DANONE ASIA PTE. LTD v. S.B. CHOW & CO., CPA AND ANOTHER

   HCMP1307/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1307 OF 2007

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J U D G M E N T

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1. By this originating summons the plaintiff seeks a Norwich Pharmacal order.  The 1^st defendant is a firm of accountants in Hong Kong whose principal is Mr Sheung Bing Chow (“Mr Chow”).  Mr Chow is also the director and main shareholder of the 2^nd defendant which provides business services to the 1^st defendant.  The plaintiff is the Asian arm of “Danone” an international producer of food and beverages, incorporated in France.

2. The backdrop to this application is an action in California USA in which Danone and Danone Asia are the plaintiffs.  It alleges a world-wide conspiracy against individuals and companies which has wrongfully interfered with the plaintiffs’ business interests.  I shall not begin to describe the proceedings.  It is a very substantial piece of litigation indeed.  It has spawned up to a dozen other actions across six different jurisdictions.  The claimed losses to the plaintiffs, which are continuing, are said to be very substantial.  For present purposes all that needs to be said, and I do say, is that there is an abundance of evidence that the plaintiffs are making a bona fide and tenable claim.

3. The final defendant in the California action is “Does 1 through 100”.  This represents a familiar procedure in US law by which potential defendants who have yet to be identified may be included in the pleaded claim, (the “Doe defendants”).

4. The purpose of this application is for the plaintiff to be provided with information so as to assist them identify the Doe defendants.

THE REQUESTED ORDER

5. The US proceedings presently has four named defendants, “Ms Zong”, “Ms Shi”, “Ever Maple” (a BVI company) and “Hong Sheng Beverage” (a PRC company).

6. The draft order, in short, seeks information concerning any professional services (which are particularized) which the plaintiffs have provided to three individuals (the two named defendants in California plus a Mr Zong) and 12 named companies since 1996.

7. The evidence in support of the application comes from three affidavits from Mr Bruce Friedman, the plaintiffs’ US lawyer.  They contain a wealth of detail about the extent of the alleged conspiracy and the companies known to be involved, so far.  It is neither necessary, nor would it be helpful, to repeat such detail in this decision.  In opposition to the application, Mr S.B. Chow has also filed three affirmations.

8. Only a limited amount of the complex factual background is relevant to this application.  I will deal briefly with general principles applicable to Norwich Pharmacal relief and then deal with each of the grounds upon which the defendants oppose this application.  I shall endeavour to refer only to such key facts which seem to be relevant to each ground.

GENERAL PRINCIPLES

9. Counsel for both parties, Mr Timothy Harry for the plaintiff and Mr Chua Guan Hock, SC for the defendants are in general agreement about what the principles are but they differ, not surprisingly, about their application to this case.  I keep in mind the following :

(i)    Norwich Pharmacal jurisdiction is unusual and exceptional.

(ii)  A wrong must have been committed by an ultimate wrongdoer.

(iii)    The order must be necessary to enable the action to be brought against the wrongdoer.

(iv)    The defendant to the application is a person who has become “mixed-up in” and has (albeit innocently) facilitated the wrongdoing.

(v)  The defendant will be able or is likely to be able to provide information which will or is very likely to reap benefits for the plaintiff beyond what is already known by them.

(vi)    Being an exceptional remedy it must not be framed too widely or be vague.

(vii)  It is a remedy of “last resort”.  If there are other avenues which the plaintiff can properly and reasonably pursue in order to get the information a Norwich Pharmacal order should be resisted.

DECISION

10. I am satisfied that this is an appropriate case for Norwich Pharmacal relief.  I shall now deal with the grounds of opposition raised by Mr Chua.

GROUNDS OF OPPOSITION

(A)    Remedy of last resort?

11. Mr Chua submits that there are a number of possible alternative sources, as follows.

(i)    Receivers

12. On 27 November 2007, Hong Kong receivers were appointed over nine BVI companies and four Samoa companies.  Receivers in the BVI and Samoa had already been appointed.

13. The Hong Kong receivers requested information from the defendants.  The defendants complied and provided approximately 200 documents.  The defendants applied to the court for an order restraining the receivers from disclosing the information they had obtained to the plaintiff.  That application was refused.  The court stated that, in effect, it was up to the receivers to decide if it was necessary to share the information with the plaintiff and could do so if they wished.

14. However, when asked to do so by the plaintiff, the receivers’ response, through their solicitors was :

“Pursuant to the various orders appointing the Receivers in the BVI and Hong Kong, the Receivers are authorised, to the extent that they consider it necessary for the purposes of the receivership, to share information obtained or discovered in the course of the exercise of their powers with any party and/or its advisers for the purposes of tracing and/or preserving the Companies’ assets.

Absent further explanation from you, the Receivers do not consider that compliance with the Information Requests would assist the Receivers to trace and preserve any of the Companies’ assets.  Disclosure of this information to your client does not therefore appear to be permitted under the terms of the existing orders by which the Receivers were appointed.”

15. The present position therefore is that the information in the receivers’ possession is a dead-end.  It is a locked door to which the plaintiff has no key.

16. It is worth noting, in passing, that it seems that the defendants had no difficulty in complying with this order.  It was not a vast or voluminous task.  They simply attempted to prevent the plaintiff access to the documents.  There is no reason why compliance with this Norwich Pharmacal order cannot be complied with with similar ease.

(ii)   Discovery in US and other foreign proceedings

17. The defendants submit that discovery applications should be made in California and elsewhere and await the outcome before embarking on this exceptional procedure in Hong Kong.

18. In answer to this, Mr Harry points to Mr Friedman’s evidence.  Mr Friedman has cited a number of instances in which the plaintiff in America and the receivers in BVI and Samoa have encountered difficulties.  The service of proceedings and documents has been routinely resisted.  There have been failures to attend.  Applications for stays have been made.  Further details are not important, the general picture is a clear one of non co-operation.

19. In such a climate, with, potentially, substantial amounts of money being lost on a continuing basis, it would be unrealistic and unfair to expect the plaintiff to set off down a long and winding road with no guarantee of a successful outcome in any event.

(iii)    US depositions

20. One day after this application one of the US defendants, Ms Shi, is due to recommence the taking of a deposition.  It is submitted that that could be an alternative source of the information which the plaintiff seeks in this application.  Again, in my judgment, a realistic approach is necessary.

21. Ms Shi is but one defendant.  Service of the other defendants has encountered difficulties.  It is not known if she will attend the hearing.  If she does, whatever she says is likely to be self-serving.  The plaintiff in Hong Kong has no control over the questions she will be asked in California.  The plaintiffs do not regard her as a credible witness.

22. In short, it would not be just or appropriate to expect this plaintiff to await the outcome of that procedure.

(iv)    Receivers’ reports

23. A number of reports have been prepared by the receivers over the BV1 and Samoa companies.

24. Whilst it is true that the reports are important documents containing a great deal of information, in a sense, they support this application rather than provide a reason to resist it.  What they do not do is enable the plaintiff to identify “Doe defendants”.  They are revealing in the sense that new names and new companies keep emerging; names which the plaintiff has not come across before.  However, for the purpose of providing information which will lead to the identification of wrongdoers against the plaintiff they are deficient.  For example, in particular, the information provided by the receivers does not deal with the defendants’ dealings with the individuals being pursued, namely Ms Shi, Ms Zong and Mr Zong.  The reports are not an “alternative source of the information” which would render a Norwich Pharmacal order inappropriate.

(v) Letter of request

25. On 13 July 2007, the plaintiff commenced a Letter of Request application for the taking of evidence in California.  In the event it did not proceed.  It encountered similar difficulties to those surrounding the discovery applications.

26. Moreover, Mr Chow complained, in his final affirmation, that it was unfair for him to be “vexed” by two applications at the same time.  Since then no further steps have been taken and none are envisaged.  For all the above reasons it should not, whilst lying dormant, interfere with the progress of this application.

27. The stringency with which the courts should apply the principle that this remedy is a remedy of last resort (which, if it is, would mean that an order was “necessary”) has been the subject of comment in recent authorities.  Herein I recite two extracts from those authorities which I have endeavoured to apply to the facts in this application.

28. In Binyan Mohamed v. Secretary of State for Foreign and Commonwealth Affairs [2008] EWHC 2048 Thomas LJ said :

“    … It is contended by the Foreign Secretary, as we have outlined, that the provision of documentation or information by him is not necessary because it will all be provided to the Convening Authority or made available in the course of the proceedings before the Military Commission.

(a) The legal principles

At paragraph 57 of his speech in Ashworth, as we set out at paragraph 132 below, Lord Woolf made it clear that the remedy under Norwich Pharmacal should only be granted when the court was satisfied that the information was necessary.  In Mitsui v. Nexen Petroleum [2005] EWH C625(Ch) ([2005] 2 All ER 511) Lightman J put the test in more stringent terms; at paragraph 19 he referred to its being available ‘where the claimant requires the disclosure of crucial information in order to be able to bring its claim or where the claimant requires the disclosure of crucial information in order to be able to bring its claim or where the claimant requires the missing piece of the jigsaw’.  He observed at paragraph 24:

‘In my judgment despite the argument of [counsel for the claimant] that there is no authority directly in point, it is clear that the exercise of the jurisdiction of the court under Norwich Pharmacal against third parties who are mere witnesses innocent of any participation in the wrongdoing being investigated is a remedy of last resort … The jurisdiction is only to be exercised if the innocent third parties are the only practicable source of information.’

After referring to the speeches in Norwich Pharmacal and Ashworth, Lightman J concluded:

‘The necessity required to justify exercise of this intrusive jurisdiction is a necessity arising from the absence of any other practicable means of obtaining the essential information,’

In Nikitin & Ors v. Richards Buffer LLP [2007] EWHC 173(QB) ([2007] All ER (D) 129) Langley J, after referring to the decision of Lightman J in Mitsui seemed to consider at paragraph 24 that it was necessary to show that such information was vital to a decision to sue or an ability to plead and whether or not, even if it was, it could be obtained from other sources.  The requirement of necessity was also considered by King J in Campaign Against Arms Trade v. BAE paragraphs 15-20; it was argued on behalf of the defendant in that case that this test was not met where the claimant had failed to exhaust other available avenues through which the information might be obtained.  King J observed that that was to put the matter ‘too high’ and to put the discretion of the court into too much of a straitjacket.  He considered that the court was entitled to have regard to all the circumstances prevailing in the particular case including the size and resources of the applicant, the urgency of its need and to obtain the information it requires and any public interest in its having its needs satisfied.

It seems to us that the observations of Lightman J in Mitsui and Langley J in Nikitin put an undue constraint upon what is intended to be an exceptional though flexible remedy.  The intrusion into the business of others which the exercise of the Norwich Pharmacal jurisdiction obviously entails means that a court should not, as Lord Woolf in Ashworth made clear, require such information to be provided unless it is necessary.  But in our view, there is nothing in any authority which justifies a more stringent requirement than necessity by elevating the test to the information being a missing piece of the jigsaw or to it being a remedy of last resort.  We agree in this respect with the views expressed in Hollander Documentary Evidence, 9^th edition at paragraph 5-26.  Moreover it would be inconsistent with the flexible nature of this remedy to erect artificial barriers of this kind.  In our view the approach of King J in Campaign Against the Arms Trade is to be preferred. ”

29. King J in Campaign against Arms Trade v. BAE Systems PLC [2007] EWHC 330 had said :

“20.   Miss Montgomery in her skeleton argument, relying on the authority of Mitsui, at para. 24, asserts that the test of necessity required for the exercise of the Norwich Pharmacal jurisdiction is not met where the Applicant has failed to exhaust ‘other available avenues’ through which the information might be obtained.  In my view this is to put the matter too high and to put the discretion of the court into too much of a straitjacket.  Of course as Lightman J. said in the passage cited above, the court must always have in mind the public interest in not involving innocent third parties if this can be avoided and ‘necessity required to justify exercise of this intrusive jurisdiction is the necessity arising from the absence of any other practicable means of obtaining the essential information’.  But when determining what is practicable for these purposes the court in my judgment is entitled to have regard to all the circumstances prevailing in the particular case, including for example the size and resources of the Applicant as an organization, and the urgency of its need to obtain the information it requires, and any public interest in it having its need satisfied. ”

(B) Necessity

30. The general principle is that the order must be necessary to enable other wrongdoers to be identified.  This principle and the preceding principles of “remedy of last resort” overlap.  The order becomes necessary if the information sought will “not otherwise becomes available so that to withhold relief would amount to a denial of justice” (per Millett J (as he then was) in Lonrho PLC v. Fayed (No. 2) [1992] 1 WLR 1 at p. 13).

31. In this case the test of necessity is met because the identity of the “Doe defendants” are not presently known and cannot (bearing in mind the “last resort” principle above) be otherwise ascertained.

(C)    “Mixed-up”

32. It is a requirement that, even before considering the above principles of necessity and remedy of last resort, the defendants must be “mixed-up in” the wrongdoing.  At first blush the expression “mixed-up in” is misleading in the sense that it may suggest a knowing involvement.

33. However, what is required that the defendant is more than a “mere witness or bystander”.  A party becomes “mixed-up in” the wrongdoing as soon as he or she ceases to be a mere witness or bystander.

34. At the other extreme there is the party who is a knowing co-conspirator.  This is not such a case and it has never been suggested that Mr Chow in his professional capacity has ever been knowingly involved with the alleged wrongdoers.

35. In between the guilty co-conspirator and the mere bystander is the person who, by his actions has become innocently mixed up in the scheme.  Put very simply the defendants’ involvement has been, inter alia, in the provision of professional services for the setting up of off-shore and other companies.

36. Thus, they facilitated arrangements which enabled the wrongful scheme to continue.  The defendants became (albeit innocently) a cog in the machinery which caused the scheme to operate.

37. To this extent they were plainly “involved” and this test is satisfied.  Solicitors, accountants, banks are all, due to the nature of their relationship with their clients, vulnerable to innocent involvement.  An example of an innocent solicitor’s involvement is found in Kalmneft v. Denton Wilde Sapte [2002] 1 Lloyds’ Report 417 :

“14.   I am satisfied to the extent necessary for the purposes of this application that Denton Hall, in arranging the incorporation of Amerco and then involvement in the execution of the first Amerco prepayment agreement, did get mixed up in the tortious acts of others so as to facilitate their wrongdoing. …”

38. The defendants’ involvement in the present case is, although not identical, very similar.  The defendants were instrumental in the setting up of companies which were involved in the scheme.  Their special professional position enabled them to do so.  The tasks they performed may well have been normal everyday tasks but, importantly, they were tasks which facilitated the continuation of the scheme.  They were plainly more than mere witnesses. 

(D)    Urgent?

39. Mr Chua submits that an order is not appropriate if there is no urgency to make it because if it is not urgent then other remedies can and should be pursued.  He points out that the originating summons was taken out 15 months ago.  

40. Only a brief consideration of the chronology of events since the taking out of the originating summons is necessary to see that the plaintiff has not been responsible for any delay.  In the latter half of 2007 affirmations were exchanged, the plaintiff issued a notice to be heard and an application was made to add to 2^nd defendant, which was opposed. 

41. Then, in December 2007, the parties agreed to negotiate.  Discussions took place, five months went by; unfortunately, the negotiations failed.  The plaintiff then relisted the matter and since then has been in the hands of the court diary. 

42. The plaintiff’s claim that its loss flowing from the unlawful scheme is potentially US$25 million a month remains the same.  Thus the urgency of the matter does not ebb and flow, it also remains the same. 

(E) Prejudice?

43. The defendants are professional entities.  They had no difficulty co-operating with the receivers.  I envisage no difficulty in their compliance with this order.  There is no “double vexation” at the present time.  They are not currently involved in any other proceedings arising out of this litigation. 

(F) Discretion

44. A Norwich Pharmacal orderis an equitable remedy.  There must be a balancing exercise of the parties’ respective interests.  Factors to be considered under this heading include :

(i)    Balance of convenience.  Paragraphs 42 and 43 above clearly point to the balance being in the plaintiff’s favour.

(ii)  Fishing exercise?  Mr Chua submits that, in truth, this is a fishing expedition, “a discovery application via the back door”.  It is correct that a Norwich Pharmacal order is not a procedure designed for the collection of evidence.  However the dividing line between what is “evidence” and what is “information” is often blurred, moreover the two things often overlap. 

  The true purpose of the application must be addressed.  Here, I am satisfied that the true purpose is the identification of other wrongdoers.  That being the case if, on compliance with order, matters emerge which may later become evidence that is no more than an inevitable consequence of the order rather than a reason not to grant it. 

(iii) Laches?  Again, I have already dealt with this matter and do not find that it provides any reason not to exercise my discretion in the plaintiff’s favour. 

(iv) Scope of the order.  An order which is too wide, vague or oppressive should not, in the court’s discretion, be granted.  In this case, the only aspect of the order sought which might offend this principle is the fact that its commencement date is 1996.  It is submitted by Mr Chua that 12 years is too long a period.  However, the selection of a more recent year would be speculative.  Important information might be missed.  Moreover, any additional hardship on the defendant by making the date 1996 rather than, say, 2001 is likely to be minimal.  I am thus satisfied that the balance of convenience favours the plaintiff’s request that the commencement date be 1996 and I so order.  

Order

45. There will be an order in terms of the draft order in the appendix to Mr Bruce Friedman’s 3^rd affidavit amended to include as (n) and (o) in paragraph 1 the additional companies of Trillion Sino Investments Limited and Megatop Investments Limited. 

Costs

46. The normal order for costs in a Norwich Pharmacal application is that they be to the defendant in any event.  This is the order sought by Mr Chua.  

47. However, Mr Harry submits that, in this case, the court should depart from the usual order because the defendants have contested the application “tooth and nail”.  He also points out that they attempted, albeit unsuccessfully, to obtain an injunction restraining the receivers from divulging any of the information which they received. 

48. Whilst I see the merit in Mr Harry’s submission I am not satisfied that it is of sufficient force for me to exercise my discretion on costs against the defendants.  The defendants were entitled to protect matters of confidentiality.  The manner is which they do so should only cause the court to depart from the usual costs order in exceptional cases.  I do not consider this to be one.  The costs of the application will be to the defendants in any event.