Falcon Private Bank Ltd v. Borry Bernard Edouard Charles Ltd and Another

HCA 1934/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1934 OF 2011

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1.There are four summonses before the court.  Chronologically these are the “strike out” summons taken out on behalf of the defendants on 16 January 2012, seeking the striking out of the Statement of Claim.  Secondly, an application brought by the 1^st defendant (“Borry Ltd”) on 21 February 2012, seeking the discharge of a Mareva injunction against it.  Thirdly, there is an application made by the plaintiff (“Falcon”) on 9 December 2013 seeking a stay of proceedings; and fourthly, an application dated 17 January 2014 made by Falcon seeking leave to amend the Statement of Claim.

2.As is perhaps indicated by the above, the matter has been procedurally active since the writ was issued on 10 November 2011, albeit on matters which are, at best, precursors to the main issues, and accordingly, I set out first an overview of the procedural history.

PROCEDURAL BACKGROUND

3.As just recorded, the action commenced with the issue of the writ in November 2011.  The issue of the writ was accompanied by an application made ex parte before DHCJ Queeny Au Yeung  (as she then was) for an injunction against the Borry Ltd enjoining Borry Ltd from disposing of assets up to the value of HK$78 million.  Disclosure orders were also made against both defendants.  The injunction order was extended by Yam J on 18 November 2011.

4.The Statement of Claim was issued on 21 December 2011 and the summons to strike it out ensued on 16 January 2012.  Approximately one month later Borry Ltd issued its summons seeking the discharge of the injunction order.  Interspersed with these summonses were various affidavits made on behalf of the defendants in purported compliance with the orders which had been made for disclosure of assets.  The completeness and veracity of the disclosure was and is the subject of serious criticism by Falcon, and has indeed also been the subject of criticism by the court.

5.The interlocutory wrangling escalated, to a point at which the judge then seised of the matter was asked to recuse himself from further participation.  The judge declined to do so and, on 7 June 2012 dismissed the Borry Ltd application for a discharge of the injunction order.  The judge heard and considered the application to strike out the Statement of Claim, but declined to do so save and except in one, relatively minor respect.

6.The judge gave his reasons for those decisions at some length on 9 July 2012, and subsequently declined to grant leave to appeal to the Court of Appeal.  On 27 November 2012 applications were made on behalf of the defendants to the Court of Appeal for leave to appeal from the decisions below in relation to discharge of the injunction; the strike out; and the application for recusal.  Leave to appeal was refused by a single judge of the Court of Appeal (Yuen JA) on 1 February 2013.  The application for leave to appeal was renewed before the Court of Appeal (in CACV 42/2013), leave was granted, and the appeal allowed in regard to the recusal summons, the discharge summons and the strike out summons on 10 September 2013. 

7.Falcon has sought leave to appeal to the Court of Final Appeal against the decision of the Court of Appeal, and that application is due to be heard in early May this year.

8.On 27 November 2013 Falcon applied for a stay of these proceedings and for a vacation and adjournment of the rehearing of the strike out and discharge summonses.  The applications regarding the strike out and discharge summonses were dismissed (by DHCJ Lok) on 16 December 2013 while the stay application was adjourned for hearing and is now before the court.

FACTUAL BACKGROUND

9.The parties to the litigation are a licensed bank in Switzerland (the plaintiff), a Hong Kong company (the 1^st defendant) and Mr Borry, a Swiss national, who is the sole shareholder and director of the first defendant.  For convenience they will be referred to in this judgement as “Falcon”, “Borry Ltd”; and “Mr Borry” respectively.

10.A key player in the background is an English company called Bawa Financial Ltd (“Bawa”).  Bawa is a company owned or controlled by one John Andreas Morrison (“Morrison”) and one Rafal Brenner (“Brenner”).  Bawa holds an account with Falcon, and in July 2011 deposited with Falcon certain floating‑rate bonds.  Falcon, in turn, placed the bonds with a custodian in Switzerland named SIX SIS AG (“SIX”).

11.The bonds entitled the holders to interest payments only.  However, in error, on 27 September 2011 SIX advised Falcon that there had been a repayment of principal on the bonds, in the amount of US$15,760,320.  That amount was credited into Falcon’s account with SIX, and on 29 September 2011 the same sum was credited by Falcon into the Bawa account after Falcon had notified Bawa of the credit.

12.It seems likely (but nevertheless in issue) that this largesse would not have gone unnoticed by Bawa, Morrison and Brenner, since immediately prior to the deposit the account with Falcon had a credit balance of only approximately US$13,000.  One day after the deposit was made into Bawa’s account, Morrison notified Falcon that a large sum (US$10 million) would be transferred out of the account for purposes of a “private equity placement”.  That sum was transferred into an account held in the name of Borry Ltd with the Standard Chartered Bank in Hong Kong.  A series of other transfers in various currencies to various other recipients were made by Bawa within a short period of time.

13.It was only on 7 October 2011 that SIX notified Falcon that there had been an error and that Bawa were in fact only entitled to payment of interest.  SIX reversed the payment which had been made, and Falcon correspondingly reversed the credit which had been made into the Bawa account. By that time Bawa had disbursed approximately US$11.75 million from the account.  Falcon made attempts (also on 7 October 2011) to cancel the transfer to Borry Ltd’s account with the Standard Chartered Bank in Hong Kong, but was unable to do so since the money had already been credited.

14.Discussions ensued over the next few weeks between Falcon and Bawa and its legal advisers in Switzerland, through which Falcon demanded the return of the monies paid in error, including the US$10 million then in the Standard Chartered Bank.  Borry Ltd did not respond to the requests for repayment.  Against that background Falcon made the ex parte application for an injunction restraining Borry Ltd from disposing of or removing any of its assets within Hong Kong up to the value of HK$78 million.  Disclosure orders were included in the injunction order which was granted.

THE SUMMONSES

15.As referred to above, there are four relevant applications. Falcon’s summons seeking a stay seeks, following the decisions of other courts, now only the stay of the action until 11 May 2014.  This stay is sought to enable Falcon to comply with a “gag order” issued by the State Attorney’s Office III of the Canton of Zürich on 11 November 2013 in connection with criminal proceedings against Morrison and Mr Borry in that jurisdiction.

16.Falcon also issued a summons seeking to make amendments to the Statement of Claim.  Mr Douglas Lam, counsel for Falcon, made it clear in his submission is that the amendments were not intended to “save” the Statement of Claim from the strike out application, and accordingly those amendments can be considered separately.

17.The summons by the defendants to strike out the Statement of Claim is premised on that pleading disclosing no reasonable cause of action; on it being scandalous frivolous or vexatious; or otherwise being an abuse of the process. The summons issued by Borry Ltd seeking the discharge of the injunction order is based upon two grounds, which were set out in counsel’s skeleton (Mr Colin Wright appearing for both defendants) as follows:

“The Plaintiff acted in breach of its duty of full and frank disclosure by misrepresenting the existence of facts which were not supported by the evidence before the Ex parte Judge and by failing to inform the Ex parte Judge of the defences available to the 1st defendant.

The Plaintiff failed to establish a good arguable case against the 1st defendant.”

18.The second of these grounds overlaps with the strike out application, and for that reason it is convenient to consider the strike out application first.

THE STRIKE OUT

Principles

19.There was no apparent disagreement between counsel as to the applicable principles.  As summarised by Mr Wright, in essence, claims with no foundation in law should be struck out, and where the court comes to a conclusion after argument that the case is plainly and obviously one which cannot succeed, then the court should strike out the claim, and should not shirk from doing so simply because the issues are difficult or complicated.

20.Mr Lam referred me to an extract from the decision in Ha Francesca v Tsai Kut Kan [1982] 1 HKC 382 at 392, and to the decision of Recorder Lisa Wong SC in CY Foundation Group Limited v Best Max Holdings Ltd [reference].  Primarily, the question is whether the allegations pleaded in the statement of claim disclose a cause of action, or raise questions that ought to be tried.  In evaluating this, the court will not embark on an assessment of the strength or weakness of a case, because weakness does not provide a basis upon which a claim should be struck out.  A claim will be summarily dismissed only when, in broad terms, its prospects of success are negligible.  In considering this the court will have regard to the fact that, in appropriate circumstances, particularisation of a claim may well be a sufficient remedy for criticisms of the formulation presently pleaded.

21.As was summarised by Fok JA (sitting as an additional judge) in The New China Hong Kong Group Limited (in creditors voluntary liquidation) v Ng Kwai Kai, Kenneth and others (HCA 519/2010; 11 February 2011):

“40 Since the basis of the striking out application was principally that the action is bound to fail, I think it is right to approach the application on the basis of the court must be fully satisfied that there really is no foundation for a particular pleaded claim if it is going to take the course of striking out that claim. The court is not in a position to resolve genuine disputes of fact or to embark on a mini trial based upon affidavit evidence. Whilst the court should be vigilant to prevent any abuse of its process by the continued prosecution of hopeless claims, this does not affect the basic principle that the court should only strike out pleadings in a plain and obvious case.”

22.Fok JA then cited with approval the dictum in Ha Francesca v Tsai Kut Kan that the claim must be “obviously unsustainable, the pleadings unarguably bad, and that it be impossible, not just improbable for the case to succeed…”

23.Also to be borne in mind however, and as was also observed by Fok JA at paragraph 70 of the judgement, is the fact that the plaintiff should know his case, and be in a position to identify the relevant evidence, at the outset of the claim.  Initiating proceedings without a solid foundation, in the hope that “something will turn up” is an abuse of the court’s process.

24.The primary thrust of Mr Wright’s attack on the Statement of Claim relates to the pleaded allegation that Bawa held the principal payment on trust.  This arises in paragraphs 21 to 24 of the pleading, and as originally formulated, this included allegations of both constructive and resulting trusts.  Falcon no longer pursues any assertion of a resulting trust. 

25.There is no dispute that a substantial issue between the parties arises as to whether or not Bawa held the principal payment on constructive trust for Falcon.  However Falcon does not accept that success or failure on this point is determinative of the success or failure of the claims made against the defendants.  In addition to, and separate from the proprietary claims Falcon say that  personal claims against the defendants for conspiracy, unjust enrichment, and money had received have been pleaded.

26.There are two reasons advanced on behalf of the defendants as to why the allegation of a constructive trust against Bawa is “hopeless”; that the proper law to determine the rights of Falcon in respect of the chose in action arising in relation to the credit balance in the relevant accounts is Swiss law, and Swiss law does not recognise a constructive trust; and that a payment made by mistake is a voidable transaction, not void ab initio, meaning that no trust could arise until the voidable transaction had been avoided.  For convenience refer to these as the “Swiss Law Defence”, and the “Timing Argument”.

(a)  Swiss law

27.As to the Swiss law Defence, the defendants have adduced evidence from Mr Michael Kramer to the effect that Swiss law does not recognise the concept of a trust.  Mr Kramer’s affidavit identifies him as a qualified Swiss advocate and set out his view that, under Swiss law, Bawa cannot have held the amount of the principal payment on trust for Falcon because Switzerland does not have its own substantive trust law.  Mr Kramer does identify potential claims by Falcon against Bawa arising in contract, and, non‑contractually as a claim for unjust enrichment by Bawa.  For the latter claim, according to Mr Kramer, Falcon would be required to establish an unlawful act of the injuring party; financial damage to the injured party (Falcon); an adequate causal link between the act and the damage; and fault of the person acting unlawfully.  Where the loss is purely financial Swiss law also requires, it appears, that the injuring party must have breached a rule of law specifically directed to protect the financial property of the injured party.

28.Perhaps unsurprisingly, Mr Kramer does not venture an opinion as to whether Falcon would be able to meet those requirements, but perhaps more importantly, he does not suggest that such a claim would be unsustainable.  In those circumstances, I conclude that the evidence before me indicates Bawa as being at least potentially liable to Falcon either contractually or non-contractually. 

29.The Statement of Claim asserts that Bawa was not entitled to receive the principal payment either contractually or otherwise.  Moreover it is asserted that Bawa knew that the principal payment was made in error and was not a payment to which it was entitled.  Reference to the criminal proceedings in Switzerland, and the indictment against Mr Brenner in particular which has been admitted by him suggests that there will be little contest at trial in regard to these factual issues, or, to put it in the context of the strike out application, it cannot remotely be suggested that these allegations are “obviously unsustainable” or that it will be impossible, not just improbable for the case to succeed”.

30.The Statement of Claim further asserts that it was unconscionable for Bawa to retain or deal with the principal payment other than to repay it to Falcon, categorising this, as would likely be the case under Hong Kong law, as a constructive trust.  Mr Wright on behalf of the defendants has focused attention on that legal categorisation, and Mr Kramer has provided evidence that Swiss law would not so categorise the relevant factual circumstances.  Mr Kramer’s evidence is however far from demonstrating that, in the relevant circumstances, Bawa was able to receive the principal payment free from any contractual or non‑ contractual claims by Falcon. 

31.So far as the court proceedings in Hong Kong are concerned, the legal position as between Bawa and Falcon is of relevance primarily to an analysis of the liability, or otherwise, of the defendants to Falcon.  The Statement of Claim alleges that Borry Ltd received the relevant funds from Bawa as a volunteer, for no consideration, and/or knew that the funds were remitted to its bank “in breach of trust”.  Extensive particulars have been pleaded by Falcon, albeit subject to the caveat that further particularisation might be appropriate after discovery and/or interrogatories.  The particulars lead Falcon to the pleaded assertion that Borry Ltd, through Mr Borry either knew, or at least turned a blind eye to the fact that the remitted funds did not belong to Bawa and had been paid to Borry Ltd “in breach of trust”.

32.The particulars also lead to an assertion by Falcon that Borry Ltd dishonestly assisted Bawa to dissipate the relevant funds, also “in breach of trust”.

33.It may be that the Statement of Claim could more accurately have described the “breach of trust” on the part of Bawa (depending on the facts) as being either a breach of contract, or (perhaps more likely) acts by Bawa which would give rise to a non‑contractual claim under Swiss law entitling Falcon to recover the amount of the unjust enrichment.  The factual foundation for the claim against Borry Ltd (or, as far as relevant Mr Borry) would remain unaltered.

34.So far as the claim against Borry Ltd is made on the basis of a constructive trust, I accept for purposes of the strike out application at least, that the relevant law is Hong Kong law.  Borry Ltd is a Hong Kong company and the funds were received in Hong Kong.  As summarised in Dicey & Morris, Conflict of Laws; 14^th edition, paragraph 34R‑001):

“Rule 230(1) The obligation to restore the benefit of an enrichment obtained at another person’s expense is governed by the proper law of the obligation.”

and the proper law of the obligation is determined:

“(2) … If it arises in any other circumstances, its proper law is the law of the country where the enrichment occurs.”

35.In this context Mr Lam refers me to paragraphs 34 to 49 of Dicey & Morris which reads:

“… If it is argued that a defendant, who in a domestic case would be required to hold property on constructive trust, is nevertheless not liable, on the ground that the law of the place of the enrichment or other lex causae, does not recognise the principles of constructive trusteeship, the argument is misconceived. The appropriate analysis is to ask whether, under the lex causae, the defendant owes obligations which would impose on him under that law liability to disgorge a benefit. If so, an English court may hold him liable as constructive trustee when giving remedial effect to the substantive right arising under the lex causae.”

36.For the purposes of a consideration therefore as to whether the Swiss Law Defence is such as to make Falcon’s claim, or any part of it, obviously unsustainable such that it should be struck out, the above indicates to me quite clearly that the claim cannot even remotely be said to be obviously bad or unsustainable.  The claim is not to be struck out on this basis.

(b)  The timing argument

37.This argument, it seems to me, falls away in light of the facts referred to above.  It is premised on a trust arising no earlier than 7 October 2011, the date on which steps were taken by Falcon to “avoid” the transaction by which funds had been credited into Bawa’s account.  However the relevant funds had been transferred out of the Bawa account prior to this date, and the defendants contend therefore that the transfer to Borry Ltd could not have involved trust property.  Correspondingly Borry Ltd could not be liable as a knowing recipient of trust property.

38.Mr Wright placed considerable reliance on the decision of Rimer J in Shalson v Russo [2003] EWHC 1637 in support of the proposition that both the transfer to Bawa and subsequent dealing with the money was valid until such time as the transaction was rescinded.  See for example paragraph 119.  Rimer J cast doubt on a proposition in Westdentsche that properly obtained by fraud under a voidable transaction was held on trust for the defrauded party prior to any rescission.

39.His discussion of the position following a rescission at paragraphs 120‑127 makes it clear however that following rescission of a voidable transaction the property in question would re‑vest in the transferor.  Plainly, if that right can be asserted against the representor, it can be asserted against a third party volunteer who has come into possession of the property.

40.As Mr Lam points out, Shalson was a case involving transfers which were induced fraudulently, and the rescission of those transfers inter partes.  It does not address directly the position of third parties as Borry Ltd may be said to be here.

41.Mr Wright also referred me to an article by Lord Millet in the Law Quarterly Review (1998) and in particular a passage in which Lord Millet discussed the situation in which the plaintiff may have paid away money by a valid payment, fully intending to part with the beneficial interest to the recipient, but in which that intention is vitiated by a factor such as fraud, misrepresentation or mistake.  In such circumstances:

“Pending the plaintiff's election to rescind, the recipient is entitled, and may be bound, to treat the payment as effective. It is well settled that the plaintiff's subsequent rescission does not invalidate or render wrongful transactions which have taken place in the meantime on the faith of the receipt.”

42.Whether Bawa, acting through Morrison and Brenner, were acting “on the faith of the receipt” is, on the evidence presently available, at the least seriously open to doubt.  In the criminal proceedings in Switzerland Brenner admitted facts which included, by way of a short summary, that Falcon:

“… wrongly announced the capital refund… instead of just an interest payment. The accused John Andreas Morrison recognise the mistake, actively and fraudulently encouraged Falcon bank/the injured party in its mistake and deceived it into crediting the payment to [its] account with the injured party. The accused Rafal Brenner actively aided and abetted these acts. The amount received in such fraudulent way was immediately transferred by the accused to different accounts worldwide, in order to prevent the refund of the wrong amount to the injured party. At the same time, the accused prevented the return transaction of the money and concealed its origin. The accused Rafal Brenner acted intentionally or at least tacitly accepted that he aided and abetted the fraudulent acts.”

43.The evidence presently available therefore also gives rise to some doubt as to whether Borry Ltd were acting innocently when they received the funds into the Standard Chartered Bank account.  That of course will be a matter for the trial, not for determination at the current interlocutory stage. For present purposes it suffices to state that, at the lowest, either receipt or retention of the relevant money, knowing that it was the result of a mistaken transfer may well give rise to a constructive trust.  See Westdeutsche Bank v Islington LBC [1996] AC 669 at 715, and Papamichael v National Westminster Bank Plc [2003] 1 Lloyds Rep 341 at 370‑373. That knowledge on the part of Borry Ltd, again putting it at the lowest, may pre-date the date on which the transaction was avoided.  Whether that is so is a matter that can only be determined at trial.

Other matters

44.The defendants refer to various other assertions contained in the Statement of Claim which are said to be susceptible to being struck out. Complaint is made that paragraph 22, containing the allegation that Bawa “well knew” that it was not entitled to receive the monies paid to it by way of the purported principal repayment, is not supported by evidence.  That submission does not appear to take into account the admitted facts in the Swiss criminal proceedings referred to above.  Nor, absent evidence to the contrary, does it suggest that the pleading in any sense could be said to be an abuse of the process.

45.Complaint is also made about paragraphs 26 and 27 of the Statement of Claim in which Falcon assert that Borry Ltd “well knew, or at least turned a blind eye to the fact that the said sum was remitted to the [Standard Chartered Bank] account on the instructions of Bawa in breach of trust.”  This plea, it is said, contains an allegation of dishonesty, but the pleading lacks, in the submission of the defendants, the necessary primary facts which would allow the court to infer knowledge of the breach of trust.

46.The particulars which have been pleaded are lengthy, with the bulk referring to matters of conduct on the part of Borry Ltd and Mr Borry after they had received the funds from Bawa.  It is submitted on behalf of the defendants that the primary facts relied on to show dishonesty must not only be clearly spelled out, they must be contemporaneous with the alleged dishonesty itself. Up to the date of the transfer of the funds to Borry Ltd the particulars alleged simply that Borry Ltd was, apparently, a dormant company with no place of business, no business, operations and, therefore, with no apparent legitimate reason to receive money from Bawa.  In addition it is alleged that Mr Borry is the chairman of one Master Vision Group of Banks, said to be a suspected fraudulent business under investigation by the Hong Kong Police, and the subject of warnings issued by the Hong Kong Monetary Authority and the Lichtenstein Financial Markets Authority.

47.The defendants rely, in this context, on the speech of Lord Millett in Three Rivers District Council v Bank of England (No 3) [2003] 2 AC 1 at 291 said to show that more specific allegations than those pleaded are required.  In my view, that reliance is misplaced.  Lord Millett made it clear that:

“It is well established that fraud or dishonesty… must be distinctly alleged and as distinctly proved; that it must be sufficiently particularised; and that it is not sufficiently particularised if the facts pleaded are consistent with innocence… This means that a plaintiff who alleges dishonesty must plead the facts, matters and circumstances relied on to show that the defendant was dishonest and not merely negligent, and that facts matters and circumstances which are consistent with negligence do not do so.

It is important to appreciate that there are two principles in play. The first is a matter of pleading. The function of pleadings is to give the party opposite sufficient notice of the case which is being made against him. If the pleader means ‘dishonestly’ or ‘fraudulently’, it may not be enough to say ‘wilfully’ or ‘recklessly’. Such language is equivocal…

The second principle, which is quite distinct, is that an allegation of fraud or dishonesty must be sufficiently particularised, and that particulars of facts which are consistent with honesty are not sufficient…”

48.The issue between these parties relates primarily to the knowledge of the defendants, and so far as the constructive trust averment is concerned, the way in which that knowledge may be said to have affected the conscience of the defendants.  This factor may have influenced the way in which the defendants framed their requests for further and better particulars of paragraph 26 of the Statement of Claim.  Those requests included a request as to whether the plaintiff intended to allege that Borry Ltd “wilfully and recklessly failed to make such enquiries as an honest and reasonable person would have made in the circumstances”, and if that was not the allegation, then clarification of what was alleged was requested.  To the extent that a wilful and reckless failure was the gist of the pleading, then the request sought details of the circumstances supporting the allegation that an honest and reasonable person would have been put on enquiry that the sum had been remitted in breach of trust; particulars of the enquiries which it is alleged an honest and reasonable person would have made; the facts supporting the allegation that Borry Ltd wilfully failed to make such enquiries; and similar facts in support of any allegation that there was a reckless failure on the part of Borry Ltd.

49.The response to that is lengthy, but at the risk of oversimplification, Falcon allege that the conduct of Mr Borry, and Borry Ltd as his alter ego has been wholly inconsistent with that of honest or bone fide persons receiving the relevant funds as a legitimate investment or for any lawful purpose.  Falcon stated that they intend to rely on the admissions by Brenner in the criminal proceedings in Switzerland including the fabrication, on behalf of Bawa, of an investment contract, the implementation of which involved the transfer of funds to a company known as Sunesko LLC.  In his affidavit evidence Mr Borry has held himself out as the “intake officer” of Sunesko LLC, and also as the “Chief Intake Treasury Officer” of one AMDG Trusts Allianz, the purported counterparty to the allegedly fictitious investment contract for which Sunesko acted as a “front”.

50.Falcon agree or accept in response to the request for particulars that, by the allegation that Borry Ltd turned a blind eye, it was intended to contend that Borry Ltd wilfully and recklessly failed to make such enquiries as an honest and reasonable person would have made in the circumstances.  That is elaborated on in the body of the particulars so as to contend, among much else, that:

“Any honest and reasonable person would have made detailed enquiries so as to ensure that he was not being used as a conduit for the laundering of dissipation of illegitimately or unlawfully obtain property; including:

· details as to the provenance of the said sum;

· given the substantial amount of the said sum, the identity and detailed background of Bawa, being the remit of the said sum;

· details as to the relationship between Bauer, Cisco and AMDG; and

· details as to the investment for which the said sum was remitted.”

51.For my own part I can see nothing wrong in principle in a plaintiff asserting that a defendant was acting dishonestly or unconscionably in dealing with monies received by that defendant on the basis of actions subsequent to the receipt said to be inconsistent with innocent business practice.  In my judgment there is nothing equivocal about what is alleged against the defendants, nor can there be any sensible doubt about the detail of the case which the defendants will be expected to meet at trial.  However, even if I were wrong on that, it seems to me that it would be a matter for further particularisation, not a matter calling for the dismissal of the claim.

52.Similar points are made on behalf of the defendants in regard to paragraphs 28 through to 37, touching on an alleged failure to set out appropriate facts in regard to a claim for money had and received, or for restitution; asserting an absence of evidence as to Mr Borry’s actual knowledge; and asserting a lack of particularisation of the allegation of dishonesty at paragraph 34.  I do not accept that any of these matters, singularly or cumulatively come close to demonstrating that the claim is formulated is sufficiently “bad” as to call for the sanction of striking out.

53.I will mention specifically only the allegations at paragraphs 36 and 37 therefore, in which Falcon allege a conspiracy between Borry Ltd, Mr Borry and Bawa.  Paragraph 36 is part of the proposed amendments and I would have been able to be persuaded that better particularisation of this part of the plaintiff's claim was required had it not been offered via the proposed amendments.  I would not have been minded to strike out in circumstances in which the complaint was as to lack of specificity.  As appears below I am satisfied that the plaintiff's application to amend should be allowed, and accordingly I am of the view that the defendant's complaint as to the lack of a sustainable pleading is not established.

54.For the above reasons I am not persuaded that any part of the plaintiff’s claim is to be struck out and the defendants summons seeking that relief is dismissed. 

THE DISCHARGE SUMMONS

55.As referred to above there are two limbs to this application, one being the alleged failure on the part of Falcon to establish a good arguable case against Borry Ltd.  As will be clear from the rationale given above in the context of the strike out summons, in my judgement the case against Borry Ltd is clear.  While the discussion above focuses on the more developed statement of Falcon’s case set out in the pleading and the particulars (as did the defendant’s submissions), the essential facts underpinning the claim were presented to the judge hearing the ex parte application, and I have no doubt that those facts sufficiently established the necessary good arguable case at that stage.

56.The defendants’ submissions for this summons focused on the alleged failure on the part of Falcon to make full and frank disclosure of all material facts at the ex parte stage, and included a complaint that Falcon positively misrepresented both the factual position, and the availability of defences to Borry Ltd.

The relevant principles

57.Unsurprisingly, these are not in dispute between the parties.  An applicant for an ex parte injunction is strictly required to make a full and fair disclosure of all material facts.  An applicant should err on the side of caution in this regard since materiality is, at the end of the day, a matter to be decided by the court:

“It is the duty of a party asking for an injunction to bring under the notice of the court all facts material to the determination of his right to that injunction; and it is no excuse for him to say that he was not aware of the importance of any facts which he has omitted to bring forward.” (Browne‑Wilkinson J in Thermax Ltd v Schott Industrial Glass Ltd [1981] FSR 289 at 295, citing the decision in Dalglish v Jarvie.)

58.Moreover, the applicant must identify in the course of the application any defences which might be anticipated as being taken and which are not such as can be dismissed as being without substance or importance (see New Asia Energy Ltd v Concorde Oil (Hong Kong) Ltd [2000] 2 HKC 685).

59.Where there has been material non - disclosure, then the court has a discretion which encompasses the discharge of the order obtained ex parte, and the re‑grant of an injunction if a discharge is thought appropriate. Although a matter of discretion, ordinarily, if the court is satisfied that there has been material non‑disclosure, the ex parte order will be discharged.

Misrepresentations

60.There are three such misrepresentations alleged, and in one instance counsel for the plaintiff accepts that the skeleton submission was incorrect. That relates to an assertion that Mr Borry “holds himself out as the chairman of the Master Vision Group of Banks… a suspected fraudulent business under investigation by the Hong Kong police”.  It is accepted that there is no basis for suggesting that Mr Borry has so held himself out.  The position is in fact the reverse; it is the Master Vision Group of Banks (“Master Vision”) that has held out Mr Borry as the Chairman of the Group.

61.The ex parte skeleton submission asserted that Mr Borry was being investigated by both the police and financial authorities in Hong Kong and abroad for fraudulent activities; described him as a “suspected fraudster”; and submitted that “warnings issued by the Hong Kong and Lichtenstein financial authorities suggest that the 2^nd defendant (Mr Borry) operates his apparently fraudulent activities on an international scale”.  It is submitted on behalf of Borry Ltd that these allegations of fraudulent conduct on the part of Mr Borry should not have been made without a solid foundation in the evidence before the ex parte judge.  It is submitted that these are bound to have been influential (material) in the judge’s consideration of the ex parte application.

62.Thirdly the ex parte skeleton is criticised for having contended that the mistaken transmission of funds should have been obvious to Bawa because of “… the fact that the market value of the Bonds was only about US$2.5 million.”  The true position is that the market value was never determined.  Indeed, it is not clear that there is a “market” for such bonds. The evidence filed on behalf of Falcon by Mr Brandle states that the valuation was an estimate based upon the anticipated interest payments over the lifetime of the Structured Note.  Mr Brandle acknowledged in his affidavit that this was an estimate, and potentially inaccurate.

63.This is said to have been an important misstatement because it was a crucial component of the assertion that Bawa was aware of the mistake behind the transfer.

64.In response Mr Lam, while accepting, firstly that the holding out was misdescribed in the skeleton before the ex parte judge, points out that the evidence; specifically the affidavit of Mr Brandle (paragraph 55), correctly summarises the information available at that time, including that the source of information about Mr Borry’s relationship with Master Vision originated from Master Vision not from Mr Borry.

65.So far as the assertions about Mr Borry’s possible involvement in fraudulent activities are concerned, Mr Lam submits that it is wholly incorrect to suggest that there was no evidential foundation before the ex parte judge.  Primarily this was contained in Mr Brandle’s affidavit and its exhibits.  The linkage between Mr Borry and Master Vision has been referred to above.  In addition Mr Brandle referred in his affidavit to a press release of 18 August 2011 issued by the Hong Kong Monetary Authority, describing a website operated by Master Vision as “a suspected fraudulent website” and stating that the matter had been referred to the Hong Kong police force for further investigation.  Mr Brandle referred also to a warning notice issued by the Lichtenstein financial market authority on 25 May 2011 which included a statement that:

“The executive office in Lichtenstein mentioned on the website of Master Vision Group of Banks does not exist and it was not possible to establish a personal contact.”

66.In terms of the valuation of the bonds and, therefore, the extent to which it should have been obvious to Bawa that the transfer was made in error, Mr Lam points to the way in which the valuation was described in Mr Brandle’s affidavit; as an approximate value attributed to the bonds by Falcon.  The context for that valuation is, in my view of significance.  Mr Brandle referred in the same paragraph (paragraph 7) to the fact that the nominal value of the bonds was US$4 billion and that the only other payment made in respect of the bonds to the knowledge of Falcon was an interest payment of approximately US$45,000.

67.In my judgement there is nothing in Borry Ltd’s complaints as to material misrepresentation of the facts.  It is acknowledged that there was an error in the skeleton in identifying the party who did the holding out of Mr Borry as chairman of Master Vision, and it seems clear that the value of the bonds was not a market value, it was an assessed or estimated value.  I do not believe either to be material however. 

68.The relevant fact in regard to Master Vision was the relationship between that group and Mr Borry.  It does not matter which of them held him out as being the chairman, what was of significance was that he was linked by evidence to Master Vision and, as I accept is established by the evidence before the ex parte judge, that Master Vision were suspected by financial authorities of operating fraudulently.

69.As to the basis for valuation of the bonds Mr Brandle’s affidavit made it clear that Morrison of Bawa was advised both by telephone and e‑mail of the payments which were to be made into Bawa’s account which comprised both the erroneous principal payment, and also an interest payment on the bonds in the amount of US$39,010.  The key component, and the truly material element of this is not whether the capital valuation attributed to the bonds was a market value, or value assessed in some other way.  The material fact is that the repayment purported to be a payment of principal, as well as not interest.  It cannot seriously be suggested that Bawa did not know what their entitlement under the bonds, included, and what it did not include as far as principal and interest is concerned.

70.It follows that I am not persuaded that the ex parte injunction should be discharged on the basis of any alleged misrepresentation by Falcon at the ex parte stage.

THE AVAILABLE DEFENCES

71.There are six such purported lines of defence which, according to the defendants, ought to have been pointed out by Falcon to the ex parte judge.  These are:

(1) the Swiss Law Defence;

(2) a defence based on what is described as the rule of banking law that, when bankers make payments at the request of customers within the terms of the mandate, the bank cannot recover the payment from the recipient on discovering that the balance in the customer's account is insufficient to meet the drawing (“the Banking Law Defence”);

(3) the “no trust defence”; being that the sum credited to Bawa’s account was not held on trust for Falcon and, therefore, Falcon cannot bring the claim against Borry Ltd;

(4) a defence that Borry Ltd had no knowledge of the alleged trust and could not therefore itself be liable as a constructive trustee (“the No Knowledge Defence”);

(5) a defence arising from an alleged change of position on the part of Borry Ltd since receipt of payment such that it would be inequitable to require Borry Ltd to repay Falcon (“the Change of Position Defence”); and

(6) a defence based upon the cause of action which Falcon has against SIX in respect of the principal payment such that assertion of a claim against Borry Ltd seeks double recovery (“the Double Recovery Defence”).

72.Certain of these defences have been discussed in the context of the strike out application, and little further need be said.  For present purposes the question is not whether these are defences which are likely to succeed at trial, but rather whether these matters which Falcon ought to have drawn to the attention of the ex parte judge, but did not.  That does require some consideration of the prospects of success, but only to the extent of considering whether the proposed defence is one that could be dismissed as insubstantial.

73.So far as the Swiss Law Defence is concerned, although, for the reasons I have referred to above, I am not persuaded at this interlocutory stage that this is a line of defence which appears likely to succeed, for the purposes of this application I have considered this as being more than insubstantial, and therefore ostensibly a matter that ought to have been placed before the judge at the ex parte hearing if it was one which could reasonably have been expected to be raised in due course.

74.Even so it must be understood in the context of a claim made against a Hong Kong company in relation to assets held in Hong Kong in circumstances in which, at the lowest, questions of a constructive trust under Hong Kong law certainly arise.  It is far from being self evident that a defence to such a claim might arise under Swiss law.

75.The further point made on behalf of Falcon is that this line of defence only emerged some six months after the ex parte order was made.  Mr Lam submits, in my view not unreasonably, that in circumstances in which the defendants themselves did not identify such a defence for some time, it was not unreasonable for Falcon not to have anticipated such a defence at the ex parte stage.  Put another way, I do not believe that this is a defence which a plaintiff could have reasonably expected to be raised had the defendant been present at the injunction application.

76.Turning to the Banking Law Defence Mr Lam submits that while the principle is not disputed, it has no relevance or application to the facts.  The argument, as advanced by Mr Wright on behalf of Borry Ltd is that the relationship between bank and customer is one of debtor and creditor, the customer holding a chose in action providing a right to demand payment from the bank.  A transfer of funds between banks involves a reduction of the rights of the customer of the transferor bank, and a corresponding enhancement of the rights of the customer of the transferee bank.  In circumstances in which a bank makes payment in the mistaken belief that there are sufficient funds in its customer’s account to cover the payment, then the customer becomes overdrawn and is liable to the bank.  In reliance on Chambers v Miller (1862) 13 CB (NS) 125, and by analogy with cheque cases, Mr Wright submits that Falcon's claim is hopeless.  I note that in Chambers v Miller a caveat to the general principle was expressed (by both Erle CJ and Byles J) in regard to circumstances where the customer might have obtained money to which he was not entitled; money paid for example under a mistake of fact.

77.Whether this principle makes Falcon’s claim hopeless or not ultimately is a matter for another day; the question for present purposes is whether this is a line of argument that should have been drawn to the attention of the ex parte judge.  In my view the answer to that question is clearly “no”.  The contention that the principles in relation to cheque payments set out in Chambers v Miller have application to the present facts is not supported by precedent nor, so far as I can see, for present purposes by Chambers v Miller itself.  I have considered the position carefully, but I fail to see how this line of argument precludes a claim made by Falcon.  Mr Lam submits, and I agree, that there is no clear explanation as to why Falcon should be taken to have lost a proprietary claim in equity against Borry Ltd simply because a claim against Bawa could be brought.  In those circumstances I do not think it was incumbent on Falcon to notify the ex parte judge of this potential defence.

78.The No Trust Defence has also been considered in the context of the strike out application.  What was advanced before the ex parte judge by Falcon was that the facts may give rise to a trust.  Reference was made to Westdeutsche and Papamichael in terms that reminded the court that it was the retention or dealing with money paid under a mistake after the recipient became aware of the mistake that was of significance.  That plainly encompasses the corollary that the trust might not arise if the requisite factual circumstances turn out not to exist.  I do not think that Falcon can be said to have failed to draw the attention of the court to such a possibility.

79.The same applies, in my view, to the No Knowledge Defence.  Falcon stated in the skeleton before the ex parte judge that Bawa had refused to disclose the nature and purpose of the transfer to Borry Ltd, and that Borry Ltd had remained silent also on that matter.  Falcon stated explicitly that it was unclear at that stage whether the transfer to Borry Ltd was gratuitous or whether consideration was given.  The skeleton did make submissions as to why it was “highly unlikely” that the transfer to Borry Ltd was one at arm’s length or bona fide, concluding that the circumstances strongly suggested that Borry Ltd would have been aware of the alleged breach of trust by Bawa, and was dishonestly assisting in the dissipation of the money.  It seems to me self‑evident that the ex parte judge would understand from this that the facts found in due course might evidence an entirely innocent course of dealing. 

80.It seems to me that much of Mr Wright’s criticism could have been defected had Falcon’s ex parte skeleton stated that the facts might turn out differently; Borry Ltd may have acted in good faith; and that Falcon may, at some stage, bring a claim against SIX.  I do not think this would have given the ex parte judge any more information than she already had.

81.The practice sometimes adopted of specifically listing possible defences at the ex parte stage is clearly helpful to the court. But where the defence is one arising out of facts not known to the applicant for an ex parte order then a bald statement that the facts might turn out differently is not likely to be helpful.  Where the factual position is uncertain, then it is the duty of the applicant for an ex parte order to make clear the strength or weakness of the evidential basis relied on in the application.  This will extend to presenting known facts which are not consistent with the claim the applicant is asserting or the relief which is sought.  It is not the applicant’s duty to hypothesise on potential alternative facts, however.

82.The submissions made by Mr Wright before me were, in large measure, directed to the balancing exercise which the judge would have undertaken in considering the strength of Falcon’s case, the gist being that matters relied on by Falcon ought not to have weighed with the judge.  Such matters are not relevant to the question whether or not Falcon failed to draw the judge’s attention to relevant matters.

83.The Change of Position Defence is somewhat remarkable.  Mr Wright submits that a defence is available to a person who has received money paid under a mistake of fact if that person’s position has so changed that it would be inequitable to require him to make restitution, in part or in whole.  It is submitted that it was highly probable that Borry Ltd would have so changed its position between the date of the transfer and the date of the application for the ex parte injunction that it would be inequitable to require restitution.  It is submitted further that the possibility of a change of position by Borry Ltd was obvious to Falcon since the whole premise of the application was that Borry Ltd would not retain the transferred funds indefinitely.

84.Almost as remarkable is the Double Recovery Defence.  Borry Ltd point to the fact that Falcon have reserved their rights to make a claim against SIX, and it is submitted that the recovery from SIX would preclude recovery from Borry Ltd.  Clearly it is correct that the court will not grant Falcon relief such as to provide for double recovery, but that could only arise as a defence if recovery against SIX, or any other party, had been made.  The evidence is that there has been no such recovery.

85.Neither the Change of Position Defence nor the Double Recovery Defence are matters of any substance in my judgement.  Falcon are not be criticised for not raising what appear to me to be red herrings before the ex parte judge.

Omission of relevant facts

86.Borry Ltd submits that Falcon failed to disclose to the ex parte judge all relevant factual matters.  Two matters are identified, one being the e‑mail of 29 September 2011 sent by a director of Falcon, one Marc Evequoz to Morrison, advising of the payment which was to be made, the other being the telephone conversation in which the same information was said to have been conveyed to Morrison.  It is suggested that since the e‑mail was drafted by Falcon, but Falcon did not notice that there was an error in that the payment included principal, then it would not have been obvious to Bawa either that there was an error.  The telephone conversation is said to go to the same point.

87.The e‑mail, and the fact that there was a telephone conversation, were both referred to explicitly in Mr Brandle’s affidavit, and the e‑mail was exhibited.  I do not agree that there was any omission, or certainly not one of any significance.

Conclusion on discharge

88.As appears above I am not persuaded that there was a failure or error of any significance in the presentation of evidence and argument before the ex parte judge.  I dismiss the application by Borry Ltd for a discharge of the injunction order.  I would add for completeness however that even if a different view were to be taken of any of the points canvassed on behalf of Borry Ltd such that the injunction ought to have been discharged, then I would have had no hesitation in immediately re‑granting the injunction.  In my view the facts and submissions properly presented to the ex parte judge justified the grant on that occasion, and the further facts before me only serve to reinforce the necessity and appropriateness of the injunction.

THE STAY APPLICATION

89.As summarised above Falcon seek a stay of the proceedings (other than the strike out and discharge applications considered above) until 11 May 2014.  The purpose of this stage is to facilitate compliance with an order issued by the State Attorney’s Office in Zürich on 11 November 2013.

90.The application is opposed by the defendants on the basis that Falcon has failed to establish that the balance of fairness and justice lies in favour of the grant of the temporary stay.  Mr Wright submits that the consequence of granting this stay would be to give Falcon the relief refused by Tang PJ, namely a stay pending the determination of Falcon’s application for leave to appeal to the Court of Final Appeal.

91.Mr Wright points out that the action was commenced over two years ago but has yet to reach the stage at which a Case Management hearing could properly be convened.  Any stay would therefore run contrary to the underlying case management objectives, of ensuring that the case is dealt with as expeditiously as reasonably practicable.

92.It is submitted that Falcon has not demonstrated that the “gag order” issued in Switzerland justifies the grant of a stay.  Falcon’s skeleton does not identify the precise evidence which is enjoined by the Swiss order, and the relevance is therefore speculative.  The suggestion by Falcon that this will inhibit reference to material in the witness statements is, in effect, premature since the proceedings are not at a stage where this will be of any relevance.  Even if the preparation of witness statement was affected by the Swiss order, provision could be made, if required, for supplemental statements at an appropriate stage after May 2014.

93.For its part Falcon, being a Swiss bank and subject to the jurisdiction of the Swiss authorities, is of course anxious to comply with the order which has been made.  The affidavit in support of the application explains that the order has been issued to prevent collusion between Mr Borry and Morrison in the criminal proceedings in Switzerland.  Mr Lam submits that Falcon would be hampered not only in the preparation of witness statements but also in the discovery process by complying with the gag order while at the same time proceeding with the present action.  It is acknowledged that the position could be ameliorated by further rounds of discovery and witness statements after the lifting of the gag order, but submitted that this would be neither desirable nor cost‑effective.

94.The stay would be for a period of approximately two months from the date of this judgement, and thus is a relatively short period.  It is submitted that the stay will be unlikely to cause prejudice to Mr Borry, and indeed Mr Wright points to no such prejudice. 

95.The approach I adopt is to seek to balance the convenience and fairness arising from either granting or not granting a stay as between the parties.  In doing so I seek to arrive at a course of action which will enable the litigation to proceed, so far as possible, in a logical, fair and cost‑effective manner.

96.The action to date, it appears to me will have been relatively expensive given the various interlocutory matters which have called for decision by the court, and in those circumstances the potential additional cost arising if the matter is not stayed weighs more heavily with me than might otherwise be the case.  I take account also of the relative brevity of the stay which is sought, and the inevitable delay which will be occasioned if the discovery or witness statements are to be revisited following the lifting of the Swiss order.  The fair approach it appears to me is for the state to be granted in the terms sought by Falcon.

Amendment of the Statement of Claim

97.Falcon’s summons seeking leave to amend the Statement of Claim was taken out close to the hearing before me, on 17 January 2014.  The application was opposed on behalf of the defendants.  It was submitted that leave to amend should be refused because the amendment failed to plead necessary material facts and was, in effect immaterial.  The reasons advanced on behalf of the defendants were, in effect the same reasons as were advanced in regard to the strikeout application.  It was submitted that the proposed amendments would not materially “improve” the pleading which remained amenable to being struck out.  In those circumstances leave to amend should not be granted.

98.The principles relevant to such an application are well known.  Primarily, amendments should be allowed which are necessary to enable the real questions between the parties to be decided.  Amendments should not ordinarily be refused if the necessity for the amendment arises out of a mistake by the party applying for leave to make the amendment.  Thirdly, lateness in making the application for leave is not a determinative factor in whether or not leave should be granted provided that allowing the amendment will not unduly prejudice the other party.  Fourthly, an appropriate order as to costs may constitute a remedy for prejudice caused by the proposed amendment.

99.As appears above I do not agree with the proposition that the Statement of Claim was deficient as alleged.  The amendments serve to identify better the issues that exist between the parties and facilitate the formulation of an “agenda” for the trial.  The defendants are not prejudiced by the making of the amendments, and will be, in any event, compensated in costs for any consequential amendments to the defence that may be occasioned.

100.Accordingly it is appropriate for me to allow the amendment, subject to the usual order (which out of an abundance of caution I make as an order nisi), that the costs of and occasioned by the amendment be to the defendants.

COSTS

101.I indicated at the conclusion of the hearing that I would deal with costs on the basis of orders nisi which I now do.  In regard to each summons there is no reason advanced, nor does the evidence suggest any circumstances why, costs should not follow the event.

102.It follows that the costs of each of the discharge, strike out and stay summonses are to be to Falcon.

Mr Douglas Lam, instructed by Lipman Karas, for the plaintiff

Mr Colin Wright, instructed by Stephenson Harwood, for the 1^st and 2^nd defendants