TYT v. TLH

FCJA 3690 / 2017

[2019] HKFC 186

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

JOINT APPLICATION NO. 3690 OF 2017

----------------------------

----------------------------

__________________________

Decision
(use of documents in other proceedings)

__________________________

1.  This is the hearing of the 2^nd Applicant/Wife’s (“W”) Summons dated 14^th February 2019 (“the Summons”) for leave to use in the court proceedings commenced by her in the PRC (“the PRC Proceedings”) some documents filed by the 1^st Applicant/Husband (“H”) in the ancillary relief (“AR”) proceedings herein.

Relevant Background

2.  In the AR proceedings herein, H by his Form E dated 6 June 2018 provided voluntary disclosure that he owned 2% shares of a PRC company through a trustee/nominee and such shares were already sold to a third party on 16 May 2018.

3.  Further to this disclosure, there are H’s Answer dated 27 August 2017 to W’s questionnaire and request for further and better particulars, as well as H’s discovery of documents concerning ownership and sale of the 2% shares.

4.  In reliance of her PRC legal opinion that the sale of the 2% shares without her consent constituted inappropriate disposition,W commenced the PRC Proceedings. According to the 民事起訴狀(statement of claim) dated     (date of Statement of Claim) (“the Statement of Claim”), W sues against     (number of defendants) defendants,     (descriptions of defendants) for a declaration that the said 2% shares once owned by H was communal property. 

The Subject Documents

5.  As listed in the Summons, W originally asked for the entire 8 items of document. At the hearing, W decided to only pursue for 7 items and conceded that some can be substantially redacted to only show the information being relevant and necessary to the PRC Proceedings.

6.  The scope of documents sought are therefore narrowed-down to the following: -

(1)     H’s Form E dated 6 June 2018; limited to the front page, item 5.1 at page 19, and the signature page

W further conceded that the selling price and net proceeds stated under item 5.1 can be redacted; and it is sufficient to only show the following admission of H : “本人於2018年5月16日賣出由 [name of the trustee/nominee] 代本人持有在 [name of the PRC company] 的2% 股份。”

(2)     H’s Answer dated 27 August 2017 to W’s Questionnaire and Request for Further & Better Particular; limited to the following :

(i)     heading of the document at the front page;

(ii)     pages 18 and 19 showing W’s Request No. 27 for details of the sale of shares (purpose of sale, identity of the purchaser, basis of pricing, documents in support etc), and H’s Answer thereto; and

(iii)     page 20 showing W’s Request No. 28 regarding the sale proceeds of the 2% shares, and H’s Answer thereto.

(3)     financial statement of the PRC company for the year 2016;

(4)     financial statement of the PRC company for the year 2017;

(5)     valuation report of the shares of the PRC company;

(6)     H’s statement of bank account with China Agricultural Bank from 5 June 2017 to 13 January 2019; limited to the heading of the document and the page showing only the transaction dated 4 June 2018; and

(7)     H’s statement of bank account with Bank of China (PRC) from 19 June 2017 to 4 January 2019; limited to the heading of the document and the page showing only the transaction dated 21 May 2018 and one of the transactions dated 4 January 2018 (i.e. the one with transaction time 083258)

Grounds of Application

7.  W’s application is premised mainly on the following grounds:

(1)     The subject documents are direct evidence of H’s beneficial ownership and disposition of the shares and would very likely contribute to achieving justice in the PRC Proceedings;

(2)     Although W is entitled to seek discovery against the defendants under the PRC Proceedings for relevant documents and information relating to the 2% shares, it is unlikely she is able to do so in view of the attitude adopted by H in the PRC Proceedings.  H has avoided service such that the PRC Court has ordered for substituted service to be effected on H. There is every reason to believe that H will continue to avoid service and may even be absent when a hearing date is fixed.  In such circumstances, the subject documents are particularly crucial to W achieving justice in the PRC Proceedings;

(3)     The application is clearly necessary to the PRC Proceedings rather than merely for convenience. Since H has already made admission in the proceedings herein, W is entitled to ensure that the same evidence is placed before the PRC Court, so that H cannot run contradictory and inconsistent cases;

(4)     The documents sought are limited to what are necessary and relevant; and

(5)     H will not be put to any “significant disadvantage”. H cannot suffer any prejudice by being asked to face his own evidence.

8.  W stressed the open justice principle and relied on the case of DJ v LRM (FCMC No. 8507 of 2013; 07 July 2015) where the wife in the matrimonial proceedings was permitted to use relevant and necessary materials for the purpose of conducting her defence in the criminal proceedings.

9.  There is no doubt that the subject matter should be approached on the basis of what is fair and just, however the nature of proceedings in DJ v LRM should be distinguished from the present one. The public interest in pursuing investigations and defence in a criminal case was considered as outweighing the interest to maintain confidentiality. I do not regard DJ v LRM having laid any principle concerning leave to access to documents in a general situation. It is noteworthy that the authority of Florence Tsang (CFA) was not considered in that case at all.

10.  W also sought to rely on O. 24 r. 14A in support of her application. This section does not apply because no proceedings in this present action have taken place in open court. 

Relevant Legal Principles

11.  It has long been established that a party who obtains documents on discovery gives an implied undertaking to the Court that he will make use of them only for the purposes of that action, and no other purpose. However, in appropriate circumstances the implied undertaking can be released or modified by the court. Where release from the undertaking is sought, it is for the person who obtained the documents to demonstrate cogent and persuasive reasons why it should be released. The court will not release or modify the implied undertaking given on discovery save in special circumstances and where the release or modification will not occasion injustice to the person giving discovery.Each case turns on its own facts. The exercise involves a balancing exercise in terms of weighing the relevant conflicting interests and rights.

See : Secretary for Justice v. Florence Tsang Chiu Wing (2014)HKCFAR 739, per Ribeiro PJ at §§22 & 23, citing Crest Homes Plc v Marks [1987] AC 829

12.  When considering an application to release or modify the undertaking, the Court will consider the risk of general publication, and will take into account the force of any implied or express undertaking as to confidentiality made by the applicant in respect of the documents in the pursuit of foreign proceedings.The Court will also consider whether the application is merely for convenience, rather than being necessary to the applicant’s foreign proceedings.

See :TCWF v LKKS(No 2)  [2014] 1 HKLRD 1014

13.  In Cobra Golf Inc v Rata [1996] FSR 819 at §11, Laddie J set out the following as relevant circumstances which may be taken into account when deciding whether to exercise the Court’s discretion to relax the undertaking: -

“(a) The extent to which relaxation of the undertaking will cause injustice to the party which provided the discovery.

(b) Whether the proposed collateral use is in court proceedings or outside litigation (e.g. for disclosure to the press as in Harman). Prima facie if it is for use outside litigation, it is not the court’s function to release for that purpose.

(c)Whether, if the collateral use is in aid of criminal or civil proceedings, those proceedings are in this country or abroad.

(d) In so far as the satellite proceedings are in this country:

… …

(iii) In so far as the documents are to be used in proceedings abroad.

(a) Whether those proceedings are criminal or civil.

… …

(c) If the satellite proceedings are civil, the court should take into account whether the disclosure would put the disclosing party at a significant disadvantage in those proceedings – for example by forcing it to produce in the public domain documents which, under the local procedure, would not otherwise be made public.”

Discussion

The Summons

14.  H complains about the Summons not properly framed in that W only seeks leave to use documents without also seeking a release from the implied undertaking as to confidentiality.

15.  Indeed W ought to have claimed for both,but I am prepared to indulge.Factors to be considered overlap;if the Court is satisfied that permission to use document in other proceedings ought to be granted, it will inevitably have to grant a release of the implied undertaking.

The PRC Proceedings

16.  I shall not undertake an examination on the strength of the PRC Proceedings. As to the extent to which the court should examine the merits of the other proceedings, the relevant approach is set out by Scott J. in Sybron Corporation and Another v Barclays Bank Plc. [1985] Ch. 299, at 326-327: -

“… I do not think it can be right … for the court to undertake an examination of the strength of the proposed action in which it is sought to use the documents. I accept that it must be open to the respondent to resist leave on the ground that the proposed action would represent an abuse of process or for one reason or another was bound to fail or ought to be struck out. The court would always I think refuse leave if persuaded that the proposed action was of that character. But that apart, I feel great doubt whether it could ever be appropriate to try to gauge the strength of the proposed action in order to decide whether or not to give leave to use discovered documents for the purposes of that action. If a proposed action is not shown to be an abuse of process or obviously unsustainable then prima facie a plaintiff is entitled to prosecute it. Whether leave to use discovered documents for the purposes of such an action should be granted should depend in my view on the nature of the first action, the circumstances in which discovery was given and the nature of the proposed new action. There may be some cases in which for the purposes of an application for leave to use discovered documents some assessment of the strength of the case should be attempted, but where, as here, the case is of complexity I do not think it represents the right approach.” (emphasis added)

17.  Although the PRC Proceedings are not shown to be an abuse of process or obviously unsustainable (despite the critique by H’s PRC lawyer), W did not demonstrate why the proceedings are necessary. W submitted that the PRC Proceedings are akin to section 17 applications or TL v ML ownership disputes. I disagreed; it is clear from the prayer in the Statement of Claim that they are not.

18.  The only relief (apart from costs) sought by W in the PRC Proceedings is a declaration that the 2% shares once owned by H was communal property.By H’s admission and declaration, these are already stated facts in the AR proceedings herein. I do not understand why W needs a declaration by the PRC Court on the same fact.

19.  Both H and W have already submitted to the matrimonial jurisdiction of the Hong Kong Court to adjudicate the ancillary relief disputes between them. The sale proceeds of the 2% shares are fully accounted for in the proceedings herein and are available for distribution. W fails to demonstrate how a declaration by the PRC Court on the same fact would enhance her interest, nor how her interests would be prejudiced even if the PRC Proceedings could not go further for want of evidence.

Risk of Harm and Prejudice

20.  H relied on his PRC legal opinion and expressed the following concern of harm and prejudice :

-     the subject documents will be disclosed or published in the verdict or judgment in the PRC proceedings as evidence; as the public could search all judgments and verdicts online, the particulars of the documents produced as evidence will become public;

-     anyone who institutes proceedings related to H’s finances could apply to the PRC Court to inspect or copy the documents previously adduced as evidence;

-     prejudice will also be caused to third parties who are referred to in the documents in question; and

-     the exposure could be extensive since the Notice of the PRC Proceedings had been posted at the different offices of the PRC company.

21.  In reliance on her new PRC legal advice, W submits that if the PRC Court is faced with an application to access the documents, it is required under PRC law to consider the need to protect H’s confidentiality. Further, the PRC Courts do not unselectively or undiscriminatingly publish all judgments; they do not publish judgments which involve matters of privacy or which for other reasons should not be published.

22.  Although there is no suggestion that the PRC Court would not respect W’s undertaking of confidentiality, its practice and procedures in safeguarding sensitive information still hang in doubt. In light of the conflicting PRC legal advice, I do not think the possibility of risk can be ruled out.

23.  Although there are substantial redactions already conceded by W, financial statements of the PRC company and its valuation report (items (3) – (5) under paragraph 6 above) are still un-redacted. If leave is granted to use them in the PRC Proceedings, a lot of information on finances which are not necessary for the PRC Proceedings will be exposed to risks of disclosure or publication.

Relevant Documents

24.  What are relevant documents depend on the nature of the PRC Proceedings, in particular the relief W claims therein.

25.  If leave is to be granted, I think the only document W needs is H’s redacted Form E (item (1) under paragraph 6 above).  Reasons are as follows:

(1)     Item 5.1 of Form E already contains H’s admission and declaration of his beneficial ownership and disposition of the 2% shares of the PRC company. W did not explain why she needs documentary evidence (items (2), (6) and (7) under paragraph 6 above) to prove or reinforce H’s own admission.

(2)     Although W in the Statement of Claim has challenged the selling price of the 2% shares, “selling at an under-value” is not an issue relevant to the relief sought. Therefore, W does not need financial statements or valuation report of the PRC company (items (3) – (5) under paragraph 6 above). This is supported by the letter of W’s PRC lawyer dated 19 February 2019, making no request for financial statements and valuation report of the PRC company.

Should leave to use the redacted Form E/release of the implied undertaking be granted?

26.  Although there is no harm on H to permit W’s use of the redacted Form E in the PRC Proceedings, this reason alone does not justify the grant of leave.

27.  Although H’s admission under item 5.1 of Form E may be useful in the PRC Proceedings, leave should not be granted for mere convenience. The Court is not here to assist W to pursue proceedings which is not shown to be necessary in the first place.   

28.  There is a heavy burden on W to justify a release of the implied undertaking with cogent and persuasive reasons. W failed to do so.

Order

29.  The 2^nd Applicant’s Summons dated 14 February 2019 be dismissed.

30.  There be a costs order nisi that the 2^nd Applicant do pay the 1^st Applicant’s costs of the application in any event, with certificate for two counsel, to be taxed if not agreed.

31.  Unless there is an application within 14 days to very, the nisi order shall become absolute.