RE A CIVIL MATTER NOW PENDING IN UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WASHINGTON AT SEATTLE UNDER NO 2:13-CV-1034 MJP

HCMP 1082/2017

[2019] HKCFI 1738

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1082 OF 2017

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J U D G M E N T

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A.   INTRODUCTION

A1.   The application before the Court

1.  By summons of 31 October 2018, the Respondents (“the Individuals”) apply to set aside the order made ex parte by Master Lai on 24 July 2018 (“the Examination Order”) and/or to strike out the Ex Parte Originating Summons of 10 May 2017 (“the Originating Summons”).

2.  The Examination Order was made pursuant to the Originating Summons filed by the Applicants (“the Kyko Companies”).  The Examination Order requires the Individuals to give oral testimony on certain matters set out in two Letters of Request dated 16 February 2017 and 30 January 2018 (“the LORs”) issued by the United States District Court, Western District of Washington at Seattle (“the Washington Federal Court”).

A2.   The background

3.  On 30 June 2016, the Kyko Companies had obtained a judgment for US$100,738,980.00 in the Washington Federal Court (“the Washington Federal Court Judgment”) against (amongst others) Prithvi Information Solutions Ltd (“PISL”) and Prithvi Solutions Inc (“PSI”).  The Kyko Companies’ claims were that PISL and PSI had perpetrated a fraud against them.  This judgment followed an earlier, interim judgment of 8 January 2014 in favour of the Kyko Companies for the sum of US$17-odd million against PISL, PSI and others (“the Interim Judgment”).

4.  The Kyko Companies say that there are receivables (“the Receivables”) owing to PSI fromSSG Capital Partners I LP (“SSG Capital”) in the sum of US$18.9m, and from Value Team Corporation (“VTC”) in the sum of US$4m.  The Individuals are officers of SSG Capital and VTC.  The Kyko Companies seek information from the Individuals regarding the Receivables that may enable the Kyko Companies to collect them in partial satisfaction of the Washington Federal Court Judgment.

5.  SSG Capital and VTC, together with SSG Capital Management (Hong Kong) Limited (“SSG HK”), form part of the SSG group of companies (“the SSG Group”).  The SSG Group is in the business of debt restructuring.

6.  The Kyko Companies’ evidence is that PSI’s unaudited balance sheet as at 31 March 2013 states that the Receivables were owed by SSG Capital and VTC to PSI.  Based on documents obtained by the Kyko Companies in an earlier Norwich Pharmacal application in HCMP 1938/2016, it was thought that US$4m of the Receivables was attributable to a Memorandum of Understanding between PISL and SSG Capital dated 8 September 2010, under which PISL agreed to pay SSG Capital a deposit of US$4m for the purpose of a restructuring of bonds issued by PISL; and that US$18.7m of the Receivables was attributable to two other Memoranda of Understanding between PISL and VTC dated 8 September 2010 and 20 December 2010, under which PISL agreed to pay VTC this amount as a deposit for restructuring.  The Kyko Companies believed that the restructuring did not proceed, so that the deposits might have to be returned to PSI or PISL.  They also believed that a substantial amount of the Receivables was remitted through the bank account of Privthi Solutions Asia Limited (“PSAL”), an affiliate of PISL and PSI.

7.  The evidence filed on behalf of the Individuals is that between 2009 and 2010, SSG Capital and VTC acquired bonds issued by PISL with a total face value of US$50m, with a view to achieving debt restructuring.  (The bonds were originally due to mature in February 2012, and if held to maturity, were to be redeemed by PISL at a premium.)  In 2010, SSG Capital and VTC entered into three Memoranda of Understanding with PSAL (not PISL) for the restructuring (“the MOUs”).[1]  The parties further executed addenda to the MOUs, pursuant to which PSAL paid the sums of US$4m to SSG Capital and US$18.7m to VTC as non-refundable deposits in consideration of the restructuring. The restructuring was not completed and eventually PISL, PSAL and SSG Capital entered into a settlement agreement in respect of the bonds covered by the first MOU, whereby PISL and PSAL agreed to pay US$9.45m in full and final settlement of all amounts owed by them pursuant to these bonds, but the amount was not paid.  It is the SSG Group’s position that it was also the victim of PISL, PSAL and PSI’s fraud.

8.  On 1 February 2016, after the Kyko Companies had obtained the Interim Judgment, the Superior Court of Washington for King County (“the Washington State Court”) appointed the Kyko Companies as collection agent to collect various amounts, including the Receivables, said to be owed by debtors to PSI, its subsidiaries and affiliates (“the 1^st Collection Order”).  The Kyko Companies were to apply any amounts collected towards satisfaction of the Interim Judgment.

9.  On 12 September 2016, after the Kyko Companies had obtained the final Washington Federal Court Judgment, the Washington State Court appointed the Kyko Companies as collection agent to collect various amounts, including the Receivables, said to be owed by debtors to PSI, its subsidiaries and affiliates (“the 2^nd Collection Order”).  The Kyko Companies were to apply any amounts collected towards satisfaction of the Washington Federal Court Judgment.

10.  SSG HK subsequently applied, by a Notice of Limited Appearance of Non-Party and Motion by Non-Party, to the Washington State Court to vacate the 1^st and 2^nd Collection Orders.  On 16 October 2018, the Washington State Court issued an Order on Motion by Non-Party (“the Washington State Court Order”) saying that:

10.1   the 1^st and 2^nd Collection Orders should be amended to state that PSI and its subsidiaries and affiliates were “allegedly” owed money by various debtors;

10.2   it agreed that it did not have jurisdiction over SSG HK, but disagreed that the 1^st and 2^nd Collection Orders adjudicated any rights or claims for which jurisdiction over SSG HK was necessary; and

10.3   whether SSG HK or any other entity referred to in the 1^st and 2^nd Collection Orders actually owed anything to PSI and if so, how much, was not before the court; those issues would have to be determined in separate proceedings in a court with jurisdiction over those claims and all interested parties.

11.  On 16 February 2017, the Washington Federal Court issued the first LOR to the Hong Kong Courts, seeking an order to compel the Individuals to appear and provide oral testimony regarding the Receivables.  The first LOR expired on 13 March 2017.  The second LOR, in materially identical terms, was issued on 30 January 2018.

12.  On 26 September 2018, the Kyko Companies filed a complaint in the United States District Court for the Western District of Pennsylvania against SSG Capital, VTC, the Individuals and others, alleging that they were involved in the fraud perpetrated by PSI, PISL and PSAL (“the Pennsylvania Proceedings”).

A3.   The Originating Summons and the Examination Order

13.  On 10 May 2017, the Kyko Companies issued, on an ex parte basis, the Originating Summons, seeking an order compelling the Individuals to give oral testimony on the matters in paragraph 10 of the LORs.

14.  Master Lai raised requisitions in relation to the application on 18 May 2017, 9 March 2018 and 16 May 2018.  He subsequently granted the Examination Order on 24 July 2018.

15.  The Individuals apply to strike out the Originating Summons on the grounds that it discloses no reasonable cause of action; is scandalous, frivolous or vexatious; and/or is an abuse of the process of the Court.

16.  The Individuals further or alternatively apply to set aside the Examination Order on the grounds that:

16.1   the Court did not have jurisdiction to make the order;

16.2   the requesting court has no jurisdiction over the Individuals;

16.3   the Examination Order contravenes s.6 Protection of Trading Interests Ordinance, Cap.471;

16.4   the Examination Order is an abuse of the Court’s process and/or is a fishing exercise on the part of the Kyko Companies; and/or

16.5   there was material non-disclosure in the Kyko Companies’ application.

B.   THE PARTIES’ EXPERT EVIDENCE ON US LAW

17.  In support of their respective positions as to US law, the Kyko Companies filed the Affirmation of Jayson Matthew Macyda on 24 December 2018 (“Macyda I”) and the 2^nd Affirmation of Jayson Matthew Macyda on 1 April 2019 (“Macyda II”).  The Individuals filed the Affirmation of Tyler L Farmer of 30 January 2019 (“Farmer I”) and the 2^nd Affirmation of Tyler L Farmer of 15 April 2019 (“Farmer II”).

18.  The Individuals have objected to the admissibility of Macyda I and Macyda II on the grounds that they fail to comply with the requirements of O.38 r.37C of the Rules of the High Court, not containing any declaration by Mr Macyda that he has read the applicable code of conduct and agrees to be bound by it, understands his duty to the Court, and has complied with and will continue to comply with such duty.

19.  Ms Elizabeth Cheung, appearing for the Kyko Companies, acknowledges that the requisite declaration was not made. Mr Macyda is the general counsel for the Kyko Companies and it was therefore thought not appropriate for him to make the declaration.

20.  Given the mandatory nature of O.38 r.37C, Macyda I and Macyda II cannot be admitted as evidence of US law.

21.  Ms Cheung submitted that sufficient evidence of the US legal position appears from what Judge Pechman said in the LORs.  She further submitted that even though Farmer I and Farmer II contained declarations from Mr Farmer of his independence, Mr Farmer is no more independent than Mr Macyda, and was not in a position to properly make such declarations; his evidence, whilst technically admissible, should carry little or no weight.  Mr Farmer is a partner of Messrs Harrigan Leyh Farmer & Thomsen, the solicitors in Washington instructed by SSG HK, and he acted for SSG HK in the application to set aside the 1^st and 2^nd Collection Orders.  Indeed, whilst declaring on the one hand in his affirmation that he is giving his evidence as an independent expert, he says on the other hand that he is doing so without waiving any privilege arising from his role in acting for SSG HK in setting aside the 1^st and 2^nd Collection Orders; in other words he had in mind his duty to SSG HK when making the affirmation.  Ms Cheung referred to The Joint & Several Liquidators of China Medical Technologies, Inc v KPMG (a firm) and others, unreported, HCCW 435/2012, 24.02.2016, where Harris J at [53] expressed doubt as to the propriety of a declaration made in an affirmation by a Beijing lawyer tendered by the respondents as expert evidence of PRC law, as the lawyer was in fact the respondents’ legal adviser.  In considering the weight which I should place on Farmer I and Farmer II, I have had regard to the fact that Mr Farmer gave his evidence in circumstances where he would have been mindful of SSG HK’s interest in opposing the 1^st and 2^nd Collection Orders (cf. China Medical Technologies, supra, at [53], [55]).

C.   PART VIII OF THE EVIDENCE ORDINANCE, CAP.8

22.  An order for the taking of evidence in Hong Kong pursuant to a request by a foreign court or tribunal may be made if the requirements of s.75 of the Evidence Ordinance, Cap.8 (“EO”) are met.  That section provides as follows.

“ Where an application is made to the Court of First Instance 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 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 Court of First Instance shall have the powers conferred on it by this Part.”

23.  Section 74 EO defines “civil proceedings” as follows: “in relation to the requesting court, means proceedings in any civil or commercial matter”.

24.  Section 76 EO provides that:

“ (1) Subject to this section, the Court of First Instance shall have power, on any such application as is mentioned in section 75, by order to make such provision for obtaining evidence in Hong Kong as may appear to the court to be appropriate for the purpose of giving effect to the request in pursuance of which the application is made; and any such order may require a person specified therein to take such steps as the court considers appropriate for that purpose.

(2) Without prejudice to the generality of subsection (1) but subject to this section, an order under this section may, in particular, make provision –

(a) for the examination of witnesses by any means …

(3) An order under this section shall not require any particular steps to be taken unless they are steps which can be required to be taken by way of obtaining evidence for the purposes of civil proceedings in the court making the order (whether or not proceedings of the same description as those to which the application for the order relates); but this subsection shall not preclude the making of an order requiring a person to give evidence otherwise than on oath where this is asked for by the requesting court.

…”

25.  The relevant provisions in the EO are similar to provisions in the Evidence (Proceedings in Other Jurisdictions) Act 1975 in England and Wales.

26.  The court should strive to give effect to the request of a foreign court unless it is driven to the clear conclusion that it cannot properly do so: In re State of Norway’s Application [1987] 1 QB 433 at 470B-E, per Kerr LJ.

27.  Nevertheless, as emphasised by counsel for the Individuals, Mr Charles Manzoni SC, the Court needs to be satisfied that the requirements of s.75 EO are met before it can make an order.

C1.    Whether the requirements of s.75 EO have been satisfied

28.  The first question is whether the requirements of s.75 EO have been satisfied so as to found the Court’s jurisdiction to make an order under s.75 EO.

29.  I deal first with s.75(b).  The main dispute between the parties was whether there were any “civil proceedings” within the meaning of this provision.  The Kyko Companies submitted that there were civil proceedings in the Washington Federal Court, whereas the Individuals submitted that these proceedings had effectively come to an end.

30.  It is also convenient to deal in this section with the related issues of:

30.1   whether the proceedings relied on by the Kyko Companies can constitute civil proceedings within the meaning of s.75(b) EO;

30.2   whether there are civil proceedings instituted or contemplated before the requesting court;

30.3   whether there are civil proceedings contemplated before the requesting court;

30.4   whether the evidence sought is to be obtained for the purposes of any qualifying civil proceedings;

30.5   whether the Washington Federal Court was exercising jurisdiction for the purposes of s.75(a) EO.

31.  The meaning of “civil proceedings” in s.1(b) of the English Act (similarly worded to s.75(b) EO) was considered in In re State of Norway’s Application (supra).  Kerr LJ held (at 470C) that the court would need to be satisfied that the proceedings in the requesting court concern a civil or commercial matter under the law of the requesting court, but would only accept this categorisation for the purposes of assuming jurisdiction if it were not in conflict with any fundamental principle recognised under the laws of the (local) court.  The House of Lords agreed: see judgment of Lord Goff (with whom the other judges agreed) in In re State of Norway’s Application [1990] 1 AC 723 [2] at 804A-C:

“… jurisdiction would only be established if the relevant proceedings were proceedings in a civil or commercial matter under the laws of both countries.”

32.  The Kyko Companies therefore need to establish that there are civil proceedings which are recognised both as a matter of US law and as a matter of Hong Kong law.

33.  The Kyko Companies have already obtained final judgment in the form of the Washington Federal Court Judgment.  They say that the proceedings in the Washington Federal Court are nevertheless ongoing, as under US law, enforcement proceedings ancillary to a judgment are a continuation of the original civil proceedings.

34.  The Individuals say that there are no proceedings ongoing in the Washington Federal Court, save in the sense of permitting the Kyko Companies to commence new proceedings for enforcement of the Washington Federal Court Judgment.  They say that if the Kyko Companies seek enforcement against SSG Capital and VTC, they would have to commence such proceedings – termed “supplementary proceedings” – against them. They acknowledge that post-judgment discovery against the losing parties in the litigation may not require the institution of supplementary execution proceedings, but they say that this is not the case as against third parties to the litigation; the Kyko Companies would have to seek a writ of garnishment against SSG Capital and VTC if they wanted to obtain payment of the Receivables from them.

35.  The Kyko Companies’ response is that the “proceedings” which they rely on for the purpose of s.75 EO are not proceedings for execution against SSG Capital and VTC, which they acknowledge have not been instituted, but rather, the very proceedings in which they seek to obtain testimony from the Individuals pursuant to the LORs.  Ms Cheung’s submission was that “post-judgment discovery is a continuation of the underlying proceeding”.[3] She pointed to the fact that the LORs had been issued under the same case number as the Washington Federal Court Judgment and that Judge Pechman, in issuing the LORs, referred to the Federal Rules of Civil Procedure (“FRCP”) rule 69(a)(2). FRCP rule 69 states that:

“ (a) In General.

(1) Money Judgment; Applicable Procedure. A money judgment is enforced by a writ of execution, unless the court directs otherwise. The procedure on execution – and in proceedings supplementary to and in aid of judgment or execution – must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies.

(2) Obtaining Discovery.  In aid of the judgment or execution, the judgment creditor or a successor in interest whose interest appears of record may obtain discovery from any person – including the judgment debtor – as provided in these rules or by the procedure of the state where the court is located.”

36.  In oral submissions, Ms Cheung explained that seeking evidence as judgment creditor amounted to ancillary enforcement proceedings, and that this was done under FRCP rule 69(a)(2) “in aid of the Washington Federal Court Judgment”.  

37.  Ms Cheung relied in the alternative on possible future enforcement proceedings.  After the Kyko Companies obtained the evidence sought under the LORs, they would “plot a course for collection of judgment”, which might include garnishment of bank accounts, and seizing of tangible and intangible assets and real property.  What action might or might not be taken would depend on the evidence obtained.

38.  Farmer II says that discovery proceedings under FRCP rule 69(a)(2) are not standalone proceedings, but can only be brought in aid of supplementary execution proceedings.  He says that four of the five cases[4] cited in Macyda II in support of the proposition that FRCP rule 69(a)(2) can be instituted on a standalone basis are not authority for that proposition, since the judgment creditors’ request for discovery in those cases were entertained by the courts only after supplementary execution proceedings pursuant to FRCP rule 69 had been instituted.  As to the fifth case[5] cited in Macyda II, Farmer II pointed out that it had no precedential value and in any event erroneously relied on the Supreme Court decision in Republic of Argentina v NML Capital regarding the breadth of the rules regarding discovery when the Supreme Court had in fact said that it was not making a decision as regards the breadth of FRCP rule 69(a)(2).

39.  However, Farmer I and Farmer II do not say that Judge Pechman had no jurisdiction to order the giving of discovery under the LORs.  What they say is that the LORs were issued not as part of any supplementary proceedings in the Washington Federal Court (as there were not any), but instead, to facilitate the supplementary proceedings in the Washington State Court.  Farmer I says that the premise on which the LORs were issued (as set out in paragraph 8(a) of the LORs) was that (1) the Kyko Companies had been appointed as collection agent by the Washington State Court and that (2) the Receivables were owing.  However, that premise was negated when the Washington State Court stated that (1) it did not have jurisdiction over SSG HK, and (2) the Receivables should be described as “allegedly” owed, and the issue of whether SSG HK or any other entity referred to in the 1^st and 2^nd Collection Orders actually owed anything would have to be determined in separate proceedings.

40.  On the other hand, Farmer I at paragraph 29 also says, somewhat contradictorily, that the Washington State Court has not instituted any proceedings supplementary to judgment.  Farmer I pointed out that the Kyko Companies had filed three Applications for Writs of Garnishment from the Washington State Court against entities in the SSG Group but had not served them properly.

41.  There was much debate about whether discovery under FRCP rule 69(a)(2) can be ordered on a “standalone” basis or only to support existing supplementary enforcement proceedings.  The available evidence is unsatisfactory: there is no admissible expert evidence from the Kyko Companies; and whilst Farmer (for the Individuals) says that discovery can only be to support existing supplementary proceedings and that the LORs were issued in support of Washington State Court supplementary proceedings, he says at the same time that there are no such supplementary proceedings. It is not apparent from the face of the LORs whether they were issued (as the Kyko Companies say) on a standalone basis, or whether they were issued (as the Individuals say) in support of Washington State Court supplementary proceedings.

42.  On either basis, however, I am not satisfied that there are “civil proceedings which either have been instituted before the requesting court or whose institution before that court is contemplated”.

43.  If, as the Individuals say, the LORs were issued in support of Washington State Court supplementary proceedings, the evidence being sought thereunder would not be for the purposes of civil proceedings “before the requesting court” (the Washington Federal Court).

44.  If, as the Kyko Companies say, the LORs were issued on a standalone basis, I do not consider that the very application for discovery under FRCP rule 69(a)(2) can constitute civil proceedings within the meaning of s.75(b) EO, as a matter of construction.

44.1   If the “civil proceedings” under s.75(b) EO could encompass the very proceedings for discovery leading to a foreign court’s request for evidence under s.75(a) EO, then s.75(b) EO would invariably be satisfied in all such cases.  In other words, s.75(b) EO would be redundant.

44.2   It would be straining the language of s.75(b) EO to say that the evidence being sought under the LORs is to be obtained “for the purposes” of the very application for the evidence. (In any event, the LORs themselves do not state this to be the purpose.  They say that the purpose is to allow the Kyko Companies to obtain information regarding the Receivables that may enable them to collect the monies owed to PSI which can be utilised to apply against the Washington Federal Court Judgment.  There is no basis for me to disregard this statement of the Washington Federal Court: see Rio Tinto Zinc Corporation v Westinghouse Electric Corporation [1978] AC 547 at 634B.)

45.  Mr Manzoni SC also submitted that the application for discovery under FRCP rule 69(a)(2), being pre-trial discovery, would not be recognised as civil proceedings under Hong Kong law, citing In re State of Norway’s Application (supra) at 482E.  I agree.  The discovery is sought against persons who are not party to the Washington Federal Court Judgment, and is for the purpose of “plotting the course” of unspecified, possible, future proceedings.

46.  Ms Cheung submitted in the alternative that the possible future proceedings which the Kyko Companies might take, depending on the evidence obtained, constituted “contemplated proceedings” under s.75(b) EO.  However, Farmer II pointed out that Macyda II had accepted that the Kyko Companies would need to establish the Washington Federal Court’s jurisdiction over SSG Capital and VTC before they could enforce the Washington Federal Court Judgment against SSG Capital and VTC in the Washington Federal Court.  There is no evidence that the Kyko Companies could establish such jurisdiction such that they can take proceedings against SSG Capital and VTC in the Washington Federal Court for enforcement of the Washington Federal Court Judgment.  In these circumstances, the requirements of s.75(b) EO are not satisfied.

46.1   I do not consider that proceedings which are “contemplated” before a court can be construed to include proceedings which cannot properly be instituted in that court.  

46.2   Even if I am wrong about that, I am not satisfied that the evidence sought from the Individuals would be “for the purposes” of any such contemplated proceedings, given that the Kyko Companies did not give any concrete particulars as to what future proceedings were to be taken or against whom they were to be taken, and therefore were unable to demonstrate that the evidence sought would be used for the purposes of such proceedings.

47.  I am therefore not satisfied that the requirements of s.75(b) EO have been met, so as to engage the court’s jurisdiction to make an order thereunder.

48.  As to s.75(a) EO, Mr Manzoni SC submitted that it was “doubtful” as to whether the Washington Federal Court was “exercising jurisdiction” as it did not have jurisdiction over SSG Capital and VTC.

49.  However, as a matter of language, it seems to me that the reference to the exercise of jurisdiction under s.75(a) is a reference to the exercise of jurisdiction in making the request for evidence, rather than to the exercise of jurisdiction over the persons from whom evidence is sought.  Indeed, Mr Manzoni accepted that there it was not necessary for the Washington Federal Court to have had jurisdiction over SSG Capital and VTC in order for the court to have issued the LORs; it might, for example, have been possible to subpoena these entities to give evidence in the original proceedings before the Washington Federal Court.

50.  I further note that in Commerce & Industry Insurance Co of Canada v Certain Underwriters at Lloyd’s of London [2002] 1 WLR 1323, Moore-Bick J considered that the term “exercising jurisdiction … in a country or territory outside the United Kingdom” in s.1 of the Evidence (Proceedings in Other Jurisdictions) Act 1975 was used to denote public courts rather than private arbitral tribunals.

C2.   Section 76(3) EO

51.  There is no dispute that s.76(3) EO prohibits the making of an order for the obtaining of pre-trial discovery which might lead to a train of enquiry which may produce evidence.  Kerr LJ in In re State of Norway’s Application said at 482C-F:

“ [Fishing] arises in cases where what is sought is not evidence as such, but information which may lead to a line of inquiry which would disclose evidence. It is the search for material in the hope of being able to raise allegations of fact, as opposed to the elicitation of evidence to support allegations of fact, which have been raised bona fide with adequate particularisation. In the present context fishing may occur in two ways. First, the “evidence” may be sought for a preliminary purpose, such as the process of pre-trial discovery in the United States. The fact that this is clearly impermissible for the purposes of the Act of 1975 is established in the Westinghouse case [1978] AC 547, and was equally so held by this court in relation to the Foreign Tribunals Evidence Act 1856 in Radio Corporation of America v. Rauland Corporation [1956] 1 Q.B. 618. This is irrelevant in the present context, since the “evidence” is required for the trial itself. But fishing is in my view also relevant in another sense in the present context, as McNeill J rightly indicated. It is perhaps best described as a roving inquiry, by means of the examination and cross-examination of witnesses, which is not designed to establish by means of their evidence allegations of fact which have been raised bona fide with adequate particulars, but to obtain information which may lead to obtaining evidence in general support of a party’s case.”

52.  The Individuals submit that the LORs are a fishing exercise, which is not permissible under s.76(3) EO. They point out that the LORs themselves say in paragraph 8(b) that evidence is being sought “To allow Plaintiffs to obtain information regarding the Receivables that may enable them to collect the monies owed to PSI which can be utilized to apply against the $100,738,980.00 USD Judgment”, which is a request for information which may or may not help to establish claims which PISL and PSI may or may not have, and that the questions set out in paragraph 10 of the LORs are wide in scope, vague and unparticularised.  That paragraph dealt with the questions to be put to the persons proposed to be examined, and stated as follows:

“ The following are the areas of inquiry: (i) how and why the Receivables were created; (ii) whether the funds owing to PSI were received by Value Team Corporation / SSG Capital from another person or entity; (iii) whether the funds owing to PSI were transferred by Value Team Corporation / SSG Capital to another person or entity; and (iv) why Value Team Corporation / SSG Capital has not paid PSI / Plaintiffs.”

53.  The Kyko Companies’ response was that:

53.1   the proposed examination was designed to test and establish allegations of fact which had been raised bona fide and with adequate particulars, such allegations being that SSG Capital and VTC received from PSI and/or PISL the Receivables under the MOUs for the purpose of a restructuring.  As the restructuring did not occur, the Receivables are now owed to PSI and/or PISL;

53.2   the proposed examination was not fishing or pre-action discovery since the Washington Federal Court Judgment had already been obtained.

54.  I agree with Mr Manzoni SC that the proposed examination is a fishing exercise in both senses of the term used by Kerr J in In re State of Norway’s Application, and therefore prohibited by s.76(3) EO.

54.1   The “allegations of fact” relied upon are not live allegations in the Washington Federal Court proceedings.  They did not arise in the course of the original proceedings, and no enforcement proceedings have yet been instituted in which the allegations might, perhaps, be raised.  The evidence being sought is therefore not for the purpose of assisting the court to determine such allegations, and is instead pre-trial discovery.

54.2   Ms Cheung relied on Prediwave Corp v New World TMT Ltd [2007] 4 HKC 207, where the Court of Appeal rejected a complaint that the application for evidence was a fishing expedition.  The Court of Appeal placed weight on the declaration by the judge issuing the letter of request in the US proceedings that the evidence sought was directly relevant to claims in the US proceedings and necessary for their fair resolution (see [1], [28]) as he was the trial judge and had been involved in proceedings for some time.  However, what was sought in Prediwave was evidence for the determination of live issues in existing US proceedings which were to go to trial.  In any event, Judge Pechman is not even saying that the evidence sought is directly relevant to any possible enforcement; what she said in paragraph 8(b) of the LORs was that the information obtained “may enable” the Kyko Companies to collect the monies owed to PSI.

D.   ULTERIOR PURPOSE

55.  The Individuals submitted that the Examination Order was obtained for the ulterior purpose of obtaining evidence for the Pennsylvania Proceedings, in which the Kyko Companies allege that SSG Capital and VTC were involved in the fraud perpetrated by PSI, PISL and PSAL.

56.  However, the first LOR was obtained in February 2017, more than a year and a half prior to the commencement of the Pennsylvania Proceedings in September 2018.  Furthermore, the Kyko Companies applied for the Examination Order on 10 May 2017.

57.  Furthermore, as Ms Cheung pointed out, if the Kyko Companies were seeking to obtain examination of the Individuals to support the Pennsylvania Proceedings, they could presumably have applied for letters of request within those proceedings.  No reason has been identified as to why the Kyko Companies should need to use the “back door” of seeking the LORs for this purpose.

58.  In the circumstances, there is no real basis to draw the inference that the Examination Order was obtained for the ulterior purpose alleged.

E.   PROTECTION OF TRADING INTERESTS ORDINANCE (CAP.471)

59.  The Individuals submitted that the Examination Order should not have been made, citing s.6(1) of the Protection of Trading Interests Ordinance (Cap.471), which provides that the court shall not make an order under Part VIII EO to give effect to a request issued by or on behalf of a court or tribunal of a place outside Hong Kong if it appears to the court that the request infringes the jurisdiction of Hong Kong or territorial jurisdiction in Hong Kong.  The Individuals say that the LORs infringe such jurisdiction, given that under the MOUs, there is a clause providing that they would be governed by Hong Kong law and that any dispute would be subject to resolution solely in any court of competent jurisdiction in Hong Kong.  Since the Kyko Companies seek to make a claim in the shoes of PSI, PISL and PSAL, they would be bound by the clause.

60.  However, the LORs themselves do not necessarily mean that any claim will be made by the Kyko Companies in the shoes of PSI, PISL and PSAL.  As discussed above, the LORs are seeking pre-action discovery, and the Kyko Companies have not indicated what, if any, action they intend to take.

61.  Furthermore, the information sought under paragraph 10 of the LORs does not appear to raise any dispute which falls under the exclusive jurisdiction clause (nor do the Individuals suggest that this is the case).

F.   MATERIAL NON-DISCLOSURE

62.  Given my views above, it is not necessary for me to make findings on this topic in order to determine the application, but I will set out my views for completeness.

63.  The Individuals complain that on the ex parte application for the Examination Order, the Kyko Companies failed to disclose various possible defences to the court.

64.  It is trite that when applying for an order ex parte, it is the duty of the applicant to make a full and fair disclosure to the court of all the relevant facts of which he knows, and failure to do so may itself be a ground for setting aside such an order: Hong Kong Civil Procedure 2019, note 32/6/13.

65.  The duty to make full and frank disclosure of all material facts includes the duty of identifying possible defences: see New Asia Energy Limited v Concord Oil (Hong Kong) Limited [2000] 2 HKC 681 at 685 where Keith J said at p.685A-C (citing Gee, Mareva Injunctions and Anton Piller Relief, 4th ed):

“ The plaintiff must also identify any defences, which, although not yet taken, would have been available to be taken by the defendant had he been present at the application, provided that:

(1) the defence is one which can reasonably be expected to be raised in due course by the defendant;

(2) the defence is not one which can be dismissed as without substance or importance .... ”

Although these observations were made in the context of ex parte applications for Mareva injunctions and Anton Piller orders, they apply to all ex parte applications, and in my view they represent the current state of the law both in England and in Hong Kong. … ”

F1.   Failure to disclose possible defence of no civil proceedings

66.  The first complaint is that the Kyko Companies failed to disclose that there were no civil proceedings in Washington, or that the Individuals might seek to argue that this was the case.

67.  The application for the Examination Order was accompanied by the Affirmation of Duncan Petrie Watt of 9 May 2017 (“Watt I”), which made no mention of this possible ground of objection to the making of the order (or indeed other possible grounds of objection).

68.  Master Lai then raised various requisitions regarding the application on 18 May 2017, one of which noted that judgment had already been entered by the Washington Federal Court and that the civil proceedings had already been concluded.

69.  In response to Master Lai’s requisitions, the Kyko Companies filed the 2^nd Affirmation of Duncan Petrie Watt of 21 February 2018 (“Watt II”).  On the point about the existence of civil proceedings, Mr Watt said that US law expressly permits a judgment creditor to obtain depositions from third parties with a view to aiding the enforcement of a judgment as a continuation of the original civil proceedings in the US, that proceedings supplementary to judgment are expected to be undertaken and were treated as the same civil proceedings which lead to the judgment, that the US judge will retain jurisdiction over enforcement proceedings and that there is no separate proceeding up to satisfaction of the judgment.  Watt II did not separately acknowledge that the Individuals might nevertheless seek to argue that the proceedings in the Washington Federal Court had been concluded.  In my view, this was an argument which could reasonably have been expected to have been raised, and was not one without substance or importance.

70.  Whilst it may be said that Master Lai became aware of the defence before making the Examination Order, since he himself raised it, neither Watt I nor Watt II pointed out that it was a defence which the Individuals could have taken (which would have implied that it was a reasonable and not insubstantial one), and upon Master Lai’s requisition, Watt II dismissed it as having no substance.

71.  I therefore consider that there was material non-disclosure of this possible defence.

F2.   Failure to disclose possible defence of fishing

72.  This was another possible defence which was not identified in Watt I, and upon Master Lai’s requisitions of 18 May 2017, dismissed in Watt II without acknowledgment that the Individuals might reasonably have sought to raise it.

73.  For similar reasons, I consider that there was material non-disclosure that the Individuals might rely on s.76(3) EO to oppose the application on the grounds that it was a fishing expedition or pre-action discovery.

74.  However, insofar as the Individuals say that the Kyko Companies failed to disclose that the application was an attempt to fish for evidence for the purpose of the Pennsylvania Proceedings, I do not accept this, given my views above that there is no real basis to draw the inference that the Examination Order was obtained for the ulterior purpose of supporting the Pennsylvania Proceedings.

F3.   Failure to disclose that Washington courts had no jurisdiction over SSG entities or Individuals

75.  The Individuals also complain that the Kyko Companies failed to disclose that neither the Washington State Court nor the Washington Federal Court had any jurisdiction over SSG entities or the Individuals.

76.  As indicated earlier above, Mr Manzoni SC stated in oral submissions that it was not his stance that there needed to be jurisdiction over SSG entities in the US for the LOR to have been issued.

77.  I therefore do not consider there to have been material non-disclosure on this point.

F4.   Failure to disclose failed attempts to take out writs of garnishment against SSG entities

78.  The Individuals say that the Kyko Companies failed to disclose that they had tried, but were unsuccessful, in taking out writs of garnishment against certain entities in the SSG Group, which in turn would have showed that the Washington State Court did not have jurisdiction over them and that the Washington State Court had not determined the liability of SSG entities to PSI, PISL or PSAL.

79.  The evidence is that the Kyko Companies obtained three writs of garnishment against certain SSG Group entities, and sent them by email (to whom exactly, it is not clear). The Kyko Companies say that this is a non-issue, as the writs were simply not served, and in any event the writs of garnishment predated the Washington Federal Court Judgment by some two years.

80.  This was not a case of the Kyko Companies having attempted to serve the garnishees but having failed, for example by having the Washington State Court set aside service.  The details of the writs of garnishment are also unclear, only one example having been included in the exhibits to Farmer I.

81.  In the circumstances, I am not satisfied that there was any material non-disclosure on this point.

F5.   Failure to disclose that there had been no establishment of the liability of SSG entities for the Receivables

82.  The Individuals complain that the Kyko Companies failed to disclose that the liability of SSG entities for the Receivables had not been established, and that the SSG entities might wish to challenge them.

83.  I do not consider that the Kyko Companies represented that the liability for the Receivables had been finally established, or otherwise accepted by the SSG entities.  In Watt I:

83.1   reference was made to the fact that PSI’s unaudited balance sheet as of 31 March 2013 showed the Receivables, but the audited balance sheet did not, although the Kyko Companies believed the latter to be wrong;

83.2   the Receivables were described as “believed to be owed”;

83.3   it was said that the deposits under the MOUs “may” have to be returned to PSI or PISL;

83.4   reference was made to the fact that Messrs Jones Day, on behalf of SSG HK, had sent a letter dated 15 November 2016 denying liability of the SSG entities for the Receivables.

84.  In the circumstances, I do not consider that there was material non-disclosure on this issue.

85.  The Individuals also complain that the Kyko Companies failed to inform the court of the Washington State Court Order, which stated (inter alia) that the 1^st and 2^nd Collection Orders should be amended to state that PSI, its subsidiaries and affiliates were “allegedly” owed money, as the proceedings in Hong Kong were still on an ex parte footing at the time.  However, that order was dated 16 October 2018, by which time the Individuals had already been served with the Examination Order, and directions had been given by consent for the Individuals to make any application to set it aside by 31 October 2018.  Whilst I agree that the Kyko Companies had an obligation to disclose the Washington State Court Order to the court within a reasonable time, this was effectively overtaken by events when the order was in fact produced to the court in the Affirmation of Peter Christopher Cairns of 31 October 2018, in support of the Individuals’ application to set aside the Examination Order.

F6.   Failure to disclose that MOUs contained exclusive jurisdiction clause

86.  The Individuals complain that the Kyko Companies failed to disclose that the MOUs contained an exclusive jurisdiction clause, such that the Individuals might wish to contend that any dispute over the Receivables should be resolved in the Hong Kong courts.

87.  I have in section E above indicated my view that the exclusive jurisdiction clause in the MOUs does not constitute a ground of objection to the Examination Order.  I therefore do not consider that there was any material non-disclosure on this point.

F7.   Failure to disclose that under the MOUs and settlement agreement, PSI, PISL and PSAL in fact indebted to SSG entities

88.  The Individuals say that the Kyko Companies failed to disclose that under the MOUs and the subsequent settlement agreement, PSI, PISL and PSAL were in fact indebted to the SSG Group companies who were bondholders, or that on maturity of the bonds, PISL was obliged to pay the principal and a substantial redemption premium to SSG Capital and VTC.

89.  Whilst it is true that some of the details relating to the restructuring of bonds issued by PISL was only addressed in an exhibit to Watt I,[6] including the possibility that VTC and SSG Capital might be eligible to receive payment under the bonds, which could be set off against the deposits already paid to them, Watt I did indicate that there was uncertainty as to whether the Receivables were owed (see section F5 above), which was (at most) what would have been material for the purposes of the application before Master Lai.  Master Lai would not have been determining, nor would he have been in position to determine, the issue of how much, if at all, PSI, PISL or PSAL owed to the SSG Group companies.

G.   DISPOSITION

90.  For the foregoing reasons, I order that the Originating Summons be struck out, and that the Examination Order be set aside.  I further make a costs order nisi that the costs of and occasioned by the Individuals’ summons of 31 October 2018 be paid by the Kyko Companies to the Individuals, to be taxed if not agreed.