Cido Car Carrier Service Ltd v. Woori Bank (Hong Kong Branch)

HCA874/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 874 OF 2011

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Before : Deputy High Court Judge Seagroatt in Chambers

Date of Hearing : 14 June 2011

Date of Judgment : 14 June 2011

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J U D G M E N T

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1.The plaintiff company is part of a substantial freight forwarding group of companies operating world-wide. Since late December 2005 the plaintiff has operated several accounts with the defendant bank which is the Hong Kong branch of the Woori Bank whose Head Office is in Seoul in South Korea.

2.The bank branch in Hong Kong is subject to the law of Hong Kong.  The accounts accordingly are subject to Hong Kong law and the relationship between the parties is governed by the law of Hong Kong. 

3.By late April the plaintiff’s accounts at the bank showed a credit balance of between US$41 and 42 million.  The plaintiff does not owe any money to the bank whose only claim in respect of those accounts would be for costs and/or charges.  The affirmation from the General Manager of the branch makes this abundantly clear. 

4.On or about 27/28 April, the bank in Hong Kong received the Notice from the South Korea Tax Authorities (Seocho Tax Office of the National Tax Service) requiring it to freeze the plaintiff’s bank accounts.  The bank notified the plaintiff of its decision to comply with the South Korean request and that the accounts would be frozen until further notice. 

5.Immediately the lawyers became involved on the plaintiff’s behalf.  The implications and potential consequences for the trade of the plaintiff were obvious.  Proceedings were commenced on 24 May 2011.  By 30 May the South Korean Tax office had identified its claim in the sum of US$136 million (as the equivalent of the amount of Korean Won.)

6.Amongst the forms of relief claimed by the plaintiff are an injunction to restrain the defendant from meeting any part of the South Korean Tax claim, and to remove the stop on the accounts in order to enable the company to continue to trade and avoid the inevitable and foreseeable consequences of having their accounts paralysed. 

7.The reaction of the defendant has been to seek an order that the Tax Authority of South Korea appear in the action, as interpleader, so that the defendant can comply with whatever order the court makes in respect of the monies in the accounts. 

The contractual relationship between the parties

8.This is governed by Hong Kong law even though the contract does not specifically state the governing law.  The defendant is required to comply with the requests of its customer in accordance with the terms of the contract.  Although the defendant is a branch of a South Korean bank, it operates in Hong Kong as, and is treated as, a separate legal entity.  The proper law of the contract is, as stated in Bonython v The Commonwealth of Australia [1951] A.C. 201 and 209 per Lord Simonds :  “the system of law by reference to which the contract is made and that with which the transaction has it closest and most real connection”.

9.Mr Wong seeks to rely on certain clauses in the contract between the bank and its customer, the plaintiff, specifically Clauses 23 and 24 as set out in paragraph 7 of his submissions.  He has underlined certain parts of those clauses as the operative ones which he suggests should be construed so to make the customer responsible for indemnifying the bank in respect of any sum which it deems it is liable to pay under an attachment order from a foreign tax authority. 

10.I do not agree with his construction and as to Clause 24 I fear that he has misconstrued the following sentence.  “All credit balances whether in Hong Kong Dollars, Sterling or any other currency in all accounts in (our) name (that is the customer’s name) may be appropriated by you (the bank) towards payment of any liability to you (the bank) of whatever kind and irrespective of when the same may be due or may be held by you as security for any contingent or future liability to you (the bank).” 

11.The courts will not interpret a clause, such as Clause 23, in such a way as to deprive a customer in Hong Kong of its proper protection against the unlawful efforts of another foreign state to exact payment of an alleged revenue debt.

The South Korean notice

12.It appears to relate to arrears of tax due from the plaintiff to Seocho Tax Office. This cannot be enforced in Hong Kong in the absence of any treaty, convention or reciprocal agreement.  In his submissions Mr Manzoni has referred me to the decision of McNair J in Rossano v Manufacturers Life Assurance Company [1963] 2 Q.B. p.352 (at page 376) :

“… The fundamental objection (to the recognition of garnishee orders) is that their recognition would offend against the well‑settled principle that the English Court would not recognize or enforce directly or indirectly a foreign revenue law or claim.”

He referred back to a pithy statement from 19^th Century cases attributed specifically to Lord Mansfield CJ :

“No country ever takes notice of the revenue laws of another.”

Lord Simonds said in Government of India v Taylor [1955] A.C. 491 at page 508 :

“We proceed upon the assumption that there is a rule of the common law that our courts will not regard the revenue laws of other countries : it is sometimes, not happily perhaps, called a rule of private international law : it is at least a rule which is enforced with the knowledge that in foreign countries the same rule is observed.”

Lord Keith added (at page 511) :

“One explanation of the rule … may be thought to be that enforcement of a claim for taxes is but an extension of the sovereign power which imposed the taxes, and that an assertion of sovereign authority by one State within the territory of another, as distinct from a patrimonial claim by a foreign sovereign, is (treaty or convention apart) contrary to all concepts of independent sovereignties.”

Lord Keith had reviewed the judgment of Kingsmill Moore J in Peter Buchanan Ltd & Macharg v Mcvey (High Court of Eire and Irish Court of Appeal 1950/51) and in that judgment is stated :

“In every case the substance of the claim must be scrutinized and if it then appears that it is really a suit brought for the purpose of collecting the debts of a foreign revenue it must be rejected.”

13.The courts of Hong Kong espouse these principles and rules.  It is succinctly set out in Dicey’s Conflict of Laws (14^th edition 2006).  The action of the South Korean Tax Office does not allow any misunderstanding its nature is self evident.  It seeks to collect what it claims is a tax debt due to it, from within another sovereign power. 

14.The courts of Hong Kong will not permit this particular exercise and the defendant bank is in breach of its contract with the plaintiff in seeking to comply with the Korean request.

15.I do not need to consider the question of the balance of convenience.  Had I had to, the balance is so heavily weighted in the plaintiff’s favour that I cannot conceive of any inconvenience to the defendant.

16.Accordingly I make an order against the defendant in the terms sought to include all those set out on the original inter parte summons of 24 May 2011 and I will come back to those in a minute because there may be something beyond those which is covered by the writ itself.

17.The interpleader summons is dismissed.  It is misconceived in these circumstances. It could in any event only delay and not alter the resolution of this dispute and would prevent the plaintiff from having proper access to its accounts possibly for months.  Mr Wong also sought fortification as to damages.  I dismissed that as well.

18.Having heard argument on costs I have decided that the plaintiff should have its costs to be taxed forthwith if not agreed.

Mr Charles Manzoni and Mr Jose-Antonio Maurellet,  instructed by Messrs Wilkinson & Grist, for the Plaintiff

Mr William Wong, instructed by Messrs DLA Piper Hong Kong, for the Defendant