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HCA 821/2011
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 821 OF 2011
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BETWEEN
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KARLA OTTO LIMITED
(Incorporated in the United Kingdom) |
Plaintiff |
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and
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BULENT EREN BAYRAM |
1st Defendant |
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KARLA OTTO LIMITED
(Incorporated in Hong Kong) |
2nd Defendant |
| ____________________________ |
| Before: Deputy High Court Judge Hunsworth in Court |
| Date of Hearing: 10 January 2017 |
| Date of Handing Down Judgment: 24 February 2017 |
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J U D G M E N T
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Factual background
1. This action arose out of what might be described as misplaced trust which is generated when parties are engaged in a romantic relationship.
2. The plaintiff is an English company which forms part of the Karla Otto Group (“the Group”) of companies so called after their eponymous founder Ms Karla Otto (“Ms Otto”). The Group was established in 1982 by Ms Otto and is in the business of fashion, public relations and image consulting.
3. The 1st defendant is an individual currently resident in the United Kingdom. The 2nd defendant is a Hong Kong company which was incorporated by the 1st defendant and of which he is the sole shareholder and director.
4. Ms Otto and the 1st defendant met in July 2007 and were in a personal relationship from that date until July 2010.
5. It is common ground the 1st defendant played an increasingly important role in the affairs of the Group from the start of his personal relationship with Ms Otto until March 2011. Ms Otto’s evidence is that the 1st defendant was never formally appointed to positions of authority in either the plaintiff company or the Group but that he held himself out (and Ms Otto permitted him so to do) as either or both of the CEO and CFO of the Group. He was not, however, as a matter of fact, formally a director, shareholder or employee of the plaintiff or the Group.
6. The 1st defendant’s evidence in his witness statement was that arrangements between him and the Group were more formal as evidenced by various consultancy agreements entered into in March 2008. These consultancy agreements were not in evidence because by an order of Deputy High Court Judge Wilson Chan (now Wilson Chan J) dated 13 October 2016, the 1st defendant had been ordered to produce certified translations of these agreements failing which he was to be debarred from relying on them at trial. The 1st defendant failed to produce the certified translations (and one sees here the start of what was evidently a preconceived plan not to participate any further in the action in Hong Kong).
7. It is also common ground that from February 2009 the 1st defendant became the sole administrator of the plaintiff’s UK multi‑currency bank account at HSBC which operated through an online platform called HSBCnet.
8. The personal relationship between Ms Otto and the 1st defendant came to an end in July 2010. Notwithstanding this, the 1st defendant continued to be involved in the affairs of the Group until Ms Otto’s suspicions were aroused in March 2011 by the 1st defendant’s clandestine discussions with the plaintiff’s auditors in respect of the 2010 accounts.
9. Ms Otto’s evidence is that an investigation was commenced by the plaintiff which revealed the 1st defendant had misappropriated some EUR 1.8 million from the Group’s bank accounts which had ended up in accounts controlled by the 1st defendant. Of this a sum of EUR 200,000 had been transferred from the plaintiff’s HSBC account in London to an account at HSBC in Hong Kong in the name of the 2nd defendant. This was done by way of two remittances of EUR 100,000 made on 8 December 2010 and 25 January 2011 respectively.
10. Ms Otto’s evidence was that she had discussed with the 1st defendant the establishment of an office for the Group in Hong Kong but that nothing had been agreed or decided. Specifically she had not authorised the 1st defendant to establish any company in Hong Kong and she knew nothing about the existence of the 2nd defendant until the investigation started in March 2011.
11. The 1st defendant’s evidence was to the effect that Ms Otto had delegated to him full power and authority to set up an office in Hong Kong. He does not specifically say Ms Otto authorised him to establish the 2nd defendant but suggests the establishment of the 2nd defendant was part of the plan to set up an office in Hong Kong which would focus on business in China and the Asian market generally. The 1st defendant admits the transfer of the EUR 200,000 from the plaintiff to the 2nd defendant but says this was an ancillary part of the opening of the Hong Kong office and was therefore authorised by Ms Otto and through her the plaintiff.
The history of the action
12. In May 2011, the plaintiff obtained Norwich Pharmacal discovery against HSBC in Hong Kong which revealed that a significant portion of the EUR 200,000 was still in the HSBC account of the 2nd defendant in Hong Kong. The plaintiff followed up with a Mareva injunction which remains in place today.
13. In its statement of claim the plaintiff pleads that the 1st defendant owed to it fiduciary duties because in acting on behalf of the plaintiff he had been entrusted with and assumed the duties and responsibilities of a shadow director and a fiduciary. The plaintiff goes on to plead that in breach of such fiduciary duties the 1st defendant had diverted the sum of EUR 200,000 to the 2nd defendant and that he was obliged to account to the plaintiff for the loss it had suffered.
14. As for the 2nd defendant, the plaintiff alleges that as its director, shareholder and controlling mind is the 1st defendant, it is impressed with all the knowledge of the 1st defendant as to his breach of fiduciary duty and therefore is liable to the plaintiff under various legal theories including constructive trust, unjust enrichment and dishonest assistance.
15. A defence was filed by the 1st and 2nd defendants asserting in essence that everything had been done with the approval and authority of the plaintiff and Ms Otto and denying any liability to account for the EUR 200,000 received. Further, it was said the 2nd defendant had performed business services for the plaintiff which were evidenced by invoices allegedly issued in December 2010 and January 2011.
16. A pre‑trial review was held before Deputy High Court Judge Wilson Chan on 13 October 2016. Other than the order regarding the certification of translations which I have referred to above, the usual directions were given as to witness statements standing as evidence‑in‑chief, the attendance of witnesses for cross‑examination failing which their witness statements would not stand as evidence‑in‑chief, the filing of trial bundles and the filing of opening submissions and lists of authorities. Specifically the defendants were ordered to lodge and serve their opening submissions and list of authorities by close of business on 23 December 2016. The trial date was fixed for a four‑day hearing starting on 10 January 2017.
17. At the time of the pre‑trial review, the defendants were represented by solicitors. Subsequently, the defendants’ solicitors were granted leave to come off the record so that from 12 December 2016 the defendants have been acting in person. No opening submissions or list of authorities were filed by the defendants either by the prescribed time or at all.
18. On 6 January 2017 at 6:46 pm the court received a fax from the 1st defendant which followed up on a telephone call to the trial judge’s clerk earlier that day. The fax was accompanied by what purported to be a medical certificate and a request was made for an adjournment of the trial. Given the request for the court to grant an indulgence, both the letter and the medical certificate are worth quoting in full.
19. The letter is on notepaper headed with the name of the 1st defendant and an address in London. It reads:
“Dear Mr. Yu
Due to acute illness, I will not be able to attend the court hearing on the 10th of January. I am kindly asking to reschedule the court date. Please find attached the doctor’s certificate.
Sincerely
Bulent Bayram”
20. The medical certificate is handwritten and reads:
“Hereby is certified, that Bulent Bayram is not fit for travel due to...
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