YANG FOO-OI v. WAI WAI CHEN AND ANOTHER

HCA1739/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1739OF 2010

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J U D G M E N T

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INTRODUCTION

1.  The applicant (“Angela”), a non party in the present action, has applied for leave to use a document (“Subject Document”) in and/or in relation to:

(i) Civil proceedings commenced by Rostack Investments Inc (“Rostack”) against Angela, pending before the Superior Court of the State of California for the County of Los Angeles, Central Division (“California Action”); and

(ii) Intended contempt proceedings which Angela intends to commence against the 1^st defendant (“Vivien”) (“Intended Contempt Proceedings”), as a result of her alleged breach of an order made by Master Hui in HCMP1478 of 2011 on 5 September 2011 (“Disclosure Order”).

BRIEF BACKGROUND

The Present Action (“Hong Kong Action”)

2.  The plaintiff in the Hong Kong Action (“the Mother”) was formerly the wife of Dr Chen Din Hwa (“the Father”), the founder and chairman of the Nan Fung Group.  The Father is now deceased.  Angela is their elder daughter and Vivien the younger.

3.  In the Hong Kong Action, the Mother claims that as part of  the Father’s distribution of his assets, he instructed under a document called Proposal A 59807 dated 21 August 2004 that:

(i) HK$4.5 billion be distributed to Angela and Vivien;

(ii) But Angela and Vivien shall each transfer HK$1.5 billion to the Mother, such that the three of them would receive HK$3 billion each.

4.  According to the Mother, the effect of Proposal A59807 was that Vivien was required to transfer or cause to be transferred to the Mother 1/3 of the value of the properties distributed to Vivien.

5.  Instead of receiving her 1/3 entitlement in the form of property under Proposal A59807, the Mother agreed to receive her HK$1.5 billion entitlement in cash, in the manner set out in the Amended Statement of Claim (“Distribution Agreement and Arrangement”).

6.  The Mother now seeks to rescind her agreement to receive the cash of HK$1.5 billion due to Vivien’s alleged misinterpretation, and/or undue influence, and/or breach of fiduciary duty, and/or the Mother’s mistake.  The Mother further seeks an account of Vivien’s alleged profit derived from the property distributed to her.

7.  If the Mother’s claim relating to the Distribution Agreement and Arrangement fails, she alternatively claims that:

(i) Vivien held the 2^nd defendant (“Timford”) and all its assets, on trust for her absolute benefit, or alternatively agreed to take all necessary steps to constitute the Mother as the full owner of the shares and/or assets in Timford;

(ii) Vivien wrongly entered into a declaration of trust which had the effect of setting up a life interest in the shares and/or assets of Timford in favour of the Mother, with the remainder vesting in Vivien absolutely;

(iii)Vivien thereby acted in breach of contract and/or breach of trust;

(iv)Timford, if it held assets on trust for the Mother, held those assets on trust for the Mother absolutely, and acted in breach of trust by executing the aforesaid declaration of trust; and

(v) Vivien also failed to make payments to the Mother’s Charity Trust as agreed under the Distribution Agreement and Arrangement.

8.  Further, if it is in fact the case that the Mother had never given up her 1/3 entitlement under Proposal A59807, she should have received assets representing 1/3 of the market value of the property distributed to Vivien (which are worth substantially more than HK$1.5 billion).

California Action

9.  The California Action concerns a claim brought on 18 December 2009 by Rostack against Angela for breach of contract and two common counts for recovery of money based on the alleged failure of Angela to repay a US$30m promissory note  (“Note”) made in 1995 (“Loan”)[1]. Rostack, a Liberian corporation, is wholly owned by a Hong Kong company Sai Wo Enterprises Limited (“Sai Wo”), which in turn was wholly owned by the Father.

10.  Angela’s defence is that the Loan to her was part of a complex commercial business agreement within the family in relation to a land acquisition project in the US known as “Two Bear Ranch” and her obligation to repay the Loan owed to Rostack was in fact subject to an agreement between Angela, Vivien, and the Father [2] (“Family Arrangements”).

11.  It is Angela’s case that Rostack has been and still is under the influence and control of Vivien, who has been directing the California Action against her contrary to Family Arrangements.

HCMP1478 of 2011

12.  On 13 December 2010, Angela applied for and subsequently obtained an order from the Californian Court against Vivien to attend an examination and make discovery.  Accordingly, the Californian Court issued a Letter of Request on 9 March 2011 [3] (“Letter of Request”).

13.  Angela then issued an ex parte originating summons in August 2011 in HCMP1478 of 2011 for an order to give effect to the Letter of Request.  On 5 September 2011, Master Hui ordered, among other things, that Vivien should attend before the appointed examiner and submit to be examined on oath, and to bring with her and produce at the time of her testimony copies of documents set out in Schedule A [4] (“Schedule A”) of the Letter of Request for inspection and copying by Angela’s representative (“Disclosure Order”)[5].

14.  Vivien applied to set aside the Disclosure Order, and her application was subsequently dismissed by DHCJ Lok on 7 December 2011.  The background to the Disclosure Order and the California Action is set out in the judgment of DHCJ Lok[6].

15.  Vivien was then examined, and produced a document which she was obliged to produce under the Disclosure Order. 

The Subject Document

16.  The Subject Document was disclosed by Vivien during the course of discovery in the Hong Kong Action as item no 64 of Part 1 of Schedule I to Vivien’s List of Documents filed on 16 April 2012.

17.  Angela is not a party to the Hong Kong Action, but she has given two witness statements dated 4 September 2012 and 7 February 2013 respectively. It was during the course of preparation of her first witness statement that Angela was shown the Subject Document by the Mother’s solicitors.

18.  Angela says that the Subject Document falls within the scope of one (if not all) of the classes of documents specified in paragraphs 4, 5 and 6 of Schedule A of the Letter of Request, which Vivien was ordered to produce under the Disclosure Order.  Angela further intends to apply to commit Vivien for contempt for failing to comply with the Disclosure Order.

 LEGAL PRINCIPLES

Generally

19.  It is well established that any party to whom documents are produced on discovery or pursuant to an order of the court impliedly undertakes to the court that he will not use them for a collateral or ulterior purpose, without the leave of the court or consent of the party providing such discovery[7]. The juridical basis of such an implied undertaking was set out in Harman v Secretary of State for the Home Department[8] as follows:

“Discovery constitutes a very serious invasion of the privacy and confidentiality of a litigant’s affairs. It forms part of English legal procedure because the public interest in securing that justice is done between parties is considered to outweigh the private and public interest in the maintenance of confidentiality. But the process should not be allowed to place upon the litigant any harsher or more oppressive burden than is strictly required for the purpose of securing that justice is done.”

20.  Further, as Megaw LJ has said in Halcon International Inc v The Shell Transport and Trading Co[9]:

“it is in general wrong that one who is thus compelled by law to produce documents for purposes of particular proceedings should be in peril of having these documents used by the other party for some purpose other than the purpose of those particular legal proceedings and, in particular, that they should be made available to third parties who might use them to the detriment of the party who has produced them on discovery.”

21.  The implied undertaking applies to any one into whose hands the documents may come[10].

22.  As to under what circumstances the implied undertaking can be released or modified, Lord Oliver of Aylmerton has summarized the general principle in his judgment in Crest Homes plc v Marks & Ors [11]:

“Your Lordships have been referred to a number of reported cases in which application has been made for the use for documents obtained under Anton Piller orders or on general discovery for the purpose of proceedings other than those in which the order was made. …I do not for my part think that it would be helpful to review these authorities for they are no more than examples and they illustrate no general principle beyond this, that the court will not release or modify the implied undertaking given on discovery, save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery. As Nourse LJ observed in the course of his judgment in the instance case, each case must turn on its own individual facts…”[12]

23.  In Crest Homes, the plaintiffs commenced two sets of proceedings, one in 1984 and one in 1985, against the defendants for related breaches of the plaintiff’s intellectual property rights.  The plaintiffs obtained from the execution of an Anton Piller order in the 1985 action material which were relevant to the 1984 and sought leave to use them to consider taking contempt proceedings for contempt of court in respect of the 1984 order.  The House of Lords upheld the leave granted by the Court of Appeal, but on different grounds.  The House of Lords was of the view that there was no injustice to the defendants, and the fact that the 1984 and 1985 actions were related and could have been tried as one action constitute special circumstances to release the plaintiffs from their implied undertaking. 

24.  It is clear from the above whether special features or circumstances are present and where the balance of justice lies turn on the individual facts of each case.  As said by Lord Oliver, it is for the party seeking the release/modification of the undertaking to demonstrate cogent and persuasive reasons why it should be released[13].

Release for use by a third party

25.  So far as the applicant being a third party to the action is concerned, Mr Ho SC has submitted there is a particularly heavy burden on the applicant and has referred this court to the case of Milano Assicurazioni Spa v Walbrook Insurance Co Ltd and Anor[14].

26.  What Waller J has said in the case of Milano[15] was:

“It is not thus surprising to find that when the court has had to consider whether a party should be released from the undertaking, a very strict view has been taken in relation to whether there should be a release of information to a third party for the purpose of enabling that third party to pursue a claim against the party who originally gave discovery. Sir Nicolas Browne-Wilkinson V-C in Derby & Co Ltd v Weldon (No 2) said, at p. 13 of the transcript, that it was ‘virtually never given’, Bibby Bulk Carriers Ltd v Cansulex Ltd [1989] Q.B. 155 supports the very restrictive approach adopted.”

27.  As pointed out by Mr Sussex SC, the comments above were made only in relation to whether there should be a release of information to a third party to enable that third party to pursue a claim against the party who originally gave discovery.

28.  In the case of Bibby Bulk Carriers Ltd v Cansulex Ltd and Others[16], the plaintiffs sought leave to disclose a document disclosed by the defendants in that case to a claimant in arbitration proceedings, it was held that, among other things, that although the parties to the arbitration had the same solicitor and the same defence association, the defendants’ document was a confidential document which was commercially sensitive and its wide dissemination could prejudice the defendants whereas its use by the claimants in the arbitration was limited; and that, in those circumstances, the plaintiffs had failed to show cogent and persuasive reasons for being released from their undertaking.

29.  In Bibby, the defendants had argued that there was a basic requirement for release from the implied undertaking that the intended use was by the party who gave the undertaking (and not by any unconnected person) and for a purpose which was helpful to that party[17], but Hirst J said it was most undesirable to lay down any hard and fast rule in a field where each case must depend on its own particular circumstances, and he did not rule out the possibility that a case might arise where it was appropriate to allow release for use by third parties in a manner of no benefit to the party giving the undertaking[18].

Use in Intended Contempt Proceedings

30.  In relation to Angela’s application for use of the Subject Document for intended contempt proceedings, Mr Ho has referred the court to what Lord Oliver said  in Crest Homes, namely that if what was in issue there was the revelation of a civil contempt in some wholly unrelated proceedings, he would not for his part consider that the importance of ensuring obedience to the court’s orders outweighed that of ensuring the continued observance of an undertaking given to the court by the party obtaining discovery[19].

31.  Mr Ho has also referred the court to the case of Cobra Golf Inc & Anor v Rata & Ors[20] where there were parallel proceedings by two different plaintiffs against same defendant, and the application was by one plaintiff to use documents disclosed by defendant in the parallel proceedings, for possible use in contempt proceedings in the applicant’s proceedings. 

32.  In Cobra, Laddie J referred to the above comments by Lord Oliver in Crest Homes, but said there was no reason to believe that the House of Lords was seeking to set down an immutable rule of practice that discovery in “hub” proceedings could never be made available to support a contempt motion in “satellite” proceedings.  Having said this, Laddie J did not eventually grant leave to relax the undertaking on firstly, to some extent the application before him could be said to be of a fishing nature and secondly, the application was an application in the hub proceedings in aid of unrelated satellite contempt proceedings and he felt what Lord Oliver said in Crest Homes made it clear that this was a matter which should strongly weigh against relaxing the undertaking[21].

Exercise of discretion

33.  In the case of Cobra, Laddie J has provided an extensive review of principles for exercise of discretion.  He has said that the cases reviewed emphasized the importance of preserving the undertaking but not blindly, and that in the end the interests of justice must prevail and that would sometimes mean that the documents must be released for collateral use[22]. On any application to relax the undertaking, the court has a discretion which must be exercised to achieve justice on the basis of all the circumstances of the case[23]. On use of the documents in proceedings abroad, he said, in relation to circumstances to be taken into account[24]:

“ (a) Whether those proceedings are criminal or civil.

(b) If the satellite proceedings are criminal, the court here should be wary of doing anything in this country which may subject the disclosing party to an unfair disadvantage in those proceedings.

   (c)  If the satellite proceedings are civil, the court should take into account whether the disclosure would put the disclosing party at a significant disadvantage in those proceedings -- for example by forcing it to produce in the public domain documents which, under the local procedure, would not otherwise be made public.”

34.  Mr Sussex has also referred the court to the following passage in an Australian case Mead Corp v Carbonless Papers (Aust) Pty Ltd which provides helpful guidance on the exercise of discretion[25]:

“[45] It is enough, these previously decided cases suggest, that there is a special feature of the case which affords a reason for modifying or releasing the undertaking and is not usually present. The matter then becomes one of the proper exercise of the court’s discretion, many factors being relevant. It is neither possible nor desirable to propound an exhaustive list of those factors. Plainly they include nature of the document, the circumstances under which it came into existence, the attitude of the author of the document and any prejudice the author may sustain, whether the document pre-existed litigation or was created for that purpose and therefore expected to enter the public domain, the nature of the information in the document (in particular whether it contains personal data or commercially sensitive information), the circumstances in which the document came into the hands of the applicant for leave and, perhaps most important of all, the likely contribution of the document to achieving justice in the second proceeding.”

35.  With the above general principles in mind, I now turn to the present application.

DISCUSSION

36.  Mr Sussex has submitted that there are a number of special features or circumstances that the court should exercise its discretion to grant leave to Angela to use the Subject Document, and that there is no injustice whatsoever to Vivien.

37.  Angela’s application is not premised upon any direct relationship between the Hong Kong Action and the California Action[26]. Mr Sussex has, however, submitted that the two actions cannot be looked at in isolation, and should be viewed against the backdrop of the relationship and overall dispute between the parties. 

38.  As set out earlier, in the California Action, Rostak, wholly owned by Sai Wo in turn wholly owned by the Father, is suing Angela, and Angela has relied on Family Arrangements allegedly made between the Father, Angela and Vivien. The Mother is not a party to that action.  In the Hong Kong Action, the Mother is suing Vivien and the agreements in question are between the Mother and Vivien.  Thus, on the face of it, the claims are by different parties and over different agreements.

39.  It is, however, Angela’s case that the California Action forms part of the overall dispute between, among others, Angela and Vivien as to the distribution of the Father’s Assets.  On the other hand, Vivien appears to characterize the California Action as a simply commercial action for enforcement of the Note.

40.  Although Angela is not a party to the Hong Kong Action, she is a key witness for the Mother.  The California Court, on the other hand, has issued the Letter of Request for Vivien to be examined and to produce documents.

41.  In issuing the Letter of Request, as Mr Sussex has submitted, which I accept, the California Court clearly considered the Family Arrangements as being highly relevant to the issues in the California Action, and this can be seen from the terms of the Letter of Request.  Further, as Vivien has produced the One-Page Document hereafter mentioned pursuant to the Letter of Request, and the One-Page Document contained references to  distribution of assets to Angela and Vivien,  including the Loan and “Two Bear Ranch”, in my view the California Action cannot be said to bear no, or only a tenuous relationship to the Hong Kong Action , and  should be viewed in the context of the overall family dispute as to the distribution of the Father’s Assets.

42.  The special feature in this application relied on by Mr Sussex is that there is the Disclosure Order, in that Vivien was ordered to be examined pursuant to  the Letter of Request and to produce copies of documents set out in Schedule A.  The main thrust of Angela’s application is that the Subject Document falls within Schedule A and Vivien is obliged to produce the Subject Document pursuant to the Disclosure Order.

43.  Paragraph 10 of the Letter of Request is set out hereunder:

“10. It is requested that Vivien Chen be required to provide information under the discovery rules of the State of California on all matters relevant to the legal action know as Rostack Investments, Inc. v, Angela C. Sabella, aka Angela Chen and all matters that may lead to the discovery of admissible evidence. Such matters include but are not limited to:

(i) the formation, negotiation, and/or entering into the alleged $30 million promissory note that forms the basis of Plaintiff’s claims in the Foreign Action (the ‘Note’);

(ii) the alleged default of the Note; any facts and circumstances, including communications, relating to any agreement or understanding between or among Defendant, Vivien Chen and/or their father that the Note would be repaid or discharged by their father through gifts to Defendant or otherwise;

(iii) Vivien Chen’s interest in or control of the Plaintiff;

(iv) all allegations of the Complaint and all matters appertaining to Defendant’s answer and affirmative defenses thereto.

a. It is requested that the person or persons most knowledgeable of Sai Wo Enterprises be required to provide information under the discovery rules of State of California on all matters relevant to the legal action know as Rostack Investments, Inc. v, Angela C. Sabella, aka Angela Chen and all matters that may lead to the discovery of admissible evidence. Such matters include, but are not limited to:

(i) the nature of its interest in or control of the Plaintiff and how such interest or control was acquired;

(ii) the identity of its officers, directors, managing agents, shareholders and any other individual or entity that holds a controlling interest in it;

(iii) the alleged default of the Note; its relationship, if any, with Vivien Chen;

(iv) any facts and circumstances, including communications, relating to any agreement or understanding between or among Defendant, Vivien Chen and/or their father that the Note would be repaid or discharged by their father through gifts to Defendant or otherwise;

(v) Vivien Chen’s interest in or control of the Plaintiff;

(vi) all allegations of the Complaint and all matters appertaining to Defendant’s answer and affirmative defenses thereto.”

44.  Schedule A sets out as follows:

“REQUESTS FOR PRODUCTION OF DOCUMENTS BY VIVIEN CHEN

1. Documents comprising or evidencing communications between Vivien Chen and Rostack relating to the Foreign Action, or any of the claims or defenses asserted therein.

2. Documents comprising or evidencing communications between Vivien Chen and Rostack, including but not limited to Mr. Yu Kim Po and/or Miss Au Hoi Lam Gladys, relating to the Note.

3. Documents comprising or evidencing communications between Vivien Chen and Rostack, including but not limited to Mr. Yu Kim Po and/or Miss Au Hoi Lam Gladys, relating to any alleged default of the Note.

4. Documents comprising or evidencing communications between or among any or all of Defendant, Vivien Chen and their father relating to the Note.

5. Documents comprising or evidencing communications between or among any or all of Defendant, Vivien Chen and their father relating to any agreement or understanding that the Note would be repaid or discharged by Defendant’s father through gifts to Defendant or otherwise.

6.   Documents comprising or evidencing communications between Vivien Chen and anyone other than Defendant and/or their father relating to any agreement or understanding that the Note would be repaid or discharged by the Defendant’s father through gifts or otherwise.”

45.  In response to the Disclosure Order, Vivien produced under Schedule A a one page hand written document dated 18 July 2003[27] (“One-Page Document”).  This was apparently the only document produced by Vivien under Schedule A, and Mr Sussex has submitted that Vivien should also have produced the Subject Document, in that if the One-Page Document was disclosable, so was the Subject Document. 

46.  The One-Page Document was handwritten by Vivien, and was signed by both Angela and Vivien.  It contains what appears to be a distribution of the Father’s assets as between Angela and Vivien, including a reference to the gift of the “Two Bear Ranch” to Angela.

47.  The Subject Document has not been read out during the hearing in view of the provisions of O 24 r 14A of RHC.  I will not refer to its contents, save what was said during the hearing.  It was dated about 2 weeks after the One-Page Document, and was typed in Chinese.  It appears to be a document prepared by an unknown person to be submitted to the Father for approval.  Rostack and “Two Bear Ranch” were referred to in the Subject Document.  The Chinese names of Angela and Vivien were typed on the Subject Document but the document was not signed by Angela or Vivien, or indeed by any one.

48.  Mr Ho has submitted that the Subject Document does not fall within Schedule A, as it does not form part of any “communication” between the relevant parties, and as explained by Vivien, the Subject Document is simply “a proposal in a draft form purportedly prepared for my late father’s approval which was not approved by my late father as he did not sign it”[28].

49.  There was no explanation from Vivien as to how she came to have the Subject Document in her possession.  As pointed out by Mr Sussex, the document is not a document “belonging” to Vivien, and it is not her evidence that it was prepared by her.  In fact, Vivien said that she had no knowledge how and why the Subject Document was prepared[29].  There was no assertion of confidentiality and it was not Vivien’s document.

50.  Mr Sussex has submitted that Angela has as much a right to have access to the Subject Document as Vivien and that it was entirely fortuitous that the document ended up in Vivien’s possession and not Angela’s. 

51.  Paragraphs 4 and 5 of Schedule A are quite wide in that they do not simply refer to “documents comprising communications” but also “documents evidencing communications between or among any or all of Angela, Vivien and the Father…” (emphasis added).  There is no restriction that Vivien must have been privy to the communication.  Then paragraph 6 refers to documents evidencing communications between Vivien and anyone other than Angela and/or the Father. 

52.  Mr Sussex has said that, on the face of it, the fact that Vivien does have the Subject Document in her possession and she has produced it in the Hong Kong Action, as Item No 64 of her List of Documents, would indicate that the Subject Document was communicated to her, whether by the Father and/or any one.  In any event, Mr Sussex has submitted that even if the Subject Document does not fall within Schedule A, it is clear that it falls within paragraph 10(a)(iv) of the Letter of Request, in respect of which Vivien was required to provide information.

53.  The Subject Document and the One-Page Document are clearly closely related in that one followed shortly after the other, and they both relate to the Family Arrangements, the Loan and/or “Two Bear Ranch”.  In my view, if Vivien produced the One-Page Document under Schedule A, being a “document comprising or evidencing communication…”, then the Subject Document would be a further document evidencing that communication.  I also accept that on the face of it, the Subject Document appeared to have been communicated to Vivien by someone and thus would be a document comprising or evidencing communication.   I am thus of the view that the Subject Document should fall within Schedule A. In any event, in my view the Subject Document is clearly a relevant evidence in support of Angela’s case of the Family Arrangements in the California Action.

54.  So far as allowing Angela to use the Subject Document in the California Action is concerned, it is for the purpose of Angela to defend the existing claim from Rostack, and not to pursue any new claim against Vivien.  Mr Sussex has submitted that no injustice has been asserted by Vivien if leave is so granted to Angela, in particular when Angela’s case has been that she has no connection or personal interest in the California Action, but on the other hand, as it is said to be highly relevant evidence in support of Angela’s case, there may a real risk of injustice to Angela if leave were not granted.  In light of Vivien’s own case in respect of the California Action and that she is not a party to that action,  I  see no injustice to Vivien if leave were to be granted.  

55.  Having regard to what was said by Lord Oliver in Crest Homes, and which was accepted by Mr Sussex, I am not prepared to grant leave for Angela to use the Subject Document in any intended contempt proceedings against Vivien, as sought by Angela.

CONCLUSION

56.  Having considered all the circumstances, and those factors summarized in the passage from the case of Mead Corporation cited above, I am satisfied that notwithstanding Angela is a third party in the Hong Kong Action, she has discharged the heavy burden on her and has demonstrated cogent and persuasive reasons that there are special circumstances in this case for her to be released from the implied undertaking, and the release of the implied undertaking will not occasion injustice to Vivien.  I therefore grant leave for Angela to be joined insofar as necessary for the purpose of her application in this regard  and I grant leave for her to use the Subject Document in the California Action, namely an order in terms of paragraph 1 (a) of the summons issued on 19 October 2012.

57.  As Angela has succeeded in only part of her application, I make an order that Vivien pays half of Angela’s costs of her application, to be taxed if not agreed with certificate for two Counsel.  This is an order nisi, which shall be made final after 21 days.

58.  I am grateful to all Counsel for the assistance they have provided to this court.