Elliott International, L P and Others v. The Bank of East Asia, Ltd and Others

HCMP 1812/2016

[2018] HKCFI 2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1812 OF 2016

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D E C I S I O N

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Introduction

1.The Petitioners (who I shall refer to as “Elliott”) and the Respondents have both issued summonses for discovery.  The Petitioners’ summons dated 26 May 2017 seeks discovery of documents identified in the extensive schedule appended to the summons.  The 2^nd to 19^th Respondents’ (who I shall refer to collectively as the “Board”) summons is also dated 26 May 2016.  It seeks disclosure of documents, which are divided into 13 classes, which it is apparent from the descriptions of each class are directed to types of documents, which will shed light on Elliott’s strategy in respect of their investment in the 1^st Respondent, The Bank of East Asia Limited (“Bank”).[1]

2.The Bank’s position in respect of the applications is neutral other than in one respect, which I explain in the next paragraph.  The Bank has filed evidence informing the court of the extent of the work involved in complying with an order for discovery of the documents sought by Elliott.

3.The Bank has raised the issue of legal professional privilege in respect of a number of the classes of documents sought by Elliott.  Counsel agreed at the hearing that the issue contained a number of different components and that further evidence would need to be filed before all of them could be disposed of.  I took the view that it was better if they were all dealt with together.  That question was adjourned for further argument. 

4.On 21 September 2016 I made an order for directions, which included a direction that was largely uncontentious, which required the parties to give discovery by exchanging in the first instance lists of the documents of which they required discovery.  The parties would then give discovery of those documents or categories of documents to which they did not object, and serve a schedule setting out their objections to those that were opposed.  There follows what has been referred to as “rolling discovery” in respect of uncontentious requests.

Elliott’s summons

5.Elliott’s summons seeks an order that the Board and Bank “serve on the Petitioners a list of the documents which are or have been in [their] possession, custody or power relating to the matters in question, but limited to such documents and classes of documents which come within the documents and classes of documents identified or described in the Schedule hereto”.  The Schedule identifies 35 classes of documents and contains annexes defining various of the terms used in the descriptions used in the classes.

6.Elliott’s application is wide, and invites the question: why not start with an order for general discovery and then having seen what is disclosed formulate an application if necessary for specific discovery.  Mr Sussex’s answer was that it was partly with a view to aiding the Bank and the Board identify relevant documents and partly because of a concern that their view of what was relevant would be narrow.  The way in which the application is framed would only require disclosure of documents that fall within the 35 classes if they are relevant “to the matters in question”.

7.The Board opposes discovery of the various classes on the grounds that the documents are by their nature irrelevant.  I shall use the first class to illustrate the principal controversy between the parties:

“The Criteria Agreements dated on or about 22 June 2009 (as described in BEA’s announcement dated 22 June 2009), comprising:

(a) the Strategic Collaboration Agreement;

(b) the Strategic Investment Agreement; and

(c) the Letter of Intent,

including any drafts thereof and any communications under the cover of which such drafts were transmitted by a party (and/or its legal representatives) to the other party (and/or its legal representatives).”

8.In the Petition Elliott seek a declaration in para 1 of the prayer that resolutions passed by the Board in September 2014, February and March 2015 and January 2016 were passed for an improper purpose.  The resolutions relate to a placement to SMBC in 2015 and a sale of shares by CaixaBank to Criteria Caixa in December 2015, which had been placed to CaixaBank in 2009.

9.The Board says that drafts of the agreements and associated communications produced for the purposes of the placement to CaixaBank in June 2009 cannot be relevant to the placement to SMBC over five years later nor to the Board’s approach to the variation of the undertakings given by CaixaBank in late 2009 in respect of the voting and sale of their shares.

10.Mr Sussex submitted that the draft agreements might contain material, which sheds light on members of the Board’s, presumably in particular members of the Li Family, motivation in entering into strategic investments agreements in 2009 between the Bank and Caixabank, which imposed restrictions on, amongst other things, sale of shares held by members of the Criteria Group and required them to vote their shares in favour of capital raising resolutions proposed by the Board.  Elliott anticipate that if any of the documents in class 1 do reveal members of the Boards’ motivation it is likely that it will show that the resolutions were motivated by a desire to entrench the Li Family’s control of the Bank.  If this is the case that will be consistent with Elliott’s case in respect of the placement to SMBC and support it.

11.It may be that documents falling within class 1 do contain material, which sheds light on what motivated the inclusion of restrictions of the sort I have described in the agreements and to that extent the documents may be relevant.  I, of course, do not know and at this stage neither the Bank nor the Board have gone through the documents to check.

12.At the end of the first day of the hearing Mr Sussex said during an exchange with me “… the big issue is scope, so your Lordship really is going to have to rule on the relevance of the classes as classes to this litigation….”  This is broadly correct.  The meaning of relevance in this context is explained by Brett LJ in Peruvian Guano,[2] namely, that it is reasonable to suppose that a document “contains information which may enable the party (applying for discovery) either to advance his own case or to damage that of his adversary, if it is a document which may fairly lead him to a train of inquiry which may have either of these two consequences.”

13.The starting point is to identify what is relevant to the matters in question in the Action.  Broadly, it is the reasons why the Bank decided to enter the placement to SMBC in 2015 and why it required the restrictions imposed on SMBC’S exercise of its voting rights and sale of shares.  Similarly, in relation to sale by CaixaBank it is the reason why the Bank agreed modification of certain undertaking forming part of the terms on which the placement in 2009 was agreed.  Elliott are, presumably, principally interested in documents containing statements that will support its case.  Mr Sussex submitted that what was sought went beyond obviously relevant documents, because Elliott anticipated that the context and process of negotiation commencing with the Criteria Agreements in 2009 (see [1] of the summons quoted above) would shed light on Sir David’s motivation in promoting the placement to SMBC and requiring restrictions on the sale of shares to be required on CaixaBank’s sale to its associate.  Elliott expect that from a study of the documents recording the negotiation and implementation of the placements between 2009 and the end of 2015 will emerge the true reason why the placements took place and why the terms of which Elliott complain were required of the placees.

14.Elliott say that the decision to break down the documents of which they seek discovery into the classes described in the schedule to the summons was intended to help direct the Bank and the Board to those classes of documents they expected would be relevant rather than simply request unqualified general discovery.  The way in which the argument between the parties has developed, however, assumes that Elliott are entitled to and seek all the documents described in the different classes.  However, as [1] of the body of the summons itself recognises by qualifying the documents of which discovery is sought by the normal formula “relating to the matters in question”, discovery can only be sought of documents which are relevant in the Peruvian Guano sense.  The discovery application is made pursuant to Rules of the High Court, Cap 4A, O 24, r 3, namely, it is an order for general discovery, which is made necessary as rule 1 does not apply, albeit general discovery limited to relevant documents falling within the classes in the schedule to the summons is what is sought.

15.There is no general discovery in actions commenced by petition pursuant to s 724 of the Companies Ordinance, Cap 622.  Generally, the Companies Court allows applications for discovery in the first instance to be brought under O 24, r 3 for discovery of documents that are relevant to the matters in question and does not require evidence in support to be filed.[3] Elliott accept that although the court takes a broad and flexible approach to applications for discovery under r 3 in proceedings commenced in the Companies Court by petition, it is necessary for the applicant to satisfy the court that—

(1)   the documents were or had been in the possession, custody or power of the respondent;

(2)   they were relevant to the matters in question; and

(3)   discovery was necessary either for disposing of the cause or matter or for saving costs.[4]

16.Sub-rule 3(3) provides that an order under rule 1 may be limited to such documents or classes of document only, or to such only of the matters in question in the cause or matters, as may be specified in the order.  This is what Elliott seek to do.  Mr Yu, however, reminded me that a class of documents cannot be defined by reference to an issue and the class must be defined with adequate precision.  In Deek v NM Rothschild [5] the Hong Kong Court of Appeal held, in an appeal concerned with O 24 r 7, that a class cannot be defined by reference to a particular issue, but must be defined by its nature.  I accept that the definition of the class of documents must also be sufficiently specific to allow the party giving discovery to be clear what it is that he is required to disclose.

17.Mr Yu further argued that the description must not be so wide as to include documents that are not relevant and referred me to the decision of Cheung J (as he then was) in Estate of Chiu Yu Fu v Ocean Park Corporation.[6] This was also said in the context of an application under rule 7.  This requires two qualifications.

18.First, relevance is assessed by reference to the Peruvian Guano test.  This is very wide and includes documents that may, not must, lead to a train of inquiry, which assists one party’s case or damages that of his opponent.  The fact that some of the documents may turn out at the end of the day not to be relevant is not itself material.[7]

19.Secondly, it does not seem to me that the fact that it is possible or even likely that the description of the class may include a few documents that are not relevant is of itself fatal.  It is a matter of degree. It may be difficult to define a class so as to avoid the respondent having to look for documents, which on careful consideration it appears even on the wide Peruvian Guano test are not relevant.  As long as such documents are likely to be small in number and requiring them to be obtained and read for relevance is not onerous, the class will be acceptable.  What is not permissible is to define a class in such a way that it necessarily involves the respondent having either to obtain and check documents a substantial proportion of which it is known in advance will not be relevant.  It may be objected that this is what a party has commonly to do when carrying out general discovery and, therefore, it should not of itself be a ground for rejecting discovery by class so long as it is clear that only the documents that are identified as relevant within the class actually have to be disclosed.

20.If this was what Elliott intended and the classes had been formulated simply as guide to what classes of documents, they thought were likely to contain relevant documents and should be reviewed I might agree.  The order could have been drafted using the standard language in O 24, r 3(1).  There would be no need for reference to the classes to be included in the order.  It would be sufficient for the solicitors to write identifying what classes of documents it was thought should be reviewed.

21.It is apparent from the way in which Elliott’s case has been advanced before me that this is not what Elliott intend.  Their case is that the documents in the classes are relevant and should be disclosed.  The inclusion of the words “relating to the matters in question” in para 1 of the body of the summons is misleading, because it is clear that Elliott do not intend an order in terms of the summons to permit the Board to respond: “we have checked all the classes and we have found nothing relevant”. As Mr Sussex’s oral submission quoted in [12] indicates, Elliott want me to determine that the documents in the classes are relevant and order that the Bank and Board disclose them.

22.Before turning to consider the various classes, there are a number of other principles to which regard needs to be had:

(1)   A party should not be required to undertake unnecessary or unreasonably onerous discovery.[8]

(2)   As one would expect, a class should not be defined with a view to requiring a party to produce an extensive amount of documents amongst which he anticipates there may be documents that he will consider relevant, but his opponent may not and cannot be trusted to disclose.

(3)   A class should be formulated so as to describe a particular type of relevant documents.  It should not be formulated with a view to directing how the respondent should carry out discovery.  As will become apparent when I address particular classes of documents sought by Elliott, this is frequently what Elliott’s wording seems intended to do, and this has made the application more complicated and time consuming than in my view was necessary.

23.In other words, classes cannot be framed (a) on the assumption that the other party cannot be trusted correctly to identify and disclose all relevant documents and, (b) consequently framed in wide terms, which will require disclosure of large quantities of documents, some relevant and some irrelevant, in order to ensure that the relevant are disclosed.

24.Elliott’s case presents particular difficulties in this regards.  Elliott say, not unreasonably in my view, that the motives behind the placements may only be apparent from an assessment of the way in which the Bank dealt with the placements and its relationship with CaixaBank and SMBC over an extended period of time.  It may be, the argument goes, that a document viewed in isolation may seem to have no relevance to the issues, but when read as part of an extended communication it may do, if only because in order to make sense of individual documents it is necessary to read all the correspondence in the chain.

25.In my view in order to determine whether or not a class is relevant the court needs to assess on the basis of such evidence as it has before it whether on the balance of probabilities the documents in the class will be relevant in the Peruvian Guano sense.  Regard needs to be had to the nature of transactions and the parties involved.  In this case both the subject matter and the parties are sophisticated.  It is reasonable to proceed on the assumption that an understanding of the Bank’s motives will emerge from a nuanced reading of various documents and communications that set out the background to the placements and progress of their negotiation and implementation commencing with the Criteria Agreements referred to in [28] of the Petition.

26.The Board argues that the reason it resolved to place shares to SMBC on the terms that were agreed cannot be discerned from the negotiation and agreement of the Criteria Agreements and the Criteria Undertakings some years earlier.  It does not seem to me that this is correct. It is Elliott’s case that the placement to SMBC was agreed with the intention of entrenching Li Family’s control of the Bank.  It is the Bank’s case, as I understand it, that the placements to Criteria Group and SMBC were to raise capital and establish strategic partnerships.  If the contemporaneous documents demonstrate that in concluding the Criteria Agreements and requiring the Criteria Undertakings the Bank was motivated to some degree by a concern that the Li Family’s control of the Bank might be in threat, it would make it more likely that another placement to SMBC five years later (the SMBC memorandum of understanding was entered into in September 2014) was motivated to some degree by a similar concern.  Conversely, if the contemporaneous documents evidence only a concern about the adequacy of the Bank’s capital in the light of future economic uncertainties as a result of the 2008 financial crisis and potential changes in capital adequacy criteria, this would be consistent with the Bank’s explanation that amongst other concerns at the time the SMBC memorandum of understanding was agreed was the impact of the full implementation of the Basel III requirements.[9] In my view the reasons for the Bank entering the Criteria Agreements and requiring the Criteria Undertakings are discoverable, because they are a relevant part of the history of substantial placements to strategic investors, and from that history will emerge the motivation and attitude of members of the Board, in particular members of the Li Family, to the placement to SMBC.

27.As I have already explained there are a large number of classes of documents and the description of each class is lengthy.  Although the court may when considering the description of classes make straightforward amendments to the wording, it is not function of the court to reformulate the classes in order to turn what the court considers an impermissible class into a permissible class.  If a party chooses to formulate a discovery application in the complex way Elliott have done it runs the risk of the application failing for this reason.

28.Such evidence as the parties have served in respect of both applications is of limited probative value.  Elliott’s application is supported by an affirmation of Matthew Puhar of Akin Gump.  Although it provides a detailed commentary on the reasons why it is suggested that the classes are relevant, it is for the most part not evidence at all, but rather an explanation by Elliott’s solicitors of why a class is sought.  The same is true of Winston Lo’s 3^rd affirmation in support of the Board’s application.  Elliott filed an affirmation of Daniel Cohen in response to Mr Lo’s 3^rd affirmation, which for the most part suggests that the description of the classes is too general or vague.  Tang Ying Kit of Linklaters provides a critique of Elliott’s request rather than evidence.  Mr Samson Li filed an affirmation on behalf of the Bank addressing primarily the mechanics of the making the discovery sought by Elliott.  I have had regard to the evidence, although as I have observed it is more in the nature of argument than proof of facts or matters, which help demonstrate that the classes consist of relevant documents.

Class 1:       (Quoted above)

29.I am satisfied that the agreements are relevant and also documents recording the negotiation and agreement of what are defined in [28] of the Petition as the Criteria Undertakings are relevant for the reasons given in [25] above. 

30.The final paragraph of the class description refers to “communications”, which is a term defined in the annex to the schedule to the summons, which reads:

“means communications, including any attachments or enclosures thereto, which, save as indicated otherwise in items 4, 6, 8, 12, 13, 19, 24, 36 and 37 in the Schedule to this Summons, have been sent or received by any BEA Custodian.”

The definition of “BEA Custodian” is lengthy:

“ ‘BEA Custodian’ means any of the individuals referred to in Appendix I to this Summons and any individual not identified in Appendix I to this Summons who has served in any of the following positions (or its nearest equivalent) over the relevant period:

1. ‘General Manager and Head of Legal, Tax and Secretarial Division’;

2. ‘General Manager and Head of HR & Corporate Communications Division’;

3. ‘Group Chief Financial Officer and General Manager’;

4. ‘General Manager and Head of China Division’;

5. ‘Company Secretary’ and/or

6. ‘Head of Investment Operations Section under the Settlement Operations Department’,

or, in each case, an equivalent position known by a different title.”

31.Annex 1 lists 41 individuals.  In addition, as can be seen from the definition it includes employees of the Bank who hold particular senior positions or “in each case, an equivalent position known by a different title.”  Predictably, this qualification is criticised by the Bank and the Board as being uncertain.

32.The Bank has only identified one person who it believes comes within the definitions, who is not listed in Annex 1: Cheung King Yu, Jenny, who has been the General Manager and Head of Legal, Tax and Secretarial Division, since 1 April 2009.  The Bank has proposed that seven people be included in the definition of BEA Custodian, who were involved in the relevant transactions and whose names, if used as search tools, should catch the documents sought by Elliott.  This was rejected.

33.The 42 (including Ms Cheung) include 21 who held or hold non-executive roles, four former employees and 10 who had no or not significant role in the transactions.  I can see no reason why, if the Bank believes that using the seven names that it has proposed for search purposes will catch all relevant documents they should not proceed on that basis.  There is a more general point.  As I have already observed it is not the function of the description of the class to instruct the respondent on how to carry out discovery of the relevant documents.  It may be helpful for an applicant to inform his opponent of what he would expect them to do and for the opposing party to take note of this, but that is a different matter.  I can see no reason why class 1 needs to do more than identify the documents with precision.  The Bank and the Board will then be required to locate them.

34.It also seems to me that the definition of communication is unnecessarily complex.  The order will use the term document, which in the context of O24 has an established wide meaning.[10]

35.The class shall read:

“The Criteria Agreements dated on or about 22 June 2009 (as described in BEA’s announcement dated 22 June 2009), comprising documents recording the negotiation and agreement of the ‘Criteria Undertakings’ as defined in paragraph 28 of the Petition.”

Class 2:      

“With respect to each meeting of the Board between 1 January 2007 and the date of BEA’s entry into the Criteria Agreements, during which proposals for and/or the terms of (what eventually became) the Criteria Agreements and/or Criteria Undertakings were discussed:

(a) the Minutes of such meetings;

(b) any Board Papers; and

(c) any resolutions adopted at such meetings.”

36.I accept that documents recording the discussions of members of the Board about the purpose of entering the Criteria Agreements and requiring the Criteria Undertakings are relevant for the reasons given in [25] above.  The Board complains that it is unclear what meetings are covered by the expression “meeting of the board”.  This complaint stems from the definition in the Annex to the Schedule to the summons.  “Meeting of the board” is defined as including a formal convened meeting or an informal gathering, of some or all of the directors of the board.

37.As what is sought are minutes, board papers and resolutions, it would appear that the class is directed to formal board meetings as informal gatherings would by their nature not generate such documents.  The definition I agree is unhelpful.  The description of this class, which I shall order should commence: “With respect to each Board meeting between 1 January 2007….” 

Class 3:

“Communications between 1 June 2008 and 22 June 2009 concerning the Criteria Undertakings.”

38.At the hearing before me Elliott proffered an alternative formulation of the class.  It seems to me that it is clear what the Critiera Undertakings are and having decided they are relevant it follows that documents recording the negotiation and agreement of those undertakings are relevant and should be disclosed.  As with class 1 “communications” will be replaced with “documents”.

Class 4:

“With regard to proposals for and/or the terms of the Criteria Undertakings:

(a) Communications and Solicitor Communications with the SFC, HKMA or FRB; and

(b) Minutes of meetings and/or discussions between any BEA Custodian and the SFC, HKMA or FRB,

which are dated or which took place between 1 June 2008 and 22 June 2009.”

39.I have already discussed the breadth of the defined term “BEA Custodian”.  Its breadth is a reason the Board opposes this class.

40.What this class seeks is documents generated by the Bank’s staff or officers or received by them referring to the Criteria Undertakings.  If the Criteria Undertakings and the reasons why there are required are relevant, as I have found them to be, it follows that documents recording this process are relevant in the Peruvian Guano sense.  However, in my view Elliott’s formulation of the class is unnecessarily complicated.

41.I will order that the following class of documents is disclosed:

“Documents referring to the Criteria Undertakings (1) sent by the Bank, its employees, agents or officers to other employees, agents or officers of the Bank or third parties or (2) received by the Bank, its employees, agents or officers from other employees, agents or officers of the Bank or third parties.”

Class 5:

“With respect to each meeting of the “Steering Committee” established by BEA, Criteria and la Caixa which is allegedly responsible for the “strategic collaboration” between these entitles, as referred to in BEA’s announcement dated 22 June 2009:

(a) any Minutes of such meetings;

(b) any meeting papers, including memoranda, recommendations, updates and reports, relating to or prepared for the purpose of such meetings; and

(c) any record of any decision adopted, recommendation made or conclusion reached at such meetings.”

42.This class is said to be relevant because it will demonstrate whether or not the “Steering Committee” operated in a way consistent with the stated purpose for the Bank entering into the Criteria Agreements.  Even if the documents say very little they will still be relevant, because that will be consistent with Elliott’s case that the arrangements with Criteria served no meaningful purpose other than to entrench Family control. The arrangements provided little benefit to the Bank.

43.As well as the general objection that one cannot discern from a past transaction the motive for a later one, the Board also objects that the Steering Committee is not referred to in the Petition.  It does not seem to me that this is of itself material if the document is relevant in the Peruvian Guano sense.

44.I will order this class of documents be disclosed.

Class 6:

“Communications sent or copied to any Criteria Person from 1 January 2007 to the date of the Petition, referring to or concerning:

(a) the appointment, re-election or resignation of any director of BEA;

(b) the size of the Criteria Group’s shareholding in BEA;

(c) the exercise of shareholder voting rights by the Criteria Group;

(d) a change of control, or a takeover, of BEA; and/or

(e) an issuance of new shares in BEA to SMBC or any other potential placee, subscriber or investor.”

45.This seems to me to be too wide and necessarily will include a material amount of documents, which are not required in order to ascertain the way Board members and senior Bank staff viewed the purpose of the Criteria Agreements and Criteria Undertakings.  I do not think that in the case of this class it is appropriate for the court to try and identify what within the class is relevant and reformulate the class.  I will not allow this class.

Class 7:

“With respect to each Meeting of the Board between 4 December 2012 and the date of BEA’s entry into the SMBC Agreements, during which proposals for and/or the terms of (what eventually became) the SMBC Agreements and/or SMBC Undertakings and/or SMBC Removed Undertakings were discussed:

(a) any Minutes of such meetings;

(b) any Board Papers;

(c) any resolutions adopted at such meetings.”

46.The Board does not dispute the general relevance of the third SMBC subscription.

47.I will allow this class, but replace “Meeting of the Board” with Board Meeting and as in the case of class 2 the definition in the Annex shall not apply.

Class 8:

“Communications sent or copied to any SMBC Person between 4 December 2012 and 18 March 2015, referring to or concerning:

(a) the size of SMBC’s shareholding in BEA;

(b) the SMBC Undertakings; and/or

(c) the Removed SMBC Undertakings.”

48.The Board objects that particularly as the class refers to the size of SMBC’s shareholding this class is so widely drafted that it may catch a substantial amount of irrelevant administrative communications relating, for example, to scrip dividends.  They also object to the Removed SMBC Undertakings as they are irrelevant to an assessment of the purpose for the Board passing the March Resolution approving the SMBC Agreements.

49.I will order that the following class be disclosed:

“Documents sent or copied to SMBC between 4 December 2012 and 18 March 2015, referring to or concerning:

(a) The number of shares to be acquired by SMBC in BEA.

(b) The negotiation and agreement of the SMBC Undertakings.”

Class 10:

“Minutes of meetings or discussions which took place between 1 January 2014 and 1 September 2014 attended by or involving any BEA Custodian and one or more representatives of SMBC, which record SMBC’s interest in raising its stake in BEA.”

50.The Board’s objections to this class focus largely on its breadth largely because of the definitions of Minutes and BEA Custodian; the latter I have already discussed.  “Minutes” is another defined term and goes beyond what would normally be considered to constitute minutes.  The definition is:

“ ‘Minutes’ refers to any document recording the content of a meeting, including any note or summary of the relevant meeting, whether a formal minute, note or summary prepared for BEA’s records, or a personal minute, note or summary prepared by an individual director or other attendee or the meeting, and includes any draft thereof.”

51.The definition shall be deleted.  This class shall read:

“Minutes or notes of meetings or discussions which took place between 1 January 2014 and 1 September 2014 attended by or involving any member of the Board during this period and any employee, officer or agent of SMBC concerning SMBC raising its stake in BEA.”

Class 11:

“All drafts of the SMBC Investment Agreement and Subscription Agreement transmitted between any BEA Custodian and/or their respective advisers, including, without limitation, any drafts transmitted between 25 August 2014 and 6 February 2015 (inclusive), together with all correspondence under cover of which such drafts were transmitted.”

52.In its original formulation this class was agreed.  The Board objects that as revised it includes documents not only between the Bank and the Board members and SMBC, but between those parties and their advisers, which could include communication with lawyers, which is covered by legal professional privilege.  The Board also objects for similar reasons to those discussed above to the inclusion of “BEA Custodian”.

53.It would seem to me that what is relevant are the drafts and any correspondence under cover of which they were circulated.  So far as legal privilege is concerned that is a matter to be determined later. Privilege can be asserted in the list as is conventional.

54.The class will read:

“All drafts of the SMBC Investment Agreement and the Subscription Agreement produced between 25 August 2014 and 6 February 2015 inclusive (‘drafts’).

All documents under cover of which drafts were sent or received other than documents, which contain no comments on the contents of the drafts such as emails to which copies were attached.”

Class 12:

“With regard to proposals for and/or the terms of the SMBC Agreements and/or SMBC Undertakings and/or the Removed SMBC Undertakings:

(a) Communications and Solicitor Communications with the SFC, HKMA or FRB; and

(b) Minutes of meetings and/or discussions between any BEA Custodian and the SFC, HKMA or FRB,

which are dated or which took place between 4 December 2012 and 18 March 2015.”

55.The Board’s objections to this class focus on the definitions of “Solicitor Communications”[11] and BEA Custodian. 

56.I will order:

“(a) Documents sent to the SFC, the HKMA or the FRB by the Respondents or received by the Respondents from the SFC, the HKMA or the FRB between 4 December 2012 and 18 March 2015 referring to the SMBC Agreements or the SMBC Undertakings.

(b) Minutes or notes of meetings attended by the Respondents, or any of them with the SFC, the HKMA or the FRB between 4 December 2012 and 18 March 2015 referring to the SMBC Agreements or the SMBC Undertakings.”

Class 13:

“Communications sent or copied to any SMBC Person from 1 January 2009 to the date of the Petition, referring to or concerning:

(a) the appointment, re-election or resignation of any director;

(b) the size of SMBC’s shareholding in BEA;

(c) the exercise of shareholder voting rights by SMBC;

(d) a change of control, or a takeover, of BEA; and/or

(e) an issuance of new shares in BEA to the Criteria Group or any other potential placee, subscriber or investor.”

57.I decline to order this class for the same reasons I declined to order class 6.

Class 14:

“With regard to the Goldman Sachs presentation to the Board on 14 January 2015:

(a) BEA’s instructions to Goldman Sachs;

(b) any earlier drafts of the Goldman Sachs presentation circulated to BEA or one or more members of the Board;

(c) documents providing or recording any comments from any BEA Custodian or on behalf of BEA on any of the earlier drafts or the final version of the Goldman Sachs presentation; and

(d) Communications concerning the instructions to Goldman Sachs, the Goldman Sachs presentation and/or any earlier drafts thereof.”

58.The Board objects that this class includes documents, which go to the propriety of the process by which Goldman Sachs was instructed and there is no relevant allegation in the Petition.  Paragraph 68(7) of the Petition asserts that the Goldman Sachs presentation was flawed and incomplete and failed to take into account the interests of shareholders.  It is correct that there is no assertion that this was a consequence of Goldman Sachs being asked to tailor its presentation to support a particular view.  However, as I understand it to be the Bank’s case that Goldman Sachs’s presentation supports it case it seems to me that the instructions that Goldman Sachs were given and any discussions between executives of the Bank and Goldman Sachs prior to the completion of the presentations are relevant in the Peruvian Guano sense. 

59.That having been said the description of the class needs amendment.  Paragraphs (a) to (d) will be replaced with:

“(a) instructions to Goldman Sachs leading to the presentation to the Board on 14 January 2015;

(b) documents received from Goldman Sachs for the purposes of presentation prior to 14 January 2015; and

(c) Documents exchanged with Goldman Sachs concerning the presentation and its subject matter other than the instructions referred to in paragraph (a) above.”

Class 15:

“With respect to:

(a) the 27 December 2007 subscription by Criteria (through Negocio) of 78,700,000 shares in BEA (the ‘First Criteria Subscription’); and

(b) the 30 December 2009 subscription by Criteria (through Negocio) of 120,837,000 shares in BEA (the ‘Second Criteria Subscription’),

(together, the ‘Negocio Subscriptions’),

the relevant subscription agreement entered into between Negocio and/or its affiliates and BEA, and any related agreement or document entered into by such parties at or around the same time as the subscription agreement (including, without limitation, any heads of terms, memorandum of understanding or strategic investment or business cooperation agreement).”

60.The Board repeats its objection that the transactions referred to in this class concern past transactions, which cannot inform the determination of the issues raised in the Petition and in respect of which no relief is sought.  I have already decided that the placement to Criteria in 2009 is relevant.

61.The Board again objects to the breadth of the request and in particular the final catchall phrase “and any related agreement or document… cooperation agreement).”  I agree that this is vague and it is not for the court to redraft it.  This part of the description should be deleted.

62.I note that the Board repeats the same objections in respect of classes 16 to 24.  I shall not repeat them when dealing with those classes.

Class 16:

“With respect to each Meeting of the Board between 1 January 2007 and the date of BEA’s entry into the Second Criteria Subscription, during which proposals for and/or the terms of (what eventually became) either the First Criteria Subscription or Second Criteria Subscription were discussed:

(a) the Minutes of such meetings;

(b) any Board Papers; and

(c) any resolutions adopted at such meetings.”

63.I will order this class, but “Meeting of the Board” shall be replaced with “Board Meeting” for the reasons discussed earlier.

Class 17:

“As regards the First Criteria Subscription, Communications between 1 January 2007 and 27 December 2007, referring to or concerning:

(a) the Criteria Group’s interest in increasing the size of its shareholding in BEA and/or the reasons provided by the Criteria Group for that;

(b) BEA’s reasons for issuing new shares in BEA to the Criteria Group; and/or

(c) any expected strategic or business cooperation benefits for BEA in connection with the Criteria Group increasing its shareholding in BEA.”

64.I will order the following class.  The description shall commence: “As regards the First Criteria Subscription, documents created between 1 January 2007 and 27 December 2007, referring to or concerning: ….”

Class 18:

“As regards the Second Criteria Subscription, Communications between 1 January 2009 and 30 December 2009, referring to or concerning:

(a) the Criteria Group’s interest in increasing the size of its shareholding in BEA and/or the reasons provided by the Criteria Group for that;

(b) BEA’s reasons for issuing new shares in BEA to the Criteria Group, and/or

(c) the Guoco Group; and/or

(d) any expected strategic or business cooperation benefits for BEA in connection with the Criteria Group increasing its shareholding in BEA.”

65.I will order this class.  “Communications” shall be replaced with “documents”.

Class 19:

“With regard to proposals for and/or the terms of either of the Negocio Subscriptions:

(a) Communications and Solicitor Communications with the SFC, HKMA or FRB; and

(b) Minutes of meetings and/or discussions between any BEA Custodian and the SFC, HKMA or FRB,

which are dated or which took place between, between 1 January 2007 and 27 December 2007 (so far as the First Negocio Subscription is concerned) and 1 January 2009 and 30 December 2009 (so far as the Second Negocio Subscription is concerned).”

66.I will order this class.  “Communications and Solicitor Communications with” shall be replaced with “Documents sent to or received from”

67.In (b) “any BEA Custodian” shall be replaced with “the Respondents”.

Class 20:

“With respect to:

(a) the 30 December 2009 subscription by SMBC for 46,267,200 shares in BEA (the ‘First SMBC Subscription’); and

(b) the 4 December 2012 subscription by SMBC for 111,572,600 shares in BEA (the ‘Second SMBC Subscription’)

(together, the ‘Earlier SMBC Subscription’),

the relevant subscription agreement entered into between SMBC and/or its affiliates and BEA, and any related agreement or document entered into by such parties at or around the same time as the subscription agreement (including, without limitation, any heads of terms, memorandum of understanding or strategic investment or business cooperation agreement).”

68.I will order this class, but delete the description from “and any related agreement….”

Class 21:

“With respect to each Meeting of the Board between 1 January 2009 and the date of BEA’s entry into the Second SMBC Subscription, during which proposals for and/or the terms of (what eventually became) either the First SMBC Subscription or Second SMBC Subscription were discussed:

(a) the Minutes of such meetings;

(b) any Board Papers; and

(c) any resolutions adopted at such meetings.”

69.I will order this class, but “Meeting of the Board” will be replaced with “Board Meeting”.

Class 22:

“As regards the First SMBC Subscription, Communications between 1 January 2009 and 30 December 2009, referring to or concerning:

(a) SMBC’s interest in increasing the size of its shareholding in BEA and/or the reasons provided by SMBC for that;

(b) BEA’s reasons for issuing new shares in BEA to SMBC; and/or

(c) any expected strategic or business cooperation benefits for BEA in connection with SMBC increasing its shareholding in BEA.”

70.I will order this class, but “Communications” will be replaced with “documents”.

Class 23:

“As regards the Second SMBC Subscription, Communications between 1 January 2012 and 4 December 2012, referring to or concerning:

(a) SMBC’s interest in increasing the size of its shareholding in BEA and/or the reasons provided by SMBC for that;

(b) BEA’s reasons for issuing new shares in BEA to SMBC; and/or

(c) the Guoco Group; and/or

(d) any expected strategic or business cooperation benefits for BEA in connection with SMBC increasing its shareholding in BEA.”

71.I will order this class, but again “Communications will be replaced with “documents”.

Class 24:

“With regard to proposals for and/or the terms of either of the Earlier SMBC Subscriptions:

(a) Communications and Solicitor Communications with the SFC, HKMA or FRB; and

(b) Minutes of meetings and/or discussions between any BEA Custodian and the SFC, HKMA or FRB,

which are dated or which took place, between 1 January 2009 and 4 December 2012.”

72.I will order this class with the following amendments.

73.In (a) “Communications and Solicitor Communications” will be replaced by “Documents sent to or received by…..”

74.In (b) “BEA Custodian” will be replaced with “of the Respondents”.

Classes 25 to 27

75.The Board accepts in a general sense the relevance of the Board records, which is what these classes concern, to the Proposed CaixaBank Transaction.  Their opposition is to the breadth and uncertainty introduced by the inclusion of the definitions I have discussed in relation to earlier classes.  I agree.  I will order the classes with the following amendments to the descriptions.

76.In class 25 “Meeting of the Board” will be replaced with “Board Meeting”.

77.In class 26 “Communications” will be replaced with “Documents generated”

78.In class 27 “communications” shall be replaced with “documents” and add “other than documents that contained no comments on the contents of the drafts such as emails to which the drafts were attached.”

Classes 28, 29, 31 to 33 & 35

79.Classes 30 and 34 are not pursued.  Subject to the points discussed in the next two paragraphs the Board does not object to the remaining items of which rolling discovery has been given.

80.In classes 29 and 35 “communications” shall be replaced with “documents”.

81.These classes refer to a period commencing 1 January 2007 and ending 18 March 2015.  The Board argue that this is an unnecessarily long period and that the request is not limited to capital requirements said to be relevant to the past subscriptions.  One of the reasons the Bank and the Board advance for the subscriptions by the CaixaBank and SMBC is the capital requirements of the Bank.  Elliott dispute this.  It seems to me that documents commencing prior to the discussions with the Criteria Group until 2015 recording discussions with the HKMA about capital requirements are relevant, because they will demonstrate the extent to which in discussions with the HKMA the subject of the Bank’s capital adequacy were raised and the view expressed that it should be improved.  Whether or not the views expressed suggest that the Bank had no pressing need to raise further capital through significant subscriptions is relevant to either Elliott’s case or the Bank’s defence.  I will retain the periods referred to in the classes.

Classes 36 to 38

82.Generally the Board objects to these three classes on the grounds that they are disproportionate and unnecessary.  I will deal with each in turn.

Class 36:

“Communications sent or received by any of the 2^nd, 3^rd, 4^th and 5^th Respondents and/or by Mr. Samson Li Kai-cheong or Mr. Tong Hon-shing, between 1 January 2007 to the date of the Petition, concerning or referring to (either in conceptual or hypothetical terms or by reference to an actual or proposed transaction):

(a) a takeover offer for, or change of control transaction relating to, BEA;

(b) a person other than the Criteria Group or SMBC acquiring or subscribing for a block of new shares in BEA; and/or

(c) a disposal of shares by the Criteria Group or SMBC.”

83.Elliott’s principal complaint is that the placements/subscriptions were intended to put in place friendly shareholders who would vote against resolutions that threatened the Li Family’s control of the Bank.  The placements were not necessary in order to raise capital and were not intended and did not give the Bank a strategic commercial advantage by virtue of Critieria and SMBC becoming significant shareholders in the Bank.

84.It is suggested that this class is relevant because the documents will show whether there was in the period leading up to the CaixaBank subscription and from then until presentation of the Petition a concern on the part of the relevant board members about a possible takeover and whether the concerns were expressed at a time consistent with the placements being motivated by that concern or otherwise.  It seems to me that such document are relevant in the Peruvian Guano sense and I will order their production. I would not expect this to be particularly onerous as if the Board’s case is correct there will be few documents.  I will however replace “Communication” with “Documents.”

Class 37:

“Communications sent or received by any of the 2^nd, 3^rd, 4^th and 5^th Respondents and/or by Mr. Samson Li Kai-cheong or Mr. Tong Hon-shing, between 1 January 2007 to the date of the Petition, referring to or concerning:

(a) the appointment, re-election, resignation or retirement (including the possibility of the foregoing) of a director of BEA or a potential director candidate; and/or

(b) the appointment, removal or retirement (including the possibility of the foregoing) of a director to or from a Board Committee or as Chairman or Deputy Chairman of a Board Committee.”

85.Necessarily this class should be for a materially different type of document to class 36.  I have difficulty seeing why documents concerning the constitution of the Board which necessarily do not contain any reference to takeovers are relevant and I will not order this class.

Class 38:

“With regard to the article published in the Hong Kong Economic Journal on 24 February 2016, titled ‘BEA looking for help from China government’ concerning BEA’s ‘scheme to introduce one of the big 4 banks as a strategic shareholder by way of an issue of new shares’ (the ‘Reported Share Placement’), Communications during the period from 18 March 2015 to 8 April 2016, referring to or concerning:

(a) a meeting (whether arranged, proposed or contemplated) between any (i.e. one or more) BEA Custodian and a third party in connection with the possibility of a placement of new shares in BEA; or

(b) the Reported Share Placement.”

86.It does not seem to me that this class is relevant to the case advanced in the Petition.  The matter referred to post-dates the SMBC subscription and is purely speculative.

Other practical issues concerning Elliott’s application

87.I heard substantial submissions, particularly from Mr Hollander, about the processes by which discovery take place and in particular the searching and retrieval of electronic documents.  I have already addressed the use of certain controversial definitions.  Another area of debate was the use of keywords for electronic searches.

88.The Bank has proposed certain keywords for agreement. Elliott have declined to agree them because it is Elliott’s position that they do not know enough about the Bank’s documents and electronic records to do so. Elliott say that it is for the Bank to decide how best to carry out an electronic search for such documents as the court orders disclosed. 

89.Although ideally the parties would agree the search terms, it does not seem to me that this is something that the court should require them to do or in the event of disagreement adjudicate.  To do so would simply to be to invite further argument and interlocutory applications.  The Bank will have to search for the documents that it is ordered to disclose as it considers best.

90.The other issue is whether or not the Bank should complete discovery before the Board is required to do so.  The Respondent directors comprise three executive directors (the 2^nd to 4^th Respondents) who are members of the Li Family and 15 non-executive directors.  The 2^nd to 4^th Respondents were officers of the Bank throughout the period covered by Elliott’s discovery requests.  However, the 2^nd to 4^th Respondents only became executive directors on 2 August 2014.  Not all the non-executive directors were directors during the entire period covered by Elliott’s discovery request. 

91.It is the Boards evidence, in the form of an affirmation filed by Mr Tang of Linklaters, that the non-executive directors—

(1)   were not involved in the negotiation of the Criteria or SMBC agreements;

(2)   did not have Bank email accounts;

(3)   did not communicate with each other about Bank business outside Board meetings;

(4)   did not take or retain notes about the proposed 3^rd SMBC subscription; and

(5)   did not retain personal notes relating to Bank Board matters generally.

92.Further, suggests Mr Tang the Bank’s secretarial department that circulated documents to the non-executive directors should have copies of those documents and will disclose them.

93.It follows, suggests the Board, that the non-executive directors will disclose nothing between themselves and as between them and the Bank only duplications. 

94.So far as the executive directors are concerned, Mr Tang explains that they only use the Bank emails addresses and do not use other instant messaging services.   They also do not keep personal hard copies of documents relating to the Bank’s affairs.  Thus, suggests Mr Tang, nothing will produced if the executive directors are required to make discovery.

95.The upshot of this is that the Board argue they should not be required to make discovery, if at all, until after the Bank has done so and an informed assessment can be made of whether there is any purpose in requiring them to do so.

96.Elliott disagree.  Their reason for doing so amounts to this.  Any communications between directors about the desirability of finding ways and, in particular, new friendly shareholders to entrench the Li Family control of the Bank may well be kept by the directors and not the Bank.  Mr Tang is not in a position to confirm what did or did not take place.  None of the directors have deposed to the matters he suggests justify only requiring the Bank to make discovery initially.  To wait until the Bank finishes discovery is only likely to cause delay and complicate any future applications for specific discovery, as discovery as between Elliott and the Bank and Elliott and the Board will not by synchronised.

97.Given the substance of their case it seems to me legitimate for Elliott to object to attempts to exclude all the directors from the discovery process.  On the other hand I accept that it is quite possible that the non‑executive directors will have little if anything to disclose other than communications between themselves and the Bank, which will be disclosed by the Bank.

98.In my view an appropriate way to proceed is to require the 2^nd to 4^th Respondents to make discovery.  One would expect that one or other of them would be a party to any communication to a non-executive director, which is not part of the Bank’s documents.  I will so order.  The position of the non-executive directors can be addressed if necessary when discovery in accordance with my order has been completed.

Board’s Application

99.As I explain at the beginning of these reasons the Board also seeks extensive discovery.  Appended to its summons is a schedule of 13 classes of documents.  It commences with broad definitions of “Associate” and “Interests”, which are intended to ensure that the classes cover the documents held by any entity associated or affiliated to the Petitioners concerning any interest capable of subsisting or being created in shares in the Bank.  The definition of “Associate” is as follows:

“For the purposes of this Schedule, references to Associates shall include, without limitation, any parent, subsidiary, fellow subsidiary, affiliated or associated entitles (which shall include partnerships) of any of the Petitioners, any entity which is affiliated and/or associated with any such entity, and/or any entity which provides management or advisory services to any of the Petitioners and/or any entities which are affiliated and/or associated with any of the Petitioners and/or any entity which is affiliated and/or associated with any such entity, and shall include, without limitation, Elliott Associates, L.P., Elliott Advisors (HK) Limited, Elliott Management Corporation, Elliott International Capital Advisors Inc. and Liverpool Associates Ltd.”

100.This seems to me to be unhelpful.  Assuming that the Board is entitled to discovery of any of the classes, the documents falling within the class of which discovery has to be made by Elliott are those within Elliott’s possession, custody or power.  Any documents falling within the class, whoever generated it is discoverable.  A document within the class not in Elliott’s possession, custody or power is not discoverable.  The definition in my view adds nothing accept the potential for argument, and seems to me to be more in the nature of a direction as to how discovery is to be carried out than a meaningful addition to the description of the class.  I will not use it and the classes will refer to “the Petitioners”.

101.The definition of interest is also very wide:

“For the purposes of this Schedule, references to Interests shall include, without limitation, any legal, beneficial and/or equitable interest in shares of The Bank of East Asia, Limited (‘BEA’), any short position in BEA shares and any interest in any form of equity derivative the underlying shares of which are BEA shares (including, for the avoidance of doubt, any contracts for difference relating to shares of BEA settled by payment of cash or otherwise).”

102.This seems to me to be unnecessarily complicated. Where “Interest” appears in any class it will be replaced with “legal or beneficial interest in the shares of BEA or any derivative of shares in BEA”.

103.Mr Yu summarised the Board’s case as follows in para 77 of his skeleton argument: “All of the items in the Respondent Directors’ Summons relate to one issue i.e., whether the Petitioners have a collateral purpose in issuing and maintaining these proceedings”.  The alleged collateral purpose is pleaded in [90] of the Points of Defence: 

“This Petition is presented by the Petitioners for the purpose of their own short-term investment strategy, and/or facilitating the preparation or furtherance of a take-over plan, rather than to further their legitimate interest as shareholders of BEA or the interests of BEA.”

104.The Board applied, unsuccessfully, to strike out the Petition on the grounds that it was brought for a collateral purpose, but that does not detract from the fact that this is an issue in the case and one in respect of which the Board is entitled to discovery.  What is in issue is the scope of discovery.  Elliott say that the Board is entitled to discovery of documents which go to their purpose in presenting the Petition.  Class 7 which is limited to purpose and objective of presenting the Petition is thus unobjectionable except to the extent that it refers to Associates.  I will order that class subject to the deletion of “and/or their Associates”.  However, the other classes go very considerably further.  In practice I would have thought the classes are so widely drawn that they probably cover every piece of paper or electronic data since 15 January 2010 (the date from which documents are sought) that Elliott have in their possession, custody or power in anyway connected with the Bank. An example of the breadth of the classes is class 12:

“All documents relating to or reflecting the engagement of the Petitioners and/or their Associates with, or use by the Petitioners and/or their Associates of, the media, including, without limitation, Newgate Communications, press agencies and media outlets, in relation to BEA, BEA’s Board or any one or more directors of BEA.”

105.What I assume the Board is looking for are documents exchanged with the media, which show that Elliott have been undertaking a coordinated and concerted campaign to undermine the Board’s position with a view to advancing the alleged collateral purpose.  It seems to me that the description of the class goes beyond what is relevant because it extends, for example, to the use of media in relation to the Bank.  This would seem to include a record of a search on google to find newspaper articles concerning the Bank and arguably local banks generally in Hong Kong.  It seems unlikely such documents would generally be relevant and that requiring them to be produced is unnecessarily onerous.  It may be that within the class there might be a few individual documents which would be relevant, but it is not the job of the court to reformulate significantly defective classes.  As I have already observed the use of such broad and sophisticated descriptions runs the risk of rejection on the grounds that the class includes irrelevant documents and the court cannot readily amend it to cure the problem.  I will not order class 12.

106.It does, however, seem to me that documents recording Elliott’s strategy at the time of its investment in the Bank in 2010 and the strategy’s implementation and change up to the presentation of the Petition are generally relevant.  Just as the placement to Caixa in 2009 informs an assessment of the reasons why the Board approved SMBC’s subscription some years later, Elliott’s reasons for investing in the Bank and continuing to hold and increase its shareholding in it will inform an assessment of whether or not the petition was presented to facilitate and further a takeover plan or other, allegedly, impermissible purpose.

107.Subject to the amendments referred to in [100] and [102] I will order that the following classes are disclosed in addition to class 7: classes 1, 2, 4, 5 and 6 (subject to the deletion of “other” and the words in the second parenthesis).

108.The remaining classes (7, 8, 9, 11 and 13) are very wide.  I will not order classes 8 to 11.  I will order that Elliott disclose:

“Documents produced by, on behalf of or at the instigation of the Petitioners concerning:

(1) The constitution of the board of BEA;

(2) resolutions to appoint, re-appoint or remove directors of BEA and how the Petitioners or other shareholders in BEA might, have or will vote in respect of such resolutions; and

(3) how shareholders should vote in respect of resolutions to appoint, re-appoint or remove directors of BEA.”

109.Class 13 is unnecessarily verbose.  I will order:

“Documents concerning the acquisition or disposal by the Petitioners of a legal or beneficial interest in the shares of BEA or any derivative of shares in BEA from 15 July 2010 until the date of trial.”

Costs

110.I will make a costs order nisi in respect of each summons that the Respondents to the summons (other than the Bank) pay the Applicants’ costs forthwith with a certificate for two counsel.  The Bank’s costs shall be costs in the cause with a certificate for two counsel

Mr Charles Sussex SC, Mr José Maurellet SC and Mr Jason Yu, instructed by Akin Gump Strauss Hauer & Feld, for the 1^st to 7^th petitioners

Mr Charles Hollander (10 & 11 October 2017) and Mr Byron Chiu, instructed by Simmons & Simmons, for the 1^st respondent

Mr Benjamin Yu SC and Mr Bernard Man SC, instructed by Linklaters, for the 2^nd to 19^th respondents