XCHRX BEACH PETROLEUM NL (ACN 007 617 969) v. CORTAUS LIMITED (ACN 008 966 124)

MP No. 2055 of 1995

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an application made by Kleinwort Benson (Hong Kong) Ltd. ("KBHK") to set aside the Order of Registrar Betts dated 31 July 1995. The Order was made pursuant to a letter of request ("the Request") from the Federal Court of Australia to the Hong Kong Supreme Court requesting the production and verification of documents. Registrar Betts acceded to the Request and ordered KBHK to produce the documents as specified in the Request to an examiner in Hong Kong and to authenticate a copy of such documents. The documents requested are repeated in the Schedule to the Order and are set out hereunder:

1. All records, notes, letters, facsimiles, ledgers, journals, statements, accounts, receipts, vouchers or other documents of whatsoever nature in the possession, custody or control of Kleinwort Benson (Hong Kong) Ltd relating to the receipt by Kleinwort Benson Ltd of 20 Fenchurch Street, London, on or about 5 November 1987 of A$8 million for the account of Kleinwort Benson (Hong Kong) Ltd Account No 275980 AUDCURRI Ref: TH32 and the on payment, withdrawal, transfer or disposal of those funds.

2. All records, notes, letters, facsimiles, ledgers, journals, statements, accounts, receipts, vouchers or other documents of whatsoever nature in the possession, custody or control of Kleinwort Benson (Hong Kong) Ltd relating to the receipt by Kleinwort Benson Ltd of 20 Fenchurch Street, London, on or about 16 November 1987 of A$6 million for the account of Kleinwort Benson (Hong Kong) Ltd Account No 275980 AUDCURRI Ref: TH32 and the on payment, withdrawal, transfer or disposal of those funds.

3. All records, notes, letters, facsimiles, ledgers, journals, statements, accounts, receipts, vouchers or other documents of whatsoever nature in the possession, custody or control of Kleinwort Benson (Hong Kong) Ltd relating to Account No 275980 AUDCURRI Ref: TH32.

2. The respondent to KBHK's application is the liquidator of Cortaus Limited ("Cortaus") who was the person who instigated the Federal Court of Australia to issue the Request. At the outset of the hearing on 28 November 1995, Mr. Shieh on behalf of the liquidator conceded that paragraph 3 of the Schedule should be struck out, leaving the remaining two paragraphs to require my determination.

3. The grounds of KBHK's objection to the Order can be summarised as follows:

(a) The documents ordered are not "particular documents" which are those only permitted under s. 76(4)(b) of the Evidence Ordinance, Cap. 8, as a result of which the court has no jurisdiction to make the Order;

(b) The documents ordered are not material to or necessary for the proof of issues in proceedings in the Federal Court of Australia and as such the Request seeks general discovery and is a "fishing" expedition, which is not allowed by s. 76(4)(a) of the Evidence Ordinance; and

(c) When all relevant matters are taken into account, the court should (even if it has jurisdiction to make the Order) as a matter of discretion, rule against the making of the Order so as not to require KBHK to breach its duty of confidentiality towards its clients.

Jurisdiction and the Law in General

4. It is common ground between the parties that the jurisdiction of the court is purely statutory, based on ss. 75 and 76 of the Evidence Ordinance (see Boeing v PPG Industries [1988] 3 All ER 839 @ 841C). No issue was taken on s. 75. The relevant provisions of s. 76 are as follows:

"(1) Subject to this section, the High Court shall have power, on any such application as is mentioned in section 75, by order to make such provision for obtaining evidence in Hong Kong as may appear to the court to be appropriate for the purpose of giving effect to the request in pursuance of which the application is made; and any such order may require a person specified therein to take such steps as the court considers appropriate for that purpose.

(2) ...

(3) ...

(4) An order under this section shall not require a person -

(a) to state what documents relevant to the proceedings to which the application for the order relates are or have been in his possession, custody or power; or

(b) to produce any documents other than particular documents specified in the order as being documents appearing to the court making the order to be, or to be likely to be, in his possession, custody or power.

(5) A person who, by virtue of an order under this section, is required to attend at any place shall be entitled to the like conduct money and payment for expenses and loss of time as on attendance as a witness in civil proceedings before the High Court."

5. The parties took issue on the following aspects, namely, particularity, materiality, fishing, confidentiality and blue penciling. Counsel referred me to a number of authorities of the English courts, namely, Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547, In re Asbestos Insurance Coverage Cases [1985] 1 WLR 331, In re State of Norway's Application [1987] 1 QB 433, and Panayiotou v Sony Music Limited [1994] Ch. 143. My attention was also drawn to several Hong Kong cases, i.e., Dr. J. Kitingan v Crown Solicitor (MP No. 1193 of 1990, 5 May 5 1993, unreported) Mid Pacific Services Inc. & Ors. v Crown Solicitors (Civil Appeal No. 109 of 1991, 11 July 1991, unreported), Jim Beam Brands Co v Kentucky Imports Pty Ltd. & Anr. [1994] 1 HKLR 1, and Tsui Man Tat & Ors. v Crown Solicitor (MP No. 967 of 1994, 25 November 1994, unreported).

6. From the English authorities cited by counsel, certain key principles have evolved:

(a) s. 76(4)(b) has to be strictly construed so that the documents ordered to be produced to assist a foreign court must be "particular documents" (see Westinghouse p. 609C, Asbestos p. 337B-E and Panayiotou p. 153F) although a compendious description is allowed insofar as the documents are particularised (see Asbestos p. 337D & H and Panayiotou p. 153F);

(b) the particular documents must be directly material to prove issues raised bona fide and with adequate particularisation (Norway p. 482D and Panayiotou p. 151E-F);

(c) it must appear to the court that the documents are in existence and they are or are likely to be in the possession, custody or power of the person ordered to produce them, as opposed to conjectural documents (see Asbestos pp. 338B & H and Panayiotou pp. 153H-154A);

(d) no general documents can be ordered and a fishing exercise is not allowed (see Westinghouse p. 609D and Norway pp. 482B-F); and

(e) unless a case of bad faith is made out, the court should give effect to a letter of request as far as possible by applying a blue pencil to severely reduce the documents to be produced (Westinghouse pp. 611A-B, 612A-B, 653A-E) although the court cannot substitute a different category of documents from that requested or redraft the request in different terms (Westinghouse p. 636A and Norway p. 484F).

Particularity

7. Particularity of documents strikes at the root of the court's jurisdiction. If the documents are not sufficiently particularised, the court has no jurisdiction to order their production pursuant to s. 76(4)(b). Further, particularity is also connected with the question whether the documents are requested in a fishing exercise. If the documents sought are not particularised, they may well cover matters and evidence beyond those material to the proof of the issues in the proceedings in the requesting court for which the request is allegedly made. Where the evidence is not required to prove the issues, it may be requested for some other purposes, and the exercise will probably amount to fishing.

8. An example of fishing is readily available by examining the documents in paragraph 3 of the Schedule, being "All records, ... or other documents of whatsoever nature relating to Account No 275980 AUDCURRI Ref: TH32". Although the documents set out in paragraphs 1 and 2 of the Schedule are of a very wide scope, for instance, "all records" and "other documents whatsoever nature relating to ...", I am of the view that with some pruning, they can be more particularised. The documents sought in paragraphs 1 and 2, however they are described and they may be described as compendious, are limited in scope in that they must relate to the following:

(a) receipt by Kleinwort Benson of London of the two respective sums of A$8 and A$6 on or about two specified dates,

(b) for the account of KBHK bearing a specified account number, and

(c) the on payment or transfer of the same moneys from the same specified account.

As such, although many of the documents requested are objectionable on the grounds of materiality and fishing, they can be made to be "particular documents" within the ambit of s. 76(4)(b). I shall deal with the blue penciling of the documents later.

Materiality

9. It is clear law that the documents requested must be material to the proof of issues in proceedings in the requesting court, and that such documents are or are likely to be in existence and in the possession, custody or power of the person ordered to produce them. Needless to say, the issues must be raised bona fide and with adequate particulars.

10. The recital to the Request states that the evidence requested is required for three purposes:

(a) for the administration of Cortaus by the liquidator;

(b) for the Cortaus v Larken proceedings; and

(c) for the examination proceedings.

11. No issue is identified in matters in respect of (a) and (c) above, although the issues raised in (b) can also be said to be issues that can be investigated in (a) and (c). (b) is proceedings brought by the liquidator of Cortaus against Larken and a number of other defendants including Edward Ian Joye ("Joye"), a director of Cortaus. The fact that is sought to be proved is that Joye had received A$14 million which should be beneficially owned by Cortaus. The allegations that gave rise to the beneficial ownership are contained in Mr. Barnard's affidavit. Briefly, it is alleged that Joye obtained from International Resources Limited ("IRL") A$14 million for the purpose of facilitating IRL to take over Cortaus including advising the shareholders of Cortaus to accept the takeover bid, and that the money was received secretly by Joye, not letting Cortaus or its shareholders know. The money was paid to Kleinwort Benson Ltd. in London for the account of KBHK by two tranches of respectively A$8 million and A$6 million in November 1987.

12. The main issue which the liquidator wishes to prove by obtaining the evidence set out in the Request is that Joye had received the money. Mr. Bleach did not make any submission that the issue was not raised bona fide or that it lacked adequate particulars. The documents sought relating to the account of KBHK may or may not assist in proving the issue. If they do not bear any reference to Joye or a known nominee of his, then they would not help proving that Joye received the money. From the evidence exhibited to Mr. Barnard's affidavit, the account of KBHK appears to have received the money but not for KBHK's own benefit. It is therefore clear that the documents recording the receipt and the on payment or transfer of the money from KBHK's account will be material for the proof of the issue. If it turns out that the documents show that someone other than Joye was the beneficial owner of the money, the documents fail to help the liquidator, but if they do show that Joye was the actual recipient of the money, then they tend to help prove the issue. For the time being, there is no evidence one way or another for the court to see how the evidence will turn. However, it does not mean that the documents recording the receipt of the money and the transfer of it by KBHK are not material to the issue.

13. There can be no challenge that some documents relating to the receipt of the money by KBHK's account and to the transfer of the two sums of money are or are likely to be in existence and in the possession, custody and power of KBHK. KBHK is a banking institution, and there must be records of one kind or another relating to the money received by its own account and the onward transfer of the money from that account. The only question is whether all the documents sought can satisfy this requirement. I shall return to this later.

Fishing

14. Fishing is described by Kerr LJ in Norway @ 482B-E as follows:

"'Fishing' arises in cases where what is sought is not evidence as such, but information which may lead to a line of inquiry which would disclose evidence. It is the search for material in the hope of being able to raise allegations of fact, as opposed to elicitation of evidence to support allegations of fact, which have been raised bona fide with adequate particularisation."

15. As I said before, paragraph 3 of the Schedule is a convenient example of fishing. The documents requested are "All records, ... or other documents of whatsoever nature relating to Account No 275980 AUDCURRI Ref: TH32". The account holder is KBHK and not Joye or any known nominee of Joye. Unless there is sufficient proof that the account was operated by KBHK only for Joye or his nominee, the records or documents of whatsoever nature relating to the account will probably include information concerning either KBHK's own affairs or affairs of its other customers. Even if the account was operated by KBHK only for dealing with Joye's own affairs, it may touch upon some matters unconnected with the A$14 million or its components of respectively A$8 million and A$6 million. Some of these documents of such a wide scope may help realise the liquidator's hope in identifying some issues on which he may wish to examine Joye in the examination proceedings or may lead him to a train of inquiry so that he may raise some allegations against Joye or someone having a connection with the affairs of Cortaus. This is a fishing expedition that can never be legitimate.

16. Mr. Bleach argued that the lack of particularity of the documents sought by the Request and the wide scope covered by those documents, especially those in paragraph 3 of the Schedule before it was dropped, demonstrated that the liquidator wished to engage in a fishing expedition, unrelated to the proof of the issues in Cortaus v Larken. He also relied on Mr. Barnard's own statement on affidavit that the liquidator wanted the documents for his administration of the winding up of Cortaus, for the Cortaus v Larken proceedings and for the examination of Joye, which purposes were repeated in the Request.

17. It is clear to me that the documents under paragraph 3 of the Schedule cover a very wide scope which go far beyond the purpose of proving the issues in the proceedings of Cortaus v Larken. Allowing those documents to be produced will in effect enable the liquidator to embark on a fishing expedition, for those documents would enable the liquidator to seek evidence on issues which are far beyond the proof of the issue identifiable which is that Joye received the money secretly to the use of Cortaus. The documents set out in paragraph 3 of the Schedule may show sums of money over and above the A$14 million in issue. They may show other transactions involving Joye on which no allegation against him has so far been made by the liquidator, and such transactions may form the basis for raising such allegations. They may even show matters relating to KBHK's own affairs or affairs of its clients other than anybody that has any connection with Joye in any way. But that paragraph is agreed to be deleted from the Schedule.

18. As I have held under the heading of particularity, the documents in paragraphs 1 and 2 can be made specific for the proof of the issues in Cortaus v Larken. Although if the Order is not pruned by having paragraph 3 deleted, the liquidator will have a licence for a fishing expedition, I must say that there is no evidence before me which shows bad faith or that the liquidator's main or primary purpose was not to obtain the documents set out in the Schedule for proof of the issues in Cortaus v Larken.

19. On the other hand, if the documents allowed can be made use of by the liquidator in his tasks in any other way, that is not a ground for this court to refuse the Request. In Westinghouse p. 611G-H, when dealing with an argument that the evidence requested was for the predominant purpose to further proceedings other than those in respect of which the request was issued, Lord Wilberforce put it succinctly and forcefully,

"Unless a case of bad faith is made against Westinghouse (which is expressly disclaimed) it is impossible to deny that the letters rogatory were issued for the purposes of obtaining evidence in the Richmond proceedings. The fact, if it be so, that evidence so obtained may be used in other proceedings and indeed may be central in those proceedings is no reason for refusing to allow it to be requested; all evidence, once brought out in court, is in the public domain, and to accept the argument would largely stultify the letters rogatory procedure."

Confidentiality

20. KBHK also relies on its duty of confidentiality towards its customers, and that is the main reason why it has launched this objection to the Order of Registrar Betts. It is a common and accepted practice that banks owe a duty to keep the information on their customers confidential, and unless there is a court order or other sufficient reason (see Norway p. 490B), that information will not be disclosed to any third party. It is common ground between the parties that confidentiality between a bank and its customers is a matter to be considered in a balancing exercise against the public interest of our courts in giving assistance to a foreign court in its administration of justice on its request for evidence in aid of its proceedings. Where the evidence requested from a bank concerns a person against whom the foreign proceedings is brought and the evidence is material to prove certain allegations of fact raised bona fide in those proceedings, the public interest to assist the foreign court will properly outweigh any duty of confidence owed by the bank to such person. On the other hand, if the information concerns a customer of the bank not shown to be material to the proof of any issue in the foreign proceedings, ordering the disclosure of the information would be an unjustified breach of confidence which the court should not require. (See Norway p. 490D-F, per Glidewell LJ.)

21. In the present case, there is a risk that the documents in paragraphs 1 and 2 of the Schedule may relate to information on KBHK's customers other than Joye or his nominees. If it does, it would not be proper for the court to order production of the documents, resulting in compelling KBHK to breach its duty of confidence towards those customers. On the other hand, there is documentary evidence to show that the A$14 million was channeled through KBHK to pay Joye. The risk of the documents containing information relating to other customers of KBHK is therefore reduced considerably.

22. Moreover, the issues sought to be proved in the Cortaus v Larken proceedings contain allegations of dishonesty and breach of fiduciary duties, in that Joye obtained a secret profit by using his position in Cortaus. The evidence requested is for assisting the Federal Court of Australia in determining the allegations. Not allowing the evidence to be collected will hamper such determination. The main thrust of the allegations is that a director made a secret profit by using his position in the company, and allowing KBHK to withhold the information which is material to the proving of the allegations is tantamount to allowing the secrecy of that profit to be perpetuated. This is clearly a case where the duty of confidentiality of a bank has to give way.

Blue Penciling

23. I agree with Mr. Bleach that the documents in paragraphs 1 and 2 of the Schedule cover too wide a scope, making them not "particular documents" under s. 76(4)(b) and enabling them to be used for fishing purposes. I am, however, of the view that they can be allowed if an exercise with the blue pencil is first carried out. It is not an attempt in redrafting, nor is it to substitute categories of documents for those requested. I have derived particular assistance from the Court of Appeal's judgment in Mid Pacific in this exercise.

24. I set out below the whole of paragraphs 1 and 2 of the Schedule; the parts underlined are to be excised:

1. All records, notes, letters, facsimiles, ledgers, journals, statements, accounts, receipts, vouchers or other documents of whatsoever nature in the possession, custody or control of Kleinwort Benson (Hong Kong) Ltd relating to the receipt by Kleinwort Benson Ltd of 20 Fenchurch Street, London, on or about 5 November 1987 of A$8 million for the account of Kleinwort Benson (Hong Kong) Ltd Account No 275980 AUDCURRI Ref: TH32 and the on payment, withdrawal, transfer or disposal of those funds.

2. All records, notes, letters, facsimiles, ledgers, journals, statements, accounts, receipts, vouchers or other documents of whatsoever nature in the possession, custody or control of Kleinwort Benson (Hong Kong) Ltd relating to the receipt by Kleinwort Benson Ltd of 20 Fenchurch Street, London, on or about 16 November 1987 of A$6 million for the account of Kleinwort Benson (Hong Kong) Ltd Account No 275980 AUDCURRI Ref: TH32 and the on payment, withdrawal, transfer or disposal of those funds.

25. The underlined words are deleted for one or more of the objectionable features. The documents excluded cover so wide a scope that they smack of fishing and are not sufficiently particularised. They also embrace conjectural documents, for there is little evidence that they exist or that they are likely to be in the possession, custody or power of KBHK.

26. Mr. Bleach objected to the retention of the "ledgers and journals" on the ground that what were relevant to the proving of the issues in Cortaus v Larken were only the entries of the receipt and transfer of the said sums whereas the ledgers and journals might very well contain other irrelevant entries. On the other hand, Mr. Shieh argued that an entry could not be a document although it formed part of a document. Both arguments have their merits. The ledgers and journals are particular documents which are or are at least likely to be in the possession of KBHK. However, the only relevance of them material to the proof of the issues in Cortaus v Larken is the entries in them showing the receipt of the said sums and the onward transfer of those sums. I think the proper way to deal with this problem is for me to exercise my power under s. 76(1) as I consider appropriate in the circumstances. I give directions to KBHK that it be at liberty to cover all entries in the ledgers and journals unrelated to the receipt and onward transfer of those sums ("the irrelevant entries") when it produces these two sets of documents before the examiner, and that in the copies of the two sets of documents to be authenticated by them before the examiner, it be at liberty to have the irrelevant entries obliterated.

27. I also order that KBHK to be reimbursed by the liquidator of the expenses incurred by KBHK in complying with the Order as altered by me, not limited to the expenses within s. 76(5) but also including reasonable expenses for it to locate the documents required as well as for covering up and obliterating the irrelevant entries, if it chooses so to do. I also give the parties liberty to apply in case there is any disagreement about the propriety of the irrelevant entries and the amount of the expenses.

28. In the end, I order that the Order of Registrar Betts do stand but subject to the following alterations, namely,

(a) that the date of "18th day of August 1995" in paragraph 1 of the Order is altered to read "18th day of December 1995";

(b) that the parts of paragraphs 1 and 2 of the Schedule that are underlined above are to be omitted;

(c) that paragraph 3 of the Schedule is omitted altogether;

(d) that KBHK do have liberty to cover the irrelevant entries from the ledgers and journals under the Order for their production before the examiner;

(e) that KBHK do have liberty to have the irrelevant entries in the said ledgers and journals obliterated from the copies of them that it authenticates before the examiner; and

(f) that KBHK be reimbursed with the reasonable expenses incurred for complying with the Order and for locating the documents as well as for covering up the irrelevant entries and obliterating them from the copies required to be authenticated; and

(g) that there be liberty to apply.

Costs

29. At the conclusion of the hearing, I had the assistance of counsel addressing me on costs. While the application to set aside the Order of Registrar Betts is not successful on the whole, the appearance of counsel for KBHK had the effect of having paragraph 3 of the Schedule struck down, albeit with the concession of Mr. Shieh. I must say that but for the application, this concession would not have been so readily made, and it was made at a very late stage only when counsel first appeared before me on 28 November 1995. Paragraphs 1 and 2 of the Schedule have also been substantially pruned in order to save the Request. I think it is pertinent to examine the observations of Lord Keith in Westinghouse in this regard. At p. 635D-F of the report, the learned Law Lord dealt with the question whether the proper course was to reject completely a letter of request on the ground that in substance the applicants were seeking a licence for a fishing expedition or to give effect thereto as regards the particular documents legitimately sought. He said:

"The answer to this question depends, in my opinion, upon the balance of a number of considerations. On the one hand it may be regarded as undesirable that an applicant for letters rogatory should receive any encouragement to think he may properly include therein a wide-ranging schedule of documents in the expectation that the court of request will carry out a pruning operation and allow him as much as he is properly entitled to demand. On the other hand it is the duty of the court of request to do its best, consistently with the provisions of the statute, to assist the processes of justice in the court from which the request comes, and to do so in such a way as will cause the minimum of delay. If in the present case the letters rogatory were to be entirely rejected, so far as they relate to the recovery of documents, it would presumably be open to the applicants to obtain from the Virginia court fresh letters limited to the particular documents specified and come back for an order giving effect to them. This would involve considerable delay, and the end result would be the same as if the court of request had itself cut down the scope of the original letters rogatory. Therefore I am of the opinion that the right course, in the circumstances such as those of the present case, is for the court of request to issue an order limited to those documents the production of which, in its judgment, ought properly to be enforced. I have no doubt that on a proper construction of section 2 of the Act of 1975, having regard in particular to subsection (3) and (4), it is within the power of the court, in its discretion, to proceed in this way."

30. Section 2 of the Act of 1975 referred to in Lord Keith's judgment is mirrored in s. 76 of our Evidence Ordinance. While I follow the considerations set forth in the passage when applying the blue pencil, I am of the view that an applicant for the assistance of our courts should be discouraged from including a wide range of unparticularised documents in a request, either unwittingly relying on the court to give him only those documents to which he is properly entitled, or purposely in the hope that if the witness does not object or if the court is not too astute he may have his way to embark on fishing. The discouragement can and I think should be reflected in costs.

31. In the present case, the liquidator is successful in resisting the application to set aside Registrar Betts' Order, and in the normal course of events he should have his costs or a part thereof. However, I am of the view that my order for costs should reflect the discouragement I mention above. Further, the documents set out in the Schedule of the Order have, as a result of KBHK's application, been substantially pruned. It seems to me that generally both parties are successful in about one half of the extent of what they have advocated. I think the proper order for costs is that each should have one half of its own costs against the other, on a party and party basis. I also certify that the matter is fit for two counsel for I think in the circumstances of this case, involving a large sum deposited in a bank account and a customer of the bank with such a large deposit, that leading counsel's services are reasonably required, not to mention the help that has thereby been rendered to the court.

32. It remains for me to thank counsel for their clear and comprehensive written submissions and for the assistance they so unfailingly gave me during the hearing.