GUANGDONG SHIRONG ZHAOYE CO., LTD AND ANOTHER v. THE HONGKONG AND SHANGHAI BANKING CORPORATION LTD

HCMP 763/2022

[2022] HKCFI 2594

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 763 OF 2022

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DECISION

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1.  This is the adjourned hearing of the plaintiffs’ originating summons issued on 16 June 2022 seeking a Norwich Pharmacal order against the defendant bank HSBC for provision of bank documents relating to an account (“HSBC Account”)  maintained with it by Ms Lei Laikun (“Ms Lei”). HSBC does not contest the application and agrees to comply with any Court orders that are served on it, but asks for time to provide the requested documents.

2.  The 1^st plaintiff is a company incorporated in the Mainland and listed on the Shenzhen Stock Exchange.  The 2^nd plaintiff is a wholly-owned subsidiary of the 1^st plaintiff.  The plaintiffs’ case is that their former Chairman has defrauded them to the tune of US$100 million between 2007 and 2019.  Part of the defrauded sum is said to be traceable into the HSBC Account held by Ms Lei, who is the former Chairman’s wife (or ex-wife), and was subsequently used to acquire a residential property in California.  As a result, the plaintiffs commenced proceedings in the Superior Court of the State of California in the County of San Mateo (“California Court”)  against, inter alios, Ms Lei, to recover the defrauded sum.

3.  The California proceedings are ongoing.  Of relevance to the present application is an expedited discovery order made by the California Court (“California ED Order”)  directing Ms Lei to produce documents pursuant to the plaintiffs’ requests served on her on 21 August 2021, including the following:

(1)  documents sufficient to identify Ms Lei’s current assets and liabilities;

(2)  the most recent account statement for all bank accounts that Ms Lei owns, either alone or with any other person;

(3)  all documents evidencing or referring to payments or transfers of moneys by Ms Lei to any of the defendants in the California proceedings, and vice versa, since 1 April 2010; and

(4)  all documents evidencing transfers of funds by Ms Lei out of the Mainland to Macau, Hong Kong or any other location from and after 1 January 2007.

4.  Ms Lei answered the plaintiffs’ requests by a response on 26 October 2021, objecting to the requested discovery on the ground of privacy and relevance.  She filed a supplemental response on 15 February 2022. The plaintiffs’ California attorneys explained that this was the result of a “meet and confer” progress in California whereby the parties attempted to narrow down their disagreements on the scope of discovery, and Ms Lei through the supplemental response had changed her position and agreed in principle to give discovery in response to a number of requests but limited to documents which she claimed to be in her possession.  As it transpired, Ms Lei had only produced piecemeal and incomplete documents.  No document relating to the HSBC Account was produced.  Ms Lei claimed that she was unable to obtain some of her most recent bank documents in Macau, Hong Kong and Mainland China due to COVID-related travel restrictions.

5.  As a result, the plaintiffs have brought a motion before the California Court to compel production of documents by Ms Lei, which was set to be heard on 26 July 2022 in the evening (Hong Kong time), the very day when the originating summons first came before me.

6.  Insofar as the HSBC Account is concerned, the documents sought from HSBC in this application overlap with, but are wider in scope than, those sought from Ms Lei under the California ED Order.  Thus, the plaintiffs contend that, even if Ms Lei were to be ordered to provide all possible disclosure under the California ED Order, they still will not obtain a full set of account statements for the HSBC Account during the relevant period.  As the argument runs, the present application is necessary in order for the plaintiffs to have a complete historical record of the transactions in the HSBC Account from when the first misappropriation occurred until now, and to trace funds.

7.  I am guided by A Co v B Co [2002] 3 HKLRD 111, which set out the relevant principles for granting Norwich Pharmacal relief.   The jurisdiction is an equitable and wide one.  The relief is of an extraordinary nature and not to be lightly granted in the absence of powerful factors.  The discovery sought must not be unduly wide, and must be restricted to those documents that are necessary to enable the applicant to preserve or discover assets.  What is important is that the discovery is necessary.

8.  Norwich Pharmacal relief may be ordered to aid foreign proceedings: see Manufacturer’s Life Insurance Co of Canada v Harvest Hero International Ltd [2002] 1 HKLRD 828.  Nevertheless, as the following case authorities show, this jurisdiction should not be lightly exercised either by reason of comity, or because there is no necessity justifying a Norwich Pharmacal order.

9.  In New Media Holding Company LLC v Capita Fiduciary Group Limited [2010] JRC 117, the plaintiff was a 50% partner in a partnership business.  The other 50% partner was a Jersey entity which was allegedly owned and controlled by one Mr Kagalovsky.  The plaintiff brought proceedings in the Supreme Court of the State of New York on the basis that Mr Kagalovsky stripped the partnership business of virtually all its valuable assets.  In aid of those proceedings, the plaintiff applied to the Jersey Court for Norwich Phamarcal relief against the defendant, who provided professional services to Mr Kagalovsky and was therefore said to have mixed up in his wrongdoing.

10.  Upon the defendant’s application, the Royal Court of Jersey set aside the ex parte Norwich Phamarcal order obtained by the plaintiff for the following reasons:

(1)  The issue of necessity in a Norwich Pharmacal application is a matter to be considered as part of the Court’s discretionary exercise.  There is no formal requirement for an applicant to show that he has no other way of accessing the information sought (§23).

(2)  However, if the applicant has a straightforward and available means of obtaining the information by some other route, it would probably not be reasonable in most cases to exercise the discretion in his favour.  This is consistent with the exceptional nature of Norwich Pharmacal relief (§23).

(3)  Where Norwich Pharmacal relief is sought in aid of foreign proceedings, it would be a matter for the Court to determine, in the exercise of its discretion, whether it is appropriate to make an order on those grounds, and it will do so if it considers that such is convenient in the interest of justice (§28).

(4)  In the instant case, despite the plaintiff’s submission that it had yet to identify “the full circle of potential defendants” or the types of actionable claim (§31(iii)):

“Norwich Pharmacal relief is not available as a form of pre-action discovery where one has already identified the potential defendant in advance, nor is it generally a remedy to supplement discovery in aid of existing foreign proceedings. On the latter point, in our judgment such relief is available in order to identify a person who might be a defendant in foreign proceedings or to establish the cause of action or a tracing claim for the purposes of foreign proceedings, but generally one would otherwise allow the foreign court to exercise its jurisdiction over the disclosure which it required for the purposes of doing justice in the case before it. We accept the submission that, to the extent that disclosure was sought for use in the New York proceedings, the correct approach was to obtain relevant orders from the New York Court, including if necessary the taking of evidence pursuant to The Hague Convention by means of a request to this Court for assistance.”

(5)  Moreover, even though the plaintiff might not have obtained full disclosure of all that the defendant had in its possession or power, the plaintiff could either join the defendant in the New York proceedings, or (if that proves unviable)  bring proceedings of a substantive nature against the defendant in Jersey.  Norwich Pharmacal relief ought not to be available to a plaintiff “if the predominant purpose is to supplement the disclosure process which exists in the Courts of another jurisdiction where a substantive action is already taking place” (§31(iv)).

11.  In R (Omar)  v Secretary of State for Foreign and Commonwealth Affairs [2014] QB 112, the claimants were arrested in Kenya on suspicion of having been involved in a bombing in Uganda.  They were subsequently transferred to Uganda for criminal prosecution.  The claimants then petitioned to the Constitutional Court of Uganda contending that their prosecution was an abuse of process and unconstitutional in that their rendition from Kenya was illegal and that they had been tortured and ill-treated.  The claimants sought Norwich Phamarcal relief from the Foreign Secretary of the United Kingdom on the basis that he had information relating to their rendition and ill-treatment.

12.  The English Court of Appeal upheld the Divisional Court’s decision in refusing relief.  The primary basis was a lack of jurisdiction (§27).  Nevertheless, both Courts proceeded to consider the merits of the application and decided (obiter)  that, by reason of comity and lack of necessity, no Norwich Phamarcal order should be made:

(1)  As pointed out by the Divisional Court (§§78, 84-86)  and endorsed by the Court of Appeal (§§31, 35):

“78. It is not in the interests of comity for this court to entertain this application when a tactical decision had been made not to make an application for disclosure against the Ugandan Government in the Constitutional Court. That court is seised of the dispute. It would no doubt expect the executive branch of the Ugandan state to supply it with documentation if it was so ordered … The principles of comity require this court in these circumstances not to act without a request from the Constitutional Court.

…

84. The issue of necessity on the facts of the present case centred on the issues of whether disclosure could be obtained in Uganda, whether there were good reasons why that had not been done and the availability of the statutory scheme.

…

86.  In our view, the test of necessity cannot be met until the claimants have applied for disclosure in Uganda in relation to their arrest.  We cannot assume at this time that the courts of a friendly foreign state will fail properly to consider an application for disclosure.  Tactical reasons, however, well intentioned, cannot in the circumstances of a case such as this override the need to apply in Uganda first.”

(2)  Although the claimants rationally considered an application to the English Court to be more advantageous than one to the Uganda Court, “it does not itself provide them with a free trip round the requirement of necessity. It was not the only rational decision that could have been made on their behalf” (§32).

(3)  Despite the claimants’ suggestion that fabricated evidence would be produced in the Uganda process, it would have been wrong for the English Court to assume that the Uganda Court would fail to duly expose them.  “This flows from the concept of soundly based comity” (§34).

13.  In United Co Rusal Plc v HSBC Bank Plc [2011] EWHC 404, the applicants applied to the English Court for Norwich Pharmacal relief from a firm of solicitors for documents concerning transactions suspected to be wrongful.  The relief was sought in aid of Russian proceedings against the alleged wrongdoers, for whom the firm acted.  Notably, the applicants also commenced discovery proceedings in New York and Connecticut against the principals engaged in the impugned transactions so as to facilitate foreign proceedings (§§41, 132).

14.  Tugendhat J held that Norwich Pharmacal relief was not necessary:

(1)  Given the New York and Connecticut discovery proceedings were brought directly against the principals of the transactions (whereas the instant application was only brought against a firm of lawyers), the order sought could not be said to be necessary before the outcome of those applications were determined (§132).

(2)  In fact, disclosure had been ordered in Connecticut proceedings since Tugendhat J’s draft judgment was circulated.  This provided a further ground for the conclusion that a Norwich Pharmacal order was unnecessary, at least until compliance was completed (§152).

15.  Whilst each case depends on its own facts and Mr Toby Brown appearing for the plaintiffs sought to distinguish our present case from the above case authorities, the principles and observations set out above demonstrate that a Hong Kong Court should be cautious when deciding whether to order Norwich Pharmacal relief in aid of foreign proceedings.  Considerations of comity and necessity would generally require the foreign court which is seised of the substantive dispute to control the discovery process.  For present purposes, I need not decide whether this goes to strict necessity or discretion: see Gary Milner-Moore and Simon Bushell, Disclosure of Information – Norwich Pharmacal and Related Principles (2^nd ed. 2019)  §11.9.3 at pp.171-172.

16.  I raised my above concerns with Mr Brown at the hearing on 26 July 2022.  Given there would be a hearing before the California Court that evening relating to the California ED Order, I adjourned the originating summons initially to 28 July 2022 and eventually to today so that the plaintiffs could provide me with an update on the proceedings in the California Court.

17.  As explained in the updating affirmation from the plaintiffs’ California attorneys, at the 26 July 2022 hearing the California Court was only asked to rule on three of the plaintiffs’ requests for discovery made pursuant to the California ED Order.  All other requests were denied by the California Court as being “MOOT” because Ms Lei had agreed to provide them in principle as indicated in her supplemental response but with the caveat that not all such documents are actually produced because (according to her)  they are not in her possession.

18.  As regards the three contested requests, the California Court rejected them because they were considered not sufficiently necessary for the plaintiffs’ case (at least at this stage)  in the California proceedings to overcome Ms Lei’s right to privacy.

19.  The plaintiffs’ California attorneys explained that two of the rejected requests had no impact on the present application before this Court since the documents thereunder would not fall within the class of documents sought in this application (subject to a proposed revision to the draft Order to be made herein to limit the scope of information for the avoidance of doubt).

20.  As for the remaining rejected request, namely documents evidencing transfers out of the Mainland to Macau or Hong Kong or other location after 1 January 2007, the California Court’s rejection was on the premise that documents for transfers out of the Mainland after the period in which Ms Lei was alleged to have received the defrauded sum were not relevant, because in the California proceedings the plaintiffs only need to show the transfer into Ms Lei’s hands to make good their claim.  I accept Mr Brown’s submissions that the limiting factor by the California Court is not and should not be a limiting factor in this application, because by this application the plaintiffs are not simply seeking documents sufficient to trace money into Ms Lei’s hands (which would complete the evidence for the claim against her in the California proceedings)  but to understand the fate of the funds once received so as to identify further defendants.

21.  For the above reasons, I am satisfied on the evidence that:

(1)  The “crossover” documents requested under the California ED Order and sought in this application were agreed by Ms Lei as discoverable in the California proceedings.

(2)  The limited rejection of discovery by the California Court was not on grounds relevant to this application.

22.  I am therefore satisfied that the plaintiffs are justified in seeking the Order sought in this application, and I make an order in terms of the draft Order submitted (with certain modifications discussed at the hearing with Mr Brown).

23.  As a postscript, Mr Brown fairly drew to my attention that the plaintiffs are bringing this application by way of an Originating Summons using Form No 10 (i.e. the expedited form)  set out in Appendix A to the Rules of the High Court.  In Leung Yiu Ting v MTR Corp Ltd [2019] 5 HKLRD 14, Chow J (as he then was)  pointed out at [15] that Form 10 can only be used when designated by a specific rule (see Order 7, rule 2).  There is no specific rule allowing Form 10 to be used for Norwich Pharmacal applications.  The long form (i.e. Form 8)  should therefore be used.  The use of an incorrect form of the Originating Summons is a material irregularity: Hong Kong Ping Jeng Lau Co v Incorporated Owners of United Centre [1990] 1 HKC 178.  See also Talent Hope Ltd v Magnificient Estates Ltd [1995] 3 HKC 593 where Waung J made clear that the use of the correct form of an Originating Summons is not a mere matter of formality but carries significant procedural consequences, given that the hearing of an Originating Summons in the expedited form will take place at a “much accelerated pace”.

24.  Whilst the material irregularity arising from the use of wrong form of Originating Summons may be cured under Order 2 rule 1 (as Chow J indicated in Leung Yiu Ting), practitioners are reminded to use Form 8 even if the bank or party against which disclosure is sought consents to the application and takes no issue with the form of the Originating Summons used, and must not take it as a matter of course that the Court will always be prepared to exercise its power under Order 2 rule 1 to cure the irregularity.