RE NEW WORLD TMT LIMITED AND OTHERS

HCMP 421/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 421 OF 2006

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D E C I S I O N

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1.  There are two applications to set aside an ex parte order made by Master Lung on 21 March 2006.

The letter of request and the ex parte order

2.  Master Lung’s order was made upon an application by New World TMT Limited (“New World”) pursuant to a letter of request issued by the Superior Court of the State of California, County of Santa Clara of the USA.

3.  The letter of request was issued in a case pending in that court (“the US proceedings”).  New World is the plaintiff there.  The defendants are PrediWave Corporation (“PrediWave”) and its related companies.

4.  The letter of request is for obtaining from Hongkong and Shanghai Banking Corporation Limited (“HSBC”) certain authenticated documents relating to all accounts maintained by one Modern Office Technology Limited (“MOT”) with HSBC.  MOT is not a party in the US proceedings but New World says that it is a dummy or alter ego of PrediWave and it had been used by PrediWave to defraud New World.

5.  Master Lung’s order required HSBC to produce the documents sought in the letter of request and to authenticate them by a responsible officer before a practicing barrister in Hong Kong.

Applications to set aside the order

6.  The first application to set aside the order was made by PrediWave on 21 March 2006.  The grounds in the summons are that the scope of the documents sought is too vague, general and/or oppressive, the documents sought are in the nature of pre-trial discovery which is impermissible under section 76 of the Evidence Ordinance, the documents sought are in the nature of a fishing expedition and the ex parte order was obtained by New World by material non-disclosure.

7.  MOT also issued a summons 8 April 2006 to set aside the order.  The grounds in its summons are that the documents are privileged, they do not relate to any pleaded issues in the US proceedings, and they belong to MOT which is a third party.  MOT also repeated the grounds in PrediWave’s application.  However, the ground based on the Basic Law and the Personal Data (Privacy) Ordinance has not been pursued.

Scope of documents reduced

8.  The original scope of documents in the Master’s order was broader than necessary.  As a result of discussions amongst counsel at the end of oral submissions, New World does not seek to have discovery of all the documents referred to in the Master’s order, but is only seeking to resist the appeal in relation to a smaller scope of documents.

9.  The documents that New World now seeks discovery and authentication by HSBC are:

“	the following documents which are in the possession, custody or control of HSBC relating to all accounts (including but not limited to, account number 4593340706838) maintained by MOT with HSBC:
	(a)	application for account opening and account opening documents;
	(b)	signature cards;
	(c)	bank mandate documents;
	(d)	board minutes and written resolutions;
	(e)	for the period between 30 October 2000 and 30 March 2003; the following documents:
		(i)	bank statements;
		(ii)	slips and bank documents for the withdrawal of funds;
		(iii)	cheques (including cancelled cheques);
		(iv)	orders for and other bank documents relating to telegraphic or wire transfers of money from these accounts;
		(v)	instructions, memoranda and correspondence relating to the withdrawal and transfer of funds.”

The US proceedings

10.  New World, in support of its application before the Master, filed two affirmations by its solicitor, Mr Robert San Pe.  The second affirmation by Mr Pe was filed on 7 March 2006 and it was for producing a copy of an affidavit by New World’s US attorney, Mr Porter, and copies of the exhibits therein.  The originals were at that time on their way to Hong Kong.

11.  Mr Porter in his affidavit described the issues in the US proceedings and the justification for the discovery of the documents in question.  New World alleged in the US proceedings that PrediWave through one Tony Qu (“Qu”) had misrepresented to it that PrediWave and other yet to be created entities could provide a state-of-the-art comprehensive video on demand (“VOD”) Set-Top Box (“STB”) system for use in China and such a system could work with the existing infrastructure in China without substantial capital investment.

12.  New World further alleged that Qu had misrepresented to it that he, PrediWave and its related companies would make a timely delivery of a commercially acceptable VOD STB system for use in China and they would provide support for this system in China.

13.  As a result of the alleged misrepresentations, New World entered into separate stock purchase agreements (“SPAs”) with PrediWave and eight other related companies.  They were created by PrediWave to provide products and services to New World for supporting the VOD STB technology aforesaid.  In connection with the SPAs, New World and PrediWave also agreed that New World would become the exclusive distributor of the VOD STBs in China for home television. 

14.  New World altogether invested US$291 million pursuant to the SPAs.  In addition, New World paid PrediWave US$381,397,228 to purchase hardware and software purportedly for operating the said VOD STB system.  New World further alleged that for about four years PrediWave did not provide a single VOD STB that could function as promised.

15.  By a letter dated 3 May 2004, New World rejected the remainder of the VOD STBs and other hardware and software and notified PrediWave that it was in breach of the parties’ agreements and warranties.

16.  On 25 May 2004, New World filed its initial complaint in the US proceedings.  On 13 January 2005, PrediWave filed a cross-complaint.  New World’s initial complaint has been amended and it is now in the form of the third amended complaint.

The MOT issue

17.  The issue relating to MOT does not form part of the pleadings in the third amended complaint.  It is contained in New World’s response to interrogatory number 336 (“PrediWave’s interrogatory”) administered by PrediWave in its sixth set of special interrogatories.  The response was served on PrediWave on 29 December 2005.

18.  New World alleged in the response that PrediWave had represented to it that certain memory modules were necessary to the development of the VOD STBs.  Therefore, PrediWave, after entering into the SPA with New World, entered into a memory module purchase agreement with MOT on 30 October 2000.

19.  By this agreement, PrediWave agreed to purchase from MOT 3,000,000 memory modules at no more than US$36 per unit.  The purchases would be in separate purchase orders of 500,000 units.  This unit price was reduced to no more than US$31 on 5 January 2001.

20.  In 2001, MOT entered into a series of written purchase orders with a company called Techno Linc to purchase memory modules for sale to PrediWave.  The purchase price in the orders placed by MOT with Techno Linc, however, fell from US$26 per unit on 10 January 2001 to US$11 per unit on 12 June 2001.

21.  Also in 2001, PrediWave purchased from MOT the memory modules that MOT purchased from Techno Linc and paid MOT about US$67.2 million.  Between February 2001 and November 2002, PrediWave made numerous wire transfers to MOT with the majority of them for US$480,000.

22.  During discovery in the US proceedings, Qu admitted that PrediWave made the transfers intentionally at US$480,000 so that they would not trigger New World’s contractual right to co-sign the transfers.  New World’s right to co-sign would be triggered off if the amount should exceed US$500,000.  New World thus alleged that PrediWave had attempted to hide from New World its transfer of US$67.2 million to MOT.

23.  Furthermore, PrediWave sold New World the memory modules it purchased from MOT but at higher prices.  The price charged by PrediWave on New World ranged from US$38 per unit on 3 November 2000 to US$28 per unit on 21 April 2001.  New World had already paid PrediWave US$74,545,000 for some of the modules.

24.  New World alleged that the difference between the price charged by Techno Linc and the price paid by New World amounted to millions of US dollars.  New World further alleged that PrediWave had represented to it that the memory modules were purchased by PrediWave from independent third parties on the open market.  New World pleaded that MOT was not an independent third party but a dummy created by PrediWave to defraud New World out of million of dollars.

25.  New World also alleged that PrediWave had fraudulently concealed from it that PrediWave’s CTO, Khoi Hoang, had negotiated the memory modules purchase orders on behalf of MOT with Techno Linc.  Khoi Hoang was also a director of PrediWave and had been authorized by its board to purchase memory modules on its behalf.

26.  New World also alleged that during negotiations with Techno Linc, Hoang had represented to Techno Linc that he was the agent of MOT.  He also directed Techno Linc to ship the modules directly to PrediWave in blank boxes without company name.  However, when Qu gave evidence as PrediWave’s CEO and president, he said he did not know who ran MOT. 

27.  New World also said that PrediWave had concealed from it that both PrediWave and MOT share the same address in Warm Springs Boulevard, Fremont, California.

28.  During discovery in the US proceedings, New World also discovered that Techno Linc had sued PrediWave, MOT, Qu and Hoang.  Techno Linc had alleged in the claim that MOT was only the alter ego of PrediWave, Qu, Hoang and others and MOT had been used by them as the instrument to commit fraud on Techno Linc in connection with its sale of memory modules to MOT.

29.  PrediWave settled the lawsuit with Techno Linc by paying it US$100,000 and obtained from it an assignment of its claim against MOT.  PrediWave then resolved not to pursue the claim against MOT.

30.  Mr Porter also deposed to in his affidavit that PrediWave’s address in Shanghai at Lane 20, Baoding Road, Hongko District was the same as that of Qu, his mother and brother, Jianli Qu, and Qu’s mother is called Liu Xiu Qing, which is the same as the president of MOT.

31.  Mr Porter said New World had by about late June 2005 obtained the documents proving the above matters but it was unnecessary to include the facts on the MOT issue in New World’s third amended complaint dated 11 August 2005.  The reason being that under California law, a party is not obliged to amend its complaint to state the new facts it had learned as it would be cumbersome to do so.

32.  Mr Porter opined that the MOT issue fell within the causes of action pleaded in New World’s third amended complaint.  He referred to the following causes of action as relevant to the evidence being sought in the letter of request.  They are (a) third cause of action: breach of written SPAs; (b) sixth cause of action: fraud - false promise; (c) seventh cause of action: fraud - affirmative misrepresentation; (d) eighth cause of action: fraud - material non-disclosure; (e) ninth cause of action: fraud - negligent misrepresentation.

33.  Mr Porter further referred to the allegation in the third amended complaint that PrediWave had breached the SPA by transferring funds exceeding US$500,000 but without obtaining New World’s co-signature.  He also referred to the other causes of action and PrediWave’s cross-complaint and said that the MOT issue related to them all.

34.  Furthermore, counsel for New World pointed out that the letter of request contained a gist of New World’s allegations in relation to the MOT issue and the allegation that MOT was only PrediWave’s dummy for marking up the price of the memory modules from Techno Linc.  The letter of request was signed by the California Judge, the Honourable Jack Korma.

35.  The issues relating to the MOT issue were identified in the letter of request which asked for the documents as proof of the allegations made.  It further said that the discovery is necessary for a fair resolution of the US proceedings.  Paragraphs 37 and 38 of the letter of request said:

“	37.	The witness will be required to produce and give testimony authenticating the said documents.  New World requires such evidence in order to establish its claims for fraud against Defendants, and offer evidence regarding: (1) Misrepresentations (false representation, concealment or non-disclosure) concerning the purchase and sale of certain memory modules by New World from PrediWave, and the relationship between PrediWave and MOT; (2) Defendant’s knowledge of the falsity of such representations made to New World; (3) Defendant’s intent to induce New World’s reliance on such representations; (4) The justifiable reliance of New World on such representations; and (5) The damage suffered by New World as a result.
	38.	Pursuant to California law, New World’s request to secure the requested documents from HSBC and the testimony from the Witness authenticating those documents, is a proper and necessary measure because it directly relates to the proof of allegations made by the parties herein and is necessary for a fair resolution of the pending action.  In the interests of justice, we therefore request that you permit New World to take oral evidence of the Witness and cause the Witness, by the proper and usual means, to appear before your court, or some other competent and authorized officer appointed by you for that purpose, at a time and place to be appointed by you, then and there to answer New World’s questions under oath and produce the documents requested by New World herein.”

The exchange of affidavits

36.  PrediWave filed two affirmations by its California attorney, Mr John Tang, and its Hong Kong solicitor, Mr Sachdeva.  Mr Tang said that PrediWave purchased SDRAM memory modules from MOT by arm’s length transactions that had been approved by New World and that MOT was an independent party.

37.  He dealt with all the allegations made by New World in the MOT issue, including the price markup and dummy allegations and provided PrediWave’s defences to all of them.  I do not think it necessary to repeat them here as I am not concerned with the truth or otherwise of these allegations.

38.  He also argued that the evidence sought in the letter of request is not relevant to New World’s claim in the US proceedings and there is no formal claim by New World against PrediWave regarding the MOT transactions.

39.  On the lack of pleading of the MOT issue in the third amended complaint, he disagreed with Mr Porter and argued that California law required fraud to be pleaded with specificity.

40.  Regarding New World’s reliance on its response to PrediWave’s interrogatory, Mr Tang in effect said that PrediWave’s interrogatory was part of PrediWave’s pre-trial discovery and was a mere fishing inquiry in response to New World’s fishing expedition.  He thus argued that New World should not conflate the pre-trial discovery, which included the interrogatory, with a question of whether it is necessary to obtain the evidence from HSBC to determine the issues at the trial.

41.  He also said that New World was guilty of the following material non-disclosures in applying for the ex parte order.  They are: (a) New World’s awareness and approval of all transactions between PrediWave and MOT; (b) New World was aware of the wire transfers to MOT’s bank account and had suggested through its CEO, Douglas Chan, that the transfers be made in amounts less than US$500,000 to avoid having to locate Mr C P Chang of New World to countersign payments.  (This in fact has been denied by New World.)  (c) Those payments in any event related to transactions which had already been approved; and (d) There is documentary evidence to support the fact that PrediWave’s purchase of 3,000,000 memory modules from MOT had been approved by PrediWave’s board which comprised New World’s representatives, Mr Douglas Chan and Mr Fu Sze Shing, and the same board had authorized Qu and Hoang to purchase memory modules at their discretion.

42.  Mr Sachdeva in his affirmation argued that the evidence sought in the letter of request is of a speculative nature.  He said New World had a theory that MOT was PrediWave’s dummy and wanted to open a line of inquiry to see if the theory has merit.  He said the US proceedings were merely concerned with whether the VOD STBs were faulty and whether PrediWave and/or Qu had made the alleged misrepresentations.  The US proceedings did not contain any reference to the transactions involving MOT or whether MOT was an independent party.

43.  Mr Porter filed a second affidavit on 3 April 2006.  He said the documents sought in the letter of request were not for pre-trial discovery but for determination of the issues at the trial.  He further said that the US proceedings were already at an advanced stage and the cutoff date for discovery as ordered by Judge Korma was 28 February 2006.

44.  He also referred to New World’s contention that the MOT transactions were just one part of the overall scheme by PrediWave to defraud New World out of millions of US dollars.  The evidence of these transactions will be used to prove New World’s claim and defend the cross-claim by PrediWave.

45.  He also produced New World’s “Response to PrediWave’s objections to form of New World’s proposed letter of request”.  New World in this Response stated to the California court that it was seeking admissible evidence for trial and not broad discovery.  He also repeated the arguments of relevance to New World’s claim and PrediWave’s cross-claim and the factual allegations showing that MOT was PrediWave’s dummy.

46.  On material non-disclosure, he disputed that the transfers below US$500,000 were suggested by Douglas Chan.  He also disputed the other non-disclosures as being material on the ground that Douglas Chan and Fu Sze Shing were induced by false pretences to consent to the PrediWave’s board consensus, the false pretence being that MOT was an independent party and not PrediWave’s dummy.  He also referred to Douglas Chan’s evidence that Qu had told him that PrediWave would not make a profit on its purchase of the memory modules.

47.  On 10 April 2006, MOT also filed an affirmation by its director, Zhou Dongfei to support its application.  Zhou said MOT was trading in electronic component parts with extensive activities in the Mainland, Taiwan and United States.  The transactions in MOT’s account with HSBC included all these transactions and not just those between MOT and PrediWave.  The documents relating to these other transactions were private and confidential information.

48.  He also attacked the discovery sought as a fishing expedition by New World as discovery in the US proceedings had already been concluded.  He also refuted New World’s allegation of MOT being used by PrediWave for markup of price of memory modules or milking of New World.

49.  He also asserted that there was never any shareholder or director of MOT who was related to or connected with a shareholder or director of PrediWave and PrediWave had not been in control or had any involvement with MOT’s account at HSBC.

50.  He said the name of MOT’s president was different from the name of Qu’s mother, though they are spelt in the same way when translated into English.  He gave MOT’s address at Block 3, Donghai Square, 1486 Nanjing Road West, Shanghai which was not Qu’s address in Shanghai.

51.  He also made allegations that New World had exaggerated its claim and the chips that MOT had sold PrediWave were not faulty.  These, however, are irrelevant for the application to set aside.

52.  Mr John Tang also made a second affirmation to respond to the second affidavit of John Porter and he repeated the reason why the evidence sought was not relevant to the US proceedings.  The matters he deposed to were, however, mostly repetitions of what he has said in the first affirmation.

PrediWave’s application

53.  Counsel for PrediWave relied on five grounds to set aside the Master’s order.  They are: (1) the application for the production of documents is, in substance, for general discovery and is a speculative fishing expedition.  It is disguised as an application to produce particular documents and to see what, if any, documents may be material evidence.  (2) the application is for classes of documents, not particular documents specified and is contrary to section 76(4) of the Evidence Ordinance, Cap. 8.  (3) the documents sought are not directly material, nor individually relevant to the pleaded issues in the California action.  New World is not entitled to be in a better position than other Hong Kong litigants.  The alleged fraud involving the MOT question is not specifically pleaded, let alone with the utmost particularity.  (4) the documents sought are not necessary for the just disposal of the California action.  (5) there has been serious non-disclosure by New World, such that the ex parte order should, in any event, be set aside. 

54.  Counsel referred to Panayiotou v Sony Music Limited [1994] CH 142 at 151E to 153H and To Kan Chi v Pui Man Yau [1998] 3 HKC 371 at 378 C to D and stressed that the order for production of documents pursuant to a letter of request must be for (1) a particular document which is admissible in evidence and (2) directly material to an issue in the action.

55.  On the description of documents, counsel referred to section 76(4) of the Evidence Ordinance which stipulated:

“	(4)	An order under this section shall not require a person:
		…
		(b)	to produce any documents other than particular documents specified in the order as being documents appearing to the court making the order to be, or to be likely to be, in his possession, custody or power.”

56.  The meaning of this subsection has been explained by Lord Fraser of Tullybelton in In Re Asbestos Insurance Coverage Cases [1984] 1 WLR 331 at 337D to 338B:

“	The meaning of the expression ‘particular documents specified in the order’ in subsection (4)(b) was considered by several of the noble and learned lords who took part in the Westinghouse case [1978] AC 547 decision.  They were all emphatic that the expression should be given a strict construction.  Having regard to the purpose of subsection (4) which, as I have already mentioned, is to preclude pre-trial discovery, it is to be construed so as not to permit mere ‘fishing’ expeditions.  Lord Wilberforce said at page 609:
	‘	These provisions, and especially the words ‘particular document specified in the order’ (replacing ‘documents to be mentioned in the order’ in the [Foreign Tribunals Evidence Act] 1856) together with the expressed duty of the English court to decide that the documents are or are likely to be in the possession, custody or power of the person called upon to produce, show, in my opinion, that a strict attitude is to be taken by English courts in giving effect to foreign requests for the production of documents by non-party witnesses.  They are, in the words of Lord Goddard C.J., not to countenance ‘fishing’ expeditions: Radio Corporation of America v Rauland Corporation [1956] 1 QB 618, 649.’
	Lord Diplock expressed perhaps an even more restrictive view of the effect of subsection (4)(b) where he said at page 635:
	‘	The requirements of subsection (4)(b), however, are not in my view satisfied by the specification of classes of documents.  What is called for is the specification of ‘particular documents’ which I would construe as meaning individual documents separately described.’
	I do not think that by the words ‘separately described’ Lord Diplock intended to rule out a compendious description of several documents provided that the exact document in each case is clearly indicated.  If I may borrow (and slightly amplify) the apt illustration given by Slade L.J. in the present case, an order for production of the respondents’ ‘monthly bank statements for the year 1984 relating to his current account’ with a named bank would satisfy the requirements of the paragraph, provided that the evidence showed that regular monthly statements had been sent to the respondent during the year and were likely to be still in his possession.  But a general request for ‘all the respondent’s bank statements for 1984’ would, in my view refer to a class of documents and would not be admissible.”

57.  Counsel also submitted that if the request should be a fishing expedition, or the request should be too wide, the court should not accede to the application and not to redraft or amend the request to make it appropriate.  However, it was pointed out by Glidewell LJ in Re State of Norway [1987] 1 QB 433 at 491E to F:

“	Passages in the speeches of all the Lordships in the Westinghouse case make it clear that where a court can, by excising inappropriate material, produce a request which is acceptable and proper, it should adopt this course and make the order sought.”

58.  Counsel further submitted that cases must be decided on the issues on the record and allegations of fraud must be distinctly pleaded. 

First ground

59.  Counsel submitted that New World was embarking on a speculative fishing expedition.  As I have said above, the original scope of documents in the Master’s order was indeed broader than necessary.  It included documents relating to receipts and deposits of money into MOT’s bank account.  They may well include receipts and deposits that came from sources other than PrediWave.  Counsel further submitted that PrediWave had already disclosed documents showing the transfers it had made to MOT.

60.  The documents relating to receipts and deposits are indeed unnecessary and are no longer sought by New World.  However, bearing in mind New World’s case that MOT was merely PrediWave’s dummy and New World wanted to obtain the HSBC documents to show that MOT’s bank account was controlled by PrediWave and/or Qu or that the money MOT obtained was routed back to PrediWave and/or Qu, the smaller scope of documents now sought by New World as referred to above is appropriate for New World’s purpose. 

61.  I do not think the smaller scope of documents would amount to general discovery or fishing.  They are for proving the MOT issue which has been ventilated fully in New World’s response to PrediWave’s interrogatory.

Second ground

62.  Counsel submitted that New World was seeking production of classes of documents, not “particular documents specified” as required by section 76(4) of the Evidence Ordinance.

63.  Again, bearing in mind the purpose for using these documents at the trial of the US proceedings, I take the view that the description of the documents sought in the smaller scope are specific enough.  They are not general descriptions or descriptions of class documents.  They are specific documents to show who was in control of the bank account into which PrediWave’s money had been deposited and whether such money had been routed back to PrediWave or Qu during a particular period.

Third ground

64.  Counsel submitted that the MOT issue is not relevant on the pleadings as it has not been pleaded in the third amended complaint, despite the fact that discovery of documents relating to it had been made before this version of the complaint was filed.  Counsel also submitted that the requirement of pleading fraud in California law is no different from Hong Kong law. 

65.  Counsel further said that though the letter of request as issued by the California court had described the fraud in the MOT issue, that did not mean that this issue had been clearly and distinctly pleaded on the record.  The letter was drafted by New World’s US legal advisers and it was consistent with the wide-ranging discovery of documents permissible as against non-parties in the US.  Counsel therefore further submitted that any document relating to the MOT issue was not directly material to the issues in the US proceedings.

66.  Counsel for New World, however, referred me to what Lord Keith of Kinkel said in Re Westinghouse Uranium Contract [1978] AC 547 at 654F to G which has been cited by Barnett J in Re Troielli & Anor and the Prosecutor’s Office at the Ordinary Court of Milan, Italy [1995] 2 HKC 785 at 796F to G: 

“

In the face of a statement in letters rogatory that a certain person is a necessary witness for the applicant, I am of opinion that the court of request should not be astute to examine the issues in the action and the circumstances of the case with excessive particularity for the purpose of determining in advance whether the evidence of that person will be relevant and admissible.  That is essentially a matter for the requesting court.”

67.  The MOT issue was discovered by New World in discovery.  It has been set forth in the response to PrediWave’s interrogatory.  Mr Porter has said in his affidavit that a party is not obliged to amend its complaint because it has learned new facts. 

68.  Though the letter of request was drafted by New World’s US legal advisers, it has been endorsed by the California trial judge.  The judge was aware of the issues between the parties.  I am in particular referred to paragraphs 35, 38 and 42 of the letter of request which read: 

“	35.	The evidence to be obtained is the requested documents from HSBC and the testimony from the witness authenticating those documents, which evidence is directly relevant to New World’s claims in the Third Amended Complaint, including, specifically, New World’s claims for fraud.
	38.	Pursuant to California law, New World’s request to secure the requested documents from HSBC and the testimony from the Witness authenticating those documents, is a proper and necessary measure because it directly relates to the proof of allegations made by the parties herein and is necessary for a fair resolution of the pending action.  In the interests of justice, we therefore request that you permit New World to take the oral evidence … and there to answer New World’s questions under oath and produce the documents requested by New World herein.
	42.	The foregoing is based on the allegations and contentions of New World, which the Requesting Authority believes establish that the requested evidence is relevant to the trial of this Action.  In issuing this Letter of Request, the Requesting Authority does not hereby endorse said allegations and contentions as established facts.  Defendants dispute certain of the foregoing allegations and contentions and will have the opportunity to introduce their own.”

69.  There is also no dispute that this pleading point was never raised by PrediWave in the US on the application for issue of the letter of request. 

70.  I agree with New World’s submissions that the documents being sought now should be disclosed.  In the light of the statements in the letter of request, it is not for me to hold that these documents are inadmissible to the US proceedings on the ground of lack of relevance. 

71.  I also agree with the submissions of counsel for New World that if the MOT issue is not alive in the US proceedings, there was no reason whatsoever for the California judge to have issued the letter of request as the documents sought are only relevant to this issue.

72.  I also disagree that the letter of request was for the purpose of a wide-ranging discovery pursuant to California law.  I have already dealt with this point above in relation to the argument of fishing expedition.

Fourth ground

73.  Under this ground, PrediWave says that production of the documents is unnecessary.  It is, in fact, the same attack as in the last ground but in a different name.  It stems from the same argument that the MOT issue has not been raised in the pleadings in the US proceedings.  I have already ruled that this argument has no merit.

Fifth ground (Material non-disclosure)

74.  PrediWave argued that New World was aware of the transfers by Qu at less than US$500,000.  Furthermore, New World had on 26 July 2001 waived the co-signing requirement of US$500,000.

75.  To dispose of the waiver point first, the transfers took place from 11 January 2000 to 23 July 2001, whilst the e-mail on the waiver was only issued on 26 July 2001.

76.  On the question of whether New World was aware of Qu’s transfers at below US$500,000 at the times when the transfers were made, I do not think there is clear evidence of this.

77.  I do not overlook the arguments of John Tang that New World should have made reference to PrediWave’s defences to the MOT issue and that PrediWave’s board which comprised New World’s representatives had approved the MOT transactions. 

78.  It is obvious that the MOT issue is disputed by PrediWave.  Paragraph 42 of the letter of request as cited above has made this clear.  The omission to provide the particulars of PrediWave’s defences to this issue is, in these circumstances, not material for the consideration of making the order pursuant to the letter of request.

79.  On the approval of the MOT transactions by PrediWave’s board comprising New World’s representatives, I do not think such approval can do away with New World’s co-signing right.

80.  I also note that New World has produced a large amount of information at the ex parte application which included New World’s application before the California Court for the issue of the letter of request, PrediWave’s memorandum of points and authorities in objection to form of New World’s proposed letter of request and New World’s response thereto.

81.  Even if PrediWave is right that New World has committed material non-disclosure, I would not exercise my discretion to set aside the Master’s order on this ground.  Whatever might have been New World’s reason for the alleged non-disclosure, if any, I do not think New World has tried to conceal from the Master anything they regarded as material.

82.  I would also refer to the oft-cited passage by Macdougall J in Citibank NA v Express Ship Management Services Limited [1987] HKLR 1184 at 1191J to 1192B: 

“

… it would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the courts have intended to give active encouragement to undeserving defendants to search ingenuously for facts which a plaintiff might innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge the injunction.  Commonsense must prevail.  The heavy burden cast on a plaintiff must not be allowed to become as onerous as to be intolerable.”

83.  I therefore will not set aside the Master’s order for material non-disclosure.

84.  For the above reasons, I dismiss PrediWave’s application.

MOT’s application

85.  MOT is affected by the Master’s order and is thus allowed to intervene.

86.  I have already referred to the affirmation made by its director, Mr Zhou.  Counsel for MOT submitted on the following grounds. 

First ground

87.  MOT argued that the application was for discovery of all MOT’s banking information, and that was too broad.  This point was properly raised.  The scope of production has now been reduced to properly answer it.

Second ground

88.  MOT argued that the application for the letter of request/the Master’s order was made on a misleading basis.  MOT asserted that it was an independent party.  It was not set up by Qu and its president was not Qu’s mother.  It had made excessive profits in the purchase and sale of memory modules which it could retain.  It had genuinely purchased the memory modules from Techno Linc and sold them to PrediWave.  Counsel also made a number of comments on the strength or otherwise of the MOT issue.  All these disputes are, however, for the California trial judge. 

Third ground

89.  MOT also argued that the discovery is not relevant to the pleaded issues in the US proceedings.  I have already dealt with this pleading argument at length.  I disagree with this argument. 

Fourth ground

90.  I also deal with MOT’s argument of confidential information.  Woo J has discussed this issue in Re Q Limited [1997] 4 HKC 439 at 447F to I. 

“

Confidentiality

…It is a common and accepted practice that banks owe a duty to keep the information on their customers confidential, and unless there is a court order or other sufficient reason (see Norway p 490B) that information will not be disclosed to any third party.  It is common ground between the parties that confidentiality between a bank and its customers is a matter to be considered in a balancing exercise against the public interest of our courts in giving assistance to a foreign court in its administration of justice on its request for evidence in aid of its proceedings.  Where the evidence requested from a bank concerns a person against whom the foreign proceedings is brought and the evidence is material to prove certain allegations of fact raised bona fide in those proceedings, the public interest to assist the foreign court will properly outweigh any duty of confidence owed by the bank to such person.  On the other hand, if the information concerns a customer of the bank not shown to be material to the proof of any issue in the foreign proceedings, ordering the disclosure of the information would be an unjustified breach of confidence which the court should not require (see Re State of Norway’s Application [1987] 1 QB 433 at 490E to F per Glidewell LJ).”

91.  I agree entirely with this approach.  The documents sought by New World are obviously material to prove the MOT issue.  Confidentiality is not enough to outweigh the public interest to assist the California Court.

92.  In the premises, I also dismiss MOT’s application to set aside.

Order

93.  Paragraph 1 of the Master’s order is on the scope of the production of the documents.  I revise that paragraph in terms of the reduced scope of documents referred to above.

94.  Paragraph 2 of the order governs the time and place of the production and authentication of the documents.  I revise the date therein to a date to be appointed and notified by New World to HSBC and such date shall be beyond the next 10 days and within the next two months.

95.  I also follow the approach on costs in Re Q Limited.  I make a costs order nisi that PrediWave and MOT shall pay New World 70% of New World’s costs in resisting their applications and New World shall pay each of PrediWave and MOT 30% of their costs of the applications.

96.  I think PrediWave and MOT have succeeded partially in cutting down the scope of discovery but the extent of the success is not substantial and there is no real efforts by New World at the hearing to resist the exercise of trimming down.