PREDIWAVE CORPORATION v. NEW WORLD TMT LTD

CACV 292/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 292 OF 2006

(ON APPEAL FROM HCMP NO. 421 OF 2006)

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BETWEEN

CACV 293/2006

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 293 OF 2006

(ON APPEAL FROM HCMP NO. 421 OF 2006)

______________________

______________________

J U D G M E N T

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Hon Yuen JA :

1. I have had the benefit of reading in draft the judgment of Sakhrani J and I agree with his reasons and the orders he proposes at paras. 69 and 70.  I should add however that I have not found this an easy case and I confess that if I had put myself in the shoes of Judge Komar, I may not have issued the letter of request without first requiring a further amendment to the pleadings to specifically plead the MOT transactions.  Having said that, the level of stringency of pleadings required is a procedural decision for the trial judge of the requesting court.  As there were substantial factual allegations supporting New World’s application which were set out in detail in the letter of request, I think Deputy Judge Chan was entitled in the exercise of his discretion to find that this was not such a clear case that the Hong Kong court should reject the requesting court trial judge’s declaration of the relevance of the evidence sought in the letter of request.

Hon Sakhrani J :

2. These appeals concern a letter of request issued by the Superior Court of the State of California, County of Santa Clara dated 6 December 2005 (“the letter of request”) in relation to proceedings pending in that Court (“the US proceedings”).

3. The plaintiff in the US proceedings is New World TMT Limited (“New World”) and the defendants are PrediWave Corporation (“PrediWave”) and its related companies.

4. Pursuant to the letter of request, Master Lung made an ex parte order on 3 March 2006 that :

“ HSBC do produce the following documents which are in its possession custody or control relating to all accounts (including but not limited to, account number 4593340706838) maintained by Modern Office Technology Limited with HSBC for the period between 30^th October 2000 to the date of production of such documents by HSBC:

(a)     Application for account opening and account opening documents

(b)     Signature cards

(c)     Bank mandate documents

(d)     Agreements relating to the said accounts

(e)     Board minutes and written resolutions

(f)     Bank statements

(g)     Slips and bank documents for the deposit of funds

(h)     Slips and bank documents for the withdrawal of funds

(i)     Cheques (including cancelled cheques)

(j)     Orders for and other bank documents relating to telegraphic or wire transfers

(k)     Instructions, memoranda and correspondence relating to the deposit, withdrawal and transfer of funds

(l)     Receipts issued by HSBC

(m)    Ledgers, journals and vouchers maintained by HSBC in respect of the said accounts

(collectively the “Documents”)”

5. The master also made an order that a responsible officer of HSBC having custody of the Documents do attend before a practising barrister and do submit to be examined for the purposes of producing and authenticating the Documents.

6. By summons dated 21 March 2006 PrediWave applied to set aside or vary Master Lung’s order.  By summons dated 8 April 2006 Modern Office Technology Limited (“MOT”) also applied to set aside or vary Master Lung’s order. 

7. The applications to set aside or vary the master’s order came before Deputy Judge L. Chan (“the judge”) who refused to set aside the order but he varied it by reducing the documents to be produced.  By paragraph 2 of his order dated 18 August 2006 he ordered that:

“ the scope of the documents to be produced by [HSBC] be reduce (sic) to the following documents which are in the possession custody or control of HSBC relating to al1 accounts (including but not limited to account number 4593340706838 maintained by Modern Office Technology Limited with HSBC:

(a)     Application for account opening and account opening documents;

(b)     Signature cards;

(c)     Bank mandate documents;

(d)     Board minutes and written resolutions;

(e)     For the period between 30th October 2002 to 30th March 2003 the following documents:-

(i)     Bank Statements;

(ii)     Slips and bank documents for the withdrawal of funds;

(iii)     cheques (including cancelled cheques);

(iv)     Orders for and other bank documents relating to telegraphic or wire transfers of money from these accounts;

(v)     Instructions, memoranda and correspondence relating to the withdrawal and transfer of funds (collectively the “Documents”);”

8. These are the appeals of PrediWave and MOT against the order of the judge made on 18 August 2006.

The US proceedings

9. The gist of the US proceedings is sufficiently set out at paragraphs 11 to 16 of the decision of the judge as follows:

“11. …………. New World alleged in the US proceedings that PrediWave through one Tony Qu (“Qu”) had misrepresented to it that PrediWave and other yet to be created entities could provide a state-of-the-art comprehensive video on demand (“VOD”) Set-Top Box (“STB”) system for use in China and such a system could work with the existing infrastructure in China without substantial capital investment.

12. New World further alleged that Qu had misrepresented to it that he, PrediWave and its related companies would make a timely delivery of a commercially acceptable VOD STB system for use in China and they would provide support for this system in China.

13. As a result of the alleged misrepresentations, New World entered into separate stock purchase agreements (“SPAs”) with PrediWave and eight other related companies.  They were created by PrediWave to provide products and services to New World for supporting the VOD STB technology aforesaid.  In connection with the SPAs, New World and PrediWave also agreed that New World would become the exclusive distributor of the VOD STBs in China for home television.

14. New World altogether invested US$291 million pursuant to the SPAs.  In addition, New World paid PrediWave US$381,397,228 to purchase hardware and software purportedly for operating the said VOD STB system.  New World further alleged that for about four years PrediWave did not provide a single VOD STB that could function as promised.

15. By a letter dated 3 May 2004, New World rejected the remainder of the VOD STBs and other hardware and software and notified PrediWave that it was in breach of the parties’ agreements and warranties.

16. On 25 May 2004, New World filed its initial complaint in the US proceedings.  On 13 January 2005, PrediWave filed a cross-complaint.  New World’s initial complaint has been amended and it is now in the form of the third amended complaint.”

The MOT issue

10. As set out at paragraph 23 of the letter of request, New World contends that in the course of the US proceedings it uncovered improprieties and unlawful activities by PrediWave in connection with the purchase and sale of memory modules purportedly needed for the VOD STBs.

11. New World’s case is that the evidence uncovered establishes that PrediWave and MOT entered into an agreement whereby PrediWave agreed to purchase 3,000,000 memory modules from MOT over a two year period.  MOT thereafter entered into a series of purchase orders with Techno Linc Corporation (“Techno Linc”) whereby MOT agreed to purchase memory modules.  It is alleged by New World that MOT then re-sold the memory modules to PrediWave at “incredible” markups, making millions of dollars from the sales.  PrediWave paid the marked up prices to MOT and represented to New World that the price of the memory modules it purchased was the fair market price.  PrediWave then sold the memory modules to New World at a marked-up price.  New World alleges that tens of millions of dollars were transferred among MOT, PrediWave and New World in connection with the purchase and sale of memory modules (paragraph 24 of the letter of request).

12. New World contends that the alleged improper and unlawful nature of the memory module transactions is highlighted by facts and documents uncovered by New World.  These include evidence that MOT was a mere dummy or nominee company or an alter ego through which PrediWave and/or Qu artificially inflated the prices it charged New World for the memory modules (paragraph 25 of the letter of request).

13. The requested testimony and documents are said to be required for the trial of the US proceedings.  New World contends that the evidence now in its possession shows that PrediWave wired the funds it paid to MOT directly into MOT’s bank account with HSBC.  It is contended that the testimony and documents sought will constitute further evidence of the true nature of the relationship between PrediWave, on the one hand and MOT, on the other hand.  New World also contends that the requested documents will constitute evidence relevant to the allegation that MOT is not an independent third party but a nominee or alter ego of PrediWave.  The same allegation was made by Techno Linc when MOT failed to pay it for the memory modules it purchased.  The requested evidence is said to be relevant to New World’s contention that the MOT funds or part thereof are traceable into the hands of PrediWave and/or Qu (paragraph 26 of the letter of request).

14. The relevant factual allegations are set out at paragraphs 27 to 34 of the letter of request.  It is unnecessary to repeat them here.

The appeals

15. Mr Chua SC, for PrediWave, took three main points before us:

(1)     The application for the production of documents is in substance an application for discovery and a fishing expedition;

(2)     The documents sought are not directly relevant to the US proceedings as the MOT issue has not been pleaded in the US proceedings;

(3)     The documents sought are not particular documents but classes of documents.

16. He also took the point that there was material non-disclosure on the part of New World in the ex parte application before the master which would justify a discharge of his order.

17. Mr Pirie, for MOT, took the same points as Mr Chua.  He took the additional point that MOT was a non-party to the US proceedings and that the order should not have been made against it.

Jurisdiction

18. The first matter to consider is the court’s jurisdiction to make the order.

19. Section 75 of the Evidence Ordinance (Cap.8) (“the Ordinance”) provides that where an application is made to the Court of First Instance for an order for evidence to be obtained and the court is satisfied that the application is made in pursuance of a request issued by a court in a country or territory outside Hong Kong and 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 Part VIII of the Ordinance.

20. The power of a court in Hong Kong to give effect to an application for assistance is contained in section 76.  

21. By section 76(1) it is provided that 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.  However, section 76(4) provides that:

“An order under this section shall not require a person —

(a)     to state what documents relevant to the proceedings to which the application for the order relates are or have been in his possession, custody or power; or

(b)     to produce any documents other than particular documents specified in the order as being documents appearing to the court making the order to be, or to be likely to be, in his possession, custody or power.”

22. It is clear that paragraph (a) does not permit pre-trial discovery of documents.  The emphasis is on the obtaining of evidence.  Paragraph (b) limits the documents to be produced to particular documents specified in the order.

23. In Rio Tinto Zinc Corporation and others v Westinghouse Electric Corporation [1978] AC 547 Viscount Dilhorne said at page 619:

“ If the court is not satisfied that evidence is required, direct evidence for use at a trial, as contrasted with information which may lead to the discovery of evidence, however much the court may be disposed to accede to the request, it has no power to do so.  As I see it, it has no discretion in the matter.”

24. The Ordinance sets out the circumstances under which the court in Hong Kong would render assistance to a foreign court by ordering the taking of evidence in Hong Kong.  The procedure in respect of applications made for assistance is contained in Order 70 RHC.

Discovery? 

25. Mr Chua submitted that what was being sought was discovery and not evidence for use at the trial.

26. He also submitted that what was sought was a fishing expedition.  He relied on what Kerr LJ said in In re State of Norway’s Application [1987] 1 QB 433.  Dealing with “fishing” Kerr LJ said at page 482:

“ It 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 particularization.”

27. I am unable to accept the submission that what was sought was a fishing expedition.

28. It must be borne in mind that the letter of request was made by Judge Komar in the US proceedings.  He is the trial judge and he has been involved in the proceedings including pre-trial discovery for some time now.  It is his view that the evidence to be obtained by the letter of request is evidence which is directly relevant to New World’s claims in the third amended complaint, including specifically, New World’s claims for fraud (paragraph 35 of the letter of request, emphasis added).  He also stated that the requested documents and the testimony authenticating the documents is a proper and necessary measure because it directly relates to the proof of allegations made by the parties and is necessary for a fair resolution of the US proceedings (paragraph 38 of the letter of request, emphasis added).  He also said that the testimony of the witness is to be obtained as testimony for use as evidence at trial and that the documents are intended to be tendered as admissible evidence at trial (paragraph 39 of the letter of request, emphasis added).  And he also stated that the requesting authority believes that the requested evidence is relevant to the trial of the US proceedings (paragraph 42 of the letter of request, emphasis added).

29. He accepted, as is clearly set out at paragraph 42 of the letter of request, that the factual contentions of New World are disputed by PrediWave.

30. It seems to me that there is no merit in the submission that the application is a fishing expedition for discovery rather than for the obtaining of evidence for use at the trial in the US proceedings.

Relevant evidence

31. Mr Chua also submitted that the documents sought were not relevant to the issues in the US proceedings as the third amended complaint did not plead the MOT issue.  He submitted that what was being alleged was a fraud committed by PrediWave against New World and that as such the allegation has to be specifically pleaded and particularized.

32. Mr Chua submitted that the MOT transactions have not been sufficiently pleaded or particularized and hence the evidence sought is not relevant and admissible.  

33. If the proceedings were to be tried in Hong Kong then I would accept that the complaints in respect of the MOT transactions have not been sufficiently pleaded and particularised.  However, the US proceedings were instituted in California and are to be tried there. 

34. As is stated at paragraph 7R-001 at page 157 of Dicey and Morris on The Conflict of Laws 13^th Edn:

“ Rule 17 - All matters of procedure are governed by the domestic law of the country to which the court wherein any legal proceedings are taken belongs (lex fori).”

35. In Jowitt’s Dictionary of English Law 2^nd Ednat page 1088 lex fori is defined as:

“ the law of the place of action.  The form of remedies, modes of proceeding, rules of evidence and execution of judgments are regulated by the law of the place where the action is instituted, the lex fori.”

36. The US proceedings were issued in California and are to be tried there by Judge Komar.  Thus all matters of procedure including the requirements of pleadings are to be governed by the laws of California and not Hong Kong.  In this context the lex fori is clearly the law of California and not Hong Kong contrary to the submissions of Mr Chua and Mr Pirie which I reject.

37. Whether the evidence is admissible and relevant is essentially a matter for the US trial judge Judge Komar in California.  This is a matter that will have to be determined by him in the US proceedings.

38. In First American Corp and another v Sheikh Zayed Al-Nahyan and others [1998] 4 All E R 439 Sir Richard Scott V–C. (as he then was) said at page 448:

“ The question as to what evidence would, and what evidence would not, be relevant to an issue in the foreign action is primarily a matter for the foreign court.  The House of Lords so held in Re Asbestos Insurance Coverage Cases [1985] 1 All E R 716 at 722-723, [1985] 1 WLR 331 at 339 per Lord Fraser:

‘It would be quite inappropriate, even if it were possible, for this House or any English court to determine in advance the matters relevant to the issues before the Californian courts on which each of these witness is in a position to give evidence.’

In my opinion, therefore, an English court must look at the issue of the relevance of the requested testimony, if it is raised, in broad terms, leaving to the foreign court, in all but the clearest cases, the decision as to whether particular answers, or answers on particular topics, would constitute relevant admissible evidence.”

39. I respectfully agree with what was said by Sir Richard Scott V–C.  Although what is stated in the letter of request is not conclusive, it seems to me that save in the clearest cases (and this is not such a case), the court should accept the statements contained in the letter of request that the evidence sought is relevant admissible evidence for the trial in the US proceedings. 

40. New World’s US attorney John Potter at paragraph 38 of his 1^st affidavit has set out various causes of action in respect of which the evidence sought in the letter of request is said to be relevant namely:

(a)     third cause of action: breach of written stock purchase agreements;

(b)     sixth cause of action: fraud-false promise;

(c)     seventh cause of action: fraud-affirmative misrepresentation;

(d)     eighth cause of action: fraud-material nondisclosure;

(e)     ninth cause of action: fraud-negligent misrepresentation.

41. John Potter at paragraphs 42 and 43 of his 1^st affidavit also states that New World’s claims against PrediWave for the MOT transactions are included in its claims for breach of the SPAs and its fraud claims even though the specific facts relating to the MOT transactions are not set out in New World’s third amended complaint.  

42. Mr Chan SC, for New World, submitted that the MOT transactions were included in the claims for restitution made by New World in the third amended complaint although the facts were not specifically set out therein.  Thus he submitted that they were included in the purchase orders detailed in Exhibit J to the third amended complaint in respect of which restitution was sought by New World.  I accept Mr Chan’s submission.  Judge Komar said at paragraph 26 of the letter of request that the requested evidence is relevant to New World’s contentions that the MOT funds or part thereof are traceable into the hands of PrediWave and Qu. 

43. John Potter’s opinion is that it was not necessary under California law and procedure to amend the third amended complaint to include the facts discovered relating to the MOT issue.  This is disputed by PrediWave’s US attorney John Tang in his affirmations filed on behalf of PrediWave.  His opinion is that in California, fraud claims have to be pleaded with particularity.

44. Be that as it may, Judge Komar was able to state clearly in the letter of request that the requested evidence is both necessary and relevant admissible evidence for the trial of the US proceedings.  It must be assumed that Judge Komar knows full well the practice and procedure governing a trial in California and that he must have had this in mind when making the statements recorded in the letter of request.  He must have considered that the pleading was sufficient under Californian rules of procedure for a trial there before he issued the letter of request in the form that it was issued.  I would observe that in its memorandum of points and authorities in objection to the form of the letter of request, PrediWave did not take the point before Judge Komar that the evidence sought was not relevant and admissible in the US proceedings because of the lack of sufficient pleading.  PrediWave did, however, reserve all its rights in the Hong Kong proceedings pursuant to the letter of request but it is surprising that the lack of sufficient pleading point was not taken before Judge Komar.  The objection that was taken was as to the proposed form of the letter of request but not to the issuance of a letter of request as such.

45. I also refer to what Lord Keith of Kinkel said in the Westinghouse case [1978] AC 547 at page 654 as follows:

“In the face of a statement in letters rogatory that a certain person is a necessary witness for the applicant, I am of opinion that the court of request should not be astute to examine the issues in the action and the circumstances of the case with excessive particularity for the purpose of determining in advance whether the evidence of that person will be relevant and admissible.  That is essentially a matter for the requesting court.”

46. At paragraphs 68 to 70 of his decision the judge, correctly in my view, said:

“68.     Though the letter of request was drafted by New World’s US legal advisers, it has been endorsed by the California trial judge.  The judge was aware of the issues between the parties.  I am in particular referred to paragraphs 35, 38 and 42 of the letter of request which read:

“35.     The evidence to be obtained is the requested documents from HSBC and the testimony from the witness authenticating those documents, which evidence is directly relevant to New World’s claims in the Third Amended Complaint, including, specifically, New World’s claims for fraud.

38.     Pursuant to California law, New World’s request to secure the requested documents from HSBC and the testimony from the Witness authenticating those documents, is a proper and necessary measure because it directly relates to the proof of allegations made by the parties herein and is necessary for a fair resolution of the pending action.  In the interests of justice, we therefore request that you permit New World to take the oral evidence... and there to answer New World’s questions under oath and produce the documents requested by New World herein.

42.     The foregoing is based on the allegations and contentions of New World, which the Requesting Authority believes establish that the requested evidence is relevant to the trial of this Action.  In issuing this Letter of Request, the Requesting Authority does not hereby endorse said allegations and contentions as established facts.  Defendants dispute certain of the foregoing allegations and contentions and will have the opportunity to introduce their own.”

69.     There is also no dispute that this pleading point was never raised by PrediWave in the US on the application for issue of the letter of request.

70.     I agree with New World’s submissions that the documents being sought now should be disclosed.  In the light of the statements in the letter of request, it is not for me to hold that these documents are inadmissible to the US proceedings on the ground of lack of relevance.”

47. In my view there is no merit in the submission that the evidence sought is not relevant and admissible at the trial.

Particular documents

48. Mr Chua submitted that section 76(4) of the Ordinance is concerned with particular documents specified and not classes of documents.  He submitted that what was being sought was classes of documents.

49. In Re Asbestos Insurance Coverage Cases [1985] 1 WLR 331 Lord Fraser of Tullybelton said at page 337:

“ The meaning of the expression “particular documents specified in the order” in subsection (4)(b) was considered by several of the noble and learned lords who took part in the Westinghouse case [1978] A. C. 547 decision.  They were all emphatic that the expression should be given a strict construction.  Having regard to the purpose of subsection (4) which, as I have already mentioned, is to preclude pre-trial discovery, it is to be construed so as not to permit mere “fishing” expeditions.  Lord Wilberforce said, at p. 609:

‘These provisions, and especially the words ‘particular documents specified in the order’ (replacing ‘documents to be mentioned in the order’ in the [Foreign Tribunals Evidence Act] 1856) together with the expressed duty of the English court to decide that the documents are or are likely to be in the possession, custody or power of the person called upon to produce, show, in my opinion, that a strict attitude is to be taken by English courts in giving effect to foreign requests for the production of documents by non-party witnesses.  They are, in the words of Lord Goddard C.J., not to countenance ‘fishing’ expeditions: Radio Corporation of America v Rauland Corporation [1956] 1 Q.B. 618, 649.’ 

Lord Diplock expressed perhaps an even more restrictive view of the effect of subsection (4)(b) where he said, at p. 635:

“The requirements of subsection (4)(b), however, are not in my view satisfied by the specification of classes of documents.  What is called for is the specification of ‘particular documents’ which I would construe as meaning individual documents separately described.”

I do not think that by the words “separately described” Lord Diplock intended to rule out a compendious description of several documents provided that the exact document in each case is clearly indicated.  If I may borrow (and slightly amplify) the apt illustration given by Slade L.J. in the present case, an order for production of the respondents’ “monthly bank statements for the year 1984 relating to his current account” with a named bank would satisfy the requirements of the paragraph, provided that the evidence showed that regular monthly statements had been sent to the respondent during the year and were likely to be still in his possession.  But a general request for “all the respondent’s bank statements for 1984” would in my view refer to a class of documents and would not be admissible.”

50. I am unable to accept Mr Chua’s submission.  In my judgment, the judge correctly came to the view that the descriptions of the documents that were sought before him were specific enough.  He said at paragraph 63:

“They are not general descriptions or descriptions of class documents.  They are specific documents to show who was in control of the bank account into which PrediWave’s money had been deposited and whether such money had been routed back to PrediWave or Qu during a particular period.”

51. However, I am of the view that paragraph 2 of the order made by the judge was too wide as it related to all accounts maintained by MOT with HSBC and not just account number 4593340706838.  Mr Chan accepted that this was the only account number mentioned in the documents in the US proceedings and in my view the judge’s order should be varied to limit the production of the particular documents in relation to this account only and not to other accounts of MOT with HSBC.

Confidentiality

52. Mr Pirie, apart from taking the same points as those taken by Mr Chua, took the further point that the court should not order discovery of a bank client’s banking documents where the client is a non-party in the litigation in the requesting country.

53. In Re Q Ltd [1997] 4 HKC 439 Woo J (as he then was) held that confidentiality between a bank and its customer was a matter to be considered in a balancing exercise against the public interest of the court in giving assistance to a foreign court in its administration of justice on the latter’s request for evidence in aid of its proceedings.  Where the evidence requested from a bank concerned a person against whom the foreign proceedings was brought and the evidence was material to prove certain allegations of fact raised bona fide in those proceedings, the public interest to assist the foreign court would properly outweigh any duty of confidence owed by the bank to such person.

54. It seems to me that this would also apply to a situation where the evidence requested from a bank concerned a person who was a non-party to the foreign proceedings.  Ultimately it is a question of balancing the public interest to assist the foreign court and the duty of confidence owed by the bank to its customer.

55. In my view the judge had this well in mind when he came to his view at paragraph 91 of his decision that the documents sought are

“ obviously material to prove the MOT issue.  Confidentiality is not enough to outweigh the public interest to assist the California Court.”

56. In my view the judge correctly came to the view that the duty of confidentiality was not enough to outweigh the public interest to assist the Californian court.  I am unable to accept Mr Pirie’s submission.

Material Nondisclosure?

57. It was submitted that there was material nondisclosure on the part of New World when it obtained the ex parte order from the master.

58. Mr Chua submitted that a key allegation by New World is that PrediWave sought to circumvent a contractual co-signing restriction for cheques of US$500,000 or above.  However, there was evidence that New World through its designees on PrediWave’s board:

(a) knew and approved multiple payments to MOT of just below US$500,000 which suited the convenience and non-availability of the co-signer Mr C.P. Chang;

(b) subsequently by board resolution on 26 July 2001 waived the co-signing requirement provided that Qu must be one of the signatories on all cheques in excess of US$500,000; and

(c) had approved of PrediWave’s purchase of memory modules from MOT.  

By not disclosing the above facts, it was submitted that the ex parte order should be discharged.

59. I see no merit in the submission that the ex parte order should be discharged.

60. It is plain that the MOT issue is disputed by PrediWave.  This is made clear in the letter of request at paragraph 42.

61. The MOT issue is also disputed by MOT as can be seen from the affirmation of Zhou Dongfei.

62. The judge said at paragraph 78 of his decision that the omission to provide particulars of PrediWave’s defences to the MOT issue is, in the circumstances, not material for the consideration of making the order pursuant to the letter of request.  I agree.

63. What is material depends in my view on the nature of the order to be sought.  The nature of the order sought is to give effect to the letter of request for assistance.  It is clear that there will have to be a trial of the issues in the US proceedings and that the allegations made are disputed.  In the circumstances, it does not seem to me that disputed facts which go to the merits of PrediWave’s defences to New World’s claims in the US proceedings are material facts for the application before the master.

64. In Wo Fung Paper Making Factory Ltd v Sappi Kraft (Pty.) Ltd [1988] HKLR 346 Hunter JA said at page 357:

“ I turn now to the two principles I conceive to be relevant, in relation to non-disclosure.  First the court’s power to discharge any order obtained ex parte for material non-disclosure is salutary and necessary.  As one of the earlier cases shows, ex parte Polignac [1917] 1 KB 486, it is there for the court’s own protection.  It is necessary to prevent its processes being abused.  Secondly there is another equally significant principle in this jurisdiction.  This is to make sure that the court does not get itself in a position of what might be called “counter-abuse”: where this sort of point is regarded by litigants as “a very present help in trouble”; and where problems arise on the substance to resort to attack as the best method of defence.  The point was put in words upon which I will not attempt to improve by this court in Citibank v. Express Ship Management Service [1987] HKLR 1184; first in the judgment my Lord, the Vice-President.  He starts by citing from the judgment of Browne-Wilkinson, J. in Thermax Ltd. v. Schott Industrial Glass Ltd. [1981] FSR 289 that what are material are:

“ all facts that are relevant to the weighing operation which the court has to make in deciding the point before it”.

My Lord went on in these terms:

“ While the courts must be vigilant, and insist that full and frank disclosure be made in grounding affidavits for ex parte applications for injunctions, Anton Piller orders etc, it is essential to bear in mind the true principle upon which this rule is based. Unless the courts use the sanction which the principle gives them only where the non-disclosure is of facts which are relevant to the ex parte judge’s ‘weighing operation’, an impossible burden would be placed upon applicants and their advisers, and affidavits ex abundanti will tend to contain all sorts of facts and exhibits which are not really necessary for the proper exercise of the court’s discretion when ex parte relief is sought.”

Likewise I am happy to adopt the observations of Macdougall, J. who at p. 1191 says:

“It would be unfortunate if it were to be thought that in laying down the very sensible and necessary principles concerning disclosure of all material facts, the court have intended to give active encouragement to undeserving defendants to search ingeniously for facts which a plaintiff may innocently have failed to disclose, in the hope that a judge may consider them to be material and so discharge [the original order].”

I fear that there has been a failure in this case, in the court below, to concentrate upon the material facts, and to appreciate that disputed issues of facts simply go to the need for trial, and are of very very little value indeed in deciding whether a good arguable case has been made out.”

65. On the waiver point, the judge at paragraph 75 of his decision said, correctly in my view, that the transfers took place from 11 January 2000 to 23 July 2001 whereas the waiver relied on only took place on 26 July 2001.  Hence, it cannot have been a material fact to disclose this on the application before the master.

66. On the question of whether New World, through its representatives on PrediWave’s board was aware of Qu’s transfers at below US$500,000 at the times when the transfers were made, the judge said at paragraph 76 of his decision that he did not think that there was clear evidence of this.  In any event, these are matters in dispute between the parties and I am unable to accept that this was a material fact to disclose on the application before the master.

67. The question of whether New World through its designees on PrediWave’s board had approved of the purchase of memory modules from MOT is also disputed.  In my view this disputed fact was not a material fact to disclose on the application before the master.

68. In any event, the judge expressed the view that even if New World has committed material non-disclosure, he would not exercise his discretion to set aside the master’s order on this ground.  In my view there are no grounds for interfering with the exercise of his discretion.

Conclusion

69. I would dismiss both appeals but would vary paragraph 2 of the order of the judge by further reducing the documents to be produced.  The documents in the US proceedings do not refer to any account of MOT with HSBC other than account number 4593340706838.  For that reason, I would vary paragraph 2 of the judge’s order to the extent that the documents identified in the order should be produced only in relation to the said account and not to any other account of MOT with HSBC.

70. The variation of the order ought not to affect the question of the costs of the appeal and I would make an order nisi in favour of New World for the costs of the appeal against PrediWave and MOT.