TENWOW INTERNATIONAL HOLDINGS LTD (IN LIQUIDATION) AND ANOTHER v. PRICEWATERHOUSECOOPERS (A FIRM) AND ANOTHER

HCCL 5/2023, HCCL 6/2023

(Consolidated)

[2024] HKCFI 2692

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 5 OF 2023

COMMERCIAL ACTION NO. 6 OF 2023

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(Consolidated by the Order of the Honourable Mr Justice Anthony Chan
dated 8 November 2023)

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DECISION

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1.  These are the court’s reasons for declining this application by D2 for leave to appeal against the Decision dated 2 May 2024 ([2024] HKCFI 1146)[1] by reason of lack of merit in the intended appeal.

2.  First, the draft grounds for appeal are not proper grounds but 8 pages of dense arguments. Even if there were merits in the arguments, D2 would be required to put forward proper ground(s) of appeal before leave can be granted.

3.  Second, much of D2’s arguments are repetition of those advanced at the hearing. A carpet-bombing strategy was adopted where every conceivable point is taken or reargued.

4.  Third, I am grateful to counsel for reminding the court of the applicable principles on leave to appeal, the thresholds for appealing against an exercise of discretion and a finding of fact, as well as adducing fresh evidence on appeal. These principles are borne in mind by the court.

5.  In respect of Ground (1) of the proposed grounds of appeal – A LOR should not be issued to assist a party to comply with its discovery obligations, the Decision was based on the authorities before the court; the fact that disclosure obligations are governed by Hong Kong law; Hong Kong court should not subjugate its power over discovery to foreign criminal law; and Hong Kong court has all the necessary power to enforce discovery obligations: Decision, [24]-[44].

6.  The arguments of D2 did not properly address the above reasons. D2 relies on (a) an Australian case which was decided without argument; and (b) a US case as persuasive authority. The latter was concerned with the applicability of the Hague Evidence Convention. I am unable to see real relevance of this case to the issues dealt with in the Decision.

7.  I am unable to agree that the Decision sought to set a rule against the issuance of a LOR. It was a matter of discretion of the court: Decision, [18]-[21]. As stated in the Decision, [25], one of the considerations for the court was whether LOR are normally issued for obtaining evidence from non-parties.

8.  Ground 2 – The Mutual Arrangement was not applicable. It is argued that there was a procedural unfairness in the ruling by the court that Art 6 of the Mutual Arrangement was inapplicable. The argument has no merit. D2’s application was made on the basis of obtaining approval from Competent Authorities via a LOR issued pursuant to the Mutual Arrangement: see Decision, [3(2)]. Further, the case of Huang Yu Hui was cited to the court by D2’s senior counsel: Decision, [22]. The case stands for the proposition that to justify the issuance of a LOR, it must be demonstrated that the request falls within the scope of one of the articles of the Mutual Arrangement.

9.  Further, I agree with paras 31 and 32 of the skeleton submissions of Mr Manzoni SC, who appeared with Mr Karas for the Plaintiffs, that D2’s first instance skeleton arguments and the draft LOR had made it abundantly clear that the LOR was required for obtaining approval.

10.  Ground 3 – No evidence that the D2 Documents contained Regulated Information. Unless D2 could satisfy the court that there was a blanket prohibition over the D2 Documents (which it failed), it was a matter of plain common sense that evidence should be adduced by D2 on whether the D2 Document contained Regulated Information and thus could not be produced in Hong Kong without approval from Competent Authorities.

11.  As for the alleged blanket prohibition, it was rejected for the 5 reasons stated in the Decision, [71]-[80]. See also [83]-[84]. I see no valid challenge to those reasons.

12.  Ground 4 – Discretion. It is unrealistic to suggest that D2 was not aware of the need to apply for approval as D1 did back in May 2020. D2 were professionals responsible for the audit work of the Tenwow Group’s Mainland subsidiaries: Decision, [9], [12] and [92].

13.  The exercise of discretion by the court also took into account the delay in obtaining the approval(s) and the eventual transfer of the D2 Documents to Hong Kong, as well as considerations of futility: Decision, [86]-[95]. I see no valid basis to challenge the exercise of discretion.

14.  On D2’s contention that leave should be granted on the interest of justice limb because there is a lack of precedent and this case concerned the proper interpretation of Regulation 44. I agree with Mr Manzoni, and it is accepted by Mr Shieh SC, who appeared with Ms Au for D2, that it is inappropriate to invoke this limb if this court is of the view that there is no merit in the intended appeal.

15.  As for the case of China Metal Recycling (Holdings) Ltd (in liq) v Deloitte Touche Tohmatsu (a firm) [2024] HKCFI 877, it was dealt with in the Decision, [33] and [85].

Fresh evidence

16.  There is a half-hearted suggestion that “insofar as is necessary” D2 intends to adduce fresh evidence on appeal, namely, the Interim Measures for Data Security Management by Accounting Firms, which will come into force tomorrow. The treatment of this intended application was limited to paras 28 and 29 of Mr Sheih’s skeleton submissions, which did not properly address the second requirement of Ladd v Marshall.

17.  In his viva voce submissions, Mr Shieh did not try to meet the challenge by Mr Manzoni (para 45 of the Plaintiffs’ skeleton submissions) that the second limb of Ladd v Marshall cannot be satisfied. I agree with Mr Manzoni’s submissions.

Stay of execution

18.  In respect of any further stay of execution of the Decision, Mr Manzoni agrees that in the event where leave to appeal is decline, this court should only grant a short stay (7 days) for D2 to apply for a stay before the Court of Appeal (“CA”).

19.  The delay is this case is lamentable, especially when the trial is to take place in March 2026, and the witness statements are outstanding and issue(s) of expert evidence yet to be addressed. As indicated in the Decision, the court was not impressed with the delay caused by the discovery of the D2 documents, which are “important to the issues to be determined in this action” (Decision, [2]).

20.  However, the hands of the court are tied in the sense that, given the nature of this case and the plentiful resources of D2, it is likely to seek an urgent stay from the CA in the absence of one granted by this court. This will add to the burden on the overstretched resources of the CA. With reluctance, I grant a further stay of 7 days to enable D2 to make a stay application before the CA.

Costs

21.  The parties agree to the usual costs order. I make an order that the costs of this application be paid by D2. I do not believe that the service of 2 advocates is justified.

22.  Mr Manzoni asked for the costs to be summarily assessed. I order accordingly. The Plaintiffs are to lodge and serve their Statements of Costs within 5 days from today. D2 is to respond to the Statements of Costs within 3 days thereafter, limited to 3 pages printed in A4 paper with font size 13, 1.5 line spacing and margins not less than 1 inch. Any reply, limited to 2 pages with the same format, is to be lodged and served within 2 days thereafter. The assessment will then be determined by the court on paper.

23.  I am grateful to counsel for their assistance.