YAN YU YING v. LEUNG WING HEI

HCA 2295/2019

[2023] HKCFI 1839

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2295 OF 2019

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J U D G M E N T

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1.  In the 1^st Notice of Appeal dated 2 September 2022, the Defendant is appealing against and to set aside paras. 1 and 3 of the Order of Master Kent Yee dated 19 August 2022 (“Order”) that:

(1)  The Defendant should provide to the Plaintiff the documents specified in paras. 1(1) to 1(5) and 3(1) to 3(2) of the Schedule (“Schedule”) to the Summons dated 25 April 2022 (“Discovery Summons”) (para. 1 of the Order); and

(2)  There be costs order nisi that the Defendant do pay the Plaintiff’s costs of the Discovery Summons with certificate for two counsel (para. 3 of the Order).

2.  The Defendant is putting as an alternative of filing an affirmation making discovery of the documents mentioned in para. 1 of the Order of Master Yee.

3.  In the 2^nd Notice of Appeal dated 2 February 2023, the Defendant is appealing the Order of Master Yee dated 19 January 2023 refusing the Defendant’s application to vary the costs order nisi.

4.  In the 3^rd Notice of Appeal dated 2 February 2023, the Defendant is appealing the order of Master Yee’s dated 19 January 2023 in refusing the Defendant’s application for stay of execution of the Order.

Background

5.  The Plaintiff alleged that the Defendant had misappropriated 999.9000261 Bitcoins (“Subject Bitcoins”), cryptocurrency belonging to her, by deceit or fraudulent misrepresentations.

6.  The Defendant averred that that the Plaintiff had transferred the Subject Bitcoins in exchange for the Defendant’s The Public Coin (“TPC”), another type of cryptocurrency, under a swap agreement between Plaintiff and the Defendant dated 1 March 2018 (“Swap Agreement”). Both parties had completed the transfers under the Swap Agreement.

7.  The Defendant averred that the existence of the Swap Agreement and the details of the transactions were recorded in the conversation between the Plaintiff and the Defendant in an instant messaging App called Secret-Message (“SEC-M”).

8.  On 19 September 2018, the Defendant was arrested by the Police. At the time of the Defendant’s arrest, around 600 of the Subject Bitcoins had remained in his possession.

9.  The Defendant was charged with one count of fraud and four counts of dealing with property known or believed to represent proceeds of an indictable offence. The Defendant was tried in the District Court (DCCC 493/2019). During the criminal trial, both the Plaintiff and the Defendant testified as witnesses.

10.  The Defendant adduced evidence in the criminal trial of the forensic images of SEC-M messages in support of the Swap Agreement with expert evidence from Mr Jeffries and Mr Frankstien. The Prosecution adduced evidence that the SEC-M could have been forged.

11.  On 4 December 2020, Deputy District Judge Colin Wong acquitted the Defendant on all five charges, holding that the Prosecution could not prove the forgery of the SEC-M beyond reasonable doubt.

12.  Following the Defendant’s acquittal, the restraining order of the Police lapsed and the Subject Bitcoins were returned to the Defendant.

Interlocutory Injunction

13.  The Plaintiff applied for an interim-interim injunction against the Defendant, restraining him from disposing the Subject Bitcoins which remained in his possession, and an order for the Defendant to disclose their whereabouts.

14.  On 8 October 2021, K Yeung J granted an interim injunction. On 21 October 2021, the Defendant disclosed that 364.46378963 of the Subject Bitcoins had remained in his possession, custody and power.

15.  In His Lordship’s judgment dated 7 June 2022 after the substantive hearing of the injunction, K Yeung J ordered a proprietary injunction restraining the dealing of the 364.46378963 of the Subject Bitcoins, conditional upon the Plaintiff paying into court HK$5,500,000 as fortification of her undertaking as to damages. K Yeung J held that while the Plaintiff managed to satisfy the threshold of serious issues to be tried in relation to the SEC-M messages for a proprietary injection. His Lordship held that the Plaintiff had failed to establish a good arguable case for a freezing Mareva injunction.

Expert Evidence in the Civil Claim

16.  In the present action for conversion and/or restitution, the Defendant relied on the same expert evidence on the SEC-M as in the criminal trial.

17.  Matters as to the expert evidence (apart from the present issue) have been dealt with by consent.

Discovery Summons

18.  Separately, on 25 April 2022, the Plaintiff took out the present Discovery Summons, seeking production of various documents in relation to the expert evidence specified in the Schedule to the Discovery Summons.

19.  The documents sought were forensic images of the SEC-M messages captured by the Defendant’s expert Mr Jeffries’ devices, because the Defendant had lost his own mobile phone and the SEC-M server in the Cloud had shut down permanently.

20.  The Schedule to the Discovery Summons reads as follows:

“Documents relating to the SEC-M screenshots

1. The following documents (or forensic images thereof) referred to in the 1^st and 2^nd report of the Defendant’s expert Mr Alan Jeffries disclosed by the Defendant:-

(1) The ‘expert report’ of ‘Robert Whitaker (Blockchain Intelligence Group) dated Jan 30, 2019’ mentioned on p.4 of the 1^st report;

(2) the ‘forensically wiped and factory reset android mobile telephone’ mentioned at p.9 of the 1^st report;

(3) the ‘second mobile device’ mentioned at p.10 of the 1^st report;

(4) the mobile device(s) used to obtain the results of the 2^nd report;

(5) the original files of the screenshots taken by the ‘screen recorder’ used by Mr Jeffries; and

(6) the audio record of the voice messages alleged to be the Plaintiff’s voice.

Documents relating TPC

2. The following document referred to in the report of Dr KP Chow dated 03.02.2020 disclosed by the Defendant:-

(1) The ‘folder with name TPC Wallet’ provided by the Defendant.

3. The following documents referred to in report and supplemental report of the Defendant’s expert Mr Illa Frankstein disclosed by the Defendant, described by Mr Frankstein in the following terms:-

(1) A letter titled ‘Acknowledgement of Receipt of Copies of Documents’ dated 2018-12-11;

(2) A set of documents labelled as: ‘Photocopy of Documentary Seized from Deft’, dated 2018-09-27, 223 pages;

(3) The ‘source code of TPC chain, online wallet, and mobile wallets’; and

(4) ‘TPC Explorer records’ and ‘Cryptofundex screen captures’.

Documents relating to the concluded criminal trial DCCC 493/2019

4. The following documents which are in the Defendant’s possession:-

(1) Lists of Prosecution and Defence Exhibits;

(2) Written submissions filed by the Prosecution and the Defence; and

(3) Any expert reports referred to in the criminal trial that have not been disclosed, including PW4 Chan Lee Chun’s witness statement dated 02.11.2020.”

21.  Prior to taking out the Discovery Summons, the Plaintiff’s solicitors had written to the Defendants’ solicitors on 21 March 2022 asking for the underlying evidence to the 1^st and 2^nd Report of Mr Jeffries, and listed the documents which are now mentioned in paras. 1(2) to 1(6) of the Schedule.

22.  At the hearing before Master Yee, the Defendant resisted the Discovery Summons primarily on the ground that the documents sought by the Plaintiff were irrelevant and/or unnecessary.

23.  Further, the Defendant averred in his 7^th Affidavit that he was unsure whether the documents under paras. 1(2) to 1(5) of the Schedule were in his possession, custody or power and was still in the process of locating the same.

24.  In his Decision dated 19 August 2022, Master Kent Yee rejected the Defendant’s arguments and held that the disclosure of the documents sought in the Schedule were necessary for disposing fairly the core issues in this action, and ordered, inter alia, that “the defendant should provide to the plaintiff the documents specified in paras. 1(1) to 1(5) and 3(1) to 3(2) of the Schedule to the Summons within 14 days from today.”

25.  Salient points of Master Yee’s Decision referred to in submissions are as follows:

“8. Mr Man (leading counsel for the Defendant) argues that the plaintiff has not served any notice under r.10(1). He submits that the margin note to the Summons makes no reference to r.10(1). Nor does the supporting affirmation of the plaintiff. He rightly submits that the mechanism under O.24 r.7 differs from that of O.24 r10.

9. Mr Li (leading counsel for the Plaintiff) submits that the letter of the plaintiff’s solicitors dated 21 March 2022 (‘the Letter’) can be treated as a notice served under O.24 r.10(1). Mr Man disagrees and points out that the Letter did not even mention that rule.

10. I accept Mr Li’s submission that there is no prescribed form of such notices served under O.24 r.10(1). One has to look at the substance. Upon my perusal of the Letter, I find that in the Letter; the plaintiff requested for, among other things, the disclosure of those documents in §1 of the Schedule, making particular reference to the expert, reports of Mr Jeffries. There can be no doubt to the defendant’s solicitors that the request was made pursuant to O.24 r.10(1).

11. The defendant did not reply to the Letter before the Summons was taken out.

…

14. Given the express references to the expert reports of the defendant in the Schedule, the defendant should have no doubt about the nature of the present application.

…

26. Mr Man submits that the defendant may not have in his possession those mobile telephones. In his affidavit, the defendant stated that he was still in the process of locating those documents in §§1(2) to (5) of the Schedule including the forensic images of the mobile telephones.

27. I do not think this assertion suffices to be a good cause to refuse the plaintiff discovery of those forensic images. The court has jurisdiction under O.24 rr.10 and 11(1) order discovery whether or not the document is in the possession, custody or power of the party in whose pleading or affidavit or witness statement the references were made to the document. The absence of possession, custody or power may amount to a good cause for avoiding such a discovery order but will not invariably do so: see HKCP 2022 Vol.1. §24/10/1 at p.717.”

26.  On 2 September 2022, the Defendant took out a summons for the stay of Master Yee’s order for production pending the appeal to the Judge in chamber (“Stay Summons”).

27.  The Defendant filed his 8^th Affidavit partly in compliance of Master’s order and partly in support of the Stay Summons stating that the mobile devices referred to the paras. 1(2) to 1(4) of the Schedule were no longer available and no forensic images had ever been retained, as there was no appeal by the Prosecution and there was no reason for Mr Jeffries to retain them. Mr Jeffries also filed an Affidavit confirming the same.

28.  The Defendant averred that those documents were no longer in the Defendant’s possession, custody or power, and hence unable to produce them.

29.  On 19 January 2023, Master Yee dismissed the Stay Summons on paper.

Applicable principles

30.  Appeals against Masters’ decisions are hearings de novo, i.e. an actual rehearing of the application and the Judge treats the matter as though it came before him/her for the first time. The Judge would give the Master’s decision the weight it deserves but is in no way bound by it. The Judge’s discretion is in no way fettered by the previous exercise of discretion by the Master (see Hong Kong Civil Practice 2023 §58/1/2).

31.  The following provisions of Order 24, Rules of the High Court (Cap. 4A) have been referred to in submissions:

“7. Order for discovery of particular documents (O. 24, r. 7)

(1) Subject to rule 8, the Court may at any time, on the application of any party to a cause or matter, make an order requiring any other party to make an affidavit stating whether any document specified or described in the application or any class of document so specified or described is, or has at any time been, in his possession, custody or power, and if not then in his possession, custody or power when he parted with it and what has become of it.

(2) An order may be made against a party under this rule notwithstanding that he may already have made or been required to make a list of documents or affidavit under rule 2 or rule 3.

(3) An application for an order under this rule must be supported by an affidavit stating the belief of the deponent that the party from whom discovery is sought under this rule has, or at some time had, in his possession, custody or power the document, or class of document, specified or described in the application and that it relates to one or more of the matters in question in the cause or matter.

…

8. Discovery to be ordered only if necessary (O. 24, r. 8)

(1) On the hearing of an application for an order under rule 3 or 7 the Court, if satisfied that discovery is not necessary, or not necessary at that stage of the cause or matter, may dismiss or, as the case may be, adjourn the application and shall in any case refuse to make such an order if and so far as it is of opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs.

(2) No order for the disclosure of documents shall be made under section 41 or 42 of the Ordinance, unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs.

9. Inspection of documents referred to in list (O. 24, r. 9)

A party who has served a list of documents on any other party, whether in compliance with rule 2 or with an order under rule 3, must allow the other party to inspect the documents referred to in the list (other than any which he objects to produce) and to take copies thereof and, accordingly, he must when he serves the list on the other party also serve on him a notice stating a time within 7 days after the service thereof at which the said documents may be inspected at a place specified in the notice.

10. Inspection of documents referred to in pleadings and affidavits (O. 24, r. 10)

(1) Any party to a cause or matter shall be entitled at any time to serve a notice on any other party in whose pleadings, affidavits or witness statements served under Order 38, rule 2A, or experts’ reports, reference is made to any document requiring him to produce that document for the inspection of the party giving the notice and to permit him to take copies thereof.

(2) The party on whom a notice is served under paragraph (1) must, within 4 days after service of the notice, serve on the party giving the notice a notice stating a time within 7 days after the service thereof at which the documents, or such of them as he does not object to produce, may be inspected at a place specified in the notice, and stating which (if any) of the documents he objects to produce and on what grounds.

11. Order for production for inspection (O. 24, r. 11)

(1) If a party who is required by rule 9 to serve such a notice as is therein mentioned or who is served with a notice under rule 10(1)—

(a) fails to serve a notice under rule 9 or, as the case may be, rule 10(2), or

(b) objects to produce any document for inspection, or

(c) offers inspection at a time or place such that, in the opinion of the Court, it is unreasonable to offer inspection then or, as the case may be, there,

then, subject to rule 13(1), the Court may, on the application of the party entitled to inspection, make an order for production of the documents in question for inspection at such time and place, and in such manner, as it thinks fit.

(2) Without prejudice to paragraph (1), but subject to rule 13(1), the Court may, on the application of any party to a cause or matter, order any other party to permit the party applying to inspect any documents in the possession, custody or power of that other party relating to any matter in question in the cause or matter.

(3) …

The Defendant’s submissions

32.  Mr Anthony Chan, SC, leading counsel for the Defendant, indicated that the argument of lack of relevance and/or necessity before the Master would no longer be pursued in the appeal.

33.  It was also submitted that the issue of alleged transfer of the TPC to the Plaintiff is not relevant for the present purpose.

34.  The Defendant has complied with the Master’s Order insofar as possible by providing to the Plaintiff documents specified in paras. 1(1), 1(5), 3(1) and 3(2) of the Schedule. For this appeal, the Court is only concerned with paras. 1(2) to 1(4) of the Schedule.

35.  Mr Chan also indicated that costs appeal would rise and fall with the outcome of the main appeal.

36.  Mr Chan’s main point was that the Discovery Summons was defective and Master Yee had no jurisdiction to make the production order as O.24 r.11 had not been engaged. In order to invoke the jurisdiction for production under O.24 r.11, the requesting party must first serve a notice under O.24 r.10(1), which is a substantial condition precedent.

37.  Mr Chan further submitted the Court would not usually order production without first having ordered the party to file an affidavit stating whether the documents are within the its possession, custody and power under O.24 r.7.

38.  Even if the Court were minded to order disclosure of the documents, the Court should not make an immediate production order, but to ordered the Defendant to make an affidavit on discovery instead. However, since the Defendant had already filed an affidavit that the documents were no longer in his possession, custody and power, there is really no utility to order his to file another affidavit on the matter.

39.  Mr Chan submitted that the different rules under O.24, RHC deal with different aspects of discovery and set out different considerations for the Court to take into account (see Innovisions Ltd v Chan Sing Chuk [1992] 2 HKLR 306; and Re Prudential Enterprises Ltd HCCW 594/1999, dated 10 August 2001 para 3). Mr Chan submitted that that the different rules and applicable principles must not be conflated.

40.  Mr Chan pointed out that in the Discovery Summons, the Plaintiff sought an order that “The Defendant shall provide to the Plaintiff the documents specified in the Schedule herein within 14 days”. But the margin note of the Discovery Summons stated that the Plaintiff was relying on only O.24 rr.7 and 11 as the basis of its application.

41.  An order made under O.24 r.7 is fairly narrow in its scope. It is not for the actual provision or production of the documents, but to order a party to make an affidavit stating “whether any document specified or described in the application … has at any time been, in his possession, custody or power, and if not then in his possession, custody or power when he parted with it and what has become of it” (see Re Prudential Enterprises Ltd supra para 4).

42.  Insofar as the Plaintiff were seeking an order of production under O.24 r.11, she had not served the requisite notice under O.24 r.10(1), as the specific rule had not been identified in the Plaintiff’s letter dated 21 March 2022 requesting the documents, nor in the Discovery Summons itself. Further, the letter dated 21 March 2022 was only in the context of correspondence dealing with the filing of expert evidence.

43.  Mr Chan referred to Canton Plus Enterprise Limited v Tong Zhenjun (No. 2) [2019] 6 HKC 173, per DHCJ Saunders (as he then was) paras. 44, 58 that inspection under O.24 r.10 should not usually be ordered without there having been a prior order for an affirmation under O.24 r.7. Hence, an affirmation under O.24 r.7 is a precursor to a series of further steps which might give rise to an order for inspection.

44.  Mr Chan submitted that it is manifestly oppressive and wrong for the Court to immediately grant an order for provision of documents. This is particularly the case when the O.24 rr.10-11 extend to documents which are referred to in an exhibit to an affidavit (see SCC Venture VI Holdco G Ltd v Zhao Changpeng [2018] 3 HKC 442, para. 34. There are many situations where a party would (for entirely valid and legitimate reasons) not be in possession of documents falling within the scope of O.24 rr.10-11.

45.  Mr Chan submitted that the Defendant’s 7^th Affidavit before the Master stated that he was still in the process of locating the documents sought by the Plaintiff, and in his 8^th Affidavit that the documents mentioned in paras. 1(2) to 1(4) of the Schedule were not in his possession, custody or power, and he is unable to provide the same to Plaintiff.

46.  As such, if the Court makes an immediate production order, there is a serious possibility that the Defendant will be unable to comply with the order and may be liable for contempt of court. Mr Chan submitted that is oppressive and cannot be right.

47.  On 14 September 2022, the Defendant’s solicitors wrote to the Plaintiff’s solicitors asking whether the Plaintiff would undertake not to enforce Master Yee’s Order in light of the Defendant’s 8^th Affidavit, and if so, the Defendant would not proceed with the present appeal.

48.  In the reply by the Plaintiff’s solicitors dated 11 October 2022, the Plaintiff refused to give the undertaking as it might prejudice the Plaintiff’s right of redress against the Defendant and/or Mr Jeffries for destruction of evidence after the commencement of the present action; and to invite the Court to draw adverse inference against the Defendant.

49.  Mr Chan submitted that the Plaintiff’s response was surprising and devoid of merit, as there is no reason why Mr Jeffries, an independent expert, would conspire in the destruction of evidence.

The Plaintiff’s Submissions

50.  Mr Lawrence Li, SC, leading counsel for the Plaintiff, pointed out that the Discovery Summons expressly stated the order for production. He referred to Premier Fashion Wears Ltd v Li Hing Chung [1994] 1 HKC 213, the headnotes, where the Court of Appeal (Litton, Bokhary and Godfrey JJA) rejected the argument that relief must be refused if the margin note did not state the correct rule. The point was adopted in the Hong Kong Civil Practice 2023 p. 865 para. 32/6/7.

51.  Mr Li submitted that there is no specific form for the notice under O.24 r.10(1), and the Plaintiff’s letter dated 21 March 2022, which referred to the very documents sought in the Discovery Summons, would suffice. The Defendant never responded to the letter, and would hardly be taken by surprise if the Plaintiff were to apply for a production order.

52.  Mr Li referred to Canton Plus Enterprise Limited v Tong Zhenjun, supra where DHCJ Saunders said the Court would not usually order production under O.24 r.11 without first having ordered an affidavit under O.24 r.7. However, it all depends of the type of document in the context of the case. In SCC Venture VI Holdco G Ltd v Zhao Changpeng, DHCJ K Yeung (as he then was) ordered production without first ordering an affidavit. Mr Li submitted that ultimately, the consideration is relevance.

53.  Mr Li also complained about the additional evidence of the Defendant’s 8^th Affidavit without taking out a proper summons for that. The Defendant’s 7^th Affidavit which stated that he was till locating the documents was before the Master. The 8^th Affidavit went on to say the Defendant was no longer in possession, custody or power of the documents. Mr Li submitted that they were just bland statements.

54.  That point was not vehemently argued on the appeal, and as noted by the Master, “the absence possession, custody or power may amount to a good cause for avoiding such a discovery order but not invariably so”: Hong Kong Civil Practice 2022 Vol.1 p.717 para. 24/10/1).

55.  Mr Li stated that the Plaintiff had not taken any enforcement action on the Order of Master Yee. Hence, contempt is not relevant.

Analysis

56.  The process of discovery is essential in civil proceedings

in order to avoid trial by ambush. The first rule of evidence is relevance. All the relevant evidence should be disclosed for the fair disposal of the cause. On the other hand, discovery should not be abused to become a fishing exhibition. Relevance must be judged in the context of the case.

57.  In the context of the present case, the Defendant has sought to produce the expert evidence which have been produced in the criminal case in support of the Swap Agreement

58.  It is a fact that those documents did exist at the time of the criminal proceedings. And it would hardly be a surprise to expect civil action for recovery notwithstanding the Defendant’s acquittal in the criminal proceedings, because the burden and standard of proof and the rules of evidence (including inferential evidence) are different. Hence, it is to be expected the expert evidence be preserved for the civil proceedings, and unusual or extraordinary to say the documents have now been lost.

59.  I agree with Mr Li that the documents underlying the expert reports are most relevant, and in the process of locating and now the loss of those documents are just bland statements. If the matter were to go to trial without the documents sought, any astute cross examiner would no doubt wedge in the loss of the documents, as the matter is relevant both as to credibility and/or inferences. In such context, an order for production should be granted, unless there are overiding reasons to the contrary.

60.  I agree with Mr Li based on the authorities he cited that an O.24, r.7 affidavit is not a prerequisite before an order for production under O.24, r.11; the letter dated 21 March 2022 can be regarded notice under O.24, r.10(1); and an order for production can be made even the Defendant has deposed to the loss of the documents.

61.  An order for production could compel the Defendant to exert more efforts to locate or retrieve the documents, failing which the Defendant should at least condescend to particulars in the explanation of non-compliance so as to hone in the bland excuse of loss.

62.  As to possible contempt, since willfulness is an element of contempt, similar considerations as in the explanation of non-compliance would have to be called for anyway, and it is not in any way oppressive.

63.  The ultimate question is whether it is fair to order production. Given the context of the existence and then non-existence of the documents, the order for production must be a fair disposal of the cause or matter.

Conclusion

64.  The main appeal, costs and stay appeal are dismissed.

65.  I thank Mr Chan and Mr Li for their helpful submissions.