A v. B AND OTHERS

DCMP 793/2022

[2022] HKDC 492

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 793 OF 2022

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BETWEEN

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REASONS FOR JUDGMENT

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Introduction

1.  These proceedings were commenced by way of Originating Summons issued on 25 February 2022 for various orders for pre-action discovery against the defendants, being banks operating within the jurisdiction, under the principle set out in Norwich Pharmacal Co & Others [1974] AC 1333, and for a gagging order against each of the defendants.

2.  The plaintiff is a victim of a fraudulent investment scheme whereby he was deceived into paying over a total of some HK$2.5 million.

3.  At the hearing on 19 May 2022, Mr Ivan Lee, acting for the plaintiff, indicated to the court that the defendants have taken a generally neutral stance in relation to this application, but each of them has liaised with the plaintiff through his solicitors with a view to agreeing on the terms of the orders to be submitted to the court for consideration. As a result, the plaintiff has placed before the court copies of recent correspondence showing the comments by each of the defendants, and the respective orders in draft that have been agreed as between the plaintiff and each of the defendants. In such circumstances, the 1^st, 2^nd and 3^rd defendants were excused from attendance at the hearing.

4.  At the end of the hearing, I granted the relief claimed with certain adjustments made to the draft orders submitted for my consideration. I also made provision for an anonymity order in respect of the names of the parties to be published in the daily cause list and in any written rulings or judgments to be published on the website of the Judiciary.

5.  I now provide the reasons for my judgment.

The facts

6.  The plaintiff is a 50-year-old businessman who is the sole shareholder of a company incorporated in Hong Kong carrying on the business of interior design and providing construction work service.

7.  One day in about August 2020, the plaintiff received a “friend” invitation on Facebook by an account holder whose name I shall refer to as “X” in this judgment. The plaintiff took the view that there was no harm in expanding his business network as X claimed he was running a lighting business in Hong Kong. Since then, they had been exchanging text messages through Facebook Messenger on a regular basis. The plaintiff had at some stage shared with X the financial difficulty and challenges he faced in his business during the recent period of the pandemic.

8.  On a day in late November 2020, X asked to meet with the plaintiff near the place where the plaintiff was undertaking some work. The two met somewhere in Tuen Mun. According to the plaintiff, X looked just the same as his profile picture shown on his Facebook account. After some introductory conversation, X intimated to the plaintiff that his elder sister was the Financial Director of an investment company in the mainland, and recommended the plaintiff to invest with that company through his elder sister in order to help ease the plaintiff’s financial difficulties. The plaintiff was given to understand that he would be guaranteed a profit of 2.1 times of his investment capital within a week’s time.

9.  Pressed financially in his business, the plaintiff was persuaded to embark on the suggested way of investment. Between 24 November and 30 November 2020, at the request of X, he deposited six different amounts ranging from $70,000 to 400,000 into the designated bank accounts respectively held with the defendants, totalling $1.52 million.

10.  On 1 December 2020, the plaintiff asked X for the return of the money, but was further required by X to deposit some “guarantee money” amounting to approximately 8% of the profit he was said to have made. He complied with the request and deposited a total of $423,000 by way of two amounts put into two accounts held with the 1^st defendant.

11.  On the next day, ie 2 December 2020, X again sent the plaintiff a text message through Facebook Messenger requesting him to deposit a further sum of $560,000 into an account held with the 1^st defendant, being allegedly tax payment for the authorities in the mainland, as another prerequisite before the capital and profit could be returned to the plaintiff. This the plaintiff also did.

12.  Since that day, the plaintiff was no longer able to contact X, despite repeated messages sent to him. On 9 December 2020, the plaintiff discovered that the Facebook account of X has been cancelled. He then came to the realisation that he has been subjected to a fraudulent scheme. The matter was reported to the police.

The legal basis for the application

13.  The plaintiff now applies for pre-action discovery of the documents and records held by the defendants showing:-

(i) whether any money has been paid out of the accounts in question that are held with the defendants;

(ii) the essential particulars of all the accounts forming the subject of the intended tracing exercise, including the names and addresses of the account holders, in order to enable the plaintiff to commence legal proceedings; and

(iii) the current balances of the subject accounts.

14.  The court has jurisdiction to hear and determine an application for pre-action discovery under the Norwich Pharmacal principle. As Ma J (as he then was) said in A Co. v B Co. [2002] 3 HKLRD 111 at paragraphs 10-12:-

“10. Where innocent parties are caught up or have become involved in the tortious or wrongful activities of others and thus facilitating the perpetration (or continuation) of such activities, justice may require (and therefore the court may order) that such innocent persons come under a duty to assist the victim of the tort or wrongful activities, by the provision of full information even though such innocent persons cannot be shown to incur any personal liability at that stage. The foundation of the court's jurisdiction here is its equitable jurisdiction. The court's ability to make such orders was confirmed by the House of Lord's decision in Norwich Pharmacal : see in particular the speech of Lord Reid at 173F-175E. The principles and approach established by that decision have consistently been applied in Hong Kong.

11. The jurisdiction is a wide one. It is not restricted, as was at one time thought, to the disclosure of the names of wrongdoers only. In particular, where a plaintiff wishes to investigate the passage of monies in and out of bank accounts in aid of a tracing claim, discovery can be ordered of a bank's books and documents : see Bankers Trust Company v. Shapira [1980] 1 WLR 1274, at 1281F-1282F.

12. Though founded ultimately on notions of justice, nevertheless, it is important to emphasize the extraordinary nature of this relief because it is not a usual order and is not one that a court would lightly grant in the absence of powerful factors…”

15.  His Lordship set out the factors to be taken into account when considering whether to grant a Norwich Pharmacal order:-

“13. Given these characteristics as I have outlined, such orders are therefore not lightly made as I have said. In my view, it is essential for the court to bear the following in mind before a Norwich Pharmacal order is made :-

(1) There must be cogent and compelling evidence to demonstrate that serious tortious or wrongful activities have taken place. And where fraud or similar serious allegations are made, the degree of proof must correspondingly be high : see In re. H (Minors) [1996] AC 563, at 586C-H. All the more so when the alleged wrongdoer is not and will not likely be before the court.

(2) It must also be clearly demonstrated that the order will or will very likely reap substantial and worthwhile benefits for the plaintiff. Where, as in the present case, the plaintiff is likely to make a tracing claim, there must be a serious possibility that the discovery sought must either allow the plaintiff to preserve what may well be his assets or realistically lead to the discovery of such assets : see Arab Monetary Fund v. Hashim (No.5) [1992] 2 All ER 911, at 916D-E, 918J-919A.

(3) The discovery sought must not be unduly wide. There is no entitlement to general discovery (by general discovery is meant discovery in the Peruvian Guano sense) : see Arab Monetary Fund at 918D-E, 919H. It follows therefore that not only must any order be specific, it must also be restricted to those or those classes of documents that are necessary to enable the plaintiff to preserve or discover assets. This is not to say that discovery orders cannot be wide; what is important is that the discovery, whether wide or narrow, is necessary.”

16.  Mr Lee also cited recent cases applying the above principles, namely A1 and Anor v R1 and Others [2021] HKCFI 650; HCMP 307 of 2021, 16 March 2021, Coleman J at para 56, and A v B [2021] HKDC 413; DCMP 4191 of 2020, 8 April 2021, Deputy District Judge Kay Seto at para 8.

17.  As for gagging orders, the applicable principles have been summarised by Coleman J in A1 and Anor v R1 and Others (supra) at paragraphs 60-61:-

“60. The principles applicable on an application for a gagging order, and for confidentiality and anonymity orders, are also well-settled. The jurisdiction to grant a gagging order falls within the wide statutory jurisdiction to grant injunctions where the justice of the case requires, found in section 21L of the High Court Ordinance Cap 4…

61. A gagging order is granted where there are grounds to believe that once a wrongdoer is aware he has been pursued, steps may be taken by him to frustrate any claim that may be made against him or any investigations being carried out. Of course, gagging orders are exceptional remedies, which may entail a serious intrusion into what otherwise would be a party’s basic rights.”

Analysis

18.  The plaintiff submitted, which I accept, that based on the evidence produced, there is cogent and compelling evidence that serious tortious or fraudulent activities have taken place to deprive the plaintiff of his financial resources. Obviously, he has fallen victim to a fraudulent scheme that was thought out and designed beforehand by the fraudsters.

19.  As can be discerned from the correspondence between the plaintiff’s solicitors with the various defendants, they do not appear to have made any contentions that the information or documents sought are not in their possession, custody or power insofar as the same relate to the accounts held with the respective banks. The documents sought are predominantly the bank statements, which should be in the possession and custody of the defendants. Also, the particular period by reference to which the relevant documents are to be identified for disclosure has also been defined and limited.

20.  The discovery order, if granted, would assist the plaintiff in identifying the wrongdoers and the relevant movements of funds. This is in the nature of a tracing exercise which is expected to be necessary in order to enable the plaintiff to commence legal proceedings for the recovery in equity of any relevant proceeds of transactions being part of the flow of funds.

21.  On the evidence, I am satisfied that the plaintiff has been subjected to serious criminal and tortious activities. Although the defendants will be put to the trouble of having to effect compliance if a discovery order is made, that can be compensated. In the round, I am of the view that the justice of the case requires that the defendants come under a duty to assist the plaintiff. This is an appropriate case to grant Norwich Pharmacal relief.

22.  I am also satisfied that this is a suitable case for making a gagging order. There is a high likelihood that if the wrongdoers are forewarned or in any way come to the knowledge that they are being pursued, the efforts of the plaintiff may be frustrated.

Orders

23.  In the circumstances, I granted the orders sought with regard to each of the defendants concerning the different bank accounts involved. The discovery orders made were for the disclosure of bank statements of the relevant accounts from 2 December 2020 up to the date the orders were made. The discovery so ordered is for the purpose of assisting the plaintiff in identifying the flow of funds and the recipients or wrongdoers, so as to facilitate the commencement of legal proceedings for the recovery of assets in equity.

24.  I also granted the gagging orders sought, restraining the defendants from revealing or disclosing information relating to these proceedings for a period of 70 days. There are slight variations in wording between the orders made for each of the defendants, tailored in accordance with the negotiated terms contained in the correspondence which culminated in the draft orders submitted to the court.

25.  In addition, I also made the following orders:-

(i) that the court file shall not be made available for searching by third parties without the leave of the court;

(ii) the plaintiff be at liberty to apply for additional disclosure by affidavit;

(iii) the defendants be at liberty to apply to vary or discharge the respective orders made with regard to each of them upon giving prior written notice to the plaintiff’s solicitors;

(iv) an anonymity order in terms that this matter be referred to and identified in the daily cause list and in judgments or written rulings uploaded to the Judiciary website by its action number and not by reference to the names of the parties, who shall be referred to as “A” for the plaintiff, “B” for the 1^st defendant, “C” for the 2^nd defendant and “D” for the 3^rd defendant.

Costs

26.  Mr Lee accepts the general approach is that the party seeking discovery should pay the costs of the party making the disclosure on an indemnity basis including the costs of making the disclosure. This is the proper approach in general – see eg Edward Arthur Banner v Great Union Electronic Technology Limited, HCA 514 of 2013, 12 April 2013, where Deputy High Court Judge Marlene Ng (as she then was) made a similar order.

27.  I therefore made orders with regard to each of the defendants to the effect that the costs and expenses of and occasioned by each of the defendants in this application, including the costs of complying with the orders, be borne by the plaintiff on an indemnity basis, to be taxed if not agreed.