Wing Hang Bank Ltd v. Eric Shea Kim Hotung and Other

DCMP 2083/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 2083 OF 2012

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JUDGMENT

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Introduction

1.By an Originating Summons dated 20 August 2012, Wing Hang Bank Limited (“the Bank”) applies for interpleader relief under Order 17 rule 3 of the RDC in relation to the credit balances in three accounts maintained in the name of Eric Shea Kim Hotung (“ESK Hotung”). The Bank makes this application in the light of a rival claim of the said balances by Hotung Investment (China) Limited (“the Company”). The Company holds trust properties of the Hotung Family, which needs no introduction.

2.ESK Hotung has since 28 September 2004 been maintaining four accounts with the Bank. The details of these four accounts are as follows:

Account No.	Nature	Balance as at 20 August 2012
348616-001 (“the HKD Account”)	HK dollar current account	HK$1,579.76
348616-060 (“the USD Account”)	US dollar current account	USD1,430.45
082759-300 (“the AUD Account”)	Australian dollar time deposit account	AUD99,246.76
868-944-060 (“the 4th Account”)	Rmb account	Unknown

3.The HKD Account, the USD Account and the AUD Account are collectively referred to as “the Accounts” in this judgment.

4.For reasons to be given below, the 4^th Account is outside the ambit of this application. By way of background, a summary of the undisputed facts is provided below.

5.On 31 January 2012, the Bank received a letter from the solicitors for the Company. The letter was enclosed with a generally indorsed Writ (“the Writ”) in a High Court Action under HCA 77/2012 (“the High Court Action”) and a draft Statement of Claim. The Statement of Claim was not filed until 29 October 2012. In the High Court Action, the Company sues ESK Hotung. In the said letter, the Company alleged that ESK Hotung had misappropriated, among other things, 300 ounces of gold coins. The Company contended that it had rights against the funds in the Accounts being proceeds of the unlawful sale of the gold coins and the Bank held the same as a constructive trustee. The Company expressly reserved its right to claim against the Bank for any monies withdrawn from the Accounts causing insufficient assets to cover the claim of the Company against ESK Hotung. The Company further demanded the Bank to restrain ESK Hotung from operating the Accounts and the 4^th Account.

6.The major complaint of the Company was set out in the Writ and the Statement of Claim in greater detail. In gist, the allegation is that ESK Hotung was in wrongful possession of and has converted to his own use the gold coins and an ivory screen of which the Company claims to be the owner. These properties were placed in a safe deposit box at Sun Trust Bank in Mclean, Virginia, USA (“the Box”). ESK Hotung’s father, namely, Mr Eric Edward Hotung (“EE Hotung”) is the registered owner of the Box.

7.At one time, EE Hotung appointed ESK Hotung to be the joint custodian and signatory of the Box. Upon the appointment, EE Hotung expressly told ESK Hotung that the contents in the Box were to be held by him on trust for the Company.

8.The Company further claims that in around early 2011, EE Hotung gifted the ivory screen to the Company and it was placed in the Box too.  

9.In around June 2011, the Company requested EE Hotung to deliver the gold coins and the ivory screen. EE Hotung informed the Company that ESK Hotung had removed the gold coins and the ivory screen from the Box. ESK Hotung had promised him to return these properties before August 2011. However, ESK Hotung has failed and/or refused to do so.

10.In or around November 2011, the Company found out that ESK Hotung had been selling the gold coins and the Company believed that ESK Hotung had placed the sale proceeds of the gold coins into the Accounts, which the Company avers, were the only assets possessed by ESK Hotung in Hong Kong.

11.Alert to the dispute about the funds in the Accounts and the 4^th Account, the Bank immediately froze them out of abundance of caution.

12.ESK Hotung called the Bank and enquired about the suspension of the Accounts and the 4^th Account on or about 3 February 2012. The Bank explained to ESK Hotung the complaint of the Company and the Bank also made available to ESK Hotung the letter of the Company together with its enclosures.  

13.By a letter dated 31 January 2012 received by the Bank on 3 February 2012, ESK Hotung instructed the Bank to operate his accounts in a certain manner. The Bank by a letter dated 6 February 2012 declined to accede to the demand of ESK Hotung in view of the dispute between the Company and him.

14.By a letter dated 8 February 2012, the solicitors for ESK Hotung instructed the Bank to uplift the freeze of ESK Hotung’s accounts, pointing out to the Bank that the allegations of the Company were baseless. They further threatened to apply to the court for a mandatory injunction against the Bank with a claim for damages and costs if the Bank did not comply with their demand immediately.

15.The Bank then turned to the Company by a letter dated 9 February 2012 and asked for proof of the allegations in respect of the funds in the Accounts and the 4^th account. On the other hand, the Bank indicated that it intended to initiate interpleader proceedings to call upon ESK Hotung and the Company to interplead.

16.In response, the Company sent to the Bank an affidavit of EE Hotung dated 9 February 2012 in the High Court Action for his application to serve the Writ outside jurisdiction. It verified the contents of the draft Statement of Claim.

17.Subsequently among the Company, ESK Hotung and the Bank there were a number of correspondence exchanged. I do not intend to go into each and every one of such letters. Suffice it to say, the parties have not changed their position save that relating to the 4^th Account. The stalemate persisted.

18.The Bank by its letters dated 26 April 2012 and 4 May 2012 repeatedly asked the Company to apply for an injunction to enjoin ESK Hotung from operating the Accounts and the 4^th Account before August 2012. The Bank threatened to unfreeze such accounts in the absence of an injunction.

19.The Company replied at long last by its letter dated 5 May 2012. In the letter, the Company informed the Bank that the Company had made a police report against ESK Hotung and it would urge the Department of Justice to impose an injunction on ESK Hotung’s accounts with the Bank. The Company also asked the Bank to contact the police for further query.

20.In regard to the 4^th Account, by a letter dated 8 August 2012 issued by the Bank’s solicitors to the solicitors of the Company, the Bank indicated to the Company that there had been no deposit into the 4^th Account since 1 January 2009. The allegation of the Company was that ESK Hotung was appointed as joint custodian and signatory of the Box only in 2009 and so any misappropriation of the gold coins contained therein had to take place subsequent to 1 January 2009. The Box could not possibly contain any proceeds of sale of the gold coins as alleged and so the intended interpleader application would not cover the 4^th Account. The view of the Company on this matter was sought.

21.Curiously enough, the Company did not reply to this particular matter despite repeated written reminders. The Bank eventually by a letter dated 15 August 2012 informed the Company that ESK Hotung’s solicitors would be informed of the reactivation of the 4^th Account and that the interpleader application would cover the Accounts only. The Company did not object to the unfreezing of the 4^th Accounts and it also indicated that it would agree to the interpleader application of the Bank. The Company actually asked for the Bank’s draft consent summons for its approval.

22.There is one further matter which is noteworthy. On 29 March 2012, the Bank was informed by the Hong Kong Monetary Authority that they had received a complaint by ESK Hotung against the Bank by reason of its freezing of all his accounts with the Bank.

Applicable principles

23.A convenient summary of the applicable principles can be found in a recent judgment of To J in Nanyang Commercial Bank Limited v The Personal Representative of Vannee Nativivat, Deceased and Anor., unreported, HCMP 2027/2011, 27.3.2013. Firstly, the judge referred to the three prerequisites of an applicant to the right to interplead embodied in Order 17 rule 3(4) of the RDC, namely, (1) he has no interest in the subject matter in dispute other than for charges or costs, (2) he did not collude with any of the claimants to that subject matter and (3) he is willing to transfer the subject matter into the court or to dispose of it as the court may direct.

24.Then the judge set out the principles expounded by Tang VP (as he then was) in DLA Piper Hong Kong v China Property Development (Holdings) Ltd [2010] 1 HKLRD 903 at §22. Those principles were actually set out Fung J in his judgment in the court below[1] and are as follows:

(1)   where two or more persons claim the same thing or fund, the holder of the thing or fund does not claim any interest in the property, and not knowing to which of the claimants he ought to deliver the property, and he is sued or fears that he may be sued by some of them, he may apply for interpleader relief against the claimants;

(2)   the relief is discretionary and it will not be granted unless there appears to be some real foundation that the applicant may be sued;

(3)   the applicant does not in any manner collude with any claimant, or has not voluntarily put himself into the situation from which he calls on the court to extricate him;

(4)   he is ready to bring into court, or to pay to dispose of the subject matter of the action in such manner as the court may direct;

(5)   the test for a real foundation of being sued is whether a prima facie case exists (see Chan King Sheen v KC Tsang & Co [2002] 3 HKC 209 (CA) at 221I); and

(6)   the test is whether each of the rival claimants has a prima facie case against the interpleading party, but not whether the adverse claimant has a claim against each other (see de La Rue v Henru, Peron & Stockwell Ltd [1936] KB 164 per Greene LJ at 170‑173, Tsun Fat Finance Co Ltd v Commissioner for Police [2002] 3 HKC 232 at 246).

25.Lastly To J observed that on hearing an interpleader application, the court has wide discretion and it can make a summary determination of the claim in a clear case. Summary determination is appropriate only when there is no material factual dispute and if there is a legal issue, then no more than a crisp legal question capable of being resolved summarily.

26.In Chan King Sheen v KC Tsang & Co [2002] 3 HKC 209 (CA) at §§25-26, Le Pichon JA highlighted that in an interpleader application, it is axiomatic that there must be a real foundation for the applicant’s expectation to be sued by two or more rival claimants. Further, and more importantly, there can be no real foundation for any expectation to be sued unless a prima facie case exists.   

27.The parties do not disagree with the foregoing principles. Bearing these principles in mind, I turn to the parties’ contentions in the substantive application.

Discussion

28.I first note that there is no dispute that the Bank does fulfill all the prerequisites in Order 17 rule 3(4) of the RDC. There is no allegation of collusion involving the Bank. Neither the Company nor ESK Hotung urges me to make a summary determination of their rival claims.

29.In the present case, it is indisputable that the Bank has been threatened legal actions by both the Company and ESK Hotung with respect to the funds in the Accounts. The Bank has an expectation to be sued by both the Company and ESK Hotung. Then the remaining question is whether or not there is a real foundation for this expectation. It hinges on whether or not a prima facie case against the Bank exists.

30.Mr Liu, counsel for the Bank, reiterates that the Bank takes a neutral stance in this application and is happy to deal with the balances in the Accounts in whatever way this court may direct.

31.Ms Herbert, counsel for ESK Hotung, submits that for a prima facie case against the Bank to be made out, the Company has to first show a prima facie case against ESK Hotung for the funds in the Accounts. If the Company’s complaint against ESK Hotung cannot be established, the Accounts with the Bank cannot be subject to a constructive trust and it follows that the Company can have no case against the Bank at all. I agree.

32.In respect of the funds in the Accounts, ESK Hotung being the registered holder of the Account is prima facie the beneficial owner. The Company is effectively making a propriety claim in the funds saying that they are the sale proceeds of the gold coins in the Box held by ESK Hotung on trust for the Company. In my view, to prove a prima facie case against the Bank, even on the assumption that it is the true beneficial owner of the gold coins in the Box, the Company has to show a prima facie case that (1) ESK Hotung did convert them unlawfully to his own use in breach of trust by selling the same without the consent of the Company and (2) ESK Hotung deposited the material sale proceeds into the Accounts.

33.On these two issues, the parties have filed voluminous evidence by way of affirmations and exhibits. I have perused all of them. My general observation is that, whilst the evidence of the Company is not impressive, ESK Hotung is not forthcoming about the whereabouts of the missing gold coins though he claims to be the lawful owner of the same.

34.In this application, obviously I am unable to determine the beneficial ownership of the gold coins on conflicting affidavit evidence. Whether the gold coins and the ivory screen were a gift by EE Hotung to ESK Hotung in 2009 has to be determined in the High Court Action.

35.On the issue as to whether ESK Hotung has sold the gold coins without the consent of the Company, the Company’s evidence is that in May 2011, there was a meeting between ESK Hotung and his brother Sean Eric Hotung (“SEH”), who is a director of the Company. SEH contends that in the meeting at Jimmy Kitchen in Central, ESK Hotung told him that more than half of the gold coins (175 ounces) had already been converted into cash. ESK Hotung further suggested splitting other assets of the Company between SHE and him. There were further details given about the meeting.

36.ESK Hotung in his 2^nd Affidavit dated 11 March 2013 dealt with this serious and well-particularised allegation by three words only: “It is false”. His bare denial in these circumstances is demonstrably unimpressive. This is so despite the draft Deed of Settlement and Release sent by the Company under the cover of a letter dated 6 February 2012, which was made on the assumption that all the 300 ounces gold coins could be returned to the Company.

37.In any event, I note that ESK Hotung himself does not deny that he has sold the gold coins. I cannot understand why he fails to so if the gold coins remain intact in his possession.

38.In his affidavit, instead of explaining his beneficial ownership of the gold coins and ivory screen and disclosing the whereabouts of the gold coins, ESK Hotung saw fit to explain every transactions of the Accounts from 1 January 2009 onwards. The point he made is that since 1 January 2009, there were only three amounts deposited into the Accounts from external sources and all other transactions in the Accounts only involved internal transfers. His evidence on this score is supported by the evidence of the Bank. Mr Liu has helpfully produced a summary of the fund flows in the Accounts since 2009.

39.First, a sum of HK$50,000 was deposited into the HKD Account on 17 February 2009. ESK Hotung says it was the sum remitted to him by EE Hotung through his company Hotung Estates Limited. This is apparently supported by a credit advice issued by the Bank dated 17 February 2009. The Company adduced no contrary evidence in this regard.

40.Second, a sum of HK$4,000 was deposited into the HKD current account on 10 March 2009. ESK Hotung says it was a cash deposit by the secretary of EE Hotung. He says that he had previously handed to her the said sum and so the deposit was a repayment only. Again, the Company adduced no contrary evidence.

41.Lastly, a sum of GBP18,000 was first deposited into his GBP account with the Bank on 18 June 2009 and then GBP4,000 of the amount was transferred to his HKD Account on 21 September 2009 and GBP 5,000 of the balance was transferred to the USD Account on 22 June 2009.

42.ESK Hotung says it was a repayment of a loan extended to his friend Robert Serr. A promissory note evidencing the alleged loan dated 15 April 2008 and relevant banking documents were exhibited. Robert Serr made an affidavit to confirm the existence of the alleged loan and his repayment of the same on 17 June 2009. The Company adduced no contrary evidence.

43.In the light of this seemingly cogent accounting evidence, the Company attempted to shift the goalposts and in the subsequent affidavit evidence, it contends that ESK Hotung had access to the Box as early as late 2006 or 2007.

44.Naturally this move was heavily criticised by Ms Herbert. In her thorough submission, she set out all the inconsistencies in the evidence of the Company concerning the time when the misappropriation could have taken place. Of course I am also alive to the fact that the Company accepted to unfreeze the 4^th Account on the basis that there is no post-2009 activities in that account.

45.In my judgment, all these inconsistencies only point to a credibility issue to be resolved in the High Court Action. The Company no doubt has a hurdle to get over because of these inconsistencies but I cannot say that there is not a prima facie case of misappropriation of the gold coins prior to 2009 at this stage, particularly given ESK Hotung’s parsimonious evidence relating to his dealings with the gold coins.

46.Furthermore, Ms Herbert criticizes the assertion of the Company that ESK Hotung’s only accounts he uses personally are the Accounts and hence the sale proceeds must go to the Accounts. This assertion is not based on any cogent evidence, she complains. There is force in her submission but as pointed out by Mr Sze, counsel for the Company, ESK Hotung has not adduced any rebuttal evidence on this score.

47.The High Court Action is still in its infancy. ESK Hotung is yet to file his defence. Further down the road the picture may become clearer. I am unable to say at this stage on the evidence that there is not even a prima facie case that the Accounts are subject to a constructive trust.    

48.I find it perfectly justifiable for the Bank to issue the interpleader summons. I also accept the point made by Mr Liu that most allegations and documentary evidence only surfaced after the Originating Summons was issued. The Bank is certainly in a difficult position in view of the rival claim of the Company. As referred to me by Mr Liu, Suffiad J had this to say in Ng Wing Keung Paul v AXA Insurance Region Trustees Ltd [2001] 2 HKC 410 at 414:

“It is not for the defendant to have to decide which of the competing claims should succeed. That is the very essence of interpleading. The determination as to the merits of the competing claim must be left to the courts to determine.”

49.I agree with this observation. In the present case, since the proceedings in the High Court Action are afoot, the competing claims of the Company and ESK Hotung should be resolved in the trial of the High Court Action and not to determined by the Bank at its own risk.

Conclusion and Orders

50.For the foregoing reasons, I am convinced that I should exercise my discretion to grant interpleader relief to the Bank and thus I direct the Bank to pay into court all the credit balances in the Accounts within 21 days from the date of this judgment pending determination of the Company’s claim in the High Court Action.

51.The Bank is entitled to costs of this application. Since the Company already indicated that it did not oppose this application by its letter to the Bank dated 15 August 2012, this application and this hearing were necessitated by the failed opposition of ESK Hotung. He alone should bear the costs of the Bank. I hence make an order nisi that ESK Hotung do pay the Bank costs of this application to be taxed if not agreed with certificate for counsel.

52.For the same reason, I make an order nisi that the costs of the Company cost be borne by ESK Hotung, to be taxed if not agreed with certificate for counsel.

53.Lastly, I thank all counsel for their able assistance.

Mr Harry Liu, instructed by Messrs Siao, Wen & Leung, for the applicant

Ms Elizabeth Herbert, instructed by Messrs Lo, Wong & Tsui, for the 1^st claimant

Mr Jeffrey Sze, instructed by Messrs Reimer & Parnters, for the 2^nd claimant