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No more arbitrary charges in bank disclosure orders

2021-03-30

Introduction

Perhaps the time has come for a suitable association of banks to consider in broad terms what would be fair and reasonable charges for complying with disclosure orders” – the Honourable Mr Justice Coleman

Previously in “ONC Lawyers and Twenty Essex Joint Press Release - Digitisation of Hong Kong’s judiciary: introducing Hong Kong’s first decision to allow service by access to data room”, we explained that digital service of legal documents was for the first time introduced in Hong Kong in the case of Hwang Joon Sang and others v Golden Electronics and others [2020] HKCFI 1084.

The recurring theme for the previous sets of decision is to make asset recovery operations for fraud victims more affordable via the long overdue application of technology in the civil litigation practice.

Under the same case, the Court of First Instance (“CFI”) recently, for the first time, openly addressed the issue of lack of regulations over bank charges in disclosure applications.


The disclosure application

The Plaintiffs in this case are victims of cross-border and multi-tiered fraud. One of the Defendants absconded with funds of the Plaintiffs and laundered the monies through various individuals and corporates. The Plaintiffs have since then begun its unceasing money-tracing process (a required step in order to reclaim the stolen funds).

Since the start of this action, the Plaintiffs have applied for multiple disclosure orders, thanks to which the Plaintiffs were able to identify new Defendants and make progress in tracking the defrauded funds. In any disclosure / banker’s trust application, the applying party is obliged to indemnify the disclosing party for their costs for providing the documents to comply with the disclosure order owing to the fact that the disclosing party is an innocent party.

Whilst such rules clearly have its merits, such exercise (as exemplified in the present case) would prove time and cost consuming however as bank charges, prior to this moment, were largely unregulated. As a case in point, at present, the Court has noticed that some banks have elected to charge thousands of dollars for administrative fees, HK$200 per page photocopying charges (which seems hard to justify as law firms would only charge HK$1 per page) and legal fees to top it all off.


The lacuna

It is a common practice for banks to charge applicants of disclosure orders fees for producing the documents sought, which often consist of administrative fees, photocopying charges and in some cases, legal fees for their retained legal advisors.

There was no regulation or framework of any kind that dictates or at least suggests how these charges should be levied making it a free for all at the disclosing party’s discretion. While there seems to be some kind of tacit agreement among parties that bank charges should be reasonable, what is considered reasonable is not a well-settled concept.

The Plaintiffs in this case could well prove this point as they had received disparate bills from different banks in Hong Kong in all the disclosure applications they have done so far, ranging from free of charge to HK$200 per page.

Worst still, some banks would make acceptance of and undertaking to pay such charges a condition to not objecting the Plaintiffs’ disclosure applications. Even though the Plaintiffs are well aware that the charges proposed by certain banks are exorbitant and excessive with no apparent justification or explanation, they had no choice but to concede to the same in order to continue with their tracing exercise.


The CFI’s findings

As mentioned above, the Plaintiffs were asked to pay bank charges calculated in somewhat arbitrary ways. In light of this, the Court was invited to consider whether bank charges should be regulated in order to make future disclosure applications more equitable and promote a sense of reasonable proportion and procedural economy in accordance with the underlying objectives of the Rules of High Court. In response, the CFI made various comments that could set the bank industry thinking.

Possible deterrence effect against victims of fraud

“…I do not think it is a part of the profit making of a bank to charge for compliance with orders for disclosure on a basis greater than the actual reasonable costs of compliance.” – the Honourable Mr Justice Coleman

The CFI was mindful of its previous decision made on the same case (as quoted above), where the Court has already expressed concerns on banks’ significant photocopying charges, hence leading to the unprecedented decision of allowing the use of data room for serving documents digitally in order to not make the Plaintiffs expend further sums while they are still attempting to recover what they have lost.

In fact, the whole point of ordering the Plaintiffs to pay the costs of the banks for providing disclosure was to ensure full compensation for the costs that the disclosing party have expended and burdened with. If victims were forced to pay extravagant photocopying or administrative charges, they will be stuck with a “take it or leave it” situation or may even be deterred from making any disclosure applications, as observed by the Court in the Decision.

Hence, the CFI asked banks and financial institutions to “give careful thought as to the real and reasonable costs of compliance, which would justify the full indemnity extracted from the applicant”.

Cost-efficiencies and environmental concerns

The CFI also noted that banks being asked to disclose documents likely hold the relevant materials in electronic or digital form. It would be a waste of time and cost if banks were to print out hard copies of the documents only for the Plaintiffs to later convert them back to electronic forms for retention and further use.

Moreover, the legal industry has already contributed more than enough to the already grave paper waste problem. The practice of providing physical copies in bank disclosure orders is simply “environmentally unattractive”, as commented by the Court.

Although the above were given as obiter, it is expected that in a suitable occasion where the Court is asked to determine whether a certain charge proposed by a bank is acceptable, this Decision will be pivotal.


Conclusion

With the explosion of financial frauds, disclosure orders are no longer stranger to many. The Decision is perhaps music to fraud victims’ ears, in that banks’ arbitrary charges are finally openly questioned of and condemned against by the judiciary. Whether the Decision can really change the existing practice of some institutions remains to be seen but the progress it has made in bringing equity to fraud victims is certainly momentous and worth celebrating.




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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2021

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