Hong Kong High Court finds banks have duty of care to assist with disclosure orders to combat financial crimes

Introduction

Victims of internet related and similar frauds (of which there are far too many these days) invariably are left in the dark as to the whereabouts of their money and who the fraudsters taking it are.

They need to quickly engage lawyers in the jurisdiction the money was mistakenly paid to and: (i) make a crime report; (ii) commence a civil recovery action; (iii) seek Mareva and proprietary injunctions (to stop the money from disappearing); and (iv) seek disclosure orders¹ against the banks where the recipients of their money hold their accounts to allow them to identify the fraudster if necessary and to trace and recover their money.

While Mareva and proprietary injunctions will often have disclosure obligations in them these are made against the fraudster and their utility can be limited depending on the fraudster complying with these orders in the first place and if they do so, upon them telling the truth. 

Time is also of the essence, money moves quickly and a victim of a fraud does not want to wait for the fraudster to comply with the injunctions. Accordingly obtaining disclosure orders is an extremely useful way to find evidence to allow the victim to trace and recover their money back without having to rely on the fraudster to give them this information. 

A victim of fraud has the ignominy of losing its money. It then needs to engage solicitors to take steps (i) to (iv) above, which will include paying a bank its costs (including fees for legal advice) and charges incurred complying with the Court's disclosure order.

Such banks, third parties to the dispute, are in a difficult position. They owe duties of confidentiality to their clients who may well be the fraudster. When a disclosure order is sought they are obliged to spend time to understand it and make sure it is brought appropriately. They need to decide whether to oppose the application or to take a neutral stance to it (which is the most common course taken). Then, when the order is made, they need to spend time and effort to retrieve the material.

In Ho Yuen Yu Ivy v Zhang Li Hua [2025] HKCFI 2461, the Honourable Madam Justice Au-Yeung ("Judge") reviewed the relevant legal principles reminding banks and their legal representatives of their obligations when dealing with disclosure orders.

Background

An internet fraud victim sought information about a second-tier recipient of its money who maintained a bank account in Hong Kong. Disclosure orders were obtained and as usual the Court ordered that costs and expenses incurred by the bank were to be paid by the victim on a full indemnity basis which if not agreed, would then be assessed by the Court.

The bank's solicitors sought legal costs and bank charges which were significant compared to the amount lost into the account and that caught the Judge's attention. It was noted a fraud victim faces a dilemma of having no choice but to accept the bank’s demanded charges or contest them in a hearing. Worse still in the face of these costs they could decide not to pursue the disclosure at all because it was not commercially worth it. The Judge observed:

Banks can recover only reasonable costs: The bank can only claim costs limited to those which it is liable to pay its own solicitor and such costs must be both a reasonable amount and reasonably incurred.

The Judge considered for a "one defendant, one deposit and one bank account" disclosure order situation, the range of reasonable full indemnity costs payable by a fraud victim to a bank would be between HK$15,000 to HK$30,000².

The current case being the least complex meant the bank could only recover HK$15,000 for its legal costs and bank charges of HK$1,520.

Bank's duty to help fraud victims: Also made clear and very importantly was the point that a bank in handling a disclosure order had obligations to combat financial crimes in Hong Kong. Excessive bank charges and legal costs for compliance with disclosure orders were therefore unacceptable because that would defeat a claim against the fraudster when they invariably, in the face of the dilemma mentioned above, gave up.

Court's expectations: Finally it was noted by the Judge that handling disclosure orders was an "ordinary type of bank work" where the law was settled. The legal costs incurred by a bank should be reduced with checklists, training or use of standard terms.

Here the Judge allowed the bank concerned just a quarter of the costs it sought³. 

Implications

The Judge's decision in Ho Yuen Yu Ivy v Zhang Li Hua reminds that banks in Hong Kong, an important financial centre, have a key role in combating financial crime. A bank allowing their solicitors to charge anything (without control akin to other types of civil litigation) to advise them with respect to a disclosure order is not properly discharging its obligations.

The Judge's guidance of HK$15,000 to HK$30,000 for a "one defendant, one deposit and one bank account" disclosure order where the sums were in the account for a limited period of time is a very good reference for future disclosure proceedings which banks should note and develop internal practices and guidelines to be efficient about. 

If any bank needs assistance with regard to the above please contact us.

With respect to fraud victims, it is hoped a lot less of them in the future should face the dilemma caused by excessive bank and legal charges with respect to disclosure orders and be able to continue with their claims and get justice ultimately.
 

¹ With respect to disclosure orders the fraud victim has two options. They can seek a Norwich Pharmacal Order ("NPO") which is a standalone application against the bank where their funds were paid to for material including account opening documentation to identify the Defendant to sue and bank statements so they can identify where their money went to, if withdrawn, and what amounts remain in the account. They can also seek a Banker's Book Order pursuant to section 21 of the Evidence Ordinance which is sought within the Writ action commenced against the fraudster, for an order that the bank discloses transaction records of an account by giving copies of entries in their records or allowing these to be inspected. While the orders are similar, the Banker's Book Order is preferrable because it can be made in Writ action along with injunctions. The NPO is often preliminary to a Writ action and usually only made when there is insufficient evidence available to them to commence a civil recovery Writ action, for example who the Defendant is so that such Defendant can be sued.    

² Banks and their lawyers have often been seen by us seeking double or triple these sums from the fraud victims.

³ The disclosure order resulted in just 22 pages of material and seven sets of bank statements.