LI TAK YEE SAMUEL v. SOCIÉTE GÉNÉRALE BANK AND TRUST AND ANOTHER

HCA2478/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2478 OF 2009

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

(Consolidated by Order of Master Ng dated 17 August 2011)

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

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

D E C I S I O N

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

1. This is the application of the plaintiff (“Li”) by Summons dated 8 October 2012 (“Summons”) for further discovery by the 1^st (“Soc Gen”) and the 2^nd (“Shum”) defendants. By this application, Li seeks against Soc Gen a further and better list of documents (pursuant to O.24, r.3), specific discovery of classes of documents set out in Schedule 1 of the Summons (O.24, r.7) and inspection of unredacted documents and recordings identified in Schedule 2 (O.24, r.11). He seeks against Shum a further and better list of documents and specific discovery of classes of documents set out in Schedule 3.

2. After the Summons was issued, evidence in response was filed by both Soc Gen and Shum.  In addition, further discovery was made by both of them.  In light of the additional material, the scope of dispute has been reduced to 16 classes of documents, 5 redactions of documents and 8 redactions of recordings.  With 2 exceptions, the 16 classes of documents concern both Soc Gen and Shum. 

Pleadings

3. Before I set out the background to this case, I feel obliged to ventilate, with respect, my disapproval of the state of the pleadings.  I should make it clear that the pleadings before this court do not bear the name of any of the counsel who appeared in this hearing. 

4. I agree with Mr Man, who appeared for Soc Gen, that this is actually a simple case.  However, anyone who has read the 41-page Consolidated Statement of Claim (“SOC”) would not think so.  It is very difficult to see how that document serves the purpose of identifying the real issues in the case in a straightforward manner so that the defendants are clear as to the case they have to meet and that the court will be assisted in the just and expeditious determination of the action.  Little regard was paid to the rules of pleadings - much evidence is contained in the SOC (eg, paras 17 and 32), it is repetitive (eg, paras 23 and 28) and it contains irrelevant allegations (eg, para 29^[1]). Para 29 may be seen as serving to embarrass Soc Gen. 

5. The Defence of Soc Gen (“Defence”) runs to 52 pages and 200 paragraphs.  It started with an “overview” section so that the readers might not get hopelessly lost in the details.  In fairness, one may say that the length of the Defence was dictated in large part by the SOC.  Nevertheless, it is very difficult to see how the SOC and the Defence properly serve the function of pleadings.  It is a reflection of the unhelpfulness of those documents that in the course of the hearing counsel from both sides had found it difficult to identify to the court the relevant pleas on a number of issues.

6. Prolixity in pleadings is not only against the rules and unhelpful to the court, given that pleadings are the foundation on which the litigation proceeds it is easy to see that it leads to wastage of resources and delay.  An obvious example is that a lengthy pleading can be followed by an extensive request for further and better particulars thereof. 

7. Further, neither the SOC nor the Defence has fulfilled any of the underlying objectives enshrined in O.1A, r.1.  It would not be right for such state of affairs to be tolerated.  I can well understand that a party who is at the receiving end of an unhelpful pleading is reluctant to challenge it by way of a strike out application because of the costs and time ramifications. However, such a party should not hesitate to argue when it comes to costs that (a) no costs should be awarded for the unhelpful pleading and/or (b) the offender should bear the consequence of any increase in costs due to his pleading. 

Background

8. Soc Gen only operates as a private bank in Hong Kong. Shum is and was at all material times an employee of Soc Gen, with the title of Executive Director.

9. The 3^rd Defendant (“Leadenham”) is a BVI company owned and controlled by Li’s wife (“Mrs Li”).  It had an account with Soc Gen (“Account”).

10. This action arose out of the use of the Account to purchase a financial product described as “Depository Shares Each Representing a 1/25^th Interest in a Share of 8.40% Fixed Rate / Floating Rate Non-Cumulative Preferred Stock, Series E” issued by Citigroup Inc (“Securities”).  It should be noted that at a later time the same product was offered as “Series F”.  The relevance of this point will become apparent below.

11. Li came to be interested in the offering of the Securities.  On 22 April 2008, he contacted Shum to enquire about the Securities.  There are disputes as to exactly what was said between the two of them at different times, but one of the results of these conversations was that the Account was used to purchase Securities in April and June 2008 with the par value of US$80,000,000.  The purchase money came from Li, which he had borrowed from another bank.

12. Li says that he was the real customer in this transaction.  He did not open his own account for it because it would have taken a week to do so and he was persuaded by Shum to use the Account. Further, this purchase was based on his belief that no US withholding tax (“Tax”) was payable on the income of the Securities.  He says that Shum (and therefore Soc Gen) led him to this belief.

13. What Shum said to Li about the liability to pay Tax turned out to be wrong.  The primary claim by Li appears to be one of misrepresentation.  In addition, there are allegations of breach of contractual, fiduciary and/or tortious duties.  Further, it is alleged that Soc Gen and Shum had breached their duties under various provisions of the Securities and Futures Ordinance, Cap 571, and the ancillary subsidiary legislation and codes and guidelines (“Applicable Laws and Regulations”). 

14. When I asked Mr Coleman SC, who appeared with Mr Lam for Li, about the relevance of the alleged breaches of the Applicable Laws and Regulations, I was told that they “facilitated the circumstances in which the misrepresentation was made” and they “allowed [Li] to be put into the position where he sustained loss”.  Plainly, these allegations are of marginal relevance. 

15. Apparently, one of the reasons, if not the main reason, for Li to contend that he had a direct relationship with Soc Gen is that the operation of the Account was governed by Soc Gen’s terms and conditions. According to Mr Man, such terms and conditions will provide a full answer to Li’s case.  No doubt Li will argue that those terms and conditions did not apply to the relationship between him and Soc Gen. 

16. Soc Gen’s case has largely been adopted by Shum.  Soc Gen agrees that Shum had told Li that Tax was not payable on the interest generated from the Securities.  Its case is that the information was given after enquiries were made and the information was believed to be correct.  When the first payment of interest for the Securities was made in October 2008, no deduction was made on account of Tax.

17. In March 2009, the Securities were reclassified from bond to equity and as a result of which Tax became payable on the interest earned.  However, one month before the reclassification, Citigroup announced a proposal to exchange the Securities for common stock of Citigroup.  Li decided not to take part in the exchange and as a result of which, Soc Gen contends, Li is debarred from claiming damages in lieu of rescission and is not entitled to damages arising from his own failure to take part in the exchange. 

18. It is also Soc Gen’s contention that Li had sold the Securities at a profit and therefore has suffered no damage. 

19. Given the issues identified above, one would have thought that the dates when Li and Soc Gen came to realise that Tax was actually payable on the interest yield must have been clearly stated in the pleadings. They are not. 

20. In respect of Soc Gen’s knowledge, it is pleaded in para 95 of the SOC that Shum should have realised that the Securities were subject to Tax by 6 May 2008 at the latest when, allegedly, she was told that Series F of the Securities was subject to Tax.  That plea is denied by paras 139 and 143(3) of the Defence. 

21. As regards Li’s knowledge, it is pleaded in para 143(1)(a) of the SOC that it was in November 2009 that Li first knew that “he was a victim of misrepresentation”.  In para 105 of the Defence, it is pleaded that by December 2008 or alternatively April 2009, Li knew or ought to have known that Tax was payable on the interest yield. 

Applicable law

22. I am indebted to counsel on both sides for providing the court with a succinct summary of the principles governing applications for specific discovery, much of which I shall adopt with modifications in this Decision.  The disagreement between the parties on the law is limited and will be dealt with below. 

23. I should also mention that this court has been assisted by Ms Cheung who appeared for Shum.  Ms Cheung has filed a skeleton argument on behalf of Shum in which the opposition to this application has been set out with clarity and succinctness. 

General principles applicable to specific discovery

24. As a starting point, a party seeking an order for discovery must make out a prima facie case that:

(1)  a specified document or class of documents exists and has not been disclosed;

(2)  the party against whom the order is sought has or had the documents in his possession, custody or power;

(3)  the documents relate to a matter in question in the action; and

(4)  discovery is necessary either for disposing fairly of the cause or matter or for saving costs.

See: Tullett Prebon (HK) Ltd v Chan Yeung Fong Nick (HCA 2197/2009, 9 June 2011), §11 per To J; and Hong Kong Civil Procedure 2013, §24/7/1.

25. The discovery order sought must identify with precision the documents or categories of document which are required to be disclosed, for otherwise the person making the list may find himself having made a false affidavit notwithstanding his genuine compliance with the order.

The test of relevance

26. The Peruvian Guano test remains the test of relevance – a document is relevant if:

(1)  it is reasonable to suppose that it contains information which may, not must, either directly or indirectly enable the party requiring the same either to advance his own case or to damage the case of his adversary; or

(2)  it is a document which may fairly lead the party to a train of inquiry which may have either of those two consequences.

See: Tullet Prebon (HK) Ltd v Chan Yeung Fong Nick, §13 per To J.

27. Relevance will primarily be determined by reference to the pleadings.  However, the relevance of an issue cannot be dictated by a party unilaterally simply by importing it in the pleadings.  Even if the opposing party had not applied to strike out the irrelevant allegation, he can resist an application for specific discovery on the ground that the allegation is irrelevant to the subject matter of the action: Hong Kong Civil Procedure 2013§24/2/10.

28. On the other hand, the relevance of a document should not be solely tested against the detailed particulars pleaded by the parties.  It is the pleaded case of the parties in the broad sense that one should be concerned with.  A document may be generally relevant to a party’s case as pleaded (many so-called “background documents” are of this nature) although its relevance cannot be specifically pinned to some pleaded particulars.  For discovery purpose, the pleadings have to be looked at broadly: Billion Lead Investment Ltd v Union Joyce Ltd (HCMP 2145/2011, 14 December 2012), §16 per Mimmie Chan J.

Impact of CJR

29. Although the CJR Working Party initially proposed restricting the scope of general discovery to documents which were “directly relevant”, this proposal has not been adopted in the CJR and the test of relevance for general discovery will continue to be the Peruvian Guanotest. However, the Recommendation in the Working Party’s Final Report contains the following:

“Practitioners and the courts should instead be encouraged to use existing RHC powers to fashion a discovery regime suitable to the needs of the particular case – preferably by agreement, but otherwise by order. Instead of cases being routinely allowed to proceed to full automatic Peruvian Guano discovery, it ought to become standard practice to consider whether economising modifications should be made to the scope and manner of meeting the parties’ discovery obligations. A practice direction^[2] in suitable terms should be issued and a question prompting such economies should be included in the timetabling questionnaire.”

See Hong Kong Civil Procedure 2013,§24/0/2A.

The requirement that discovery is necessary either for disposing fairly of the cause or matter or for saving costs

30. If the party seeking discovery establishes a prima facie case, it is for the party objecting to the order for discovery to satisfy the Court that the discovery is not necessary either for disposing fairly of the cause or matter or for saving costs: Hong Kong Civil Procedure 2013, §24/7/1.

31. The purpose of the rule is to ensure that one party does not enjoy an unfair advantage or suffer an unfair disadvantage in the litigation as a result of a document not being produced for inspection: Taylor v Anderton [1995] 1 WLR 447, 462C per Sir Thomas Bingham MR.

32. However, it was said in Molnlycke AB v Proctor & Gamble (No 3)[1990] RPC 498at 503 per Mummery J:

“An order may be refused on the ground that it is unduly oppressive to the party giving discovery. The court takes account of such considerations as the value of the discovery to the person seeking it and the burden imposed on the party giving it, with a view to restricting the volume of documents and the labour and expense involved to that which is necessary for fairly disposing of the issues in the case.”

33. This consideration is more pronounced after the advent of the CJR.  As Deputy High Court Judge M Chan (as M Chan J then was) observed in Sunny Tadjudin v Bank of America(HCA 3228/2008, 22 December 2011), §7:

“It is also clear that post CJR, the Court should give effect to the underlying objectives of the rules and procedures when it exercises its powers under Order 24 and when it interprets the provisions of Order 24. In deciding whether any document relates to a matter in question in the action, whether any document is or has been in the possession, custody or power of a party, and whether discovery of a document sought is necessary either for disposing fairly of the cause or matter or for saving costs, the Court should always bear in mind the objectives of cost effectiveness, expeditious disposal of cases, proportionality, procedural economy and ensurance of fairness between the parties.”

34. It was also observed by Deputy High Court Judge Lok in HSBC v Mission Bridge Limited & Anor (HCA 406/2008 & Ors, 18 June 2012), §§16 & 17 that “following the CJR, the increasing emphasis is for the court to limit discovery in the context of its duty actively to manage the case”.  The learned Judge drew attention to firstly, the introduction of O 24 r 15A, which gives the power to the court to limit discovery for the purpose of case management and furthering the underlying objectives; and secondly, to the commentary in Hong Kong Civil Procedure 2013,§24/0/12 that:

“The increasing emphasis on active case management has resulted in exhortations from the Court of Appeal that interlocutory discovery skirmishes should be avoided if possible and that the real issues in dispute ought to be identified and brought to trial for resolution without waste of time and extensive discovery.”

35. Further, in considering whether discovery is necessary, the court should have regard to third party interests, including confidentiality.  As Lord Wilberforce explained in Science Research Council v Nassee[1980] AC 1028, 1067C-E:

“Employment cases, and indeed all cases involving selection, involve a wide dimension of confidentiality, affecting other candidates or applicants, who may be numerous, and number of reporting officers and selection bodies. No court attempting to administer these Acts^[3]can fail to give weight to this, though it is not, as above stated, the only element. It is sometimes said that in taking this element into account, the court has to perform a balancing process. This metaphor is one well worn in the law, but I doubt if it is more than a rough metaphor. Balancing can only take place between commensurables. But here the process is to consider fairly the strength and value of the interest in preserving confidentiality and the damage which may be caused by breaking it, then to consider whether the objective – to dispose fairly of the case – can be achieved without doing so, and only in the last resort to order discovery, subject if need be to protective measures. This is a more complex process than merely using the scales: it is an exercise in judicial judgment.”

Class request

36. Where a request for a class of documents is made, the class must not be defined or described so widely so as to include documents which are not relevant to the issue: Molnlycke AB, p 502, line 15.

37. Further, the prerequisites for the invocation of O 24 r 7 mentioned in para 24 above must be established in respect of the class described as a class, not as regards some in the class only: Hong Kong Civil Procedure 2013, §24/7/1.  See also Teresa Holladay v Fred Kan & Co(HCA 12723/1996, 7 May 1999), p 3.

38. A party applying for discovery cannot simply seek “all documents bearing upon an issue or showing a particular thing”.  As Barker JA explained in Deak & Co (Far East) Ltd v NM Rothschild & Sons Ltd[1981] HKC 78, 82B:

“What is meant by ‘a class of document’? There is no definition in the Rules of the Supreme Court. It was argued on behalf of the appellant that the word ‘class’ is used to enable the court to order discovery of a group of documents which go to a particular issue. We disagree. In our judgment, ‘a class of documents’ must be classified by its nature. Thus, for example, in Seabrook v British Transport Commission [1959] 1 WLR 509, it was held that the description of the documents of which discovery was required as ‘correspondence between and reports made by the defendant’s officers and servants relating to the accident’ was a sufficient identification so as to form a class.

With the foregoing principles in mind, we turn to consider the various items in respect of which discovery is claimed. We can conveniently take items 1, 5 and 6 together. They are as follows:

Item 1 All documents that bear upon the knowledge of the plaintiffs of the identity of clients introduced by Ross.

Item 5 Any documents showing the extent to which clients introduced by Ross made payments into any bank account maintained by the plaintiffs in Hong Kong including relevant statements of accounts.

Item 6 Any documents showing the extent to which clients introduced by Ross made payments into accounts maintained by the plaintiffs outside Hong Kong including statements of accounts.

These items are all tainted with the same vice.  They do not form a class.  They merely bear on an issue.  Therefore, they do not fall within O 24 r 7 and we accordingly decline to order discovery in respect of them.”

See also Teresa Holladay, p 3, where it was said by Waung J that “when you have a general description of class of documents bearing on an issue, it is not a class of documents…”.

39. I believe that the ratio of Deak & Co (Fast East) Ltd is two-fold.  Firstly, one cannot simply identify an issue and ask for all documents relating thereto.  Secondly, the class request must be adequately specific.  Hence the example referred to by the Court of Appeal and the description of documents in the example was “a sufficient identification”.

40. My attention has been drawn by Mr Man to the Judgment in Sunny Tadjudin where the following was stated at p 6:

“15. The Defendant objects generally to requests for documents which are classified by reference to their relating to or bearing upon an issue, as opposed to the nature of the documents. On this basis, and relying on the decision in Deak & Co (Far East) Ltd. v. NM Rothschild & Sons Ltd. [1981] HKC 78, the Defendant takes objection to the Plaintiff’s requests for documents which relate to, show or pertain to the Defendant’s job evaluation system and its job codes assignment (under category A), and the Defendant’s performance evaluation system (included in the other categories dealt with in the following paragraphs).

16.  On this question, I agree with Mr. Dykes SC that as the more recent cases on discovery show, the focus should be on whether the documents relate, either by their nature or by their content, to any relevant issue in the proceedings.  I would be prepared to order discovery of a class of documents which relate to an issue, so long as the issue is relevant to the matters in dispute, and such discovery is necessary.”

41. With great respect, it appears that the proposition that the court would order “discovery of a class of documents which relate to an issue” is inconsistent with the Court of Appeal decision in Deak and I would decline to follow Tadjudin in that regard.

The blue pencil test

42. If the Court is of the view that a request is oppressive, too wide or imprecise, where such request contains within it a proper request which can be revealed without prejudice to the other side, the blue pencil test can be applied to limit the scope of the order: China Man-Made Fiber Corporation v Goldman Sachs (Asia) LLC (HCA 2756/2008, 30 March 2012), §35 per DHCJ Burrell; see also Man Cheung International Traders Ltd v CLSA Ltd (CACV 97/2007, 25 September 2007), §41 per Stone J.

Discovery affidavits are conclusive

43. It is a general rule that “discovery affidavits are invariably taken at face value”: Tsoi Kay v Wu John Baptist[1992] 1 HKC 475, 479B (Kaplan J).  Accordingly, subject to limited exceptions, affidavits of documents are conclusive as to relevance and existence or otherwise of documents.  See Hong Kong Civil Procedure 2013§24/7/1; Matthews & Malek: Disclosure (4^th edn),§6.43.

44. In particular, an affidavit of discovery is conclusive also in respect of “the relevance, for the purposes of discovery, of the … blanked out documents”: Matthews & Malek,§6.43.  See also GE Capital Corporate Finance Group Ltd v Bankers Trust Co [1995] 1 WLR 172,176H-177B (Leggatt LJ); 177F-H (Dillon LJ).

45. Such affidavit is not regarded as conclusive only where it can be shown that there has been insufficiency of discovery.  The insufficiency can be demonstrated by (a) the pleadings, the list and affidavit of documents themselves, or documents referred to therein; (b) any other source that constitutes an admission of the existence of a discoverable document not so far discovered; (c) an apparent exclusion of documents from discovery by a party under a misconception of the case: Matthews & Malek, §6.43.

46. Further, the Court is entitled to go behind an affidavit if it is satisfied that a misconceived view of relevance has been adopted: Image Technology (Hong Kong) Ltd v Ho Ying Cheong [1992] 2 HKC 306, 324H per Yam J.

Principles relating to inspection and discovery of redacted documents

47. The general principles relating to redacted documents are as follows:

(1)  The test for whether part of a document can be withheld on grounds of irrelevance is simply whether that part is irrelevant.

(2)  Provided that the irrelevant part can be covered without destroying the sense of the rest or making it misleading, a party is permitted to do so.

(3)  The burden is on the applicant to show that a redaction has been done wrongly.

See: Mega Yield International Holdings Limited v Fonfair Company Limited (HCA 948/2009, 16 September 2011), §§9-11 per DHCJ Au-Yeung; GE Capital Corporate Finance Group Ltd, 174C-D per Hoffmann LJ.

48. The following dicta of Hoffmann LJ (as he then was) in GE Capital at 175G to 176B are particularly helpful on this subject:

“… the test for whether on discovery part of a document can be withheld on grounds of irrelevance is simply whether that part is irrelevant. … There is no additional requirement that the part must deal with an entirely different subject matter from the rest.

The Peruvian Guano test must be applied to the information contained in the covered-part of the document, regardless of its physical or grammatical relationship to the rest. Relevant and irrelevant information may … be contained in the same sentence. Provided that the irrelevant part can be covered without destroying the sense of the rest or making it misleading, a party is permitted to do so.

…

The fact that the blanked-out part deals with the same subject matter as the part admitted to be relevant may mean that the former is also likely to be relevant.  On the other hand it may not.  The link between the two pieces of information which makes it appropriate to say that the subject matter is the same may be irrelevant to any issue in the action.”

Further and better discovery

49. An order may be made for a further and better list of documents where it appears (a) from the list itself, or (b) from the documents referred to in it, or (c) from admissions made either in the pleadings of the party making discovery or otherwise, that the party making discovery has or has had other relevant documents in his possession, custody or power: Hong Kong Civil Procedure 2013, §24/3/7.

Disagreements on the law

50. As indicated above, the scope of disagreement is narrow. Firstly, Mr Coleman submitted that there is no application before the court to narrow the scope of discovery.  I believe that Mr Coleman might have in mind the provisions of O.24, r.15A.  I do not believe that the presence or absence of an application affects the decisions to be made in this application. Plainly, this court will have to bear in mind the underlying objectives enshrined in O.1A, r.1.  Indeed, as indicated above, there is a body of judicial precedents on the approach to discovery in the light of CJR.

51. Secondly, Mr Man took issue with the submission of Mr Coleman that where it is not possible for the Court to determine whether the redacted parts of a document are relevant, eg, there is no satisfactory explanation about why the redacted parts are irrelevant, the Court may take the view that it is appropriate to view the redacted parts.

52. In respect of the authority relied upon by Mr Coleman - Epoch Group Ltd v Director of Immigration (HCMP, 52/2011, 1 March 2011), §§4-5 per Le Pichon JA, Mr Man has rightly pointed out that the inspection by the first instance Judge referred to in that judgment was carried out by consent.  In the premises, I agree that Epoch Group Ltd is not an authority for the proposition advanced. 

53. I also agree that Mr Coleman’s position is inconsistent with the long-standing rule that discovery affidavits are generally conclusive unless it can be clearly demonstrated otherwise. 

54. There is no controversy between the parties that the court has the jurisdiction to examine the redacted part of a document to determine its relevance.  In my view, the court should only exercise such power in the event that it has been demonstrated that the claim of irrelevance made in an affidavit is wrong. 

The main points

55. I proceed to deal with the main points in this application.  Once they are resolved, the answers to requested discovery will fall into place. 

56. First of all, the court must take a view on the complexity of this action.  This is of course a view taken at an early stage of the proceedings and such view may change in the future (hence the terms of O.24, r.8(1)).  The need to have a view is dictated by, eg, the need to evaluate the necessity of the discovery. 

57. As indicated above, this is not a complicated case.  The “complexity” is generated by the carpet-bombing approach taken by a resourceful plaintiff.  Whilst the court ought not be over cynical to the way in which a litigant has chosen to conduct the litigation, he cannot be allowed to dictate the course of the proceedings.  The conduct of this litigation by Li is contrary to O.1A, r.1. 

58. I must view the requested discovery in light of the following undisputed facts, which serve to highlight that this is a simple case:

(1)  it was Li who expressed an interest in investing in the Securities;

(2)  he made use of Leadenham and/or the Account for the investment;

(3)  the purchase price came from Li;

(4)  Li was told by Shum that no Tax was payable on the Securities prior to the purchase.

59. Secondly, Li’s case is that Soc Gen, Shum and their legal advisors have taken an overzealous approach to discovery, and particularly to relevance.  Mr Coleman has submitted that such an approach is demonstrated by the evidence.  This contention is used to springboard the argument that the claim of irrelevance contained in Soc Gen’s affidavits is of little weight. 

60. I should say that, so far, 5 Lists of Documents have been filed by Soc Gen and 2 by Shum.  They have made discovery of, respectively, 478 and 150 items. 

61. I do not believe that Li’s argument is made out by the materials before this court.  I can well understand that an institute like Soc Gen has to exercise particular care in the discovery process because the information may involve other clients unrelated to this action.  There is no adequate reason for this court to question the conclusiveness of the discovery affidavits. 

62. Thirdly, there is a backdated letter (“Letter”) which is the subject matter of much focus in Li’s case.  The Letter was stated to be from Leadenham and dated 22 April 2008.  It authorised Peter Yu (Li’s brother-in-law) and Li to place orders for the Securities on behalf of Leadenham.  It is common ground between Li and Soc Gen that the Letter was only signed in November 2009 (it appears that Shum has not in her pleading properly addressed the allegations in question – see paras 17 and 18 of her Defence).

63. Li complains that the Letter is false and misleading.  It was created to conceal the fact that he, rather than Leadenham, was Soc Gen’s true client: SOC, paras 61 to 72 and Defence, paras 104 to 114.

64. Soc Gen’s case is that it only knew about the backdating of the Letter in February 2010 and upon such discovery its defence was duly amended to make the admission. 

65. On proper analysis, the Letter has very limited relevance on the true relationship between Li and Soc Gen.  That will be a legal conclusion by the court based on the accepted facts.  The subjective belief of the parties (assuming that Shum had prepared the Letter because she wanted to bolster the contention that Leadenham was the client in respect of the Securities), will be of little assistance to the court. 

66. Further, I should say that on Li’s own case Shum did not obtain Mrs Li’s signature on the Letter by trick.  It was a very simple document and the date was stated at the top when it was given to Mrs Li for signature (see para 65 of SOC).  There is no suggestion in the SOC that Mrs Li did not read or understand the Letter. 

67. It is likely that Shum will be cross-examined on the Letter.  On the other hand, I am not satisfied that this is anything more than a credibility issue.  It is trite that discovery as to credit is impermissible – see Hong Kong Civil Procedure 2013,§24/8/2.

68. With the above in mind, I proceed to deal with the contested discovery.

Specific discovery of classes of documents

Class 6:  Any and all documentation of Soc Gen relating to the account history of Leadenham that shows the stocks and shares and their volumes purchased and sold by Leadenham

69. I am unable to see the relevance of the other transactions carried out by Leadenham which had nothing to do with the Securities.  I bear in mind in particular the uncontroversial facts identified in para 58 above.

70. Given my view on relevance, there is no need to deal with the other objections.

Class 7:  Any and all documentation of Soc Gen (including but not limited to account opening details, Know Your Client documentation, Anti-Money Laundering documentation, credit applications and credit sign off) relating to any of Leadenham’s applications for changes in its credit limit, including but not limited to Leadenham’s application on 21 August 2008 to increase its credit facility from US$30,000,000 (as per the credit facility dated 22 August 2006) to US$70,000,000

71. I am not convinced on the relevance of the documents relating to Leadenham’s changes of credit limit.  It was said that they go to demonstrate that Li was treated as a de facto customer by Soc Gen. Given the uncontroversial facts, it is difficult to see how these documents improve Li’s case. 

72. However, in light of the discovery made by Soc Gen in respect of the Account Opening Procedure booklet (“Booklet”), I am inclined to order discovery by Soc Gen of the documents which answer to what can be identified in the Booklet, eg, para 1.3 referred to a “KYC file”.  The discovery of the relevant parts of the Booklet (parts of which were said to be irrelevant and have been redacted) indicates acceptance of relevance, and I see no reason why the documents identified in such parts of the Booklet should not be discovered.  To some extent, the additional discovery should address Li’s desire for documents in support of his case.

73. As indicated at the hearing, the parties should resolve this request amicably in accordance with the ruling of this court.

Class 8:  Any and all internal audit reports of Soc Gen containing information relating to changes in the credit facility available to Leadenham throughout the period of Leadenham’s trading with Soc Gen; relating to the Leadenham account; or any of the Plaintiff’s activities regarding the purchase of the US$80,000,000 worth of Stock that is the subject of these proceedings

74. These documents are again said to be relevant to the issue of Li’s relationship with Soc Gen.  Firstly, documents relating to the purchase of the Securities have already been disclosed by Soc Gen (see bundle A1/p 207/§15). 

75. Secondly, I do not believe that the requested documents are relevant or that their discovery is necessary for disposing fairly of these matters or for saving costs.

76. Thirdly, the discovery sought is on its face intrusive regarding the internal and, no doubt, confidential operation of Soc Gen.  Such discovery should not be lightly ordered. 

Class 10:  Any and all documentation of Soc Gen created, amended or sent by Soc Gen’s Compliance Department relating to transactions (including but not limited to transfers of money or securities) between Leadenham’s account and the Plaintiff

77. This request is plainly defective as a class request.  No attempt has been made to identify the discovery with specificities. 

78. I agree with Mr Man that it is hopelessly wide. Documents unrelated to the purchase of the Securities are sought.  No regard has been paid to necessity or proportionality. 

79. I also take the view that the documents sought are irrelevant.

Class 12:  Any and all telephone conversation recordings, not already disclosed, that contain conversations relating to the instructions for and the purchase of the US$80,000,000 worth of Stock that is the subject of these proceedings, the Withholding Tax payable on the Stock, or the Plaintiff’s claim

80. The deletions reflect the amendment proposed by Mr Coleman at the hearing. 

81. It is implicit in the request that discovery has been made by Soc Gen (see A1/208/§19-20).  It has not been demonstrated that the discovery is incomplete.  The suggestion that Soc Gen has other recordings relating to Tax on the same type of financial product held by other clients is nebulous. 

82. I agree with Mr Man that it is not Li’s case that what was said to him by Shum about Tax was dishonest.  Soc Gen’s case has been set out in the Defence – what Shum said about Tax was based on information available to her, which have been identified (see A1/75/§76(4)).  In the premises, I take the view that the request constitutes a fishing exercise. 

83. Further, the request is not a properly formulated class request.  It is also oppressively wide and onerous.  In this regard, I respectfully agree with the observation of M Chan J in Billion Lead Investment Ltd v Union Joyce Ltd & Ors (HCMP 2145/2011, 14 December 2012), §20:

“20. In any case, discovery should be sensibly controlled, and not allowed to be used as an oppressive weapon, to be pursued without sufficient regard to economy and efficiency in terms of the usefulness of the information which is likely to be obtained from the documents. It would be oppressive and unnecessary to order discovery of documents for each and every transaction entered into by Ming, and every payment made by Ming, irrespective of their importance or marginal relevance to the matters in dispute.”

84. Furthermore, the request covers confidential information concerning other clients of Soc Gen and I cannot see any proper justification for acceding to the same. 

Class 14:  Any and all documents relating to the Withholding Tax payable on transactions in which Ms Shum was involved, where Withholding Tax was deducted but where Ms Shum was successful in reclaiming the tax

85. The above again reflects Mr Coleman’s proposed amendment.

86. There is a simple answer to this request.  Shum has filed evidence to the effect that the relevant documents have been disclosed (see A1/222). 

87. However, Mr Coleman appears to have a valid point that the evidence does not go as far as the submissions advanced by Ms Cheung that there was only one transaction where Tax was reclaimed.  Insofar as there is any variance between the evidence and the submissions to the court, I believe that the matter should be put right by Shum as a matter of fairness. 

88. To avoid any argument on costs, it has not been demonstrated that the discovery made is lacking and therefore I would not have agreed to this request in any event. 

Class 15:  Any and all documents relating to transactions in which Soc Gen had another client who held the Stock and from which Withholding Tax was not deducted

89. This is plainly an oppressive request on an issue of marginal relevance at best.  Even if the number of clients falling within this category is not large, the request would impose an obligation on Soc Gen to go through all the potentially relevant records. 

90. Further, confidentiality to third parties is involved and I see no justification to compromise the same.

Class 16:  Any and all documents relating to transactions in which Soc Gen had at least one other Hong Kong client for whom it bought the Stock and from which Withholding Tax was deducted but successfully reclaimed

91. With respect, I disagree with the approach taken as reflected by Class 15 and 16.  Specific discovery should not be taken as an exercise similar to a request for further and better particulars where it is commonplace for the party seeking particulars to formulate the requests in a number of ways so as to cover different scenarios.  For specific discovery, one proceeds on the basis of the discovery which has been made and identify the deficiencies in accordance with the law.  Requests in the nature of Class 15 and 16 tend to suggest that they are a fishing exercise.

92. What I have said in respect of Classes 14 and 15 is sufficient to dispose of this request.

Class 17:  Any documentation and/or recordings of telephone communications made with Citigroup Inc or its affiliates relating to Ms Shum’s enquiries about the Withholding Tax payable on the Stock

93. I am satisfied that Soc Gen has properly answered this request – it has no such material (see A1/209/§23).  Any suggestion otherwise is mere speculation.

Class 18:  Any documentation and/or recordings of or relating to, telephone communications or proposed communications, between Ms Shum and the Plaintiff or any other of Ms Shum’s clients concerning the Stock, relating to the liability to pay Withholding Tax on the Stock, made on or after 6 May 2008

94. This request is premised upon a telephone discussion between Shum and a colleague in respect of Series F (see B2/378-9).  It is Li’s case that Shum should have known that Tax was payable on the Securities on 6 May 2008 by the latest, because she knew that the same was payable in respect of Series F (see SOC, para 95).

95. Mr Coleman submitted that the requested documents and/or recordings are relevant to the issues of when Soc Gen and Shum knew that Tax was payable on the Securities and whether they should have informed Li.

96. Firstly, I agree with Mr Man that it has not been demonstrated that there is any discoverable material which has not been discovered (see in particular Shum’s evidence at A1/223).

97. Secondly, there is no proper specificity to the class request.  No proper attempt has been made to focus the class request on the evidence perceived to be of assistance to Li’s case.

98. Thirdly, insofar as the documents or recordings concerning other clients are concerned, I see no justification for the infringement of confidentiality. 

Class 21:  Any and all documentation produced by Soc Gen relating to Soc Gen’s purchases of the US$80,000,000 worth of Stock that is the subject of these proceedings from the market (such purchases being those with which these proceedings are concerned)

99. There is an allegation by Li that Soc Gen was acting as his agent for purchasing the Securities in the market at the best price. Allegedly in breach of its duties, what Soc Gen in fact did was acquiring the Securities for its own account and then on-sold them to Li at a secret profit (SOC, paras 59 and 118). 

100. Soc Gen’s case is that it was acting openly and in accordance with the terms and conditions governing the Account.  Having informed Li (through his agent) that it would earn a “spread” of 0.1%, the Securities were acquired by it as principal and re-sold to Leadenham (Defence, paras 81(4), 102 and 161). 

101. Plainly, the discovery made by Soc Gen is adequate.  It shows how the Securities were acquired and Soc Gen’s spread (see A1/210-211/§30). This request reflects that demand for discovery was made regardless of what has already been disclosed.  It gives rise to the inference that a strategy of harassment has been adopted.

102. In respect of the submission that the requested documents also go to show that the acquisition price was not the best price, I regret to say that this is not supported by any evidence and it defies commercial sense. It is plainly a fishing exercise. 

Class 22:Any and all documentation or recordings of telephone communications relating to the preparation of the Backdated Letter

103. Despite my reservation as to the relevance of the Letter, in light of Shum’s evidence that there are “documents relating to the preparation of the [Letter]” in the possession of Soc Gen (A1/224), I believe that such documents should be disclosed.

104. However, the class request is inappropriate.  The sensible way forward is for Soc Gen to simply disclose such documents.  If it disagrees with Shum on this issue (it is possible that she is mistaken), the matter should be confirmed on affidavit. 

Class 24:  Any documentation and/or recordings of telephone conversations made on or after 29 May 2009 relating to the draft claim letter that the Plaintiff had attempted to send Ms Shum, and/or relating to measures taken or enquiries made by Ms Shum in relation to the Withholding Tax payable on the Stock

105. It was submitted that the documents and recordings are relevant to :

(i)  whether, and when, Soc Gen and Shum knew that Tax was payable on the Securities; and

(ii)  whether, and when, Soc Gen and Shum informed or could have informed Li about the Tax on the Securities.

106. Leaving aside the objections to this request, a class request is a blunt instrument and it should not be resorted to when the information sought can be elicited by way of a Request for Further or Better Particulars or Interrogatories.  Once the information is in hand, if it is thought necessary, properly circumscribed specific discovery can be requested.  I accept that the answers to the points identified in the preceding paragraph are relevant, but they should have been elicited by way of a Request for Further or Better Particulars or Interrogatories.  For that reason alone, I reject this request.

107. Further, I am unable to see the connection between the request and the points identified in para 105 above.  I agree with Mr Man that how Soc Gen or Shum reacted to the threatened claim of Li is quite irrelevant.  I also take the view that the request, especially the second part of it, is oppressively wide. 

Class 25:  Any and all account opening handbooks, and/or internal and external guidance provided to Soc Gen’s employees relating to the opening of new accounts, dating from April 2004 until June 2008

108. First of all, the account opening documents dated 2004 in respect of the Account have been disclosed as item 3 of Soc Gen’s 1^st List of Documents (A2/236).  The Booklet dated July 2007 (see para 72 above) and the Code of Ethics and Compliance Manual which is undated have also been disclosed as items 411 and 476 of Soc Gen’s 4^th List of Documents (A2/338 and 341). There is no reason to believe that the discovery is inadequate.

109. Secondly, there is certain overlap between this request and Class 7 which I have dealt with.

110. Thirdly, the class covers plainly irrelevant material because there is no challenge to the opening of the Account back in 2004.  I also hold that the class is oppressively wide.

Class 28:  Any claim or notification made pursuant to Soc Gen’s insurance policy occasioned by or in relation to the Plaintiff’s claim against Soc Gen in these proceedings

Class 29:  Any and all reports made by Soc Gen to the Hong Kong Monetary Authority and/or the Securities and Futures Commission relating to the complaint/threat of proceedings/issue of proceedings by the Plaintiff

111. I can deal with the last two of the requests jointly.  They are plainly irrelevant, constitute a fishing exercise and calculated to embarrass Soc Gen.

Shum’s position

112. Save for Classes 28 and 29, all the above requests apply to Shum as well. Therefore, the above rulings apply equally to her.  Further, I take the view that the requests have been adequately answered by the evidence filed by Shum.

Redacted documents and recordings

113. There is a simple answer to these requests.  I am not at all convinced that there is any legitimate reason to question the claim by Soc Gen that the redacted material is irrelevant.  Moreover, the specific discovery exercise is entirely disproportionate in light of the issues in the case.  I have no hesitation in rejecting these requests.

Further and better list

114. In light of the rulings above, I do not believe that it is necessary to order a further and better list. 

Costs

115. The upshot of this application is that it is unsuccessful save to a limited extent in respect of Classes 7 and 22 against Soc Gen.  My preliminary view is that at least the costs of the hearing ought to be awarded to Shum and Soc Gen. 

116. However, the parties are in agreement that they should first consider this Decision and if agreement cannot be reached as to how costs should be dealt with they will provide the court with written submissions for determination on that issue.  I will allow the parties 7 days from the date of this Decision to reach agreement on costs, failing which written submissions not exceeding 2 pages are to be filed and served by them not later than 12 days from the date of this Decision. 

117. I allow liberty to apply only in the event of disagreement on the discovery to be made in respect of Classes 7 and 22 as indicated above.

118. Last but not least, I am grateful to all counsel and Ms Cheung for their able assistance in this application.