WHARF LTD AND OTHERS v. LAU YUEN HOW AND OTHERS

HCA1535/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1535 OF 2008

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D E C I S I O N  N O. 2

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Introduction

1. The background circumstances leading to the present proceedings had already been set out in paragraphs 3 to 8 of the Reasons for Decision handed down on 3 September 2008, which are not repeated here.

2. The plaintiffs obtained a Mareva injunction against the defendants on 17 August 2008.  The defendants were ordered to disclose their assets of an individual value of HK$50,000 by affidavit.  In purported compliance of the order, the defendants affirmed that they do not have any asset of such value save and except that the 2^nd defendant has HK$2,064,108.59, being the net sale proceeds of her property in Tseung Kwan O sold in August 2008, savings of HK$72,479.18 and HK$52,000 in two Hang Seng Bank (“HSB”) accounts and that the 3^rd defendant has NZD17,448.83 in her account with the Bank of China (Hong Kong) Limited (“BOC”) and a property.

3. The plaintiffs were dissatisfied with the discovery made by the defendants.  By summons dated 10 September 2008 taken out under section 21 of the Evidence Ordinance, Cap. 8 and in aid of the Mareva injunction, they applied for an order to inspect and take copies of the banker’s record of the defendants’ accounts for the period between 1 May 2004 and 17 August 2008 as follows :

(1)  Accounts with The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) :

(a)         004-178-160487-001, 004-178-160487-003 and 004-178-9-009-212 held in the name of the 1^st defendant (“D1’s HSBC 001 Account; D1’s HSBC 003 Account; and D1’s HSBC 212 Account” respectively); and

(b)        such other accounts of which the defendants are sole or joint signatories.

(2) Accounts with Standard Chartered Bank (Hong Kong) Limited (“SCB”) :

(a)         003-351-0-015983-2 held jointly by the 1^st and 2^nd defendants (D1’s & D2’s SCB Account”); and

(b)        such other accounts of which the defendants are sole or joint signatories.

(3) Accounts with HSB :

(a)         200-027688-888, 200-027688-382, 200-027688-385 and 279-1-111442 held jointly by the 2^nd defendant with Madam Hau Mei Yuk (“D2’s HSB Accounts”);

(b)        200-067809-888 held in the name of the 3^rd defendant; and

(c)         such other accounts of which the defendants are sole or joint signatories.

(4) Accounts with BOC :

(a)         012-887-1-055235-3 held in the name of the 2^nd defendant (“D2’s BOC Account”);

(b)        012-710-5-010838-7 held in the name of the 3^rd defendant; and

(c)         such other accounts of which the defendants are sole or joint signatories.

4. The plaintiffs had already served the summons on the banks.  None of them opposed the application.

5. The 2^nd defendant, represented by Ms Ng, opposed the application on the following grounds :

(1)     It is too wide in scope.

(2)     It is inappropriate.

(3)     It is a fishing exercise.

(4)     It is oppressive.

(5)     It offends the 2^nd defendant’s right against self-incrimination.

6. The 1^st and 3^rd defendants, represented by Mr Mok, relied on similar grounds save and except the one on self-incrimination.

The general principles

7. Section 21(1) of the Evidence Ordinance provides :

“On an application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings.”

8. In Assets Investments PT Limited v. The United Islamic Investments Foundation and Others, HCA4392/1993, unreported, 21 January 1994, Barnett J reviewed some of the relevant authorities thus :

“6.    … The basic principle is that section 21 of the Evidence Ordinance (for the purpose of these proceedings being in substance identical to section 7 of the Bankers’ Books Evidence Act 1879) does not permit a litigant to embark upon a wholesale search of bank accounts in the hope of turning up something to his advantage. In Williams v. Summerfield (1972) 2 QB 512, Lord Widgery C.J. said :

‘The courts have set their face against section 7 being used on a kind of searching enquiry or fishing expedition beyond the usual rules of discovery.’

7.      The procedure itself is anomalous.  Whilst it is no doubt principally applicable to the trial of an action, it may be used in relation to interlocutory proceedings where there is an issue to be determined between the parties.  There has not, however, been any detailed pronouncement by the courts of the criteria against which an order for inspection will be made.  In some ways, it is analogous to the right of inspection consequent upon discovery under Order 24.  In a number of cases, decided in the late 19^th century following the introduction of the English Act, there was a suggestion that the principles relating to discovery should be followed.  Analysis of the cases, however, shows that the courts were anxious to prevent a litigant obtaining by the back door that which he could not obtain through the front, so that a litigant having sworn that certain discovered documents were not relevant, the applying party could not go behind the truth and obtain copies of those documents by going to the bank under section 7 of the Act.  See, e.g. South Staffordshire Tramways Co. v. Ebbsmith [1895] 2 Q.B. 669. In Parnell v. Wood [1892] P 137, Kay LJ said at page 141 :

‘The act does indeed provide by section 7 for allowing inspection where a judge thinks proper to order it, but a case must be made showing that such inspection is proper.’ ”

9. He then concluded :

“8.    In my judgment, the matters which must be demonstrated to a court before it can consider making an order under section 21 of the Evidence Ordinance are that the other party has a bank account and that there is a probability that that account will contain material germane to an issue which is to be tried between the parties.  Put shortly, perhaps, the test is relevance.”

10. In CTO (HK) Ltd v. Li Man Chiu & Others [2002] 2 HKLRD 875, I had this to say :

“Purpose of discovery order in aid of Mareva injunction

10.    To make a Mareva injunction effective, the court has a discretion to order the defendant to make a statement of his assets and to give discovery of documents for the purpose of ascertaining the existence, nature and location of assets and in the case of a proprietary claim, the whereabouts of the missing trust funds : see A v. C (No 1) [1981] QB 956 (note).  The primary purpose of the discovery order is to preserve the assets or property which might otherwise be dissipated notwithstanding the injunction.

11.    It is not uncommon that a plaintiff, like the plaintiff here, seeks to invoke section 21 of the Evidence Ordinance (Cap. 8) for an order that it may inspect and take copies of any entries in a banker’s record.  The bank may or may not be summonsed before the court when such an application is taken out : see sub-s (2).

12.    Though the court would not lightly use its powers to order disclosure of full information touching the confidential relationship of banker and customer, such an order is justified even at the early interlocutory stages of an action where the plaintiff sought to trace funds which, in equity, belonged to it and of which there was strong evidence that it had been fraudulently deprived and delay might result in the dissipation of the funds before trial : Bankers Trust Co. v. Shapira [1980] 1 WLR 1274.  The plaintiff would normally be required to give an undertaking that such information would be used only for the purposes of the action to trace the funds and not for any other purposes.

13.    In Arab Monetary Fund v. Hashim (No. 5) [1992] 2 All ER 911, Hoffmann J (as he then was) imposed three limits on the Bankers Trust Co. v. Shapira [1980] 1 WLR 1274 jurisdiction at pp.918E–920A.  First, the plaintiff must demonstrate a real prospect that the information may lead to the location or preservation of assets to which he is making a proprietary claim.  For the jurisdiction rests upon the proposition that unless the assets in question can be located and secured, the ultimate determination of ownership of those assets may be frustrated by their removal or dissipation and there will be no point in calling on the third party at the trial to produce the required documents or give the requested information.  Second, the jurisdiction is more restricted than a request to a party for general discovery on an issue.  When documents are required to be disclosed, the third party should be entitled to the same specificity in the documents he is asked to produce as he would be served with a subpoena.  Likewise, if he is asked for information, the questions should be directed with specificity to ascertaining the whereabouts of the assets in question.  Third, even if the application is prima facie falling with the Bankers Trust principle, the court needs to balance the potential advantage against the detriment to the person against whom the order is sought, not merely in terms of costs (for which he is ordinarily compensated on an indemnity basis by the terms of the order) but by way of invasion of privacy and requiring breach of obligations of confidence to others.”

11. With these principles in mind, I turn to consider if the present application should be allowed.  Since relevance is the test, it is useful to begin with the parties’ pleaded case.

The parties’ pleaded case

12. The plaintiffs’ claims may be summarised thus.  The defendants wrongfully conspired with each other to jointly misappropriate the funds of the plaintiffs during the period between 13 May 2004 and 30 January 2008.  Wrongfully and in breach of his fiduciary duties, the 1^st defendant falsified the autopay diskette submission forms, remittance instructions and the machine readable input diskette as required by the HSBC for autopay by adding the names of the defendants in disguise of the plaintiffs’ senior staff in the payroll to claim unauthorized payments.  Pursuant to and in furtherance of the conspiracy, the plaintiffs’ funds in the total sum of HK$8,500,000 with the HSBC were misappropriated and transferred into the defendants’ accounts thus :

	Date	Sum (HK$)		Account
1.	13/5/2004	200,000		D1’s HSBC 212 Account
2.	27/5/2004	1,000,000		D1’s HSBC 212 Account
3.	30/3/2005	1,000,000		D1’s HSBC 212 Account
4.	11/5/2005	200,000		D1’s HSBC 212 Account
5.	27/5/2005	1,000,000		D1’s HSBC 212 Account
6.	30/12/2005	400,000		D1’s & D2’s SCB Account
7.	30/3/2006	400,000		D1’s HSBC 001 Account
8.	16/5/2006	80,000		D1’s HSBC 001 Account
9.	29/6/2006	(a) 600,000		D1’s & D2’s SCB Account
		(b) 500,000		D3’s Account024-200-067809-888with HSB
10.	30/8/2006	400,000		D1’s HSBC 001 Account
11.	27/10/2006	500,000		D1’s & D2’s SCB Account
12.	28/12/2006	600,000		D2’s account024-200-027688-888with HSB
13.	30/5/2007	(a) 540,000		D1’s HSBC 001 Account
		(b) 780,000		D1’s & D2’s SCB Account
14.	30/6/2008	300,000		D1’s HSBC 003 Account
	Total :   8,500,000

13. On 4 July 2008, the 1^st defendant drew a cheque of HK$659,540 in favour of the 1^st plaintiff and deposited the same in the 1^st plaintiff’s account, which reduced the total loss suffered by the plaintiffs to HK$7,840,460.

14. The plaintiffs claimed that the defendants are liable as constructive trustees and prayed in aid the remedies of, among other things, tracing and money had and received.

15. The 1^st defendant’s only substantive defence is that the transactions were all confidential dealings authorised by the chairman’s office of the plaintiffs and carried out with their knowledge and for their benefit.  He also denied that he had falsified any document as alleged.

16. The 2^nd and 3^rd defendants basically adopted the 1^st defendant’s defence.  They further alleged that had no knowledge of the dealings between the 1^st defendant and the plaintiffs.  Of the transactions which involved their accounts, transactions 6, 9(a), 11 and 13(b) were banked into the D1’s & D2’s SCB Account without the 2^nd defendant’s knowledge.  As to transaction 12, the 2^nd defendant believed that the money derived from the Hang Seng Index stock trading and was banked in by the 1^st defendant.  As to transaction 9(b), the 3^rd defendant believed that the sum of HK$500,000 was the loan that the 1^st defendant had agreed to lend to her.

The parties’ submissions

17. The defendants’ accounts against which the plaintiffs sought discovery fall into two board categories :

(1)     those into which HSBC directly remitted the plaintiffs’ moneys between 13 May 2004 and 30 January 2008; and

(2)     those under the names of the defendants other than (1).

18. In essence, Ms Ng and Mr Mok submitted that the discovery sought is too wide in scope and inappropriate.  It is a mere fishing exercise and hence oppressive.

19. Ms Wu, appearing for the plaintiffs, submitted that the banker’s record of these accounts is relevant in constituting the movement of the misappropriated funds and revealing the identity and information of the recipients in the pipeline, to which the plaintiffs are entitled to identify by way of tracing.  Those accounts under (1) are the recipient accounts.  They are prima facie relevant, given the actual payment of the misappropriated funds into them by HSBC.  And those under (2) help complete the inquiry.

20. Ms Wu went on to submit that the exercise is particularly significant on the current state of evidence.  The defendants asserted that they do not have any asset of an individual value of more than HK$50,000 save and except those referred to in paragraph 2 above.  One naturally asked where the misappropriated funds had gone when :

(1)     the misappropriated funds amounted to a substantial sum of HK$8,500,000;

(2)     between 7 and 16 July 2008, a total of HK$1,020,101.17 (as compared to HK$72,479.18 asserted now) was standing to the credit of one of the D2’s HSB Accounts;

(3)     deposits of HK$537,000 and HK$225,000 into D2’s BOC Account on 7 August 2008;

(4)     withdrawal of HK$220,000, HK$300,000 and HK$200,000 in cash from D2’s BOC Account on 7, 8 and 11 August 2008 respectively; and

(5)     the purchase by the 2^nd defendant of the Tseung Kwan O property on 20 May 2005 at HK$7,290,000 subject to mortgage.

21. Turning to the period of discovery (1 May 2004 to 17 August 2008), Ms Wu submitted that the inquiry should begin at the time when the first misappropriation of funds took place, that is, 13 May 2004 : see CTO, para. 21 at 881H-I.  The enquiry should end on 17 August 2008 when the plaintiffs obtained the Mareva injunction whereupon the accounts would be frozen.

22. Finally, Ms Wu submitted that the plaintiffs’ application is well founded and bona fide.  It is not a fishing exercise in the hope of turning up something coincidentally to their advantage in the course.

23. I agree with Ms Wu’s submissions entirely save and except that the time for discovery should start at 13 May 2004 and not 1 May 2004 as requested in the summons.

24. What remains is Ms Ng’s submission that the discovery would offend the 2^nd defendant’s right against self-incrimination in the pending criminal case.  I am unable to accept this submission.  As noted, the 2^nd defendant’s principal defence is that :

(a)     the transactions were all authorised by the plaintiffs and carried with their knowledge for their benefit; and

(b)     she did not know the dealings between the plaintiffs and the 1^st defendant.

That being her defence, I fail to see how the discovery sought, which focuses on the movement of funds, would prejudice her defence in the criminal proceedings at all.

25. For the above reasons, the plaintiffs’ application is allowed in principle subject to the following points.

26. First, in paragraph 3 of the summons, the plaintiffs sought an order to use the information disclosed for the purpose of proceedings against the defendants in Hong Kong and elsewhere.  Ms Wu effectively abandoned this when she offered an undertaking that the plaintiffs shall use the information disclosed in these proceedings only unless otherwise compelled by a court order.  The undertaking is in my view necessary.

27. Second, as noted, the discovery should begin on 13 May 2004.

28. Third, as to the costs for making the discovery, the banks should be reimbursed with the costs in complying with the order.  I agree with Ms Wu that it is only fair for the parties to bear those costs in equal share initially and the successful party be allowed to claim its share of costs from the losing party at the end of the day.

29. The plaintiffs’ solicitors should file a draft order for the court’s approval within 14 days from today.

30. As to the costs of the application, I will make an order nisi that the plaintiffs shall have the costs against the defendants in any event, to be taxed if not agreed.