TAO SOH NGUN (also known as LO TO LI KWAN or LO TO LEE KWAN) v. HSBC INTERNATIONAL TRUSTEE LTD

HCA 3246/2016 & HCA 355/2018

[2019] HKCFI 131

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3246 OF 2016 & 355 OF 2018

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D E C I S I O N

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A. INTRODUCTION

1.  By summonses filed on 13 December 2018 in these actions (the “Summonses”), the plaintiff seeks specific discovery of the following documents (the “Requested Documents”): –  

(1)   the “Trust Administration Procedure Manual” (the “Manuals”) or such other procedural manuals (if any) issued by the defendant relating to “Concentration Risk” applicable as at (i) the end of 2009, (ii) April 2016, (iii) December 2016, (iv) July 2017, and (v) December 2017;

(2)   emails, letters, notes, minutes and/or other documents containing and/or explaining the “directive” taken by Mr Bernard Rennell in or around 2008-2009 concerning the issue of concentration risk (the “Directive”), as referred to by Ms Paulina Lau (“Ms Lau”) in her examination in chief on Day 17 of the trial on 15 November 2018 and in her cross-examination on Day 21 of the trial on 30 November 2018.

2.  The 5^th Affirmation of Chong Moon Hing has beenfiled in HCA 3246/2016 in support of the Summonses.  The 3^rd Affidavit of Brent Edward York (“BEY’s 3^rd Affidavit”) has been filed in HCA 3246/2016 in opposition to the Summonses.

3.  The parties have in correspondence agreed for the Summonses to be dealt with on paper.  

B.   RELEVANT LEGAL PRINCIPLES

4.  The requirements for an order for specific discovery under Order 24, rule 7 of the Rules of the High Court are well-settled.  The party seeking specific discovery has to show a prima facie case that: –

(1)   the documents or classes of documents exist which the other party has not disclosed;

(2)   the documents relate to matters in issue in the action; and

(3)   the documents are in the possession, custody or power of the other party.

Once the above requirements are satisfied, the court has a discretion to decide whether to order discovery, and such order will not be made unless the discovery sought is necessary either for disposing fairly of the matter or for saving costs [see: Hong Kong Civil Procedure 2019, Practice Note 24/7/2].

5.  Regarding the assessment of relevance and necessity, the court should not order additional discovery shortly before or during the course of a trial unless it is satisfied that such discovery “clearly is germane, and will not be oppressive, since it is necessary for both sides now to be in position to focus exclusively on preparation for trial, and not otherwise to be diverted by the task of assembling/classifying/ listing further documentation which may prove to be only of peripheral relevance, if indeed relevant at all” (emphasis added): Akai Holdings Ltd v Ernst & Young, HCCL 29/2004 (Judgment of Stone J dated 17/07/2009), at paragraph 4.

6.  I agree with the plaintiff that the Requested Documents clearly satisfy the aforesaid requirements.

C.   EXISTENCE OF THE REQUESTED DOCUMENTS

C1.   The Manuals

7.  There can be no reasonable dispute that the Manuals relating to “Concentration Risk” applicable as at (i) the end of 2009; (ii) April 2016; (iii) December 2016; (iv) July 2017; and (v) December 2017 do exist.

8.  Under cover of the defendant’s solicitors’ letter dated 24 November 2018, the defendant had provided copies of the 2008 Manuals.  It is apparent from the information provided in the said letter that the Manuals on Concentration Risk are updated from time to time, and were accessible from the defendant’s internal electronic platform (ie the iNet System prior to February 2013, and the PWS HK TeamSpace Site thereafter and up to now). 

9.  It is also apparent from Ms Lau’s evidence that the defendant’s trust officers were required to adhere to the guidelines/instructions contained in the Manuals when monitoring the issue of “concentration risk” in clients’ trust accounts.

10.  In fact, the defendant has never contended that the Manuals requested by the plaintiff do not exist.

C2.   Documents containing/explaining the Directive

11.  From the evidence given by Ms Lau on Day 21 of the Trial (on 30 November 2018), there is reason to believe that documents which contain or explain the Directive do exist.  In particular: –

(1)   Ms Lau was asked questions in cross-examination in relation to the Directive allegedly given by Mr Bernard Rennell (which she had previously referred to in her evidence on Day 17).  Specifically, when asked whether the Directive was given orally or in writing, Ms Lau stated:

“At that time, there was a whole project to be done. Definitely, there were emails and meetings were called to explain the whole exercise” [Transcript: Day 21 p.34 lines 23-25]

“I believe the project team had explained [the Directive], but whether Mr. Bernard Rennell had any written directive, it’s some ten years ago, I really don’t remember.” [Transcript: Day 21 p.35 lines 16-20].

(2)   Ms Lau also mentioned that the timing of the Directive was around the time of the financial crisis (ie 2008/2009). 

(3)   When asked what were the instructions given in the Directive as regards concentration risk, Ms Lau stated:

“…it’s some ten years ago, I can’t remember the exact wording. We have the whole project, but I can’t recall the exact emails or wordings…” [Transcript: Day 21 p. 36 lines 16-18]

(4)   Ms Lau then went on to explain briefly the contents of the Directive and the instructions given internally as to “concentration risk”.  In particular, she stated that the instructions were that where there was a discretionary trust and the trustee had investment power, then they had to track whether concentration of an asset within the trust exceeded 10%, and if so, then there were 4 options that could be carried out, (i) sell down the asset; (ii) restructure the trust to a Direct Investment Trust; (iii) vary the trust deed or (iv) obtain an indemnity.

12.  Given Ms Lau’s aforesaid evidence, I agree there is justifiable reason to believe that there are documents (whether emails, notes/records of meetings, memos or otherwise) in which the Directive (assuming it was in fact given by Mr Rennell as alleged by Ms Lau) would have been explained to the defendant’s trust officers, so that it could be properly and duly implemented.  

13.  In BEY’s 3^rd Affidavit, Mr York stated that from his “recollection”, there was no “single” document containing the Directive.  However, Mr York stated his understanding that in around 2008 and 2009 within PWS (including Hong Kong), there was a “global project” (which may be the “project” referred to by Ms Lau in her evidence as quoted above) concerning the issue of concentration risk, which involved various discussions on the topic and he “participated in the preparation of some of the documents generated in the course of the project”, and accordingly, he accepted that he is able to identify some potential sources from which “documents or record relating to the project” might be located.  

14.  Therefore, it is clearly not in dispute that documents/records which contain or explain the Directive do exist.

D.   REQUESTED DOCUMENTS IN THE POSSESSION CUSTODY AND/OR POWER OF THE DEFENDANT

15.  Similarly, the defendant has not disputed that the Requested Documents are within its possession, custody and/or power.

16.  In respect of the Manuals, from the defendant’s disclosure of the 2008 Manuals, and the matters stated in the defendant’s solicitors’ said letter dated 24 November 2018, the defendant should have no difficulty in retrieving the Manuals applicable during the later periods in (i) the end of 2009; (ii) April 2016; (iii) December 2016; (iv) July 2017; and (v) December 2017.

E.   RELEVANCE OF THE REQUESTED DOCUMENTS

17.  It is trite that relevance is established where it is reasonable to suppose that the document requested to be disclosed contains information which may, not must, either directly or indirectly, enable a party to advance his own case or to damage the case of his adversary, or it is a document which may fairly lead the party to a train of inquiry which may have either of these two consequences.  For the purpose of discovery, the pleadings have to be looked at broadly.

[see: Hong Kong Civil Procedure 2019, Practice Note 24/7/2]

18.  The Requested Documents are obviously relevant to the disputed issues in this action, as evident from the pleadings: –

(1)   In these actions, the plaintiff claims against the defendant for, inter alia, acting unreasonably, grossly negligently, and in wilful breach/neglect of its duties as trustee in failing and/or refusing to give effect to her requests (as contained in the Apr 2016 Letter, the Dec 2016 Letter, the July 2017 Letter and the Dec 2017 Letter) for the Lo Family Trust to purchase additional shares in Great Eagle.

(2)   The defendant’s defence to the aforesaid claims is that it was concerned at the concentration of the shareholding of the Lo Family Trust in Great Eagle.  In fact, the defendant accepted (through counsel on Day 15) that “concentration risk” is the only reason why it refused to accede to the plaintiff’s requests for it to purchase further Great Eagle shares, and the only positive case they are putting forward in defence to the plaintiff’s claims.  The defendant further alleged that it had had “for several years been monitoring the [Great Eagle] exposure and steps to reduce the Trust’s exposure to the concentration risk” (see: Re-Re-Amended Defence in HCA 3246/2016, paragraphs 77(3), 102(2)(e)). 

(3)   The plaintiff’s case is that “concentration risk” should not be a relevant consideration as the purpose of the Lo Family Trust has never been for investment.  The plaintiff further denies the defendant’s assertion that it had been monitoring or taken steps to reducethe Lo Family Trust’s exposure to the concentration risk(see: Re-Re-Amended Statement of Claim in HCA 3246/2016, paragraph 52F; Re-Re-Re-Amended Reply, paragraphs 23, 43(3), 43(4)).

(4)   The plaintiff has also expressly pleaded that the defendant had, deliberately and without proper reason,refused to accede to the plaintiff’s requests for the Trust to purchase additional shares in Great Eagle so as to favour the interests of KS Lo(see: Re-Re-Amended Statement of Claim in HCA 3246/2016, paragraph 52E(I)(1), (IV)(9); Amended Statement of Claim in HCA355/2018, paragraph 62(6), (7)).

19.  Therefore, the issues which fall for determination by the court in these actions include, amongst others, (i) whether “concentration risk” was genuinely the reason for the defendant’s failure/refusal to implement the plaintiff’s requests in 2016/2017 for the Lo Family Trust to purchase additional shares in Great Eagle; (ii) and if so, whether this was a relevant or irrelevant consideration in the context of the Lo Family Trust. 

20.  In resolving such issues, the defendant’s internal policy/guidelines on “concentration risk” at the material times when the plaintiff’s requests were made are obviously relevant, particularly given that, according to Ms Lau’s evidence, the defendant’s trust officers (including herself) were required to follow the internal guidelines/instructions given by the defendant’s trust department (including those contained in the Manuals applicable from time to time) in undertaking periodic portfolio reviews of trusts under its management, including as regards concentration risk, and to take appropriate steps to monitor/reduce such risk. Disclosure of the defendant’s general policies and approaches to concentration risk at the material times (undisputedly contained in the Requested Documents) is clearly germane and obviously necessary for the fair disposal of these pleaded issues.  

21.  The defendant’s internal policy/guidelines on “concentration risk” after the change of policy in 2008/2009, and in particular, as at the times when the Apr 2016 Letter, the Dec 2016 Letter, the July 2017 Letter and the Dec 2017 Letter were issued are highly relevant to the court’s determination of whether the defendant acted reasonably in failing/refusing to implement the plaintiff’s requests for the Lo Family Trust to purchase further shares in Great Eagle. 

22.  It is also notable that the defendant has disclosed (and thus accepted as relevant) the concentration risk monitor forms submitted for the Lo Family Trust as of various dates between 2005 and 2017 (the “Risk Monitor Forms”).  There is thus no reason why the defendant should take the position that the Manuals themselves (which, as evident from the 2008 Manuals, contain the applicable templates of such forms and instructions for their completion) are irrelevant.

23.  Rather, it is obvious that the Risk Monitor Forms should be considered together with the Manuals in order for the court to properly determine the defendant’s internal policy on concentration risk at the material times, and whether the defendant was justified in relying on this reason to refuse to purchase further shares in Great Eagle according to the plaintiff’s requests made in 2016/2017.

24.  Further, given Ms Lau’s express reference to the Directive and heavy reliance upon the same in her oral evidence at trial, it is necessary that the defendant provides disclosure of documents containing/explaining the Directive to enable Ms Lau’s evidence to be properly tested and verified.

25.  For the aforesaid reasons, I agree that the Requested Documents are plainly relevant and necessary for disposing fairly of some of the main issues in dispute between the parties in these actions.

F.   TIMING REQUIRED TO PROVIDE DISCLOSURE

26.  In this regard, it is obviously desirable for the disclosures of the Requested Documents to be made before the resumption of the Trial on 22 January 2019, when Ms Lau’s cross-examination is to be continued, and when Mr York is due to give evidence for the defendant. 

27.  For the reasons set out at paragraphs 42 to 45 of the plaintiff’s Skeleton Submissions dated 2 January 2019, I am of the view that 4 days is sufficient for the defendant to make disclosure of the Manuals; and I agree that 5 days is sufficient for the defendant to make disclosure of the documents containing/explaining the Directive.  Further, I do not regard this timeframe as being oppressive of the defendant.

G.   CONCLUSION

28.  For the reasons stated above, I grant an order in terms of paragraphs 1 and 2 of each of the Summonses, save that (i) the time for disclosure and production of the Manuals be revised to 4 days from the date of the order; and (ii) the time for disclosure and production of the documents containing/explaining the Directive be revised to 5 days from the date of the order.

29.  I see no reason why costs should not follow the event.  Accordingly, I order that the costs of the Summonses be paid by the defendant to the plaintiff in any event, such costs are to be taxed if not agreed with a certificate for 2 counsel.