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

HIGH COURT ACTION NO 1934 OF 2011

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REASONS FOR DECISION

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INTRODUCTION

1. I have before me six summonses, five issued by the defendants and one by the plaintiff:

(1) the defendants’ summons dated 16 January 2012 seeking to strike-out the plaintiff’s statement of claim and the action (“Strike-Out Summons”);

(2) the defendants’ summons dated 21 February 2012 seeking to discharge the ex parte order of Deputy High Court Judge Au-Yeung dated 10 November 2011 (“Discharge Summons”);

(3) the defendants’ summons dated 10 May 2012 seeking me to recuse myself from hearing the Strike-Out Summons and Discharge Summons (“Recusal Summons”);

(4) the defendants’ summons dated 10 May 2012 seeking leave to file the 7^th Affidavit of Ian Childs dated 4 May 2012 and the 1^st Affidavit of Steven Jeffrey Lyons dated 9 May 2012 (together with item (5) are collectively referred to as “Further Evidence Summonses”) ;

(5) the defendants’ summons dated 31 May 2012 seeking leave to file the 10^th Affidavit of Ian Childs dated 30 May 2012 exhibiting a draft affidavit to be sworn by Michael Kramer (together with item (4) are collectively referred to as “Further Evidence Summonses”); and

(6) the plaintiff’s summons dated 10 May 2012 seeking further discovery against the defendants (“Further Disclosure Summons”).

Background

2. The background of this case was summarised in paragraphs 1 to 15 of my decision dated 27 January 2012 (“1^st Decision”). For convenience, those paragraphs are quoted hereunder:

“1. I have before me two summonses: (1) the defendants’ summons dated 17 January 2012 (“Defendants’ Summons”) seeking extension of time to comply with paragraphs 1 and 2 of the order of Deputy High Court Judge Lok dated 6 January 2012 and for discovery; and (2) the plaintiff’s summons dated 19 January 2012 (“Plaintiff’s Summons”) seeking an order that unless the defendants comply with paragraphs 1 and 2 of the order of Deputy High Court Judge Lok, judgment be entered for the plaintiff in this action.

2. These applications arose under the following circumstances. The plaintiff is a licensed bank in Switzerland with a branch office in Hong Kong. The 1^st defendant is a company incorporated in Hong Kong with a paid up share capital of HK$10. The 2^nd defendant, a Swiss national apparently resident in Vietnam, is its sole shareholder and director. He holds himself out as the chairman of the Master Vision Group of Banks (“Master Vision”), a suspected fraudulent business under investigation by the Hong Kong police. Master Vision was also the subject of warnings issued by the Hong Kong Monetary Authority and the Liechtenstein Financial Markets Authority that it was not licensed to carry on banking or investment business, contrary to representations made by Master Vision.

3. In July 2011, a Mr Morrison acting on behalf of an English incorporated company known as Bawa Financial Limited (“Bawa”) opened an account with the plaintiff (“Bawa Account”) and deposited certain floating rate bonds with the plaintiff. The plaintiff placed the bonds with a reputable Swiss custodian known as SIX SIS AG (“SIX”).

4. On 27 September 2011, SIX erroneously advised the plaintiff of a repayment of principal on the bonds in the amount of US$15,760,320. Pursuant to SIX’s instruction, the principal repayment was credited into the plaintiff’s account with SIX. On 29 September 2011, the plaintiff credited the Bawa Account with the principal repayment as well as an interest payment on the bonds in the amount of US$39,010.36. Prior to these payments, the Bawa Account had a credit balance of US$12,915.41.

5. On 30 September 2011, Morrison informed the plaintiff that he would be instructing the plaintiff to transfer US$10 million to a third party in relation to a private equity placement. By letters dated 2 October 2011, Bawa instructed the plaintiff to make a series of immediate cash transfers in different currencies to different recipients out of the Bawa Account and to transfer the bonds to a securities firm in Canada. Pursuant to that instruction, the plaintiff made the transfers, including a sum of US$10 million to the 1^st defendant’s account with Standard Chartered Bank in Hong Kong (“SCB HK”). This transfer of US$10 million formed the subject matter of this action.

6. On 7 October 2011, SIX notified the plaintiff that its previous instruction relating to the transfer of the principal repayment to Bawa had been made in error and that Bawa was only entitled to the interest payment. The payment of the principal amount from SIX was reversed on the same day. The plaintiff then reversed the credit of the principal repayment in the Bawa Account. But as a result of the various transfers out of that account, the reversal resulted in an overdraft of US$11,767,554.

7. On the same day, the plaintiff also immediately contacted SCB HK by SWIFT requesting the cancellation of the transfer of US$10 million to the 1^st defendant’s account with SCB HK. On 10 October 2011, SCB HK informed the plaintiff that the said sum of US$10 million had already been credited to the 1^st defendant’s account. Later, SCB HK confirmed that it was contacting the 1^st defendant to return the funds.

8. In the three weeks that followed, the plaintiff engaged in discussions with Bawa and its Swiss legal adviser and demanded the 1^st defendant to return the said sum of US$10 million. The 1^st defendant did not respond.

9. On 10 November 2011, the plaintiff made an ex parte application before Deputy High Court Judge Au-Yeung and obtained an injunction order restraining the 1^st defendant from disposing of or removing any of its assets within Hong Kong up to the value of HK$78 million and to make certain disclosures on or before 1:00 pm on 15 November 2011 or within 96 hours of service of the order on the 1^st defendant. In applying for the disclosure order, the plaintiff gave the usual undertaking in paragraph 6 of Schedule 2 in the order in the following terms:

“The Plaintiff will not without the leave of the Court begin proceedings against the 1^st Defendant in any other jurisdiction or use information obtained as a result of an order of the court in this jurisdiction for the purpose of civil or criminal proceedings in any other jurisdiction.”

10. At an inter parte hearing on 30 November 2011, Suffiad J made various orders, including an order that the 1^st defendant do within 14 days comply with the outstanding items ordered to be disclosed by Deputy High Court Judge Au-Yeung.

11. At another inter parte hearing on 9 December 2011, Reyes J made various orders, including an order that the 1^st defendant do by 7:00 pm on 9 December 2011 fully comply with the order of Suffiad J dated 30 November 2011 and provide evidence of the transfer of the said sum of US$10 million from the 1^st defendant to Sunesko LLC.

12. Unknown to the defendants, upon the plaintiff’s ex parte application on 14 December 2011, Sakhrani J granted the plaintiff leave to produce to the Swiss police and the Hong Kong police the 2^nd defendant’s affidavits given pursuant to the order of Deputy High Court Judge Au-Yeung.

13. On 23 December 2011, the 2^nd defendant’s solicitors were informed by Morrison’s colleague of the arrest of Morrison and his partner, Brenner, in Switzerland in connection with the present action.

14. The disclosure by the 1^st defendant had hitherto been partial only. The parties appeared before Deputy High Court Judge Lok on 6 January 2012 when a further disclosure order was made. Paragraphs 1 and 2 of the disclosure order read as follows:

“1. The 1^st Defendant (acting by a proper officer) and the 2^nd Defendant do within 14 days of the date hereof file a further affidavit in full and proper compliance with paragraph 4 of the Order of the Deputy High Court Judge Au-Yeung dated 10 November 2011, disclosing to the Plaintiff’s solicitors:

(giving certain particulars)

2. In the event that the documents referred to in paragraph 1 is not in the possession, custody or control of the 1^st or 2^nd Defendant, the Defendants have to explain and provide the whereabouts of such documents in the affidavits.”

When making the disclosure order, Deputy High Court Judge Lok was unaware of the order of Sakhrani J.

15. The defendants’ solicitors subsequently learned from Morrison’s Swiss lawyer that a warrant of arrest had been issued against the 2^nd defendant and that the Swiss police had been supplied with copies of the 2^nd defendant’s affidavits filed in this action. On 13 January 2012, they enquired from the plaintiff’s solicitors who confirmed that an order had been obtained from the court allowing the release of the 2^nd defendant’s affidavits to the Swiss police, but refused to provide a copy of the order of Sakhrani J as it was confidential.”

(The part complained of by the defendants is underlined.)

3. Following on from the above background, the defendants were anxious to know what information had been disclosed to the Swiss police and hence issued a summons (“Defendants’ Summons”) seeking discovery: (1) under paragraph 2.1 discovery of all summonses, supporting affidavits and affirmations, orders, skeleton arguments and other documents relating to...