Asia-pac Infrastructure Development Ltd and Others v. Shearman & Sterling (A Firm) and Others

HCA 806/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 806 OF 2006

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REASONS FOR DECISION

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1.This was the 4^th application dealt with at the hearing. By its Summons filed on 17 December 2013 (Summons), the 1^st Plaintiff (APID) sought various discovery relief against the 9^th Defendant (HS). The only remaining dispute concerned para 3 of the Summons which asked for the discovery of documents (Documents) described as subject to privilege in HS’s List of Documents dated 9 September 2013 (List).

2.I was informed by counsel that the dispute involved a novel point of law.  It should be added that the circumstances giving rise to the dispute were quite unusual.  At the conclusion of the submissions, I allowed in part the relief sought under para 3 of the Summons.  These are my reasons for the decision.

Background

3.APID is a Hong Kong company.  The 2^nd to 4^th Plaintiffs are all BVI companies.  The 1^st to 3^rd Plaintiffs were controlled by Mr David Ho Yuk Wah (Ho), a central figure in the subject matter of this action.

4.The 1^st and 2^nd Defendants are one and the same entity as the former became the latter, a limited partnership, on 16 June 2003.  They are well-known firms of attorneys practising law in the United States and practising US law in Hong Kong as registered foreign lawyers.  The 3^rd to 8^th Defendants are individual lawyers within the 1^st and 2^nd Defendants.  Collectively, the 1^st to 8^th Defendants are referred to as the Shearman Defendants

5.HS is a well-known firm of solicitors with offices in Hong Kong and other parts of the world.

6.This action is brought by the Plaintiffs against the Shearman Defendants and HS in respect of allegedly negligent advice provided in 1999-2000 concerning the restructuring of certain exchange notes (Notes) which were issued by Greater Beijing First Expressways Ltd (GBFE) in the US bond market.  The holding company of GBFE was the 4^th Plaintiff.

7.In 1999, GBFE had cashflow problems and failed to make interest payments to the Noteholders when they fell due on 15 December 1999.  This ultimately resulted in the acceleration of the maturity of the Notes and the entirety of the sums owed under the Notes becoming payable on 11 February 2000.

8.GBFE engaged the Defendants to advise them. GBFE adopted a “consensual approach” and sought to obtain the consent of the majority of the Noteholders on restructuring the debts.  That approach turned out to be unsuccessful.  In the end, the Noteholders took out an ex parte winding up petition (Petition) in Hong Kong resulting in GBFE’s liquidation in HCCW 338/2000 on 12 June 2000.

9.The Plaintiffs allege that the Defendants were negligent in advising them.  There are, essentially, two complaints :

(i)   The Defendants ought, but failed, to have advised GBFE to undertake a unilateral “voluntary filing” for Chapter 11 protection in the US courts.  Due to the Defendants’ omission, GBFE is said to have lost the opportunity of an application under the relevant provisions in the US bankruptcy code prior to the presentation of the Petition and lost the relevant protections under those provisions.  GBFE suffered loss in the tune of US$322 million.

(ii)   The 1^st to 3^rd Plaintiffs had, via the 4^th Plaintiff, paid a total of HK$62 million to GBFE by way of loans in 1999-2000.  The Defendants had allegedly failed to advise them on the risk that they might not be able to recover the money if GBFE was wound up, which caused them loss.

10.This action was commenced 11 years ago in 2006.  It concerns events which took place 18 years ago leading up to the winding up of GBFE in 2000.

11.The alleged causes of action against the Defendants had been assigned more than once :

(i) Shortly before the commencement of this action in April 2006, pursuant to an order dated 14 March 2006, the liquidators of GBFE assigned GBFE’s causes of action to the 4^th Plaintiff for US$130,000 plus US$250,000 for the liquidators’ costs (the assignment included causes of action against another 10 potential defendants).

(ii) On 3 August 2009, the 2^nd to 4^th Plaintiffs assigned their causes of action to APID (including GBFE’s causes of action which had previously been assigned to the 4^th Plaintiff).  It should be mentioned that these assignments are challenged as being champertous and unlawful.

12.At about the time when GBFE defaulted on the Notes, Ho and his associates were involved in a wide range of disputes with various parties.  HS was retained to deal with many of such disputes.  The Documents were generated in the course of advising on these disputes.

The Documents

13.They were set out with some details in para 2 of Part 2 of the List.  There were 12 sub-paragraphs to para 2, and it appeared that there was a significant amount of documents relating to many cases concerning different lay clients of HB.  Many of them were involved in more than 1 dispute.

14.It was common ground that the Documents were highly relevant to the scope of the retainer(s) between HS and the Plaintiffs, one of the central issues in this action.  Both APID and HS were keen to have the Documents disclosed so as to assist the court in the adjudication of this action.

15.However, HS believed that it could not disclose any of the Documents with only the Plaintiffs’ consent.  A considerable amount of effort had been made by HS, and to a lesser extent the Liquidators acting for APID, to obtain the consent of the lay clients who were not involved in this action.  To some extent, this explained the delay in the resolution of this application.  Regrettably, such efforts were in vain. 

Issue

16.The arguments concerned only 1 class of documents, namely, those where the privilege was jointly owned by any one of the Plaintiffs and other lay client(s) of HS.  From my reading of the List, which was consistent with that of Ms Cheung, who appeared for HS, only 3 items belonged to that class, ie, paras 2.5, 2.10 and 2.11.1 of Part 2 of the List. Those items involved disputes where HS acted, in addition to one of the Plaintiffs, also for 3 lay clients who were not parties to this Action, namely, Ho, Asia-Pac Expressways Investment Management Ltd (APEIM) and David Y W Ho & Co (Firm).

17.It should be mentioned that in the course of his arguments, Mr Carolan, who appeared with Mr Kwok for APID, said that he was surprised by the limited amount of documents covered by privilege jointly owned by one or more of the Plaintiffs.  It might be the case that previous correspondence from HS had given rise to an impression that the documents in question were more extensive but I could see no real scope of ambiguity in the List.  It was a factual matter as to who HS was advising and, for discovery purposes, such matter would normally be accepted at face value unless there was a good reason not to do so. 

18.In light of the issue, this application was only concerned with the 3 lay clients of HS who were not party to this action.  Ho was running his practice as a solicitor via the Firm.  It appeared that it was a sole proprietorship at the material times because the detailed evidence of HS on the efforts made to obtain the consent of the non-party clients did not refer to any partners of the Firm. 

19.In respect of Ho, the court was informed that previously the Liquidators had obtained an indication from him that he would provide a written waiver of the privilege in question.  It should be noted that Ho had been providing assistance to the Liquidators in the conduct of this action. However, it appeared that there was a disagreement by Ho’s Trustees in bankruptcy as to whether Ho had the right to provide the waiver (the Trustees took the view that it might not be possible to identify the person having the right to waive privilege[1]). This disagreement might well be the reason why the waiver from Ho was not ultimately provided.  There was no suggestion at the hearing that HS’s belief that the privilege belonged jointly to Ho was erroneous. 

20.As regards APEIM, it was a Hong Kong company which was dissolved by deregistration on 25 September 2009.  There was no apparent avenue open for obtaining a waiver from APEIM. 

Joint privilege

21.Both Mr Carolan and Ms Cheung relied on The Law of Privilege, 2^nd edn, §6.04 as setting out the consequences of a joint retainer :

“• Party A and party B retain no confidence against one another; neither can assert privilege as against the other in relation to any privileged communication arising out of the joint retainer.

• If party A and party B subsequently fall out and sue one another, neither of them can claim privilege as against the other in respect of any documents created pursuant to the joint retainer.

• However, as against any third party (other than a successor in title – who stands in the shoes of the original party) both party A and party B can maintain a claim for privilege in respect of such documents. It is sufficient if only one of party A or party B claims privilege as against the third party.

• As the privilege is joint it can only be waived jointly and not unilaterally by either party A or party B.

• So far as joint privilege is concerned, it is accurate to say that once privileged, always privileged.”

22.In the context of an action by a former client against his solicitors, there was an “implied waiver” of privilege in relation to documents which were the subject of the retainer to avoid injustice where the solicitors needed to refer to privileged documents in their defence (see The Law of Privilege, §5.75)

23.As explained by Colman J in Nederlandse Reassurantie Groep Holding NV v Bacon & Woodrow and Ors [1995] 1 All ER 976, 986 (cited in §5.75 of The Law of Privilege), the implied waiver was in truth a legal principle to prevent unfairness. 

24.The unfairness in the circumstances before the court were more serious because both HS and APID, a joint owner of the privilege, wanted to make use of privileged material which might have an important bearing on the outcome of the action. 

25.On the other hand, Ho must be fully cognisant of this action, and he had made no claim of privilege.  If not for the disagreement of the Trustees, a written consent might have been provided by him. 

26.As for APEIM, Ms Cheung had helpfully provided the court with an analysis of the legal position as to the owner of the joint privilege given the dissolution of the company.  It was suggested that, based on first principles, the right in question belonged to the Government as bona vacantia.  Assuming that the analysis was correct, it was very difficult to see, bearing in mind also that the events took place nearly 20 years ago, that there remained any real interest in the joint privilege. 

27.The matter was therefore left in limbo.  The joint privilege was of no real interest and/or no claim of privilege had been advanced. 

28.In these circumstances, it was very difficult to see why the joint privilege should stand in the way of disclosure of the documents in question when the refusal of relief would result in unfairness. 

29.In the premises, I ordered the disclosure of the documents the privilege over which was jointly owned by 1 or more of the Plaintiffs as shown in the List. 

30.An appropriate draft order should be provided to the court for approval in due course.  It would be prudent to grant liberty to apply, and I do so. 

31.It must be recognised that this decision may be seen to constitute an inroad to the principles of joint ownership of privilege or an extension of the principle referred to in para 23 above.  However, this decision was made in these unusual circumstances, and the court was required to balance against the interest of preventing unfairness to both HS and APID. 

32.For completeness, Mr Carolan’s argument was based on the proposition that the reference to “third party” in the 3^rd bullet point of §6.04 of The Law of Privilege (see para 21 above) did not include HS, as the solicitors previously acting under a joint retainer.  I was unable to agree.  That was meant to refer to parties other than the joint owners.

33.Last but not least, I am grateful to counsel for their assistance.

Mr Paul Carolan and Mr Eugene Kwok, instructed by ONC Lawyers, for the 1^st to 4^th Plaintiffs

Mr Bernard Man SC and Mr Wilson Leung, instructed by Reed Smith Richards Butler, for the 1^st to 8^th Defendants

Ms Elizabeth Cheung, instructed by Reynolds Porter Chamberlain, for the 9^th Defendant