG case with which I respectfully agree.

76. In the earlier stages of the hearing before me counsel for the Bank did not admit that the banking contracts in this case were governed by the law of Hong Kong but he never advanced any argument to the contrary although he has opposed the Plaintiffs' applications with his usual skill and determination. On the evidence before the court it seems to me that it is manifestly to be inferred, even at the present stage of the proceedings that all the contracts are governed by the law of Hong Kong including the contract of Vanguard which is a Panamanian Company.

77. The banking contracts being contracts governed by Hong Kong law and to be performed in Hong Kong I respectfully adopt the view expressed by Leggatt J. in the X AG case at p.479 d where, after referring to the distinction between the English courts being asked to enforce foreign revenue or penal law on the one hand and being asked merely not to impede such law on the other hand he observed -

"I think that this submission is attended by a certain unreality. The fact is that the gamekeeper is invited to turn a blind eye whilst the poacher takes a brace of pheasants, or three pheasants. In this context, it appears to me that not impeding involves a measure of assistance and, indeed, approbation, because, in particular, it would involve this court tolerating a breach of that obligation of confidentiality which, as I have pointed out, in the ordinary course must be maintained in the public interest."

78. In the present case the only argument raised on the merits at this stage of the proceedings on behalf of the Bank was that the Bank's implied contractual duty of confidentiality was qualified inter alia so as to render the duty inapplicable where its performance would be seriously prejudicial to the Bank. It was contended that in the present circumstances where the Bank had a legitimate interest to protect by complying with the I.R.S. summons and the order of the New York District Court, the duty of confidentiality was not applicable.

79. Counsel for the Bank based this argument on the judgments of all the judges of the English Court of Appeal in the leading case of Tournier v. National Provincial and Union Bank of England (1924) 1 K.B. 461 (C.A.) where the banker's qualified implied contractual duty of secrecy was considered and they all held that one of the four heads of qualification of that duty arose where the interests of the banker required disclosure.

80. As Leggatt J. observed in the X AG case at p.479 e-f when the same point was taken on behalf of the bank in that case, the English Court of Appeal was considering in the Tournier case circumstances totally different from those pertaining in the X AG case. The latter case is similar to the present case in raising the question of the extra territorial operation of the investigational powers of the United States Government and courts where such operation would, on the face of it, involve the breach by a bank in another jurisdiction of its duty of confidentiality to its customer. I respectfully agree with the views of Leggatt J. that such a question was not under consideration by the English Court of Appeal in the Tournier case.

81. I emphasise that it is not the function of this court to decide this important question in an interlocutory application but, bearing in mind particularly the public interest in normally maintaining confidentiality in banking contracts in Hong Kong, my tentative view for the purposes of this application is that the Plaintiffs have a strong case for trial.

82. Accordingly I granted the injunctions sought by the Plaintiffs but in more limited terms than those expressed in their inter-partes summonses. On the application of counsel for the Bank I reserved costs so that they could be made the subject of an order nisi under O.42 r.5A(6) when these reasons are handed down.

83. The usual practice when granting an application for an interlocutory injunction is to make an order giving the plaintiff costs in the cause but this is not an invariable practice as the cases reported in Steeplegale Ltd. v. Stratford Investments Ltd. (1976) F.S.R. 3 indicate. Having found that the Plaintiffs have a strong case I would ordinarily have made the usual order as to costs.

84. However I am concerned that the Bank is having to conduct its defence to these actions knowing that in the eyes of the New York courts it must do its utmost to resist being injuncted. It is in a very difficult position. Under the circumstances I consider that a fair order in this case would be costs in the cause. That will be my order if there is no application by any of the parties to vary it under O.42 r.5A(6).

Representation:

Mr. R. Tong instructed by M/s Denton Hall & Burgin for the Plaintiff.

Mr. Robert Ribeiro instructed by M/s Johnson, Stokes & Master for the Defendant.