CHUNG FUNG PING v. CITIBANK (HONG KONG) LTD

DCMP 3797/2022

[2025] HKDC 19

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 3797 OF 2022

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REASONS FOR DECISION

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1.  This is an application by the plaintiff by the amended originating summons dated 23 January 2024 for pre-action discovery of documents pursuant to section 47A of the District Court Ordinance (Cap. 336).

2.  After considering the evidence put before me, and having heard the parties, I refused the plaintiff’s application. I indicated at the hearing that I should hand down my reasons in due course.

3.  These are the reasons for my Decision.

BACKGROUND

4.  The plaintiff was a customer of the defendant’s Shatin branch.

5.  Ms Cherry Lam of the defendant was assigned as the plaintiff’s client relationship manager. Whilst the exact timeframe during which Ms Lam looked after the plaintiff’s accounts is disputed, I believe the dispute does not affect the present application.

6.  On the plaintiff’s case, she carried out the following 3 groups of transactions through her accounts maintained with the defendant:

6.1.  Between December 2020 and January 2022, she purchased 23 Equity Linked Notes (ELNs). Out of the 23 ELNs, 5 ELNs purchased between July 2021 and January 2022 incurred losses.

6.2.  In around November 2021, she took out a low interest loan of US$2 million.

6.3.  Between November 2020 and April 2022, she entered into 26 currency exchange (forex) transactions.

7.  For the ELNs, it is the plaintiff’s case that:

7.1.  She purchased them upon the explanation provided by Ms Lam. Ms Lam allegedly told her that she would get 9% interest at the end of 12 months. There would be a 40% “airbag” as a safety net to guard against sudden drop in the underlying shares. On top of that, she would get an extra 2% airbag per month, which would be accumulative.

7.2.  When she purchased the first ELN on 2 December 2020, she was told over telephone that she had been given 2 documents; but in fact she received none. Ms Lam reassured her that that was normal procedure, and she just needed to agree to what was said in the telephone recording.

7.3.  But, contrary to what Ms Lam told her, she did not receive interest by the end of term for 5 ELNs, and she had to receive physical delivery of the underlying shares. Ms Lam further told her that the 2% monthly airbag was not to protect her interest, but it was for the issuer instead.

7.4.  She lodged a complaint to a Mr Kong, who was the manager of the defendant’s Shatin branch. Mr Kong allegedly gave her a choice of investigation by the branch, or by the defendant’s internal investigation team.

7.5.  On 10 May 2022, she received a call from a Ms Law from the defendant, and made a voice recording of her complaint.

7.6.  The defendant notified her of the result of the investigation on 4 August 2022, which found her complaint unsubstantiated.

7.7.  Despite the defendant’s record showing that, for the ELN identified as 4561EL, it was Mr Jason Poon of the defendant who executed her instructions, she did not recall having such a conversation with Mr Poon.

8.  For the US$2 million loan, it is the plaintiff’s case that:

8.1.  In November 2021, Ms Lam recommended her to take out a loan to invest into 3 funds. Ms Lam further told her that she could take out a loan of US$1.2 million, and asked her to sign a number of documents without explaining their content.

8.2.  Relying on Ms Lam’s explanation, she signed those documents. But it was later found out that she took out a loan of US$2 million instead.

9.  For the forex transactions, it is the plaintiff’s case that:

9.1.  In November 2020, she deposited substantial sums into her account with the defendant. Ms Lam then introduced her to Ms Sisi Yuen, who was allegedly the defendant’s staff member for forex trading.

9.2.  Ms Yuen made telephone calls to her from time to time, to persuade her to carry out forex transactions. The plaintiff agreed to enter into forex transactions as recommended, and asked Ms Yuen to look after her interest.

9.3.  She subsequently found out that some of the forex transactions were not in her interest. She suffered loss in those transactions.

9.3.1.  A transaction was carried out on 9 March 2022, by which the plaintiff purchased Japanese yen.

9.3.2.  Another transaction was done on the same day by which the plaintiff purchased British pound using her US dollars.

9.4.  Ms Yuen allegedly failed to advise her to cut her loss by reversing those transactions.

10.  By this application, the plaintiff seeks pre-action discovery of the following 12 classes of documents. I shall group them according to their relevance to the above transactions, but retain the numbering adopted by the schedule to the amended originating summons.

11.  With respect to the ELN transactions, the plaintiff seeks pre-action discovery of the following documents:

11.1.  Item 1 – the written records of the discussion or explanation (討論概要) of the ELN transactions;

11.2.  Item 2 – All audio recordings in relation to the ELN transactions including the explanations of the transactions, confirmation of the transactions (including but not limited to the audio recording played to the plaintiff on 16 August 2022) and the plaintiff’s receipt of the sales documents (銷售文件);

11.3.  Item 5 – the audio recordings of telephone conversations between Mr Kong and the plaintiff on 3 May 2022 (2 recordings made respectively at noon and at 4:00p.m.), 11 May 2022 and 23 May 2022;

11.4.  Item 6 – the audio recordings of the telephone conversations between Ms Law and the plaintiff on 10 May 2022; and

11.5.  Item 7 – all audio recordings of telephone conversations between Mr Poon and the plaintiff and all written records of the discussion or explanation given by Mr Poon to the plaintiff.

12.  With respect to the US$2 million loan, the plaintiff seeks pre-action discovery of the following documents:

12.1.  Item 4 – the audio recordings in relation to the loan in about November 2021 and the 3 trust funds related to the loan;

12.2.  Item 8 – all the audio recordings and/or written records and/or all relevant documents and/or receipts in relation to the explanation and/or discussion and/or execution of the loan alleged by the defendant to have executed on 6 November 2020; and

12.3.  Item 9 – all the audio recordings and/or written records and/or all relevant documents and/or receipts in relation to the explanation and/or discussion and/or the subscription and redemption of the trust funds between November 2020 and April 2021.

13.  With respect to the forex transactions, the plaintiff seeks pre-action discovery of the following documents:

13.1.  Item 3 – the audio recordings on 9 March 2022, 17 March 2022, 28 March 2022, 19 April 2022 and 26 April 2022 (2 recordings made respectively in the morning and afternoon) in relation to the forex transactions;

13.2.  Item 10 – the 26 audio recordings in relation to the forex transactions which involved a loan between November 2020 and April 2022; and

13.3.  Item 11 – the audio recording in relation to the forex transaction of HK$10,547,637.31 to US$1,357,428.28 on 2 December 2020, executed by Ms Lam.

14.  At the hearing, Mr Johnny So (together with Mr Eric Chau), counsel for the plaintiff, confirmed that item 12 did not relate to the transactions relied on by the plaintiff. He was content to have it left out. I thus say no more about item 12.

15.  The defendant opposed to the plaintiff’s application. It denied any wrongdoing by any of its staff members. Needless to say, it disputes many of the factual allegations put forward by the plaintiff. For the present purpose, and being mindful of the possibility that the plaintiff may institute proceedings against the defendant in due course, I shall refrain from extensively commenting on the parties’ factual disputes. There is no need for me to do so anyway.

LEGAL PRINCIPLES

16.  Parties had no quarrel on the relevant legal principles.

17.  In paragraph 44 of VTB Debt Centre LLC v Top Fuel Corporation Ltd HCMP 1543/2013 (Zervos J; 16 April 2014), the court set out the conditions for exercising the power to order pre-action discovery. As considered and refined in Zhang Shouen & Anr v Standard Chartered Bank (Hong Kong) Limited HCMP 682/2015 (G Lam J; 15 October 2015), the requirements may be stated as follows:

17.1.  The applicant appears to be likely to be a party to subsequent proceedings in the court in which a claim is likely to be made. In order to satisfy the requirement that a claim is likely to be made, the applicant must show a claim “may” or “may well” be made if discovery is granted.

17.2.  The respondent appears likely to be a party to such proceedings.

17.3.  The respondent appears likely to have or to have had in his possession, custody or power the document requested.

17.4.  The requested document is “directly relevant” to an issue arising or likely to arise out of that claim. “Direct relevance” is shown only if (a) the document would be likely to be relied on in evidence by any party in the proceedings; or (b) the document supports or adversely affects any party’s case.

17.5.  The applicant must satisfy the court that the order for pre-action discovery is necessary either for disposing fairly of the cause or matter or for saving costs.

18.  The first 4 requirements as stated above are jurisdictional conditions. Unless they are satisfied, the jurisdiction to order pre-action discovery does not arise. If they are satisfied, the court has a discretion to order pre-action discovery of the document in question. The court’s discretion is informed by the 5^th requirement; but subject to that, the discretion is an unfettered one to be exercised in all the circumstances of the case.

19.  There are in addition important requirements imposed by Order 24 rule 7A including, in particular, the need for an affidavit that satisfies the requirement of rule 7A(3) as modified by rule 7A(3A). The affidavit must:

19.1.  state the grounds on which it is alleged that the applicant and respondent are likely to be parties to subsequent proceedings in the court;

19.2.  specify or describe the document in respect of which pre-action discovery is sought;

19.3.  show, if practicable by reference to any pleading intended to be served in the proceedings, that:

19.3.1.  the document is “directly relevant” to an issue arising or likely to arise in the proceedings, in the sense that (a) the document would likely be relied on in evidence by any party in the proceedings; or (ii) the document supports or adversely affects any party’s case; and

19.3.2.  the respondent is likely to have or have had the document in his possession, custody or power.

20.  Where there is relevant evidence to meet the requirement in rule 8(2) that discovery is necessary either for disposing fairly of the cause or matter or for saving costs, the affidavit should also cover those matters.

21.  The court may order pre-action discovery of a class of documents, provided it is shown that all documents in the class meet the jurisdictional requirements including, in particular, that of direct relevance. The applicant has to show that each document in the class is a document that falls within section 47A and rule 7A. The wider the class is drawn, the more difficult it will be for the applicant to show that the documents within it all pass the threshold.

22.  Pre-action discovery is not intended to be simply general discovery or specific discovery taking place before commencement of an action. The reference in rule 7A(3) to pleading and the requirement of a draft pleading “if practicable” underlines the particularity required of the allegation of relevance. In any event the affidavit should explain in sufficient detail what the intended claim is, what issues arise or are likely to arise out of it, and how the document sought is directly relevant to such issues in the sense defined in section 47A(4). The need to sufficiently particularize a potential claim is to avoid any unwarranted or fishing application.

23.  In the context of pre-action discovery, if the documents can be shown to be “directly relevant” in the sense defined in section 47A(4), they will also necessarily be relevant in the Peruvian Guano sense, and can therefore be expected to be disclosed in the ordinary course of the action after proceedings have been commenced. Therefore, it is incumbent upon an applicant to show, not only that discovery of the document in question is necessary, but that discovery of the document before the commencement of the action is necessary. The precise justification will vary from case to case, but an obvious reason would be where a key document is needed by the plaintiff before he can properly plead a potentially good claim. As stated in paragraph 51 of 上海諾港科學集團有限公司 (formerly known as 上海諾港科技有限公司) v World Laureates Management Limited [2024] HKCFI 1540 (Deputy Judge Phoebe Man; 16 July 2024), pre-action discovery is not an investigative tool for assisting a claimant (i) to develop and finesse his cause of action; (ii) to obtain evidence to boost his case; (iii) to refine a pleading; or (iv) to avoid the need to amend pleadings later. Otherwise, it renders general discovery otiose.

THE PRESENT CASE

The ELN transactions

24.  Mr So confirmed that the plaintiff’s intended claim against the defendant was one of misrepresentation.

25.  In my decision, it is clear from the outline of the plaintiff’s case above that she already has enough materials to mount her claim. There is no difficulty for her to pinpoint the person making the alleged misrepresentation, and the way how that was done. For the loss she allegedly sustained, it is ascertainable by looking at the amount of her investment, the alleged interest income she would have been entitled to if the misrepresentation were true, and the market value of the underlying shares she obtained under the 5 ELNs.

26.  I inquired with Mr So at the hearing as to the necessity of the documents sought, bearing in mind the current application concerned pre-action discovery but not specific discovery after proceedings were commenced. However, I did not find Mr So able to explain why the plaintiff was allegedly disabled from commencing her claim without the documents sought. If the plaintiff thought that she would be entitled to all the documents by way of this application solely because the defendant, in their correspondence, referred to their existence, she was wrong.

The US$2 million loan

27.  Mr So submitted that the plaintiff’s intended claim was, again, one of misrepresentation.

28.  Similar to her claim with respect to the ELNs, it appears to me that the plaintiff is capable to formulate her claim here without the documents sought. She was able to identify with specificity Ms Lam as the person making the allegedly misrepresentation on the defendant’s behalf. The misrepresentation was alleged to be Ms Lam’s explanation that the plaintiff were signing documents to apply for a US$1.2 million loan; when in truth she was borrowing US$2 million. Her loss is plainly ascertainable from her own banking documents. I cannot see how the documents sought would enable her to formulate a claim which she currently cannot.

29.  In my decision, the plaintiff’s application is misguided. The present application is not an avenue for her to inspect the merits of the defendant’s case as revealed during their pre-action correspondence. She can do so if she makes a formal claim against the defendant; by then, she is entitled to all the armours of discovery that the civil procedure rules afford her. However, without such a claim being extant, it is premature to allow her to do so in the context of the present application.

The forex transactions

30.  Mr So submitted at the hearing that the plaintiff’s intended claim with respect to these transactions was, again, one of misrepresentation.

31.  In my decision, the plaintiff failed to identify a viable claim against the defendant. As shown by her affirmation evidence, she was the one asking Ms Yuen to look after her interest in the forex transactions. However, she did not go on to say whether (and if so, how) Ms Yuen replied. I find the plaintiff’s underlying claim defective to begin with.

32.  With respect to Ms Yuen’s alleged recommendations, based on which the plaintiff entered into the corresponding forex transactions, the plaintiff did not say how they amounted to misrepresentations. Generally speaking, investment recommendation makes an informed prediction of market movement based on existing facts. The recommendation itself is an opinion rather than a statement of fact; it is not actionable as misrepresentation unless it is not honestly held, or the implicit factual basis is wrong. However, the plaintiff has not explained how those recommendations amounted to misrepresentation, or how the documents sought would enable her to make those recommendations actionable. I do not accept that the plaintiff’s general assertion that those documents are relevant suffices.

33.  In any event, I do not find the plaintiff unable to mount a claim against the defendant, assuming Ms Yuen did say she would look after the plaintiff’s interest, and what she said amounted to actionable misrepresentation. The plaintiff is able to identify the misrepresentation; her loss is readily ascertainable as a matter of arithmetic, with reference to the exchange rate of the currencies she traded.

34.  Further, in relation to item 11, the plaintiff has not even explained how Ms Yuen’s alleged misrepresentation is relevant to that transaction. There is also no allegation of misrepresentation made by Ms Lam that I can detect from the plaintiff’s affirmation evidence. With respect, the plaintiff’s application is a plain mess.

Other matters

35.  The plaintiff emphasized that she was a senior citizen[1], and she was not a professional investor. Based on how she presented her application before me, I do not think these are relevant to any of the items of documents sought.

CONCLUSION

36.  Based on the above reasons, I was of the view that the plaintiff fell far short of the requirements for pre-action discovery; it was appropriate to dismiss her application. I so ordered at the hearing.

37.  I cannot see why costs should not follow the event. I grant an order nisi that the defendant do have the costs of the present case. I am mindful that the defendant had to deal with an application seeking an extensive pre-action discovery. I find it reasonable to spend time to prepare substantial affirmation evidence in opposition to the plaintiff’s claim. After considering the defendant’s statement of costs asking for more than $400,000.00, I summarily assess the defendant’s costs at $300,000.00.