SHANGHAI COMMERCIAL BANK LTD v. CHANG YUAN TA GRANT AND ANOTHER

HCA 805/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 805 OF 2009

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BETWEEN

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(Heard together)

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REASONS FOR DECISION

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Introduction

1.  This “reasons for decision” concerns two applications of Bank of East Asia (“BEA”) for discovery of particular documents (one each for HCA805/2009 (“A805”) and HCA 1996/2009 (“A1996”); collectively (“the 2 actions”)).

2.  Both BEA and the respondents in the applications (the “Changs”) are parties to the 2 actions.  The 3 respondents are also blood-related as father (“Clark Chang”), son (“KD Chang”) and daughter (“CH Chang”).

3.  The applications sought the respondents to file and serve an affidavit or affirmation:-

“… stating whether … any class of document [specified or described in the application] is, or has at any time been, in [their] possession, custody or power, and if not then in [their] possession, custody or power when [they] parted with it and what has become of it.” (RHC Ord. 24 r. 7(1))

4.  At the end of the hearing, I granted the discovery orders indicating the reasons for doing so would be handed down later.

A805

5.  By way of counterclaim, BEA sues CH Chang and her sibling.  The amounts claimed and counterclaimed are substantial (in terms of millions of dollars).  CH Chang denies liability and alleges that BEA was guilty of misrepresentation and breaches of duty (contractual and tortuous) in its handling of the investment account which in truth was owned and operated by Clark Chang.

6.  One of the averments in CH Chang’s pleadings is that Clark Chang was an inexperienced investor who relied on the advice of a staff of BEA.  The gist of one of her complaints is that BEA failed to adequately advise Clark Chang of the risks involved in structured products, or to advise him of the correct value of such products.

7.  BEA sought discovery of documents related to other investments (stocks, currencies, structured products, real properties and art and antique articles) contending that they are relevant to the issue of the Changs’ experience in investment.

8.  The respondents opposed the application on the grounds that:-

(a) the documents sought are irrelevant;

(b) it is oppressive;

(c) the documents sought had not been defined with sufficient certainty.

I disagree with the above contentions for the reasons below.

9.  In Susan Field v. Barber Asia Ltd., HCA 7119/2000 (17 June 2003), the court held that an investment adviser breached his duty owed to an investor.  In coming to that conclusion, the court took into account (among other things) the inexperience of the investor as well as her express wish to invest prudently.

10.  In relation to the relevance of the documents sought in the application to the issues in A805, the respondent argued that the Changs’ experience (if any) in investing in things like real properties, stocks, art and antique articles and the like cannot properly be used to assess their experience in investing in structural products (the subject matter of the 2 actions).

11.  The argument only has superficial attraction. Structured products may properly be considered to be entirely different in nature from things like real properties and stocks in that the former are less readily understandable to the layman.  But in relation to the investment risk involved, there may be no real difference between the former and the latter.  A lot depends on the objective of the investor, such as whether he is aiming purely for gains arising from their price volatility (rather than their capital gain), his risk attitude and whether he makes use of leveraging to enhance that expected gain.

12.  For the above reason, I disagree with the respondents’ argument and consider the documents sought to be relevant to at least one of the issues in A805.

13.  In relation to the alleged oppression of this application, the only evidence which can provide some support is that CH Chang’s investment in real properties in Seattle was by way of partnership.  It was said during the hearing of this application (by way of submission) the related documents may contain the personal particulars and/or private information of her partners.

14.  I do not consider this to be a valid point. First, BEA only sought 2 classes of document concerning her Seattle real property and art and antique article investments: written agreements and correspondence (notes, faxes and e-mails).  Secondly, the above submission was unsupported by proper evidence.

15.  In relation to the documents concerning CH Chang’s Seattle real property and art and antique article investments, BEA agreed to limit the time period from 1 January 1996 to 31 December 2008.

16.  There is no substance in the argument that the documents sought in this application have not been sufficiently defined (see para. 8(c) above).

A1996

17.  The nature of the dispute in A1996 is the same as that in A805 (summarized in para. 5 to 6 above).

18.  The issues raised in this application are also similar to those raised in the application made in A805 (see para. 8 above).

19.  For the reasons given above, and subject to the matters set out below, I consider the respondents’ arguments to have no merits.

20.  Further to the issues mentioned in para. 18 above, the respondents also argued that:-

(1) Clark Chang already deposed that he had never invested in real properties in Seattle or indeed the US and never had any such documents;

(2) he also deposed that he had sold his shares in Washington First International Bank and no longer had any related documents.

21.  In view of the evidence referred to in para. 20(1) above, there is no valid basis for requiring Clark Chang to make a further affirmation regarding his real property investment in the US.

22.  However, in relation to the evidence referred to in para. 20(2) above, I agree with BEA Clark Chang’s affirmation has not complied fully with the provisions of Ord. 24 r. 7(1) (see para. 3 above).

23.  Finally, similar to the application in A805, BEA agreed to limit the documents concerning Clark Chang’s shareholding in Washington First International Bank to the time period from 1 January 1996 to 31 December 2008.

24.  BEA also sought documents concerning the investment experience of KD Chang (for reasons similar to those set out in para. 7 and 9 to 12 above).

25.  It is KD Chang’s case that the investment account was owned and operated by Clark Chang and has nothing to do with him. BEA disputes that and contends KD Chang was the true beneficial owner of the said account.

26.  However, even if BEA’s contention is correct, BEA does not dispute the said account has all along been operated by Clark Chang.  In other words, all investment decisions were made by Clark Chang (on behalf of KD Chang).  I therefore do not consider the investment experience of KD Chang to be relevant.

Other Matters

27.  The applications originally asked for the affirmations to be provided within 14 days from the date of order.  The parties agreed during the hearing of the applications that the respondents are to be given a time period of 28 days instead.