CHINA MEDICAL TECHNOLOGIES, INC (IN LIQUIDATION) AND OTHERS v. WU XIAODONG AND OTHERS

HCA 3391/2016 & HCA 1417/2013

[2023] HKCFI 1892

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

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BETWEEN

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HCA 1417 /2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

_______________________

BETWEEN

_______________________

(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

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J U D G M E N T

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Introduction

1.  This is another episode of the interlocutory battles between the Plaintiffs and Mr Samson Tsang (“2nd Defendant”).

2.  By summons dated 24 September 2021 (“Summons”), the 2nd Defendant applies for discovery against the Plaintiffs pursuant to RHC O 24 rr 3 and 7 of all documents or correspondence between, or notes of meetings or conversations between the 3rd Plaintiffs (“3rd Plaintiffs/Liquidators”) (including employees of Borrelli Walsh Limited under the directions of the 3rd Plaintiffs) and any of the respective 6 experts referred to in paragraph 72.2 of the 3rd Affidavit of Mr Cosimo Borrelli sworn on 29 March 2018 (“Borrelli 3”) in HCA 3391 of 2016 (“HCA3391”) relating to the FISH and/or SPR Technologies (“Subject Materials”). In addition, the 2nd Defendant seeks inspection under RHC O 24 r 11.

3.  The Summons is resisted by the Plaintiffs on the ground that the Subject Materials are privileged and the documents sought are unnecessary for disposing fairly of the cause or matter or for saving costs.

Background

4.  The factual background has been repeated again and again in various Judgments of this court as well as the Court of Appeal. It can most recently be found in this court’s Judgment dated 11 May 2023 (“11 May 2023 Judgment”) in connection with the Plaintiffs’ application, opposed by the 2nd Defendant, for leave to adduce expert evidence (“Expert Summons”) at the trial on 3 issues viz:

(a) The nature of the fluorescent in situ hybridization technology (“FISH”) acquired by the 1st Plaintiff and the 2nd Plaintiff in 2007, to address the questions more particularly specified in Appendix 1 thereof including inter alia the size of the market for this technology and the likely future growth of the technology in the Mainland China (“FISH Issue”).

(b) The nature of the surface plasma resonance technology (“SPR”) acquired by the 1st Plaintiff and the 2nd Plaintiff in 2008, to address the questions more particularly specified in Appendix 2 thereof, which are similar to the questions in Appendix 1 (“SPR Issue”).

(c) The valuation of FISH as at 1 March 2007 and that of SPR as at 4 December 2008 (“Valuation Issue”).

5.  The Plaintiffs’ application was granted by this court. The 2nd Defendant’s application for leave to appeal against the 11 May 2023 Judgment was withdrawn on 21 June 2023.

6.  For ease of understanding the background, this court will quote from the 11 May 2023 Judgment at [4] - [13] as follows:

“4. The 1st Plaintiff was incorporated in the Cayman Islands in July 2004. Its shares were listed on NASDAQ in August 2005 and were delisted in February 2012. It was the holding company of a group whose principal business was said to be developing, manufacturing and marketing advanced surgical and medical equipment in the PRC. The 1st Plaintiff was grossly insolvent with provable claims of over US$400 million. In July 2012, it was wound up by the Grand Court of the Cayman Islands. On 1 September 2014, Harris J made an ancillary winding up Order against it in HCCW 435 of 2012.

5. The 2nd Plaintiff is the 1st Plaintiff’s wholly owned subsidiary.

6. The 3rd Plaintiffs were appointed as the provisional liquidators of the 1st Plaintiff by Order of Harris J in November 2012. On 5 February 2015, they became the Liquidators of the 1st Plaintiff (“Liquidators”).

7. The 1st Defendant (“Mr Wu”) was at all material times the founder, Chairman, CEO, director and the largest shareholder of the 1st Plaintiff. From January 2006 to July 2012, he was a director of the 2nd Plaintiff.

8. The 2nd Defendant (“Mr Tsang”) was the 1st Plaintiff’s director from June 2007 to December 2011 as well as its CFO from January 2005 to January 2012. He was also a director of the 2nd Plaintiff from January 2006 to December 2011. He was the second most senior executive of the 1st Plaintiff after Mr Wu. Mr Tsang is in contempt of a High Court Order that he should attend Court in person for examination, has absconded from Hong Kong and is subject to an outstanding warrant for his arrest. Mr Tsang is also said to be a fugitive from the United States criminal justice system.

9. The Plaintiffs claim that the former senior management of the 1st and 2nd Plaintiffs, assisted by their associates, perpetrated, participated in and/or benefited from the fraudulent misappropriation of US$521.8 million in cash (“Fraud”) through purported acquisitions (“Acquisitions”) from the 7th Defendant, Supreme Well Investments Limited (“Supreme Well”), and its subsidiaries, of the following alleged medical technologies:

a. FISH, acquired pursuant to a contract dated 6 February 2007 for US$176.8 million; and

b. SPR, acquired pursuant to a contract dated on or around 5 October 2008 for US$345 million.

10. It is the Plaintiffs’ case that:

a. FISH and SPR were worthless (or of no significant value) in that they were not new technologies;

b. Supreme Well, the counter party to the Acquisitions, was in fact controlled by Mr Tsang, who was the sole authorised signatory of its bank accounts with Bank of China (Hong Kong) Limited (“BOC”) and The Bank of East Asia, Limited (“BEA”) into which US$355.5 million of the consideration paid by the 1st and 2nd Plaintiffs were deposited. The balance was paid to Supreme Well by other means;

c. Mr Tsang authorised the transfer of funds from Supreme Well to the bank accounts of other persons and entities (“Supreme Well Payees”) all of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates; and

d. the Supreme Well Payees subsequently transferred all or some of the funds to the bank accounts of other persons and entities (“Further Supreme Well Payees”), some of whom were associated with or controlled by Mr Wu, Mr Tsang and/or their associates, and thereafter to further recipients.

11. The 1st Defendant orchestrated, participated and conspired in the Fraud.

12. Mr Tsang acted on both sides of the Acquisitions and directed payment of the consideration received by Supreme Well to the Supreme Well Payees. He received US$7.47 million directly and over US$379 million through entities controlled by him. The Plaintiffs claim US$524.7 million against Mr Tsang:

a. US$521.8 million misappropriated from the 1st and 2nd Plaintiffs by reason of, inter alia, his breaches of duty and trust and unlawful conspiracy; and

b. US$2.9 million, being salary and bonuses paid to him from January 2006.

13. Further background information can be found in this court’s Judgment in the present Action dated 21 October 2022 in relation to Mr Tsang’s security for costs application.”

Deliberation

7.  As per Mr Lung’s skeleton at para 6 as an overview, the basis of the 2nd Defendant’s application is this:

(a) First, the Subject Materials: (i) exist; (ii) are relevant to a key issue as to whether the FISH and SPR Technologies are worthless; (iii) are in the possession, custody or power of the 3rd Plaintiffs; and (iv) are necessary for disposing fairly of the cause or matter or for saving costs. Necessity is disputed by the Plaintiffs. (“Necessity Issue”)

(b) Second, the 3rd Plaintiffs are unable to show that the Subject Materials are protected by litigation privilege, since they are unable to provide any, let alone sufficient, objective and/or contemporaneous evidence to prove that such materials were created for the “dominant purpose” of specific litigation. (“Privilege Issue”)

(c) Third, even if the Subject Materials are protected by privilege, the 3rd Plaintiffs have waived such privilege when their contents were extensively deployed by them in a number of ex parte applications in persuading the Court to take a favourable view on the merits of the Plaintiffs’ case. (“Waiver Issue”)

8.  At the hearing, Mr Manzoni SC invites this court to deal with the Privilege and Waiver Issues first. It seems to this court that is a more logical approach than what is suggested in Mr Lung’s skeleton since the Necessity Issue would naturally fall away if this court were to decide the first two issues in favour of the Plaintiffs. It also makes sense in light of the underlying objectives of the CJR to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings.

Privilege Issue

9.  The law on litigation privilege is well-established and can be simply stated.

10.  When litigation is in prospect or pending, any communications between the client and his solicitor or agent, or between one of them and a third party, will be privileged if they come into existence for the sole or dominant purpose of either giving or getting legal advice with regard to the litigation or collecting evidence for use in the litigation. This is the basis for claiming privilege for correspondence with witnesses of fact or experts, and proofs, reports or documents generated by them. The principle is that a party or potential party should be free to seek evidence without being obliged to disclose the result of his researches to the other side^[1]: Hollander Documentary Evidence in Hong Kong 2nd Ed. (2020) para 16-001.

11.  In Three Rivers District Council v Governor and Company of the Bank of England (No 6) [2005] 1 AC 610, 675 at [102], Lord Carswell said:

“102 The conclusion to be drawn from the trilogy of 19th century cases to which I have referred and the qualifications expressed in the modern case-law is that communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with existing or contemplated litigation are privileged, but only when the following conditions are satisfied: (a) litigation must be in progress or in contemplation; (b) the communications must have been made for the sole or dominant purpose of conducting that litigation; (c) the litigation must be adversarial, not investigative or inquisitorial.”

12.  Specifically, in the context of materials obtained in the course of investigations undertaken by liquidators of a failed company, in Akai Holdings Limited (in liq) v Ernst & Young (2009) 12 HKCFAR 649, the Court of Final Appeal upheld claims to privilege by the liquidators over the transcripts and notes of private examinations and interviews conducted pursuant to s.221 of the predecessor Companies Ordinance, Cap. 32 in opposition to the defendant’s request for specific discovery.

13.  At [112] - [114], Lord Hoffmann NPJ set out the context under which litigation privilege was claimed in relation to the transcripts and notes in question:

“112. When Akai Holdings Ltd (“the Company”) was compulsorily wound up in 2000, the liquidators found little left to satisfy claims by creditors in excess of US$1 billion. The only significant source of assets appeared likely to be claims against the former management, who had made away with the company’s money, and the former auditors, who had not prevented them from doing so. But in practical terms such claims were not likely to be enforceable except through litigation. That required the liquidators to investigate what had happened and consider (with legal advice) whether the company had causes of action.

113. In making these investigations, the liquidators were handicapped by the sparseness of the written records which came into their hands and the unwillingness of both the former management and the auditors to assist them. The lack of progress during the first two or three years of the liquidation created a risk that any claims might become statute barred before the liquidators were in a position to decide whether the company was entitled to sue. The liquidators therefore caused a protective writ to be issued, naming as plaintiffs both the company and a number of its subsidiaries and as defendants a large number of people, including the auditors, Messrs Ernst & Young (Hong Kong) (“EYHK”).

114. The liquidators then invoked their powers under s.221 of the Companies Ordinance, Cap.32, to apply for a private examination of a number of people whom they thought might be able to give them useful information…”

14.  At [117], Lord Hoffmann NPJ suggested the test depended on the answers to 2 simple questions:

“117. The case in my opinion depends upon the answers to two simple questions. First, did the liquidators conduct the examinations for the sole or dominant purpose of obtaining advice from their solicitors as to bringing or conducting legal proceedings? Secondly, were such proceedings reasonably anticipated at the time? These questions are an application to the facts of this case of the general principles of legal professional privilege stated by the House of Lords in Waugh v British Railways Board [1980] AC 521.”

15.  The learned NPJ answered both questions in the affirmative.

“122. …The liquidators made it perfectly clear that the purpose for which the information was sought was to see whether the company had a viable cause of action against any of its former management or auditors. It is true that they did not say that the company would definitely bring or continue proceedings. As responsible liquidators, they would presumably have abandoned the proceedings if advised that they had no case. But that does not mean that the information was not obtained for the dominant purpose of advice as to anticipated litigation.

123. … All but two of the interviews took place after the writ had already been issued. Litigation had actually been commenced. The liquidators had spent money instructing their lawyers to commence the action. Even the two earlier interviews had been held within the previous month, when the writ was no doubt in preparation….”

16.  In the present case, the 1st Plaintiff was wound up by the Grand Court of the Cayman Islands on 27 July 2012 on the ground of insolvency. Mr Borrelli was appointed as one of the joint official liquidators.

17.  On 29 November 2012, the Hong Kong Court appointed Mr Borrelli and Ms Yuen Lai Yee as joint and several provisional liquidators until the determination of a petition to wind up the 1st Plaintiff in Hong Kong.[2]

18.  On 1 August 2013, the protective writ was filed in HCA 1417 of 2013 (“HCA1417”) against inter alia the senior management of the 1st Plaintiff including the 2nd Defendant.

19.  As stated in paragraph 19 of the 21st affidavit of Mr Borrelli dated 5 December 2022 (“Borrelli 21”) in opposition to the Summons, the date range of the communications between the Liquidators (either by themselves, their team or their lawyers) with each of the 6 experts and the scopes of engagements of the experts are as follows:

Expert	Date Range of Communications	Scope of Engagements
A	30 Sep 2013 to 23 Sep 2019	Advise on true nature and value of FISH Technology
B	1 Dec 2014 to 22 Apr 2016	Advise on true nature and value of FISH Technology
C	22 Jan 2015 to 13 Sep 2019	Advise on true nature and value of SPR Technology
D	21 Sep 2016 to 10 Apr 2017	Advise on true nature and value of SPR Technology
E	13 Feb 2017 to 29 Mar 2020	Advise on true nature and value of SPR Technology
F	6 Mar 2015 to 6 Oct 2019	Advise on true nature and value of SPR Technology

20.  It can be seen that all communications with these 6 experts took place on or after 30 September 2013 ie after the protective writ in HCA1417 had been filed. If so, legal proceedings must be reasonably anticipated when the Subject Materials came into existence. Further, Mr Borrelli has stated in no uncertain terms in paragraph 20 of Borrelli 21 that the engagements of these experts were to understand the true nature and value of FISH and SPR technologies. All the Subject Materials were produced and brought into the existence for the sole purpose of obtaining or providing legal advice as to bringing or conducting these proceedings and other actions that had been commenced by the Plaintiffs or were in contemplation. Against the relevant background of this case, there is no reason for this court to doubt what Mr Borrelli has said in that paragraph.

21.  Mr Tang Shu Pui Simon (“Mr Tang”) in his 6th affidavit dated 13 January 2023 in reply (“Tang 6”) for the 2nd Defendant, actually accepted in paragraph 20 that:

“The FISH and SPR Technologies are specialised medical technologies. It is reasonable that the Liquidators and their lawyers who do not possess medical technology knowledge require education and assistance from the relevant experts to understand the FISH and SPR Technologies in order to perform their investigation works.”

22.  However, Mr Tang then went on to cast doubt on whether any piece of information from the 6 experts is privileged because inter alia the Liquidators have not disclosed the terms of their engagement, their identity, qualification, specialisation and experience and so on. There is also a complaint that the Liquidators had not openly asserted privilege earlier.

23.  This is incomprehensible. If Mr Tang accepts the Liquidators reasonably required assistance from the 6 experts to understand FISH and SPR in order to conduct their investigation, what more is there for the Liquidators to disclose? Liquidators do not normally investigate for the sake of investigating (or their fees would be at risk of challenge) - in all reasonable probabilities, the Liquidators’ investigation in the present case would have been for a purpose relating to their duties as disclosed in Borrelli 21. This court cannot see any alternative suggested in Tang 6.

24.  In the present case, the 1st Plaintiff is hopelessly insolvent and its creditors have provable claims in excess of US$400 million. Its tangible assets have only a nominal value and its potential legal claims appear to be its only valuable assets: 4th affidavit of Mr Borrelli dated 20 July 2017 filed in HCA1417 (“Borrelli 4”). With few assets to be realised aside from legal claims, a key focus of the Liquidators’ work at the time must be to investigate available claims so as to recover some money for distribution to the creditors.

25.  This court asks rhetorically, once lawyers had been engaged, and the protective writ had been issued in HCA1417, what else could be the purpose of the Liquidators’ investigation and communications with the 6 experts if it were not for the purpose of obtaining or providing legal advice in relation to bringing or conducting legal proceedings? There is no answer in Tang 6.

26.  In the circumstances of this case, this court can confidently answer the 2 simple questions posed by Lord Hoffmann NPJ in Akai Holdings Limited in the affirmative without the need to know any of the matters said not to have been disclosed by the Liquidators.

27.  Mr Lung submits at paras 45 to 52 of his skeleton that the Subject Materials are not subject to litigation privilege, complaining that what is stated in Borrelli 21 is just a bare assertion. Mr Lung also submits that, in the context of liquidation, there is no presumption that everything the 3rd Plaintiffs did as liquidators was in contemplation of litigation so as to satisfy the “dominant purpose” requirement, especially in view of the multi-faceted duties of liquidators, referring to a passage of Eder J in Rawlinson & Hunter Trustees SA v Akers [2013] EWHC 2297 (QB) at [53]:

“…the mere fact that a document is produced for the purpose of obtaining information or advice in connection with pending or contemplated litigation, or of conducting or aiding in the conduct of such litigation, is not sufficient to found a claim for litigation privilege. It is only if such purpose is one which can properly be characterised as the “dominant purpose” that such claim for litigation privilege can properly be sustained…Further, I recognise that such difficulties are or may be particularly acute where documents come into existence, as in the present case, on the instructions of liquidators who are under statutory duties with regard (so far as possible) to the orderly collection of assets and settlement of liabilities. In the first instance at least, the proper performance of such duties may require the liquidators to obtain information simply to identify what (if any) assets or liabilities exist or perhaps what legal proceedings might possibly be brought against any third parties. Ultimately, once obtained, such information may well be important to enable liquidators to decide what if any legal proceedings might possibly be pursued; and, further down the line, such information may in fact be used for or in connection with pending or contemplated litigation or of conducting or aiding in the conduct of such litigation. However, unless such documents were originally produced for the “dominant purpose” as stated above, they cannot, in my view, be the subject of a proper claim for litigation privilege.”

28.  This court does not see how that passage assists the 2nd Defendant. As statements of principle, it does not add anything to what has already been cited above. As illustrations of the application of the principles to the facts of that case, it is self-evident that every case in which a claim for privilege is allowed or rejected is fact-sensitive. The facts of Rawlinson are very different from the present one. As pointed out in Mr Manzoni SC’s skeleton, there were “no relevant extant proceedings at that stage[3]” and the liquidators could not specify who the potential defendants in the contemplated litigation might be: Rawlinson at [59]. That is clearly not the case here since the Liquidators’ communications with the 6 experts took place after the protective writ had been filed with inter alia the 2nd Defendant named as one of the defendants in both HCA1417 and HCA3391.

29.  Further, just like Tang 6, Mr Lung has no answer to this court’s earlier question: once lawyers had been engaged, and the protective writ had been issued, what else could be the purpose of the Liquidators’ investigation and communications with the 6 experts if it were not for the purpose of obtaining or providing legal advice in relation to bringing or conducting legal proceedings?

30.  All in all, this court is in no doubt that the Subject Materials are subject to litigation privilege.

Waiver Issue

31.  At para 53 of Mr Lung’s skeleton, he submits that this is a clear case that any privilege attached to the Subject Materials has been waived by way of “deployment” in the course of the ex parte applications taken out by the Plaintiffs since 2017.

32.  The classic statement on collateral waiver appears in the judgment of Mustill J (as he then was) in Nea Karteria Maritime Co Ltd v Atlantic & Great Lakes Steamship Corp. [1981] Com LR 138, at 139, in the following terms:

“…where a party is deploying in court material which would otherwise be privileged, the opposite party and the court must have an opportunity of satisfying themselves what the party has chosen to release from privilege represents the whole of the material relevant to the issue in question. To allow an individual item to be plucked out of context would be to risk injustice through its real weight or meaning being misunderstood.”

33.  As for the proper test to be applied for considering whether there is waiver, the following passage in paragraph 10-17 of Matthews and Malek Disclosure 2nd Ed.[4] was cited with approval by the Court of Appeal in Goldlion Properties Ltd v Regent National Enterprises Ltd [2006] 1 HKLRD 793 at [36]:

“The key word here is ‘deploying’. A mere reference to a privileged document in an affidavit does not of itself amount to a waiver of privilege, and this is so even if the document referred to is being relied on for some purpose, for reliance in itself is said not to be the test. Instead, the test is whether the contents of the document are being relied on, rather than its effect. The problem is acute in cases where the maker of an affidavit or witness statement has to give details of the source of his information and belief, in order to comply with the rules of admissibility of such affidavit or witness statement. Provided that the maker does not quote the contents, or summarise them, but simply refers to the document’s effect, there is apparently no waiver of privilege.” (my emphasis)

34.  In Government Trading Corporation v Tate & Lyle International Ltd unrep, 19 October 1984, 1984 WL283024 (English Court of Appeal) Lord Justice Robert Goff made some very cogent and practical observation on this issue as follows:

“…Time and time again it must happen in interlocutory applications that it is necessary to refer to certain facts or certain advice, and it may be that it is necessary, at the same time, to refer to the origin of those facts or the origin of that advice. It does not follow that, simply because a person does so, he is waiving privilege in respect of the relevant conversation or documents from which the facts are derived. Of course, if a party were, in such a case, to hand over a complete document, I have little doubt that, unless there were some special conditions attaching to the disclosure, there would be a waiver of privilege in respect of that document; but I would have thought that, in the majority of cases, when a matter to this kind arises, there simply is no waiver of privilege at all, there being no more than a reference to a document or a reference to a communication, and that is all.”[5] (emphasis added)

35.  In paras 73 to 76 of Mr Lung’s skeleton, he submits that the Plaintiffs have deployed the Subject Materials by referred to the “gist" of their contents, rather than merely their “effect”, in the affidavits supporting their ex parte applications since 2017. Three examples are given in support.

36.  First, Mr Lung refers to Borrelli 4 which was filed for the purpose of an extension of the validity of the writs in HCA1417 and HCA3391 and for the consolidation of the 2 actions. He refers to paras 103.3 and 103.4 for the purpose of his submission but in order to understand the context, it is necessary to quote from the beginning of Section F of that affidavit.

“F. EXTENSION OF VALIDITY OF WRITS

F.1 Developments Since Last Extension

102. Borrelli 3 outlines the further work required to be undertaken before the Liquidators would be in a position to determine whether the Company would proceed with any of the claims identified in the First Hong Kong Protective Writ.

103. Since Borrelli 3, the Liquidators have undertaken further worldwide investigations into the affairs of the Plaintiff which have led to developments enabling them to determine that the claims should be pursued. By way of overview, in the last 12 months the Liquidators’ investigations have led to the following developments relevant to the claims against the Defendants:

…

103.3 the Liquidators’ further work with experts regarding the FISH and SPR Technologies enabled them to develop a greater understanding of the true nature of the FISH and SPR Acquisitions and the value of those technologies. As a result, proceedings may now be pursued against a valuation firm, for which a writ was issued in November 2016;

103.4 the Liquidators’ further investigations have also enabled them to ascertain that the FISH and SPR Technologies in fact had no, or no significant, commercial value. This conclusion is important because the Liquidators would not be able to determine against whom proceedings should be brought unless they have ascertained the true value of the FISH and SPR Technologies. The conclusion reached by the Liquidators in this regard is consistent with that of prosecutors in the United States, who in March 2017 issued an indictment in the United States District Court for the Eastern District of New York (Tab 8), charging Messrs Wu and Tsang, the former Chairman and Chief Financial Officer of the Plaintiff, with criminal offences in connection with conduct comprising part of the fraudulent breaches of fiduciary duty that will be alleged by the Liquidators in this action….” (emphasis added)

37.  The parts underlined are those relied upon by Mr Lung as deployment of the contents of the Subject Materials.

38.  This court disagrees that there was any deployment of the contents of the experts in any sense. It seems plain that Mr Borrelli was simply stating the Liquidators’ conclusion that the FISH and SPR technologies in fact had no, or no significant, commercial value. That conclusion had been enabled by the Liquidators’ further investigations including their communications with the experts which enhanced their understanding of the FISH and SPR technologies.

39.  Second, Mr Lung refers to the 5th Affidavit of Mr Borrelli dated 30 August 2017 filed in HCA1417 (“Borrelli 5”). That affidavit was filed for the purpose of seeking leave to service the writ outside jurisdiction on certain defendants. Mr Lung relies on paras 37 and 38 therein for the purpose of his submission but again in order to understand the context, it is necessary to quote from the beginning of Section D.2 of that affidavit.

“D.2 Factual and Evidentiary Basis of Claims

34. The Liquidators have identified strong evidence that, in the period from at least January 2006 until February 2012, Mr Wu, Mr Tsang, Dr Chen and/or Mr Zhu, together with Mr Chong Wing Hip, an associate of Mr Wu and Mr Tsang, orchestrated and/or perpetrated the Theft by which they stole at least US$521.8 million of the funds of the Company and/or CMED Technologies through:

34.1 the FISH Acquisition, which Mr Wu, Mr Tsang and Mr Zhu presented to the Company’s board and the public as a legitimate arm’s length acquisition of the FISH Technology by the Company and its subsidiaries from supposedly independent third parties, Supreme Well and its subsidiaries, for purchase consideration of US$176.8 million (Statement of Claim, Section D.5.1); and

34.2 the SPR Acquisition, which Mr Wu, Mr Tsang, Dr Chen and Mr Zhu presented to the Company’s board and the public as a legitimate arm’s length acquisition of the SPR Technology by the Company and its subsidiaries from supposedly independent third parties, Supreme Well and its subsidiaries, for purchase consideration of US$345 million (Statement of Claim, Section D.5.2).

…

37. The Liquidators have been unable to identify any valuable technology that was received by the Company or any of its subsidiaries pursuant to the FISH and SPR Acquisitions (Statement of Claim at [68]).The Liquidators’ work with FISH Technology experts in the United States indicates that the FISH Technology had been in existence for almost 30 years and it is unlikely that the technology could have been patented or of any significant value at the time that it was acquired by the Company or its subsidiaries. Further, the Liquidators’ work with SPR experts in the United States and Sweden indicates that in 2008, SPR Technology did not have any clinical application, and that SPR Technology is inherently unsuited to use in clinical diagnosis. Accordingly, it is highly unlikely that the SPR Technology could have been of any significant value.

38. The Liquidators, assisted by appropriately qualified experts, have ascertained that the assets acquired or purportedly acquired by the Company or its subsidiaries pursuant to the FISH and SPR Acquisitions had no, or no significant, value.”(emphasis added)

40.  The parts underlined are those relied upon by Mr Lung as deployment of the contents of the Subject Materials.

41.  Again Mr Borrelli was merely stating the Liquidators’ conclusion as a result of having received advice from the experts. This court cannot see any deployment of the contents of the advice, merely the effect of it which enabled the Liquidators to come to their conclusion for the purpose of that particular application.

42.  Third, Mr Lung refers to Borrelli 3 filed in HCA3391. That affidavit was filed as a reply to inter alia an allegation of delay raised by the 2nd Defendant in connection with the Plaintiffs’ Summonses to continue the Injunction Order as amended by the Order of the Honourable Mr Justice Louis Chan dated 8 January 2018 against inter alia the 2nd Defendant. To put the matter in context, this court will set out paragraph 71 and parts of paragraph 72 of Borrelli 3 below.

“C.2 Liquidators’ Investigations

71. The claims against the 23 Defendants are closely interrelated, in terms of evidence, and factual and legal issues. It has been critical for the Liquidators to investigate and pursue the claims against the Defendants in tandem and, at the same time, avoid leaking information pertaining to the investigations, which would have alerted the Defendants to the pursuit of claims against them and risked dissipation of their assets. Until shortly before service commenced in November 2017, the Liquidators were not in a position to determine whether it was in the best interests of the Company’s creditors to serve proceedings on any or all of the Defendants.

72. Further, the investigations were complex, costly and time consuming. In conducting their worldwide investigations, the Liquidators have inter alia:

…

72.2 worked with 6 medical technology experts, as a result of which the Liquidators were able to ascertain that the FISH and SPR Technologies had no, or no significant, commercial value…”. (emphasis added)

43.  The position cannot be clearer. The Liquidators were simply restating their conclusion as a result of their liaison with the 6 experts up to the date of that affidavit ie 29 March 2018. It is just impossible to see any deployment of the contents of the Subject Materials.

44.  In paras 77 to 80 of Mr Lung’s skeleton, he submits that as regards “deployment”, the Plaintiffs relied heavily on the Subject Materials in advancing their case in the applications for: (i) extension of the validity of the Writs filed in HCA1417 and HCA3391, (ii) leave to serve the extended Writs out of jurisdiction; and (iii) a worldwide Mareva injunction against the 2nd Defendant, and with regard to (ii) and (iii), in order to demonstrate the merits of their case as a whole.

45.  That is a curious submission since the authorities are clear that reliance in itself is not the test. Instead, the test is whether the contents of privileged materials are being deployed, rather than its effect: AXA China Region Insurance Co Ltd & Anor v Pacific Century Insurance Co Ltd & Ors unrep, HCA 9093 of 2000, 18 May 2005, Chu J (as she then was) at [29] - [31]; Goldlion Properties Ltd supra at [36]. If and in so far as Mr Lung relies on Derby v Weldon (No.10) [1991] 1 WLR 660 as an example that where a Mareva injunction was sought, deployment of privileged materials “for merits purposes” necessarily means a waiver of the privileged materials, this court disagrees. The key concept is “deployment”, whether or not the purpose is to show “merits” or otherwise.

46.  This court has considered the other submissions of Mr Lung on this subject. Suffice it to say they are of no assistance whatsoever.

47.  To conclude, this court is of the view that there was no waiver of the privilege attached to the Subject Materials.

Necessity Issue

48.  Since the Privilege and Waiver Issues are decided in favour of the Plaintiffs, that would be dispositive of this application. No useful purpose can be served by dwelling on the Necessity Issue. That is all this court wishes to say on this issue.

Disposition and costs order nisi

49.  The Summons is hereby dismissed.

50.  Costs should follow the event. There shall be an order nisi that costs be to the Plaintiffs, to be summarily assessed and paid by the 2nd Defendant forthwith, certificate for Senior Counsel.

51.  The Plaintiffs are directed to submit a statement of costs within 3 days and leave is granted to the 2nd Defendant to submit its list of objections within 3 days thereafter. Unless otherwise directed by the court, costs shall be assessed on paper.