GREAT CITY ENTERPRISES LTD v. UBS AG

HCA 1217/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1217 OF 2009

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REASONS FOR DECISION

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Introduction

1. This concerns the defendant’s application for the disclosure by the plaintiff and its solicitors (who remain as the solicitors on record, though no further instructions have been given) of the identity of the plaintiff’s “funder(s)” for commencing and continuing this action.

2. At the end of the hearing of this application (where both the plaintiff and its solicitors were absent), a disclosure order was made.  Below are the reasons for the decision.

3. This application was made for the stated purpose of later making an application under s 52A(2), High Court Ordinance (Cap 4). The relevant parts of that provision read:

“… the Court of First Instance may … make an order awarding costs against a person who is not a party to the relevant proceedings, if … the Court of First Instance … is satisfied that it is in the interests of justice to do so” (emphasis supplied).

4. The related Rules of the High Court (Cap 4A) is Ord 62 r 6A(1) which in gist requires the person concerned (who is not yet a party) to be (1) joined as a party to the proceedings concerning costs, and (2) given a reasonable opportunity to attend a hearing which deals with that matter.

Background

5. The background leading to this application can be summarized as follows.

6. The plaintiff commenced this action in 2009 alleging the defendant to have breached its legal duties (and which caused loss to the plaintiff).  The claim was dismissed after trial by a judgment handed down in November 2013.  Costs were awarded against the plaintiff in favour of the defendant.

7. The defendant considered that there is a valid reason for contending that the plaintiff has been “funded” by individuals behind it, which will justify an order to be made under s 52A(2), Cap 4 against those individuals.  It therefore made this application with a view to ascertaining who those individuals are.

This application

8. The defendant relied on the following authorities to argue that there is jurisdiction for a discovery order to be made:

(a) Nina Kung v Wang Din Shin (No 2) (2006) 9 HKCFAR 800, para 68, 71 to 76 and 77(4);

(b) Raiffeisen Zentralbank Osterreich AG v Crossseas Shipping Ltd [2003] EWHC 1381 (Comm) (13 Jun 2003), para 7 and 14;

(c) Automotive Latch Systems Ltd v Honeywell International Inc [2008] EWHC 3442 (Comm) (27 Oct 2008);

(d) Singh v Observer Ltd [1989] 2 All ER 751, 757;

(e) McFarlane v EE Caledonia Ltd (No 2) [1995] 1 WLR 366, 373;

(f) Abraham v Thompson [1997] 4 All ER 362, 368.

9. Having considered the above authorities, I was satisfied that there is in fact jurisdiction to do so.  As the learned authors of Hong Kong Civil Procedure 2014 pointed out:

“… Where a power exists to grant a remedy [in this case, s 52A(2), Cap 4] there must be, inherent in that power, the power to make ancillary orders to make the remedy effective” (Vol 1, para 62/6A/10).

10. Bearing in mind the discretionary power conferred by s 52A(2), Cap 4 is exceptional, and should be exercised with caution (Hong Kong Civil Procedure 2014, Vol 1, para 62/6A/6), I was satisfied that the circumstances of this action justify the exercise of the ancillary power to order disclosure:

(1) the plaintiff is a BVI company purchased “off the shelf” to hold liquid asset (namely, money) gained from Mainland property investment for the purpose of engaging in the relatively risky activity of stock trading;

(2) the plaintiff’s money came exclusively from the two individuals who were its only directors and shareholders (called Shao and Jin in the November 2013 judgment);

(3) the evidence adduced earlier in this action shows that Shao and Jin treated the plaintiff’s money as their own:

(a) the plaintiff was purchased by Shao and Jin effectively as their “vehicle” for stock-trading, using money which came from them (see sub-para (1) above);

(b) a declaration of beneficial owner’s identity of 3 March 2008 identifies Shao and Jin as the beneficial owners of the plaintiff’s account with the defendant;

(c) Shao and Jin have used the money in the plaintiff’s account to pay for their relatives’ living expenses and school fees;

(4) Shao and Jin were the only individuals who principally took part in this action for the plaintiff; the other individuals were assisting Shao and/or Jin in that regard;

(5) although there is no direct evidence as to whether the plaintiff is still holding money in its name, there appears to be good reason to think that it may not:

(a) the plaintiff, Shao and Jin showed no interest in this action after the November 2013 judgment has been handed down, and did not appear in court since then;

(b) the plaintiff, Shao and Jin failed to give instruction to the plaintiff’s solicitors on record since then;

(c) Shao and Jin have been found to be dishonest witnesses in this action;

(d) the Mainland property investment was structured in a manner which was consistent with tax planning (this reflects on Shao’s and Jin’s sophistication level);

(e) as stated above, the plaintiff’s only known asset is highly liquid;

(6) such being the case, although there is no direct evidence to show the plaintiff’s financial status, it is possible the plaintiff may not be able to satisfy the costs orders made against it;

(7) further, by reason of sub-para (2) to (3) above, there appears to be good reason to infer that Shao and Jin would be the real beneficiaries of the outcome of this action should it be favourable to the plaintiff.

11. In reaching the above conclusion, I have borne in mind that an application for a disclosure order in this context is only a step in preparation of an application under s 52A(2), Cap 4.

12. For that reason, the burden for the defendant in such an application should thus be to show that the identity of the individuals sought to be disclosed are likely to be the persons who may be concerned with a s 52A(2) application.  To this extent, the burden is similar to that required by s 41, Cap 4 and Ord 24 r 7A (discovery of documents before action against a person who appears to be likely to be a party thereto).