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Nonghyup Bank (As Trustee Of Pacificbridge Gold Income Fund 1) v Universe Income Builder Fund Vi Llc And Others

Judgment Cited authorities 1 Cited in Precedent Map Related
Vincent
Judgment Date26 November 2021
Neutral Citation[2021] HKCFI 3519
Year2021
Judgement NumberHCA2089/2020
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA2089A/2020 NONGHYUP BANK (AS TRUSTEE OF PACIFICBRIDGE GOLD INCOME FUND 1) v. UNIVERSE INCOME BUILDER FUND VI LLC AND OTHERS

HCA 2089/2020

[2021] HKCFI 3519

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2089 OF 2020

________________________

BETWEEN

NONGHYUP BANK (AS TRUSTEE OF PACIFICBRIDGE GOLD INCOME FUND 1)
 Plaintiff
and
UNIVERSE INCOME BUILDER FUND VI LLC 1st Defendant
KH UAM GOLD TRADING (HONG KONG) LTD
 2nd Defendant
UNIVERSE ASIA MANAGEMENT LTD 3rd Defendant
JACK P CHANG 4th Defendant
HO DICK SHUN ERIC 5th Defendant
JUNG JOO HO 6th Defendant
LEGACY TRUST COMPANY LIMITED 7th Defendant

________________________

Before: Hon Coleman J in Chambers (Open to Public)

Date of Hearing: 24 November 2021

Date of Decision: 26 November 2021

________________________

D E C I S I O N

________________________


A. Introduction

1. By summons dated 31 March 2021 (amended on 16 November 2021 to correct a currency denomination), the 7th defendant (“D7”) sought, amongst other relief: (1) to be allowed to interplead, and to pay into Court the sum of US$5,024,144.16 (less the amount of D7’s fees, charges and/or agreed, taxed or assessed legal costs); and (2) that the plaintiff’s claim against D7 be stayed.

2. By his order dated 7 May 2021, DHCJ Maurellet SC allowed D7 to interplead by paying the sum of US$5,024,144.16 into Court (without deductions, or any decision on what deductions might be made later), and gave directions for substantive argument on the remaining aspects of the summons. The paragraph of the order allowing D7 to interplead was made by consent (of the plaintiff and D7). The sum was paid into Court on 14 May 2021.

3. The 1st to 6th defendants (“D1-D6”) have taken no part in this aspect of the case, and did not appear at the hearing.

4. There are now said to be two remaining issues to be determined: (1) the amount of the costs, fees and charges which D7 is entitled to deduct from the sum paid into Court; and (2) whether, and the extent to which, the proceedings against D7 should be stayed.

5. Mr Raymond Chu, Counsel for D7, asks me to approach these two issues discretely. Mr Roger Phang (with Mr Adrian TY Wong), Counsel for the plaintiff, says the two issues are overlapping and the answer to the second question is informed by the answer to the first.

6. Though it is correct that there may be some overlap between the issues relating to (a) the extent of the stay and (b) the costs and charges to which D7 is entitled, it is of course convenient to deal with the two matters under two separate headings.

B. The Context

7. But first, those two remaining issues need to be addressed in proper context. The starting point is the plaintiff’s pleaded case vis-a-vis D7, which describes D7 as a public company incorporated in Hong Kong on 30 June 1992 providing professional trustee and custodian services to institutions, advisers and high net-worth individuals.

8. The plaintiff asserts that it was the victim of a fraudulent investment Ponzi scheme orchestrated by the 1st to 6th defendants, to an amount of its investment of approximately US$32.8 million. From the pleading in the statement of claim, it is clear that the claim against D7 is based only on constructive trust. Essentially, the plaintiff asserts (§§45-46) that certain sums, or the traceable proceeds and/or substitutes of them, were held by D7 on constructive trust, since D7 was put on notice that the proceeds and/or substitutes received by it were transferred in breach of trust. In the prayer for relief, the plaintiff seeks a declaration that D7 holds the sum of US$32.8 million received into D7’s bank account and/or any proceeds, fruits, benefits, interests or assets derived from any part of such total sum on constructive trust in favour of the plaintiff, as well as an account of the various sums received as constructive trustee.

9. In its defence, filed after the interpleader summons, D7 made clear that it claimed no interest as regards the sum still held by it, totalling the US$5,024,144.16. D7 also pleaded that it was a bona fide innocent third party without notice, and that the sum still held was the maximum amount held by D7 traceable back to the original investment amount and/or subject to the alleged constructive trust pleaded by the plaintiff. The plaintiff has not filed any reply to that defence (although it has filed a reply in response to the defences filed by the other defendants).

10. The plaintiff sought and obtained interlocutory injunctive relief. In the affirmation of Lee Sang Boon dated 10 December 2020, leading the original application, reference was made to the prior Norwich Pharmacal application made against D7, by which the plaintiff obtained the numerous documentary disclosures from D7, later used to produce a Fund Flow Tracing Report. The affirmation also specifically stated:

As regards [D7], I have previously filed an affirmation in support of the Originating Summons for the Norwich Pharmacal order the posting to my belief that [D7] is an innocent third party which was mixed up in the wrongdoing of the Chang Camp. I wish to point out that NB’s naming of [D7] as the 7th Defendant in the intended action does not undermine or contradict that belief. As the draft Writ of Summons and Statement of Claim shows, NB’s claim against [D7] is merely as a constructive trustee of the balance of the Senior Note Amount. No wrongdoing is alleged against [D7].

11. Nevertheless, the plaintiff now says that the claim against D7 should be stayed, if at all, only to the extent of the interpleader amount paid into Court. In the affirmation of the plaintiff’s solicitor, this is explained to be because the plaintiff’s proprietary claim as pleaded against D7 is not confined to the interpleader amount, and D7 may interplead as to so much of the debt as it admits, the dispute as to the residue being settled separately.

12. In that context, it is also appropriate to be reminded of the decision of DHCJ William Wong SC dated 11 January 2021, [2021] HKCFI 107, by which he acceded to D7’s application to discharge the proprietary injunction previously obtained against D7, when D7 had undertaken not to dissipate the remaining sum held by it. As the Deputy Judge noted (§4), it is not alleged that D7 is a party to the alleged fraudulent scheme, but is rather an innocent party fixed up with the alleged wrongdoings. It is further not disputed that D7 only (then) had the sum of approximately US$4.88 million in its account which could be said to be traceable back to the plaintiff’s investments through the alleged fraudulent scheme. He also referenced (§5) the above passage from the Lee affirmation. In those circumstances, the Deputy Judge expressed (§6) some surprise that the ex-party proprietary injunction was granted against D7 for the total US$32.8 million, when (§9) it was relatively clear to him that the plaintiff should never have applied for a sum exceeding the remaining balance of the Senior Note Amount against D7, an innocent party. He noted (§17) that on a practical level, even on the plaintiff’s own case, the dissipative funds are unlikely to return to the accounts of D7, and (§25) that there is no evidence of any plausible chance that some other sums would be returned to D7.

C. Applicable Principles

13. There is no dispute as to the applicable principles, by reference to RHC Order 17 rules 7 and 8. Where a defendant to an action applies for interpleader relief, the Court may order a stay of all further proceedings in the action, and the Court may make such orders as to costs or any other matter as it thinks just.

14. It is also correct that a successful interpleader is normally entitled to his costs and charges. Further, there is wide discretion as to the form of payment of interpleader costs and charges. In this particular case, D7 seeks to obtain payment out of the interpleaded sum. But it is common ground that there is an unfettered discretion as to what costs or charges might be permitted.

D. Extent of Stay

15. Mr Chu makes the straightforward submission that though the plaintiff’s claim is to the US$32.8 million, it is indisputable or uncontested that (a) the funds have since moved on, (b) D7 is an innocent party without notice at all material times, and (c) the plaintiff’s tracing claim is subsumed in the interpleaded amount. Therefore, he submits, there is simply no reasonable basis for any wider proprietary claim (in particular on an alleged constructive trust) against D7.

16. In response, Mr Phang emphasises that the plaintiff’s claim by way of final relief is to the declaration that D7 holds the sum of US$32.8 million or its traceable proceeds on constructive trust for the plaintiff, and an account of that sum. So, he says, it must be indisputable that to the extent that there is or may be any further traceable proceeds in D7’s possession, P is entitled to claim by way of final relief.

17. Mr Phang also points to aspects of the evidence which he says raise questions about previous fees and charges, which he says amount to suspicious circumstances warranting further discovery up to trial regarding whether there are any further traceable proceeds and regarding D7’s obligations under the Guarantee Agreement, as defined. So, he says, in the exercise of the Court’ as discretion, the action should be stayed (if at all) only to the extent of the interpleaded amount. The rest of the dispute should be settled separately.

18. Mr Phang took me through the various contractual documents surrounding the underlying allegedly fraudulent investment scheme, the custodian ship and administration arrangements, the guarantee agreement and the fund flows shown in the Fund Flow Report. Much of that was more by way of background, and in particular to emphasise that the...

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