“Tainted Love”?

There is a line in the famous song of the same title that goes something like: “The love we share, seems to go nowhere”.

Not only is there an industry out there of such things as “Telephone Scams”, “Online Romance Scams” and “Online Naked Chat Blackmail” (Industry Insights, November 2015), but recent cases in Hong Kong suggest that some parties may be losing substantial amounts of money due to what the judge in Karla Otto Ltd v Bulent Eren Bayram [2017] HKEC 378, HCA 821/2011, described as, perhaps, “misplaced trust which is generated when parties are engaged in a romantic relationship”*.

The judgment is interesting for a number of reasons and provides a cautionary tale.

A certain “Ms. Otto” and the first defendant had been in a personal relationship and the latter had, apparently, been allowed to operate one of the plaintiff company’s online bank accounts. After the relationship ended, the plaintiff sought the return of monies paid out of its bank account some of which appear to have ended-up in the bank account of the second defendant, a Hong Kong company of which the first defendant was the sole shareholder and director.

Given that the first defendant was found to be acting as a de facto director of the plaintiff company, he owed it a fiduciary duty and was held liable, together with the second defendant company (which, in effect, he controlled), to return the money to the plaintiff.

The comprehensive set of reliefs granted by court to the plaintiff (in addition to repayment of the money) is worth noting; for example, declarations, delivery up of share certificates or books and records of the second defendant in the first defendant’s possession, the resignation of the first defendant as a director of the second defendant pursuant to s.729 (“Court may order remedies“) of the Companies Ordinance (Cap. 622).

There is also a suggestion in the judgment that the first defendant may have attempted to adjourn the trial by the use of a questionable “doctor’s note” (also see – “Video testimony and doctors’ notes”, Industry Insights, October 2013).

A lesson to be learned is that business and personal relationships often do not mix very well.

Furthermore, without reference to any particular case, no one should allow another person to operate their bank account. In a sign of the times, appropriate due diligence is required not only in a business context but also prior to entering into and during a personal relationship. Indeed, anything else risks a financial loss and an exposure to being held accountable for another person’s alleged nefarious activities.


* Also see Chu Wen Jing Jennifer v Sin Hon Wai [2016] HKEC 2474, HCA 10, 6 and 121/2016.

Jurisdictions: 

Partner, Smyth & Co in association with RPC

Senior Consultant, Smyth & Co in association with RPC