CAMARO TRADING CO. LTD. v. NISSEI SANGYO AMERICA, LTD.

1994, No.40
(Civil)

IN THE COURT OF APPEAL

(ON APPEAL FROM HIGH COURT

MISCELLANEOUS PROCEEDINGS No.2587 OF 1993)

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J U D G M E N T

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Liu, J.:

1. Given the narrow ambit within which this appeal is proposed, on my part, to be disposed of, it is not necessary to recite the facts in detail. The plaintiff sought and obtained a Letter of Request from the United States District Court for the Northern District of Illinois, Eastern Division, at Chicago for the production of various documents. Master Bokhary granted an ex parte order for an authorised officer of the Hong Kong and Shanghai Banking Corporation Limited to attend and give evidence before an examiner on the said documents requested. Master Jones refused to set aside the ex parte order so granted. The Intervener with whom these said documents are concerned was an account holder of the Hong Kong Bank. It took the matter on appeal to Mayo, J. who dismissed the appeal and affirmed the orders of the Masters. This appeal lies from the judgment of Mayo, J. delivered in Chambers on 21 February 1994. I shall call the plaintiff "NSA", the Intervener "Camaro" and the Hong Kong and Shanghai Banking Corporation Limited "the Bank". Under Rule 27(c) of the Federal Rules of Civil Procedure, NSA commenced an action in the said United States District Court to preserve evidence in the matter of NSA's contended liability for its alleged failure to withhold tax from commissions paid to Camaro. The judge granted a Letter of Request, the implementation of which has given rise to these Hong Kong proceedings and appeal.

2. NSA is a resident American corporation. Under contract NSA had, for a number of years, made commission payments from within America to Camaro, a company incorporated in Hong Kong. The commission payments were in fact sent to Camaro in America by post. It is claimed by NSA that it accepted Camaro, on oral representations, as an American corporation. NSA did not withhold, allegedly as required by law, 30% of these commission payments. NSA's stance is that its innocence aside, as the said commission payments had, wholly or substantially, been remitted back to Mr Ishler in America who controlled Camaro, Camaro had never in fact beneficially earned these commission payments under the said contract and NSA was accordingly relieved of any withholding tax obligation under American law. The District Director of the Internal Revenue Service in Chicago requested technical advice concerning NSA's withholding tax obligation from the National Office of the United States Internal Revenue Service. On 20 August 1990, in response the National Office of the United States Internal Revenue Service issued a Technical Advise Memorandum which asserted that NSA was liable for its failure to withhold tax from the commission payments made to Camaro. I shall call the Internal Revenue Service in Chicago "IRS". If IRS should at any time make an assertion and thereupon a claim against NSA, NSA would "vigorously oppose" the view formulated in the Technical Advise Memorandum and in turn IRS's claim by what has been described as a "Refund Suit". Up to today, NSA "is unable to bring a Refund Suit because IRS has not yet asserted any withholding tax liability associated with NSA's failure to withhold tax on payments made to Camaro". It is envisaged by NSA that the United States of America will be "the adverse party" to such a Refund Suit. On behalf of NSA, it has been said that the "anticipated proceeding against the United States of America" in the Refund Suit "will be commenced in due course" in the same District Court at Chicago and that NSA "has the right to litigate" in the Refund Suit and "intends to do so". It is to be noted that nearly four years have elapsed since the said Technical Advise Memorandum issued on 20 August 1990, yet neither IRS nor NSA has taken the matter further except for these Hong Kong proceedings.

3. Judge Holderman laid it on the line that the purpose of the action before him under Rule 27(c) was "to preserve (the specified) evidence for use at trial." Indeed, the Rule 27(c) proceeding was commenced "in order to preserve that evidence for use at trial". In his first affidavit, Mr Eccles, solicitor for NSA, confirmed NSA's decision to bring the Rule 27(c) proceeding "to preserve certain evidence ... for use at trial when the matter of (NSA's) tax liability is finally adjudicated". The Letter of Request was issued pursuant to the Rule 27(c) proceeding for the taking and preservation of evidence, but the evidence so requested was not expected to be put to use in the Rule 27(c) proceeding. There has yet to be a lis, letting alone a trial, between NSA and the United States Government, which would call for any elucidation or proof by evidence. Evidence is sought to be obtained in Hong Kong under the Letter of Request for adjudication at the trial (if any) of the anticipated Refund Suit. The short question in this appeal is : at the time of the application for the Letter of Request, was the Refund Suit "contemplated" within the meaning of that word in s.75(b) of our Evidence Ordinance?

4. In its Notice of Appeal, Camaro, the Intervener, raised three grounds. One is now abandoned and I am satisfied that Mayo, J. took into consideration all the competing relevant features in the exercise of his discretion. The judge concluded that the breach of bankers' confidentiality was not a matter which weighed heavily in the balance. The judge properly and correctly exercised his discretion which cannot be, in my view, interfered with.

5. The remaining Ground of Appeal was, in essence, the construction of s.75(b) of the Evidence Ordinance.

Section 75 of the Evidence Ordinance reads as follow :

"75. Where an application is made to the High Court for an order for evidence to be obtained in Hong Kong and the Court is satisfied -

(a) that the application is made in pursuance of a request issued by or on behalf of a court of tribunal ('the requesting court') exercising jurisdiction in a country or territory outside Hong Kong; and

(b) that the evidence to which the application relates is to be obtained for the purposes of civil proceedings which either have been instituted before the requesting court of whose institution before that court is contemplated.

the High Court shall have the powers conferred on it by this Part."

6. I have to satisfy myself that the evidence sought to be obtained is "for the purposes of" instituted or contemplated civil proceedings. In the Letter of Request, the purpose for which the evidence was to be requested from Hong Kong was put down as that of obtaining evidence "for use at trial". The proceeding under Rule 27(c) of the Federal Rules of Civil Procedure would not itself involve a trial. It is reasonably clear from the language of the Letter of Request that "the evidence to which the application relates is to be obtained for the purposes of the civil proceeding" in the Refund Suit. The Refund Suit has not been commenced. Was the Refund Suit a contemplated civil proceeding when the Letter of Request was applied for?

7. There are no pertinent authorities except for the analytical submissions advanced in para. 70/1-6/3 at p.1206 of vol.1 of the 1993 Annual Practice. After the cautious ratification by the United Kingdom in 1976 of the Hague Convention of 1970, the same passage has appeared in the successive White Books without variation ever since amendments were introduced by the English Rules Committee as to the manner in which an application to obtain evidence for the use in foreign courts should be made. I set out below in full the passage :

"For the purposes of civil proceedings, the English Court must be satisfied that the requesting Court is requiring the evidence for the purposes of proceedings which have been begun or are contemplated in that Court. It is an unusual concept that evidence should be required, not for proceedings which are actually pending but are merely 'contemplated'. It would seem that 'contemplated' in this context means, not simply that the institution of proceedings is possible or even probable but that it is imminent or impending, that the institution of proceedings has reached the stage not merely of being considered or examined but is almost about to happen. The English Court should, it is thought, be somewhat more hesitant about being satisfied that proceedings in the requesting Court are contemplated unless there are substantial and cogent grounds for supporting the foreign request made on this ground."

8. The passage has stood the test of time. It is agreed on all hands that IRS has yet to assert any failure on the part of NSA to withhold tax from the commission payments. Thus waiting in the wings as it were, NSA's responsive Refund Suit could not be said to be imminent or impending. In the unusual concept of requiring evidence for proceedings which are merely "contemplated", the contemplated proceedings must be established by substantial and cogent evidence. For the reasons I have given, I am unable to give effect to the Letter of Request which has so perspicuously stated the purpose for which the relevant evidence is now being sought, viz. to obtain evidence for use at the possible trial of an anticipated Refund Suit. The Letter of Request was issued for such an anticipated action which was not one contemplated within s.75(b) of our Evidence Ordinance.

9. I would allow the appeal. Accepting the undertaking of Camaro to allow the Registrar of the Supreme Court to retain the documents which have been lodged with the Registry, I would, subject to the consent of the parties, order the same to be kept in the safe custody of the Registrar and not to be released to the District Court in Chicago before the Refund Suit can be established as a contemplated civil proceeding, with liberty to apply for their release to America or Camaro. I would therefore set aside the order of Master Bokhary as varied by Master Jones and so much of the order of Mayo, J. dismissing Camaro's appeal. I would further order that costs of this appeal and the appeal before Mayo, J. and before both Masters be costs for Camaro, the Intervener, against NSA, the plaintiff.

Wong, J.:

10. I am of the opinion that the appeal should be dismissed and the judgment of Mayo J. affirmed.

11. Mr. Michael Thomas Q.C., leading counsel for the respondent (plaintiff) submitted before us, as he did before Mayo J., that the letter of request is sufficiently widely framed to include any proceedings which may be contemplated by the respondent to recover any tax they may have to pay including any steps taken by them to preserve evidence under Rule 27(c) of the Federal Rules of Procedure to bring the application within the ambit of s.75 of the Evidence Ordinance, Cap.8. Mayo J. upheld those submissions and dismissed the appeal by the intervener (appellant) against the order of Master Jones made on 26 November 1993. Section 75 of the Evidence Ordinance reads:

"Where an application is made to the High Court for an order for evidence to be obtained in Hong Kong and the court is satisfied -

(a) that the application is made in pursuance to a request issued by or on behalf of a court or tribunal ("the requesting Court") exercising jurisdiction in a country or territory outside Hong Kong: and

(b) that the evidence to which the application relates is to be obtained for the purposes of civil proceedings which either have been instituted before the requesting court or whose institution before that court is contemplated.

The High Court shall have the powers conferred on it by this Part."

12. Mayo J. relied as his authority on a passage of Lord Diplock's speech at p.633 in Re Westinghouse Uranium Contract [1978] AC 547:-

"..... These courts and tribunals make use of a wide variety of different systems of procedure and rules of evidence in civil matters. In many of these systems it is not possible to draw a distinction between what would be regarded in England as the actual trial of a civil action and what precedes the trial. I do not think that in relation to those countries the expression "civil proceedings" in section 1(b) can have the restricted meaning of actual trial or hearing of a civil action; and, if this be so, it cannot bear a more restricted meaning in relation to those countries such as the United States of America, where as in England, it is possible to draw a distinction between the trial and what precedes the trial. In my view, "civil proceedings" includes all the procedural steps taken in the course of the proceedings from their institution up to and including their completion and, if the procedural system of the requesting court provides for the examination of witnesses or the production of documents for the purpose of enabling a party to ascertain whether there exists admissible evidence to support his own case or to contradict that of his opponent, the High Court has jurisdiction to make an order under the Act."

13. If "proceedings" in this context includes the Rule 27(c) application before Judge Holderman, there is no need to go further and the appeal must fail. But if it does not so include, what is to be decided is whether any proceedings by the respondent to recover any tax which they may have to pay (the Refund Suit) is contemplated. In other words, the issue turns on the construction and meaning of the word "contemplated". Heavy reliance was placed by Mr. Griffiths, Q.C., leading counsel for the appellant, upon a passage at p.1206 in paragraph 70/1-6/3 of Volume 1 of the 1993 White Book, which Liu J., whose judgment I have the benefit of reading in advance, adopted as the basis for allowing the appeal. That passage reads:-

"For the purposes of civil proceedings, the English Court must be satisfied that the requesting Court is requiring the evidence for the purposes of proceedings which have been begun or are contemplated in that Court. It is an unusual concept that evidence should be required, not for proceedings which are actually pending but are merely 'contemplated'. It would seem that 'contemplated' in this context means, not simply that the institution of proceedings is possible or even probable but that it is imminent or impending, that the institution of proceedings has reached the stage not merely of being considered or examined but is almost about to happen. The English Court should, it is thought, be somewhat more hesitant about being satisfied that proceedings in the requesting Court are contemplated unless there are substantial and cogent grounds for supporting the foreign request made on this ground."

14. No decided case is cited to support this proposition. The White Book is no doubt an important authority on practice and procedure deserving great respect. The courts will normally accept and follow statements in this work, but it is not necessarily always the case.

15. The issue concerns the comity of nations and must be examined carefully. In the words of Lord Diplock in Re Westinghouse Uranium Contract at p.633:

"..... but I think that the court should hesitate long before exercising its discretion in favour of refusing to make an order unless it was satisfied that the application would be regarded as falling within the description of frivolous, vexatious or an abuse of the process of the court."

16. The closest meaning of 'contemplated' to the one in the White Book is perhaps to be found in the decision of the House of Lords in Conway v. Wade [1909] AC 506, the famous trade union case under the Trade Disputes Act 1906.

17. At p.522 Lord Shaw of Dunfermline said:-

"In this view, what is meant by the words "in contemplation or furtherance of a trade dispute"? My Lords, I think the argument was well founded that the contemplation of such a dispute must be the contemplation of something impending or likely to occur, and that they do not cover the case of coercive interference in which the intervener may have in his own mind that if he does not get his own way he will thereupon take ways and means to bring a trade dispute into existence. To "contemplate a trade dispute" is to have before the mind some objective event or situation, with those elements of fact or probability to which I have adverted, but does not mean a contemplation, meditation, or resolve in regard to something as yet wholly within the mind and of a subjective character. I think that any other construction would be ill-founded and would lead to strange and mischievous results."

18. Comparing 70/1-6/3 at p. 1206 of the White Book even with this passage, the learned authors seem to have gone further and beyond what was attempted by Lord Shaw of Dunfermline in a different context. In the case in In re Hartlebury Printers Ltd. [1992] 1 CR 559 at 567F - 568F which concerns the construction of Article 2(1) of the European Council Directive (75/129/E.E.C.), Morrit J. approached the question of contemplation in this manner:-

"Thus the contemplation referred to in article 2(1) is something less than intention. Nevertheless, the range of mental states included within the word is wide. It would extend from merely 'thinking about' to 'having in view or expecting'."

19. It was also submitted by Mr. Michael Thomas Q.C. that the passage in the White Book is inconsistent with dictionary definitions. He referred us to the Concise Oxford English Dictionary (1990 Ed.) and the Shorter Oxford English Dictionary (1973 Ed. and 1993 Ed.). "Contemplate" is defined in these terms: regard (an event) as possible; to have in view; to expect; take into account as a contingency.

20. Section 75 of the Evidence Ordinance was enacted in 1975 along the lines of c.34 s.1 of the English Act. Section 77B(1)(a) was added by way of an amendment in 1984. It reads:-

"(1) The provisions in sections 75, 76 and 77 shall have effect in relation to the obtaining of evidence for the purposes of criminal proceedings as they have effect in relation to the obtaining of evidence for the purposes of civil proceedings except that

(a) Section 75(b) shall apply only to proceedings which have been instituted or whose institution is likely if the evidence is obtained."

21. The whole of s.77B applies to criminal proceedings. What is interesting is the change of terminology from "is contemplated" to "is likely". Bearing in mind the strict burden and high standard of proof cast on the prosecution in criminal cases, the legislature must have had in mind that any request for assistance to obtain evidence for criminal proceedings should be subject to more strict scrutiny.

22. I will say a word about the undertaking. The offer of the undertaking by the appellant and its acceptance by Liu J. demonstrate overwhelmingly the need for the preservation of the evidence and this underlines the fundamental weakness of the appellant's case. Lodging the documents with the Registrar, Supreme Court is not the solution as Mr. Michael Thomas Q.C. quite rightly pointed out because that was not what Judge Holderman requested. He wants them to be in his court in Illinois, U.S.A. Judge Holderman is a senior judicial officer of a country having a strong common law background and with which we maintain friendly relation. He is certainly a person to be trusted. It would be wrong for us to cast any doubt on his integrity. We can either send him the documents or do nothing. There is no half-way house.

23. In my judgment, the liberal approach adopted by Mayo J. is correct and is supported by good authority. It is consistent with the canon of interpretation specifically enacted in s.19 of the Interpretation and General Clauses Ordinance, Cap. 1 which provides:-

"An Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation and will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit."

24. Once the benchmark under s.75 of the Evidence Ordinance is met and in this case I am satisfied that it has been met, an order in terms of the request should be made.

25. In relation to the other ground argued by Mr. Griffiths Q.C., I agree with the conclusion of both Liu J. and Mayo J. that the breach of bankers' confidentiality was not a matter which weighted heavily in the balance when the judge came to consider the exercise of his discretion.

26. I would dismiss the appeal with costs to the respondent.

Penlington, J.A.:

27. The background of this matter has been fully and helpfully set out in the judgment of Liu J which I have had the advantage of reading in draft. Those facts are unusual in that this is essentially an application made to preserve documents which in the ordinary course of events would be destroyed before the proceedings which the plaintiff (NSA) will bring to reclaim money which it may become liable to pay to the United States Government (IRS) pursuant to the Technical Advice Memorandum. I agree with him that the question here is whether that Refund Suit is "contemplated" so as to fall within s.75(b) of the Evidence Ordinance.

28. I have no doubt that the Refund Suit is so contemplated within the ordinary meaning of that word. There is a very real threat to NSA that it will have to pay the tax on the royalties and will be forced to issue proceedings for a refund even though there clearly has been delay on the part of the IRS. The Intervener sought to persuade Mayo J and this Court that in the context of s.75(b) of the Evidence Ordinance it should be given a very restricted meaning and "contemplated" in this context requires that the proceedings will certainly be commenced in the immediate future. They are "almost about to happen" to cite the words used by the editors of the Annual Practice which are relied on by the Intervener. That passage has however not been referred to in any previous authority and it seems to me, was clearly influenced by what was regarded, as a sweeping provision whereby evidence from overseas can be obtained even before proceedings are actually commenced in England. I entirely agree that there should be substantial and cogent grounds for supporting the request and the courts must be vigilant to see that the power conferred by s.75(b) of the Evidence Ordinance is not abused by seeking evidence for use in actions which are not likely to be instituted. Liu J rightly points out that four years have passed since the issue of the Technical Advice Memorandum and clearly there is a possibility that for some reason the IRS will not claim the withholding tax alleged to be due by NSA but it would seem much more likely that it will do so. Its own National Office has said that the tax is payable and while we have not been made aware of the reason for the delay, there is a very real threat of a claim being made which will be resisted by means of a Refund Suit.

29. The circumstances here are unusual. If there was no danger that the documents would not be preserved by the Bank indefinitely, it may well be that NSA would not have made the request until there was an actual claim made against them by the IRS but for what I consider are "substantial and cogent reasons" - the possible destruction of the documents - they make their request now.

30. Clearly the procedure for claiming and resisting the payment of disputed tax is different in the United States of America to that pertaining to Hong Kong. We do not have any system corresponding to a "Technical Advice Memorandum" or indeed a "Refund Suit". That being so, I consider the dicta of Lord Diplock in Re Westinghouse Uranium Contract cited by Mayo J to be highly pertinent to the background facts here when he said that in other systems "it is not possible to draw a distinction between what would be regarded in England as the actual trial of a civil action and what precedes that trial". Clearly Lord Diplock considered that if there was a request for the production of evidence to enable a party to see if he could mount a case the wording of the act enabled the court, within its discretion, to comply with that request. That decision is not referred to in the note in the White Book but seems to be contrary to the view there taken that the action should be "imminent or impending". The dicta of Lord Diplock is, of course, of much higher authority and although, as Liu J says in his judgment, the comment in the White Book has not apparently be disapproved, no authority is cited in support of the editor's opinion.

31. Mr John Griffiths Q.C., leading counsel here for the Appellant/Intervener, has cited, in addition to the passage in the White Book, cases involving trade disputes. I think somewhat different considerations apply there but even so they support the view that the action to be taken is "likely"- but not one which the person seeking the relief has only within his own mind - a mere possibility. Here the facts in my opinion do show that the Refund Suit is likely to be mounted and despite the unexplained delay - it is far more than a vague possibility.

32. Before this court the appellant gave an undertaking that if the request from Judge Holderman was refused it would be content to allow the documents to remain in the custody of the Registrar until the Refund Suit is commenced. That undertaking was not made to Mayo J.

33. I share the view of Wong J whose judgment I have also seen in draft that the request should either be complied with or refused and am doubtful, if in the event of the request being so refused, whether the Registrar would have any power to hold the documents even with the consent of both parties.

34. Fears were expressed by Mr Griffiths Q.C. that if the documents were sent to Judge Holderman they may be used for purposes other than the contemplated Refund Suit. They may be made available to the IRS or even to the prosecuting authorities. I am sure that such will not be the case. The request clearly states the purpose for which the documents are required. Any disclosure of them for purposes other than that of the Refund Suit would be quite wrong and in clear breach of the terms of the request. I have no doubt that Judge Holderman would not permit that to happen.

35. The appeal is accordingly dismissed. The respondent is to have the costs of the appeal.