TIGER RESORT ASIA LTD v. KAZUO OKADA AND OTHERS

HCA 3017/2017

[2018] HKCFI 472

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3017 OF 2017

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REASONS FOR DECISION

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Introduction

1.  This is the plaintiff’s application for discovery and inspection against the Hongkong and Shanghai Banking Corporation Limited (“HSBC”)and the Bank of Communication Ltd (“BoC”) (“the Inspection Summons”). The application is made pursuant to Section 21 of the Evidence Ordinance Cap 8 and the inherent jurisdiction of the court.  Neither bank is a party to the action.  They have been notified of the application.  They do not seek to be heard.

2.  At the end of the hearing, I allowed the application but was only prepared to grant an order in terms which are narrower and more specific than those originally sought. I said that I will give my reasons.  I now do.

The pleaded case of the plaintiff

3.  At the time material to the action, the 1^st defendant was the sole director of the plaintiff.  He was also the sole director of the 2^nd defendant.  He together with his family members held the entirety of the shares in the 2^nddefendant.  The 1^st defendant apparently also controlled an entity by the name of Skyrise Trading Limited (“Skyrise”) (or was otherwise the 1^st defendant’s nominee).

4.  The 2^nd defendant was a substantial shareholder of Universal Entertainment Corporation (“UE”), a public company incorporated in Japan.  The plaintiff was a wholly owned subsidiary of UE.  As said, the 1^st defendant was the sole director of the plaintiff. 

5.  The 4^th defendant was apparently a company incorporated in the British Virgin Islands (“BVI”).  It was apparently controlled by the 3^rddefendant, or was otherwise his nominee.  I will come back to explain why I use the word “apparently”.

6.  The plaintiff had never had any commercial dealings with the 3^rd defendant, the 4^thdefendant, or Skyrise.

7.  On 27 December 2017, the plaintiff caused a Writ to be issued against the defendants.  Two series of transfers have been pleaded:

(a)  First, the 1^st defendant was claimed to have caused the plaintiff to transfer on 2 March 2015 a sum of HK$135 million to an account held by the 4^th defendant with the HSBC (“the Goldluck HSBC Account”), which sum (or at least HK$130 million thereof) was almost immediately afterwards used by the 3^rd defendant to repay a loan he owed to the 2^nd defendant (by 7 sums in the total amount of HK$130 million remitted between 4 and 13 March 2015 into an account held by the 2^nd defendant with the BoC (“the D2 BoC Account”) ), which repayment upon receipt by the 2^nddefendant was in turn transferred to and used by the 1^stdefendant for his personal purposes.  The plaintiff further claims that the 1^stdefendant, in order to cover up the illegitimacy of this series of transfers, caused the plaintiff to enter into a purported loan agreement with the 4^th defendant on 3 March 2015 (“the Loan Agreement”).  The amount of the purported loan was HK$135 million.  The 3^rddefendant was named therein as the guarantor.  The 4^thdefendant was described therein as a company whose address was at a PO box in the “British Virgin Island” [sic];

(b)  Second, the 1^st defendant was claimed to have caused the plaintiff to issue a bearer cheque in the sum of HK$16 million which he himself collected in May 2015.  Skyrise’s name was subsequently inserted as the payee, and the cheque was cleared and paid into an account held in the name of Skyrise with the HSBC (“the Skyrise HSBC Account”) on about 14 May 2015.  The plaintiff claims that the transaction was unauthorized, and the fund for the 1^st defendant’s own personal use.

8.  The main cause of action against the 1^st defendant is breach of fiduciary duties which he owed as the sole director to the plaintiff.  The primary cause of action against the other defendants is knowing receipt or assistance.  Constructive trusts have been pleaded.  The claims are pleaded as being proprietary in nature.  The forms of relief sought include a declaration that the defendants are liable to account to the plaintiff the sum of, net of certain other transfers, about HK$120.05 million, payment of that sum, and tracing.

9.  On 23 January 2018, the plaintiff took out an application for an interlocutory proprietary injunction against the 1^st and 2^nd defendants.  That injunction sought was in effect a Mareva injunction/preservation order with disclosure in aid.  That application came before L Chan J on 26 January 2018.  At the conclusion of the hearing, the 1^stdefendant gave an undertaking in terms of the injunction sought against him and consented to the making of certain disclosure by affirmation within 28 days.  The 2^nddefendant was enjoined from dealing with certain assets, but was granted leave to file its affirmation within 14 days from the date thereof in opposition of the disclosure sought against it.  According to the evidence placed before L Chan J, the 2^nd defendant had difficulty complying with the discovery sought as the 1^stdefendant was the sole signatory of the D2 BoC Account, and without the 1^stdefendant’s co-operation, which had not been forthcoming, the 2^nd defendant could not access that account.  To complete the picture, the 2^nddefendant has since sought from me an extension of time for the filing of that affirmation, which I have granted. 

The Inspection Summons

10.  On 19 January 2018, the plaintiff took out the Inspection Summons for inspection of banker’s records in relation to:

(1)  all accounts which the 4^th defendant maintained with the HSBC,

(2)  all accounts which Skyrise maintained with the HSBC, and

(3)  all accounts which the 2^nd defendant maintained with the BoC. 

The summons first came before me on 6 February2018.  The 2^nd defendant consented to the application upon the condition that “the information obtained from Bank of Communication be shared in full” with it.  The summons was however not served upon the 1^st defendant (who was the sole signatory of the D2 BoC Account), the 4^th defendant or Skyrise.  In relation to the 1^stdefendant, my concern was further exacerbated by the fact that there had been multiple on-going legal proceedings between the 1^st defendant and other parties (who were not before me) over the control of the 2^nddefendant.  The effect on those other proceedings of allowing the 2^nddefendant to share the information obtained from the BoC was unknown.  In addition, I expressed concern over two matters:

(1)  the width of the order sought, given that it was meant to cover all accounts which the 4^thdefendant and Skyrise held with HSBC, and all accounts which the 2^nddefendant held with BoC; and

(2)  the applicability of the concept of right against self-incrimination:

Mr Kwan, counsel appearing for the plaintiff, in discharge of the duty to make full and frank disclosure (the application being ex parte in so far as Skyrise and the 4^thdefendant were concerned), properly raised for my attention the case of Waterhouse v Narker [1924] 2 KB 759 and submitted in his written submissions that “the court will not order discovery if, on the evidence of the parties to the action, the entries tend to incriminate them”.  I however raised reservation about the relevance of the right against self-incrimination given that the banker’s records concerned existed independently of the will of the defendants.  I in the end adjourned the summons for further and substantive argument.

Further steps undertaken by the plaintiff after the first hearing

11.  After the first hearing of the Inspection Summons on 6 February 2018, the plaintiff undertook further steps in its endeavor to serve the application upon the 1^st defendant, the 4^th defendant, and Skyrise.  I describe their efforts below.  Results were mixed.

12.  Immediately after the first hearing on 6 February 2018, the plaintiff served the Inspection Summons upon the 1^st defendant together with the skeleton submissions of the plaintiff and the 2^nddefendant previously filed.  On 15 February 2018, the 1^st defendant through his solicitors wrote in and indicated that he was neutral to the application.  He did not seek to be heard.  Nor did he seek to raise any right against self-incrimination.

13.  The plaintiff engaged a corporate service provider to conduct a company search in the BVI on the 4^th defendant.  It turned up no company with the exact name of the 4^thdefendant.  The closest was an entity with the similar name of “Goldluck Technology Limited”, but with a BVI address different from that set out in the Loan Agreement.  These are the reasons why I used the word “apparently” in paragraph 5 above.

14.  A company search was conducted on Skyrise.  The sole director and shareholder was a person with a Taiwan identity number.  The plaintiff could not be certain that it was the same Skyrise which was named as the payee in the bearer cheque of HK$16 million.  

The hearing on 20 February 2018

15.  The Inspection Summons came back before me on 20 February 2018.  Having heard Mr Kwan, counsel for the plaintiff, and Mr Yates, solicitor for the 2^nddefendant, I granted a toned down version of the order sought.  Below are my reasons.

Service of the Inspection Summons

16.  The 1^st defendant has now been served.  He did not seek to be heard.  Nor has the 1^st defendant raised any concern about the prospect of the plaintiff sharing the bankers’ records it might obtain with the 2^nddefendant. In this regard, I am further satisfied that whatever records which the plaintiff might share with and serve upon the 2^nddefendant, their receipt by the 2^nddefendant would be subject to an implied undertaking that they can only be used for the purpose of the proceedings herein.  That adequately addresses my concern about any misuse of those records by the 2^nddefendant. 

17.  The 4^th defendant and Skyrise have not been served.  Would that prevent an order pursuant to section 21 of the Evidence Ordinance from being granted?  My view is no.

18.  I have considered the same issue recently in another case[1]. I reiterate my reasoning here.  I start with Section 21 of the Evidence Ordinance, which provides that:

“ (1) On the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings.

(2) An order under this section may be made either with or without summoning the bank or any other party, and shall be served on the bank 3 clear days before the same is to be obeyed, unless the court or judge otherwise directs.”

19.  It is clear from the wording of section 21(2) that there is no statutory prerequisite or requirement for an application pursuant to section 21 to be served on the account holder. Indeed, an order under the section may be made “without summoning … any other party.”

20.  In Chan Wai Sun & Anor v Law Shiu Kai [2003] 3 HKLRD 954, Chu J (as she then was) observed at paragraph 15 of the judgment that:

“ On the question of notice of this application, the authorities had considered that it is necessary to give notice of the application to both the bank and the holder of the account. In the present case, the summons and the affirmation had been served on Hongkong Bank, and it has no objection to it. In the case of General Profits, the difficulty is that no information about it can be obtained from the public records. It is simply not possible to serve on General Profits or to give due notice of the present application, a fact that the court has to bear in mind when deciding in what way it should exercise its discretion.”

21.  In Arnott v Hayes (1887) 36 Ch D 731, Cotton LJ, having considered the wording of section 7 of the Bankers’ Books Evidence Act, 1879 (which is materially the same as section 21 of our Evidence Ordinance), observed at page 736 of the judgment that:

“Various objections are taken to the order. The first was that the order ought not to have been made ex parte. … I am of opinion that the [Bankers’ Books Evidence Act, 1879, s.7] does give the Judge such jurisdiction. It says that the order may be made ‘either with or without summoning the bank or any other party.’ It is urged that ‘party’ here does not mean ‘party to the action,’ but it must include parties to the action. There is, therefore, power to make the order ex parte, though under ordinary circumstances I think it better that the person whose account is to be looked at should be served.” (Emphasis added)

22.  I have considered the above authorities.  I note that the preference suggested by Cotton LJ was qualified by the words “under ordinary circumstances.”  In my view, it will no doubt be fairer to serve an application under section 21 upon or otherwise give notice to the person whose account is to be inspected.  That is however not always possible.  The bottom line remains that such service is not a statutory requirement, and any insistence that service or notice should be a prerequisite for an application under section 21 would in my view impose unjustified fetters upon the courts’ discretion that can be exercised under that section. 

23.  In the present case, in so far as the 4^th defendant is concerned, the company search in BVI does not reveal any company with its exact name and particulars as set out in the Loan Agreement.  In so far as Skyriseis concerned, the plaintiff cannot be certain at this stage as to whether the Skyrise which the company search shows up was the same Skyrise we concerned with.  Requiring the plaintiff to serve the application upon that Skyrise (as disclosed in the company search) would risk revealing confidential case information to a wrong party, not to mention causing substantial inconvenience to that Skyrise at the same time.

24.  In the circumstances, I am satisfied that the circumstances in the present case are not ordinary, and that there are sufficient justifications for the plaintiff to proceed with the application without having served the same upon either the 4^th defendant and Skyrise.

25.  However, the absence of service is not entirely irrelevant.  It is a factor which I will take into account when considering how my discretion will have to be exercised.  I note that Chu J in Chan Wai Sun in effect adopted the same approach.  I will come back to this.

Privilege against self-incrimination

26.  Neither the 1^st nor the 2^nd defendants have sought to claim any privilege against self-incrimination.  In my view, that privilege is not engaged in the present context.  It is not the defendants who are being compelled to disclose any incriminatory material.  The bankers’ records exist independently of their will.  “The privilege is not a privilege against incrimination; it is a privilege against self-incrimination” ^[2] As has been authoritatively observed by Ribeiro PJ in HKSAR v Lee Ming Tee & Another(2001) 4 HKCFAR 133, at 177E–G:

“ In evaluating this balance, it is important to bear in mind that the purpose of the privilege is to respect the will of the accused to remain silent, thereby ensuring that the accused is not compelled to provide proof of his or her guilt. The privilege has no application to evidence which exists independently of thewill of the accused. This proposition was expressly recognised in Saunders v United Kingdom (1996) 23 EHRR 313 at para 69. Indeed, in my judgment, there is much to be said for the general proposition that there is no inherent unfairness in establishing a person’s guilt by the use of reliable objective evidence obtained from an independent source, even if the acquisition of that evidence was facilitated by clues contained in the excluded admissions. This view accords with common law doctrine based on R v Warickshall (1783) 1 Leach 263 and the cases approving it, cited above.”

The width of the inspection sought

27.  During the further hearing on 20 February 2018, Mr. Kwan tightened up the order sought in the following ways:

(a)  in respect of the 2^nd defendant, instead of seeking inspection of records of all accounts which it maintained with the BoC, the plaintiff has now restricted the order sought to the D2 BoC Account;

(b)  in respect of the 4^th defendant, instead of seeking inspection of records of all accounts which it maintained with the HSBC, the plaintiff has now restricted the order sought to the Goldluck HSBC Account and one specific related account;

(c)  in respect of Skyrise, instead of seeking inspection of records of all accounts which it maintained with the HSBC, the plaintiff has now restricted the order sought to those accounts Skyrise maintained with the HSBC which related to transactions that took place between 14 May 2015 (i.e. the date when the bearer cheque was paid into an account Skyrise maintained with the HSBC) and the date of disclosure.

Consideration of the application under section 21

28.  I have considered the approach explained by Barnett J in Assets Investment PT Ltd v The United Islamic Investments Foundation (HCA 4392/1993, 21 January 1994, unreported), Chan Wai Sun and South Staffordshire Tramways Co v Ebbsmith [1895] 2 QB 669.  I also referred AKBANK T.A.S. v Mainford Limited where I have considered those similar authorities.  In my view, when considering an application under section 21, the main test is relevance.  I am on the facts satisfied that the accounts which the plaintiff seeks to inspect contain material relevant to its claim.  They are in fact highly germane to the issues of fund flow and the identities of the parties involved. In AKBANK T.A.S. v Mainford Limited, I express reservation as to whether, as observed by Lord Esher MR at pp 674 and 675 of Staffordshire Tramways Co v Ebbsmith, the applicant should be required to establish that the account is really that of the party to the proceedings or that the party is so closely connected with it that it would be evidence against him.  However, in the light of the facts set out above, I am satisfied that, even if I were to apply this more stringent test, the plaintiff has passed the necessary threshold.

29.  The authorities mentioned above have stated that the power for inspection under section 21 should be exercised with great caution.  I agree.  The privacy of the account holder, and banker/customer confidence have to be respected.  I have indeed approached the application with great caution. I have taken into account the fact that neither the 4^th defendant norSkyrise has been served at this stage.  I have on the other hand considered carefully the evidence as set out above, which included an Investigation Report prepared by the Special Investigation Committee set out by UE.  I have considered the directions of the remittances or transfers involved, the amounts of those sums, and their time proximity.  On the face of pleadings and as supported by the affirmatory evidence before me, there is a clear prima facie case of breach of fiduciary duties on the part of the 1^st defendant, and knowing receipt or assistance by the other defendants (including Skyrise).  The allegations are serious, and the total amount involved was substantial. The records which the plaintiff are seeking to inspect are highly relevant.  The scope of the order which the plaintiff is now seeking has been narrowed down and specifically defined. I have also taken into account the neutral stance adopted by 1^st defendant.  There is no evidence suggesting that the 1^st defendant, the 4^th defendant or Skyrise would suffer any damage on top of the limited infringement of their banker / client confidence.  I am in all the circumstances satisfied that an order in terms of the summons as has been narrowed down ought to be made. 

Inherent jurisdiction of the court

30.  The discussions above are confined to the limb of the application under section 21 of the Evidence Ordinance.  Given my conclusion expressed above, there is no need for me to consider the other limb of the application under the inherent jurisdiction of the court.  I will just add this.  That jurisdiction to order disclosure by a third party is well established.  It is both wider than section 21 of the Evidence Ordinance (in the sense that it is not confined to banker’s records), and at the same time narrower (in the sense that it is a power developed in aid of proprietary or tracing claims) - see Norwich Pharmacal Company v Customs & Excise Commissioners [1974] AC 133 and Bankers Trust Company v Shapira [1980] 1 WLR 124.  Some specific limits on that jurisdiction have also been developed—see Arab Monetary Fund v Hashim (No 5) [1992] 2 All ER 911, A Co v B Co [2002] 3 HKLRD 111, and CTO (HK) Ltd v Li Man Chiu [2002] 2 HKLRD 875.  In the present case, the plaintiff’s claim is a proprietary one involving tracing.  The evidence in my view demonstrates a real prospect that the information sought may lead to the location or preservation of assets to the claim.  The order sought is specific.  The balance tips in favour of me exercising my discretion granting the order.  If required, I would also have granted the application pursuant this common law jurisdiction which the courts possess.

Conclusion

31.  I grant the application as narrowed down.