Re Charles Hollander, Qc

HCMP 2301/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2301 OF 2011

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Before: Hon Cheung CJHC in Court

Date of Hearing: 20 December 2011

Date of Judgment: 20 December 2011

Date of Reasons for Judgment: 23 December 2011

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REASONS FOR JUDGMENT

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1.On 20 December 2011, I allowed the application of Charles Hollander QC to be approved, admitted and enrolled as a barrister of this court for the purposes of advising and appearing on behalf of Blinco Enterprises Ltd (“Blinco”), Patagonia Ltd (“Patagonia”) and Top Selection Company Ltd (“Top Selection”), at the trial of HCCL 18/2009 and in any applications or proceedings incidental thereto. The three companies are respectively the 18^th, 19^th and 22^nd defendants in the action. The trial is due to commence before Reyes J on 1 February 2012, with 40 days reserved. These are my reasons.

Application for admission

2.The plaintiff is a Taiwanese company. In the action, the plaintiff seeks to recover various assets in Hong Kong, ranging from real properties to shares in companies.  It claims that the assets were acquired by three of its former directors with funds belonging to the plaintiff.  The plaintiff further alleges that the assets had been put, through a complicated scheme, into the names of various companies, ostensibly owned by the plaintiff group, but over which, in fact, the plaintiff has no control. The plaintiff contends that Blinco and Patagonia hold, on resulting or constructive trust for the plaintiff, the shares of the holding company which holds the assets.  The plaintiff also contends that Top Selection holds the shares in Blinco and Patagonia on resulting or constructive trust for itself. The plaintiff claims that Blinco, Patagonia and Top Selection are liable for equitable compensation.  The total value of the assets in issue exceeds HK$2 billion.

3.The principal defence of the three companies is that Top Selection as nominee of a Mr Willi acquired the assets indirectly through acquiring Patagonia and Blinco by way of a takeover agreement.  It is their case that the three former directors of the plaintiff had authority in committing the plaintiff into the takeover agreement and so the assets have been sold to them as bona fide purchasers for value without notice.

4.There is a long procedural history to this litigation which it is not necessary to detail here.  Suffice it to say, at one stage, the plaintiff had obtained summary judgment against, amongst others, Blinco and Patagonia in some previous proceedings.  The judgment was set aside by the Court of Appeal on the technical ground that summary judgment is not available where fraud is in issue.  The previous proceedings were then transferred to the commercial list and, to cut a long story short, they eventually became the present action.

5.In the supporting papers filed, the application for admission was put on the following bases:

(1)  unusual difficulty and complexity in fact and in law;

(2)  potential impact on local jurisprudence;

(3)  heavy litigation;

(4)  unavailability of appropriate local senior counsel.

6.It was pointed out that the material transactions took place in the early to mid 1990s, and the documents involved are voluminous and exceed 600 lever arch files. Moreover, various companies incorporated in different jurisdictions including Taiwan, the British Virgin Islands and Hong Kong were involved in the corporate structure in relation to the acquisition of the subject assets.  Furthermore, it was suggested that since the plaintiff is a Taiwanese company, its allegations of breach of director’s duties are required to be considered in light of the relevant Taiwanese laws prevailing at the time and expert opinion will be required.  It was also suggested that as the plaintiff also alleges that the directors had been involved in accounting fraud, therefore substantive amount of accounting documents would need to be analyzed.  Likewise, the financial position of the plaintiff and its Hong Kong subsidiaries will have to be analyzed at trial and joint expert opinions as well as individual expert reports have been or will be filed.  Emphasis was also placed on the fact that this is a 40‑day trial and the issues and potential issues involved have not been previously decided by the courts, including, amongst other issues, “the legal principle involving proprietary restitution of secret profits or misappropriation”.

7.It was also pointed out in the materials filed that the three companies have already retained two local juniors and after unsuccessful attempts to retain a suitable senior counsel locally, they have decided to retain the applicant, a leading commercial silk with extensive experience in commercial fraud, assets tracing and Chancery cases in England. No doubt partly because of the vagueness in which the so‑called complicated issues of law and fact were presented in the supporting materials, the application was opposed by the Bar; and the Secretary for Justice also found the application as presented difficult to support.

8.Not surprisingly then, at the hearing, Mr William Wong for the applicant elaborated on the legal issues that may arise at trial and which, counsel argued, would have an impact on the Hong Kong jurisprudence, whilst emphasizing at the same time that these issues would likely go on appeal due to their complexity and novelty as well as the fact that there is HK$2 billion at stake.  According to the oral and written submissions of Mr Wong, one of the two local junior counsel instructed to appear with the applicant for the companies at trial, the issues or potential issues involved are as follows:

(1)  Whether the three former directors could, as a matter of law, clothe themselves with apparent authority in entering into the takeover agreement purportedly on behalf of the plaintiff in favour of the companies, a legal point apparently left open in the leading case of Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (No 2) (2010) 13 HKCFAR 479, para 70.

(2)  The relationship between knowing receipt and apparent authority.

(3)  Whether there can be a resulting trust if property is purchased with the plaintiff’s money without its knowledge. Counsel elaborated that a determination of this issue would elucidate the law on resulting trust and also the relationship between resulting trust and unjust enrichment.

(4)  Whether the law of the place of the company’s incorporation (the lex incorporationis) applies to the directors duties irrespective of where the alleged breach of duty was committed or the loss incurred : see Base Metal Trading Ltd v Shamurin [2005] 1 WLR 1157.

(5)  The mental state required for dishonest assistance and the degree to which the decision of the Privy Council in Barlow Clowes International Ltd v Eurotrust International Ltd [2006] 1 WLR 1476 has been or should be accepted in Hong Kong as representing good law on the question.  (Mr Wong accepted in argument that this might not be his strongest point.)

(6)  Mr Wong submitted that if it cannot be proved that the acquisition of the assets was a corporate opportunity which the defendants appropriated and it cannot be shown that the assets were purchased with the money of the plaintiff, the plaintiff would need to rely on the principles which permit the beneficiary to claim proprietary ownership of an asset purchased by the fiduciary who gained the asset as a result of his fiduciary position.  Counsel submitted that there are conflicting authorities on this point: Underhill and Hayton, Law Relating to Trusts and Trustees (18^th ed), paras 27.39‑27.70; Attorney General for Hong Kong v Reid [1994] 1 AC 324; but cf Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] 3 WLR 1153.

9.Mr Wong argued that depending on how the factual issues are to be determined, these legal issues will or may well arise at trial, the determination of which would have an impact on the local jurisprudence.  He emphasized that although one is concerned with a trial here, given the importance of the issues concerned as well as the amount at stake, it is likely that at least some of these issues would go on appeal to the Court of Final Appeal.  It is therefore very important for the legal principles and arguments to be fully ventilated at trial and for the relevant findings of fact to be made, even though the trial judge may or may not have to deal with all these issues, or may be bound by authority on some of the issues.

10.Counsel also submitted that the above matters also go to show the difficulty and complexity of the case.  Counsel reiterated that this is going to be a heavy trial with voluminous documents involved.  There is a need for expert analysis into the accounts and financial situations of the companies as well as expert evidence on Taiwanese law, particularly on the question of fiduciary duties and agency.  Complex corporate structures are involved and the material transactions took place back in 1990s.  Counsel submitted that with the applicant’s substantial experience both in heavy trials and in the relevant areas of law, he would add a significant dimension to the case.  This is so irrespective of whether there is no local counsel who is competent and available to do the case.

Principles governing admission

11.The principles governing the admission of overseas counsel are well established : ReFlesch QC [1999] 1 HKLRD 506; Re McGregor QC [2003] 3 HKLRD 585.  It is unnecessary to rehearse them here.  The burden is on an applicant for admission to satisfy the court that it is in the public interest to grant the admission.  In considering an application for admission, the court adopts a flexible and sensible approach, balancing different aspects of the public interest.  Different facets of the public interest include : the need to have a strong and independent local Bar; the need of Hong Kong people to have adequate legal representation and the need for the local courts to develop our own jurisprudence which enjoys international recognition and reputation.  Local counsel’s exposure to cross‑fertilization between lawyers of sufficient high quality and standing from other common law jurisdictions is considered to be healthy and conducive to the maintenance of a strong and independent local Bar.

Present case

12.As mentioned, it is not difficult to understand why the Secretary for Justice was hesitant to support the present application for admission, and why the Bar opposed it.  The supporting materials were vague on the legal issues that might be involved in the present case.  However, I have been satisfied, after considering Mr Wong’s oral and written submissions, that legal issues of potential impact on the local jurisprudence will or may well be involved at the trial, and given the nature of those issues and the amount at stake they may well go all the way up to the Court of Final Appeal.  They are issues of some significance and novelty and the involvement of an experienced London silk would likely assist in the correct determination of these issues.  In this regard, I can see no real challenge to the experience and expertise of the applicant.

13.Although one is not dealing with an appeal here, still less an appeal to the Court of Final Appeal, one is nonetheless concerned with a very heavy commercial trial, listed for 40 days before Reyes J.  Difficult issues of law are in issue and their application to the facts is unlikely to be any less difficult.  I agree with Mr Wong that whilst not necessarily all the legal issues will arise at trial, it is nonetheless important for the relevant legal arguments to be properly ventilated at trial and the relevant findings of fact made.

14.Apart from the law and legal issues, voluminous documents are involved, and complicated factual as well as expert issues will also be involved.  Having considered the issues involved – the agreed list of issues runs to 10 pages, I agree with Mr Wong that this is an exceptionally difficult and complex case and the involvement of a specialist overseas counsel can likely add a significant dimension to the case.  I have not forgotten that at one stage summary judgment was entered against the defendant companies, and judicial observations have been made to the apparent effect that the issues involved in the present case are narrow if not straightforward.  Having had the benefit of considering counsel’s submissions and the materials that have been placed before the court, I do not believe the issues involved are necessarily as straightforward as they may have appeared, particularly when there have been substantial amendments made to the original pleadings.

15.Given my views above, the criticism that the solicitors could have been more diligent in locating a suitable senior counsel to conduct the case on behalf of the defendant companies would appear to lose much of its significance.  On the basis of the case as eventually put forward, the fact that there may be or may have been suitable local senior counsel available is not fatal to the present application.  This is not, however, to be taken as any encouragement to or condonation of dilatoriness on the part of solicitors in finding suitable local senior counsel in this type of situations.

Decision

16.Looking at the application in the round and adopting a flexible and sensible approach, I have concluded that the court’s discretion should be exercised in favour of granting the application for admission.

17.However, I agree with the submission of Ms Leona Cheung SGC for the Secretary for Justice that the scope of admission sought was unnecessarily wide and ill‑defined. The scope of “in any applications, proceedings, or hearings arising therefrom [from the trial] or relating thereto” was vague.  Any such blanket approval is quite premature at this stage : Re Leslie Gordon Kosmin QC, HCMP 1865/2006, Ma CJHC, 29 September 2006, para 7.  For that reason, the admission granted is limited to the trial of the action and any applications or proceedings incidental thereto.

18.For the above reasons, the admission sought, as restricted, has been approved, with no order as to costs.

Mr William Wong, instructed by Luk & Co, for the applicant

Mr Philip Dykes SC and Ms Rachel Wong, instructed by Anthony Chiang & Partners, for the Hong Kong Bar Association

Ms Leona Cheung SGC, of the Department of Justice, for the Secretary for Justice