XCHRX ARMCO INC. AND OTHERS v. NPV LTD. AND ANOTHER

HCA 13168/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13168 OF 1998

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J U D G M E N T

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I am concerned with 3 summonses:-

(1) an application by the Second Defendant to set aside an order made by me on 26th November 1998 ("the NPV-Nevis Order").

(2) an application by the Plaintiffs for leave to use documents and information disclosed by the Second Defendant pursuant to a worldwide Mareva injunction granted by me on 27th August 1998 which was discharged but immediately re-issued on 23rd September 1998 ("the Mareva injunction") for specified purposes; and

(3) an application by the Plaintiffs for order to inspect and copy certain documents relating to the banking accounts of a company called NPV Limited registered in the British Virgin Islands ("NPV-BVI") held at the Hongkong and Shanghai Banking Corporation Limited ("HSBC") and for leave to use the documents for specified purposes.

2. Both defendants in this case have been made the subject of worldwide Mareva injunction orders made in the later half of 1998. Those orders include provision for discovery relating to the defendants' assets and banking accounts in Hong Kong. None of the orders has been appealed against. It is no longer appropriate to re-examine the justification for the discovery orders. I now deal with the summonses in turn.

The Second Defendant's summons

3. On 26th November 1998, I made the NPV-Nevis Order on the application of the Plaintiffs against the First Defendant ("NPV-Nevis"). That application was made inter partes but NPV-Nevis was unrepresented. In fact, NPV-Nevis has not even filed acknowledgement of service of the writ. I was on that occasion assured by affidavit evidence that the application by summons had been served on NPV-Nevis and on the Second Defendant believed to be one of the persons who had control of NPV-Nevis.

4. The NPV-Nevis Order gave leave to the Plaintiffs to use documents and information obtained by virtue of a prior discovery order for the following purposes:-

(1) a subpoena dated 19th October 1998 issued by the United States Attorney's Office and directed to the Plaintiffs;

(2) proceedings in the United States Bankruptcy Court and the United States District Court involving the Plaintiffs and parties connected with the defendants herein, and

(3) to consider whether to bring action in the courts of England and Wales against the defendants herein and others.

5. Mr. Burns for the Second Defendant contended that the NPV-Nevis Order should be set aside because the application had not been served on his lay client qua Second Defendant when it should in accordance with Order 32 rule 3 of the Rules of High Court. It was suggested that the Second Defendant would be affected by the NPV-Nevis Order and so he should be given the opportunity to make representation even though the order was not directed against him.

6. Mr. Shieh for the Plaintiffs said that only parties who disclosed the documents and information, i.e. NPV-Nevis and HSBC, had locus to make representation on the occasion when the court was considering the application for the NPV-Nevis Order. I was referred to the case of Re Creehouse Ltd [1983] 1 W.L.R. 77. In that case, solicitors applied to withdraw from acting for their client in a chancery case. The application was served on their client but not on other parties to the chancery case. After the court granted the application, one of the parties to the case sought to have the order set aside on the ground that they had not been served with the application to withdraw and hence not given the opportunity to attend the hearing of the application. The Court of Appeal held that although the relevant rule in the Rules of Supreme Court, as in this case, do stipulate service on "every other party", only such parties as are affected by the application, not every party in the case, need to be served. I do not think the Second Defendant can really challenge the plain wisdom of this authority.

7. There is, however, some truth in the saying by Mr. Burns that the Second Defendant is affected by the NPV-Nevis Order. Mr. Shieh countered that the Court should not take "affected" literally. Of course parties and non-parties would be affected somehow one way or another. He suggested that an affected party should be understood as a party or non-party to the case who has his legal right impinged upon. Here, the Second Defendant may be prejudiced in the sense that he might suffer some adverse consequences but none of his rights has been impinged by the NPV-Nevis Order. I should say Mr. Shieh's analysis is compelling.

8. Mr. Shieh advanced his clients' case further in this regard by saying that the original order for discovery was granted against the interests of NPV-Nevis and HSBC, hence only these two party and non-party have locus standi to raise opposition to any release from the undertakings given that form part of the basis for the grant of the prior discovery order. I think this also accords with legal logic.

9. In my view, it may be imprudent on my part to generate a principle that only persons who give discovery may raise objection in an application to use documents or information obtained from such discovery. There may well be cases in which a person, even though not a party to the case and not the party that gave discovery, may claim certain privilege, e.g. public interest privilege, or allege that his legal right would be impinged upon if documents or information obtained against undertakings not to use for other purposes is permitted to be used for some collateral purpose. In such cases, it must be open to that person to come to court to make good his case. In other words, the persons who have locus standi to oppose in like cases are not limited to those who give discovery.

10. However, this is not to say that the application for leave to use documents and information obtained against undertakings not to use for any collateral purpose must be served on all persons with locus standi to oppose. For one reason, it is not always possible to ascertain the persons who have locus standi to oppose. For another, it is not practicable to serve every known person who might have locus standi to oppose. I think it would suffice if an application for leave to use documents or information is initially served on those parties and non-parties who give discovery. Persons claiming locus standi to oppose, upon learning about the application, if they wish to, may take appropriate steps to indicate to the court that they wish to be heard.

11. For the purposes of the Second Defendant's summons, I hold that on the true construction of Order 32 rule 3 of the Rules of High Court, the Second Defendant qua Second Defendant per se needed not be served with the application for the NPV-Nevis Order. As a person claiming locus standi under common law or equity to object to the said application, the Second Defendant has not satisfied me that he meets the criteria I have accepted as giving rise to locus. Accordingly, the Second Defendant's summons ought to fail.

12. Even if it can be argued that somehow the Second Defendant ought to be given the opportunity to be heard, he had been served with the application for the NPV-Nevis Order in his capacity as a director of NPV-Nevis. He could have taken steps to come to court on 26th November 1998 when the application was heard. His explanation, according to an affidavit sworn by his solicitor on 3rd February 1999, is that he was at one stage overwhelmed by the volume of legal documentation that the Second Defendant resorted to setting aside all documents received by him but addressed to NPV-Nevis. In view of all the circumstances in this case, I find this explanation rather tenuous and his unattentive attitude inexcusable.

13. For the reasons given above, there was insufficient basis to set aside the NPV-Nevis Order on the application and ground put forward by the Second Defendant. The Second Defendant's summons was accordingly dismissed.

The summons against the Second Defendant

14. The Mareva injunction granted by me on 23rd September 1998 contains provision for discovery against the Second Defendant. As a consequence, the Plaintiffs have obtained documents and information relating to assets and banking account held by the Second Defendant. The Plaintiffs then sought leave by this summons to use the documents and information for the following purposes:-

(1) to comply with a subpoena dated 19th October 1998 issued by the United States Attorneys Office and directed to the Plaintiffs; and

(2) proceedings in the United States Bankruptcy Court and the United States District Court (98-8931-A CTLB and 98 Civ. 6084(AGS)).

15. I was told at the hearing of this summons against the Second Defendant that the United States Attorney's Office had decided not to pursue its investigation and that therefore the subpoena dated 19th October 1998 is no longer relevant. Nonetheless, the Second Defendant opposed use of the documents and information for proceedings in the United States courts.

16. Mr. Burns mounted a two front attack for the Second Defendant. In the broad front, he argued that

(1) since by consent incorporated into the Mareva injunction order of the 23rd September 1998, proceedings in Hong Kong against the Second Defendant had been stayed except for the purposes of "continuation and enforcement of" the Mareva injunction order, it was not appropriate to take the case further with this summons

(2) there are pending applications in the US proceedings to dismiss the cases for want of personal jurisdiction and on the ground of forum non conveniens; in fact the US proceedings have been stayed; the purpose for which this summons was taken out might well lapse; and

(3) there is a pending application by the Second Defendant to the High Court in London against the Plaintiffs for an anti-suit injunction; if that application succeeds, the Plaintiffs would be barred from taking legal action against the Second Defendant outside the United Kingdom.

17. In the technical front, Mr. Burns argued that

(1) the Court should not lightly release the Plaintiffs from their undertaking not to use documents and information for other purpose. It is noted that in some cases the undertaking is sometimes expressed in terms of an undertaking "not without the consent of the party who gave delivery" to use documents and information for collateral purposes;

(2) there being already proceedings in other parts of the world between the parties, the court should be astitute to ensure that a litigant is not oppressed by a multiplicity of proceedings in different jurisdictions over essentially the same cause of action;

(3) in the circumstances of this case, there is no justification for giving leave to use documents and information relating to the assets and banking accounts of the Second Defendant.

18. Mr. Shieh for the Plaintiffs submitted that the court and all parties concerned have been well aware that proceedings in Hong Kong are for the purpose of policing the Mareva and tracing assets allegedly obtained by the Second Defendant and others by fraud or breach of trust. This applies to some of the proceedings in other parts of the world too. This is not the case of the parties fighting main action in more than one jurisdiction. It is appropriate to use documents and information obtained in Hong Kong for the purposes of proceedings in the United States where for the time being the main action is fought.

19. As far as proceedings in the United States Bankruptcy Court and District Court are concerned, Mr. Shieh conceded that there is a temporary stay pending disposal of the application to dismiss for want of jurisdiction and forum non conveniens. But the documents and information obtained in Hong Kong relating to the Second Defendant may well be relevant on the issue of want of jurisdiction for the purposes of proceedings in the United States.

20. Regarding the anti-suit junction application in London, Mr. Shieh referred me to a decision by Stone J. in the Sumitomo Bank Limited v. Xin Hua Estate Limited et al HCCL 256 of 1996 which sets out the principles to be applied in considering an application for anti-suit injunction. Apparently, an English court considering an application for anti-suit injunction would not lightly grant an order unless all the foreign jurisdictions have had the opportunity to consider the problems of multiplicity of proceedings.

21. Counsel also drew my attention to a number of cases in which English courts have disposed of similar applications. I think I need to refer to one of them only by way of illustration: Bankers Trust v. Shapira [1980] 1 W.L.R. 1274. In that case, the headnote at p.1275 reads:-

"Held, allowing the appeal and granting the order sought against the D bank, that though the court would not lightly use its powers to order disclosure of full information touching the confidential relationship of banker and customer, such an order was justified even at the early interlocutory stages of an action where plaintiffs sought to trace funds which in equity belonged to them and of which there was strong evidence that they had been fraudulently deprived and delay might result in the dissipation of the funds before the action came to trial; and that in the new and developing jurisdiction where neutral and innocent persons were under a duty to assist plaintiffs who were the victims of wrongdoing, the court would not hesitate to make strong orders to ascertain the whereabouts and prevent the disposal of such property; but that the plaintiffs should be correspondingly bound to undertake that such information would be used only for the purposes of the action to trace the funds and not for any other purpose."

22. I have spelt out in my judgment dated 12th October 1998 in some detail the allegations and evidence against the defendants herein. They formed the basis of the Mareva injunction with provision for discovery made by me on 23rd September 1998. For brevity's sake, they should not be rehearsed here. In the light of those allegations and evidence and in view of the fact that the proceedings in Hong Kong are to police the Mareva and to trace assets, I am satisfied that this is an appropriate case to give leave to use documents and information relating to the assets and banking accounts of the Second Defendant in Hong Kong for the purpose of the main action in the United States.

23. Of course, there is a risk that courts in the United States may decline jurisdiction in the proceedings already commenced by the Plaintiffs. But I do not know how great is the risk. Until such time as indeed courts in the United States have struck out the proceedings, I think one should act on the basis that there are pending actions for the purposes of which the documents and information in question may be relevant. Moreover, even on the question of want of jurisdiction, I am convinced that evidence tending to show the whereabouts of the assets and how they have been moved might well assist courts in the United States to decide whether they should be seized with the main actions.

24. The Second Defendant may be labouring under an illusion that his application in London for an anti-suit injunction would assist him on the narrow issue before me in this summons. An anti-suit injunction, if granted, would enjoin all antagonists from resolving their disputes in any forum non conveniens. However, this court does not even pretend that it is the natural forum to try the plaintiffs' substantive causes. I have already approved an order by consent that prevents the parties from proceeding further in Hong Kong on the main causes of action. All the steps taken by this court in this case so far are designed to aid the processes of the natural forum, wherever it may be. In my view, it is highly unlikely that an anti-suit injunction would restrict the Plaintiffs' right to seek interlocutory, ancillary or consequential relief in Hong Kong.

25. Accordingly, I gave leave to the Plaintiffs to use the relevant documents and information for the purposes of specified proceedings in the United States Bankruptcy Court and the United States District Court.

The Summons against NPV-BVI

26. This summons is couched in terms consisting of two parts: (1) an order for discovery against NPV-BVI in substantially the same tenor as that made against NPV-Nevis and (2) amendment of the NPV-Nevis Order by substituting NPV-BVI for NPV-Nevis.

27. Mr. Burns for the Second Defendant said that since the NPV-Nevis Order should be set aside on the grounds already mentioned, it would be a faux pas to give it a new lease of life by amendment. So far as NPV-BVI is concerned, it is not a party to these proceedings and it would be wrong for the court to order disclosure against that entity. Counsel also prayed in aid all the points he had made against the Plaintiffs in regard to the two other summonses.

28. Mr. Shieh explained that the sum effect of this summons is to seek against NPV-BVI an order for discovery and leave to use documents and information obtained under such order, in almost the same terms as the relief the court has already granted against NPV-Nevis. Counsel referred to earlier affidavit evidence which puts the Plaintiffs' case against NPV-Nevis equally against NPV-BVI. The reason for shifting attention from NPV-Nevis to NPV-BVI is a practical one. The Plaintiffs realized, albeit belatedly, that NPV-BVI rather than NPV-Nevis has assets or banking account with HSBC.

29. It is not difficult to see that Mr. Burns was gallantly fighting for the Second Defendant with no more than a few straws. This is, of course, not his fault. There is really no merit in the Second Defendant's case. Although this summons prays for "amendment" of the NPV-Nevis Order, the prayer is just what I would call a shorthand way of spelling out the relief sought against NPV-BVI in the same terms as the NPV-Nevis Order. The court must consider this summons on the merits against NPV-BVI, not on the basis of whether the NPV-Nevis Order should be rejuvenated.

30. This summons invokes the court's powers to make a bankers book order under Section 21 of the Evidence Ordinance Cap. 8 and the court's inherent jurisdiction to order discovery against non-parties. In either case, the court is amply empowered to make the order sought.

31. As to the merits, on the basis of all the affidavit evidence relied upon by me when considering orders against NPV-Nevis, I found that the Plaintiffs case in this summons against NPV-BVI is no lesser, if not stronger, than that against NPV-Nevis. The court having made similar orders against NPV-Nevis, there was no reason to reject an application for the same relief against NPV-BVI.

32. As to all the other points re-iterated by Mr. Burns, for the reasons given above in relation to the other summonses, they pose no obstacle to the Plaintiffs in this summons.

33. Accordingly, the Plaintiffs were granted an order in appropriate terms.

The NPV-Nevis Order

34. The Plaintiffs through counsel informed the court that this order is no longer necessary. In fact, the Plaintiffs refrained from sealing the order. I did not think an order of this kind should be left to stand if it does not serve any useful purpose. Hence, I took the opportunity to discharge the order on my own motion.

Costs

35. The Plaintiffs applied for costs against the Second Defendant in relation to the Second Defendant's summons. Although the Second Defendant did fail in his summons, the NPV-Nevis Order was discharged on the court's own motion. I could not say the Plaintiffs had complete victory. In fact, I thought a point should be made to encourage parties to take active steps to retire redundant orders and orders that have been overtaken by events. In the premises, I made no order as to costs on the Second Defendant's summons.

36. As to the two other summons, the Plaintiffs were content with costs in the cause. The Second Defendant could not really resist that. So, costs in the cause for the Plaintiffs' summonses.