K&L Gates v. Navin Kumar Aggarwal and Another

HCA 1061/2011 & HCA 349/2012

(Consolidated)

[2019] HKCFI 200

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1061 OF 2011

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BETWEEN

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 349 OF 2011

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BETWEEN

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(Consolidated by the order of
Deputy High Court Judge B Chu dated 10 July 2013)

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REASONS FOR DECISIONS
AND DECISION ON COSTS

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1.This is the Plaintiff’s application for leave to appeal against the order I made on 27 November 2017 on discovery and stay of execution of the said order pending appeal.  In the hearing on 12 December 2018, I refused the Plaintiff’s application and I now give my reasons.

2.I will also give my decision on the applications to vary the costs order nisi I made on 27 November 2017 (“the Costs Variation Applications”).

3.I adopt the same monoculture and abbreviations that I have used in the Decision dated 27 November 2017 (“the Decision”).

The new approach to deal with leave to appeal and stay of execution applications

4.I gave the decision on the discovery application on 27 November 2017.  Due to the state of the court diary, both the leave to appeal application (“the Leave Application”) and the stay of execution application (“the Stay Application”) could only be heard by me about one year after the making of the Decision.  This is not satisfactory at all.

5.The same has also happened in the recent cases of ZJ v XWN[1] and Tsang Wing Kwai v Tsang Wing Fai[2], in which the Court of Appeal has set out the suggested procedures for dealing with similar applications at the first instance level.  The Court of Appeal’s judgments were handed down recently and so this court was not able to apply the suggested procedures in the present case.  However, the suggested case management techniques should be applied in similar applications in the future.

6.As I have already set out the detailed reasons for allowing the discovery application in the Decision itself, I will only give brief reasons for refusing the Leave and Stay Applications.

The relevant legal principles for the Leave Application

7.Ms Sit, counsel for the Venetian Defendants, has correctly summarised the relevant legal principles for the purpose of the Leave Application:

(i) Leave to appeal may only be granted if the applicant can demonstrate reasonable prospects of success, meaning that the prospects of succeeding must be reasonable and therefore more than fanciful, without having to be probable.  Merely showing that the appeal is arguable and not fanciful is not sufficient.[3]

(ii) In specific discovery applications, the scope of the order often requires a judgment call to be made, having regard to all the circumstances.  The fact that some irrelevant materials may be caught, of itself, is no basis to say the judge has erred, or that the Court of Appeal should intervene.[4]

(iii) It is a misuse of the appellate process to give the litigant (or his counsel) a platform for regurgitating his arguments again in the hope that the appellate judges may come to a different view.  The relevant question for the Court of Appeal is whether the judge has fallen into palpable errors which can give rise to grounds for intervention by the appellate court.[5]  Lodging an appeal with ill-considered and unsatisfactory grounds of appeal, particularly those that provide no more than a lengthy critique of the judgment rather than identify a justifiable basis for the Court of Appeal interfering in the decision of the judge below, is not acceptable.[6]

(iv) Even if the threshold test of reasonable prospect is satisfied, the court still retains a discretion whether to grant leave, and may refuse leave in the interests of procedural economy and proportionality.[7]

(v) Case management decisions made in the exercise of discretion (which include orders for specific discovery) are only subject to appeal in rare circumstances, and the hurdle faced by the appellant is very high.[8]

(vi) In the context of specific discovery, one consideration relevant to the exercise of discretion is the progress (or lack thereof) in the prosecution of the action and whether further arguments over discovery would impede, as opposed to progress, the determination of the real disputes between the parties.[9]

Merits of the Leave Application

8.After perusing the draft Notice of Appeal, I agree with the various Defendants that the purported grounds are either a bare assertion that this court has erred, or a rehash of the arguments already advanced and rejected by me with reasons in the Decision.  As the Court of Appeal has made clear in the various authorities mentioned above, merely regurgitating the appellant’s own argument without any attempt to engage the judge’s reasoning and demonstrate how it has gone palpably wrong as a matter of law is simply not a viable way of mounting an appeal, in particular in the context of an interlocutory specific discovery application.

9.Ms Sit has also highlighted one of the peculiar features in this case. I myself have been assigned as the judge handling the various litigations involving the fraud of Aggarwal.  After handling these cases for some time, I am familiar with the facts and the issues involved in the various litigations. Coupled with the fact that I will be the trial judge of these cases, I should be given a certain degree of flexibility as to how the cases should be conducted at trials.  Whether to order discovery is very much a case-management decision.  Unless the various defences put forward by the Defendants are wholly unarguable, which I do not find it to be the case, the court should give the Defendants some allowance in obtaining the relevant documents with a view to substantiate their defences.

10.I appreciate that the scale of the discovery ordered is by no means a small one, in particular those requests relating to the fund flow analysis.  However, no particulars have been supplied by K&L Gates as to any difficulties faced by them in producing the relevant documents.  In fact, K&L Gates confirms that it has already conducted its own fund flow analysis, and so it lies ill in its mouth to say that the Defendants are not entitled to conduct similar analysis.  Even if K&L Gates were to put to some expense in having to collate the materials, such expense would have been negligible in the overall scheme of things, taking into account both the very substantial amounts K&L Gates is seeking to claim from the Defendants, as well as the very substantial amount of costs that it has hitherto incurred given the number of defendants it chose to sue and the grand-scale manner in which it has conducted its litigations to date.  As stated in §37 of the Decision:

“ … … this litigation is, by any measure, “big ticket” litigation being conducted by well-funded and resourced parties.  While proportionality is always a legitimate consideration, the additional strain on the parties to obtain, list and copy further documents that are undoubtedly in K&L Gates’ possession is, realistically, de minimis in the scheme of these proceedings.  Hence, the probative value of these documents and the substantial quantum of the claims clearly outweigh any alleged prejudice to K&L Gates.”

11.There is some complaint about the application of the blue pencil test.  However, the width of the order involves a judgment call by the court having regard to the circumstances of this case. K&L Gates has not even begun to identify any basis to show that this court has made any palpable error of principle as to warrant intervention by the appellate court.

12.Taking into account the aforesaid considerations and all the matters referred by me in the Decision, I consider that there is very little chance that the appellate court will interfere with the exercise of my discretion in ordering certain specific discovery which is very much a case-management decision.  As K&L Gates has failed to demonstrate reasonable prospects of success in the intended appeal, I refused the Leave Application.

Merits of the Stay Application

13.As no reasonable prospects of success has been established, it follows that the Stay Application should also be dismissed.  I therefore so ordered.

The Costs Variation Applications

14.In the Decision, I made the costs order nisi that:

(i) K&L Gates should pay to the Casino Defendants 80% of the costs of the various discovery summonses to be taxed if not agreed with certificate for 2 counsel if applicable; and

(ii) the costs of two summonses for further and better particulars of the Statement of Claim taken out by the Melco and Wynn Defendants be paid by K&L Gates.

15.K&L Gates seeks to vary such order nisi in the following manner:

(i) it should only pay 26%, and no more than 67%, of the costs of the discovery summons by the Wynn Defendants;

(ii) it should only pay 17% of the costs of the discovery summons by the Venetian Defendants, save that the costs of and occasioned by the compilation of the separate set of hearing bundles by the Venetian Defendants be disallowed;

(iii) there should be no order as to costs in respect of: (a) the discovery summons by the Melco Defendants; (b) the 2 summonses taken out by the Wynn and Melco Defendants for further and better particulars; and

(iv) such costs ordered to be paid by K&L Gates should be taxed summarily.

16.On the other hand, the Melco and Wynn Defendants apply to vary the costs order nisi to the effect that the costs awarded in their favour should be summarily assessed and paid forthwith.

17.After the hearing, I am given to understand that the relevant parties have agreed for the dismissal of the claim against the Melco Defendants.  The relevant parties have also confirmed that they do not require the court to give the decision on costs vis-à-vis K&L Gates and the Melco Defendants. 

18.K&L Gates has adopted a mechanical approach in arriving at the proposed percentages, mainly by reference to the number of requests finally ordered by the court.  This is not the right approach as the time and costs incurred in relation to the different classes of documents requested are not the same.  Furthermore, I did not order some specific discovery because K&L Gates had dealt with such requests in the affirmation evidence.  It was not the case that the Defendants had no basis to make these discovery requests in the first place.  The same applies to the various requests that the Defendants did not pursue at the hearing as they were adequately dealt with in the subsequent affirmations. 

19.As demonstrated by the arguments advanced at the hearing, the main disputes between the parties relate to the following issues: (i) whether the relevant Defendants are entitled to the clients account documents; (ii) whether the relevant Defendants are entitled to conduct a fund flow analysis to trace the funds transferred to the different Defendants and their casinos; (iii) whether the relevant Defendants are entitled to the information in the different escrow actions; and (iv) whether the relevant Defendants are entitled to some of the documents involved in the related criminal investigation against Aggarwal.

20.It is fair to say that the Defendants, in substance, succeeded on all these major issues.  Considering the extent of the discovery finally ordered by the court, the relevant Defendants should be regarded as the winner in the discovery applications.   In my judgment, ordering K&L Gates to pay 80% of the costs of the Casino Defendants is appropriate in the circumstances.

21.K&L Gates also complains of duplication of costs by the Defendants.  The Wynn and Melco Defendants were represented by the same firm of solicitors, i.e. Mayer Brown, and yet they instructed two teams of counsel to argue their case.  K&L Gates submits that the court should not allow the additional costs arising from such duplication of legal representation.  The Venetian Defendants were represented by another firm of solicitors, i.e, Deacons.  However, their application is in substance the same as those of the other Defendants, and so the court should only allow one set of costs for their counsel. 

22.I disagree.  The Defendants are fierce rivals in the same line of business.  Their relationship extends much wider than in this litigation.  It is unreal to suggest that there is some unknown principle of law requiring them to instruct the same legal team, and potentially share confidential information of their ways of operation with each other.   Given the manner in which K&L Gates chose to advance its claims, which involves a claim for breach of duty with respect to what it alleges the Casino Defendants should have done with respect to the regulatory authorities in Macau, that necessarily involves highly confidential information relating to the operations of the respective casinos and their regulatory compliance.  It is inconceivable that the Casino Defendants could possibly engage the same set of lawyers to advise them.

23.It is clear that the cases that have to be met by the different groups of casinos at the trial are very different.  The facts of the respective cases against them are not the same.  There will be different set of witnesses for these claims and there would be different practices for different groups of casino.  Under such circumstances, the Casino Defendants should have different legal teams to take care of their different, and yet may not be completely conflicting, interests.  On the basis that there should be different teams of counsel at the trial, it is reasonable for them to have their own counsel to take care of the interlocutory applications.  Though their applications may involve similar arguments, the specific documents requested may be different depending on the facts of the claim against individual group of casinos.  Hence, no discount should be made relating to the separate engagement of counsel.

24.However, I agree to vary the costs order in respect of the summons for further and better particulars taken out by the Wynn Defendants.  K&L Gates provided the answers long after the Wynn Defendants issued the further and better particulars summons.  They then indicated to K&L Gates in the letter dated 25 August 2017 that they would not pursue the summons.  Under such circumstances, the appropriate order in respect of such summons would be no order as to costs.  This would have been the position if the Wynn Defendants had accepted the answers shortly afterwards, and plainly, no further costs would be generated under this summons after the answers.  Subject to such variation, I order that the costs order nisi made on 27 November 2017 be made absolute so far as it relates to costs vis-à-vis K&L Gates on the one part and the Wynn and Venetian Defendants on the other.

25.I refuse to order any summary taxation of costs.  The taxation of the said costs may not be a straightforward matter, and there are different sets of costs involving different Defendants.  As a lot of time has already been spent on the substantive applications, this court should not take up the additional workload in doing the summary taxation.  Instead the court and the parties should now focus on the progress of the case, and that is why I also refuse to order the costs to be paid forthwith.

26.I make a costs order nisi that the costs of K&L Gates’ Costs Variation Application be paid by K&L Gates to the relevant Defendants and there be no order as to costs of the Costs Variation Application by the Wynn Defendants, which shall be made absolute 14 days after the date of the handing down of this Decision on Costs.

Mr Russell Coleman, SC and Ms Frances Lok, instructed by Robertsons, for the Plaintiffs in both actions

Ms Carrie Chow, instructed by Mayer Brown, for the 8^th Defendant in HCA 1061/2011 and the Defendant in HCA 349/2012

Ms Eva Sit, instructed by Deacons, for the 9^th and 11^th Defendants in HCA 1061/2011

Mr Bernard Man, SC and Mr Keith Lam, instructed by Mayer Brown, for the 10^th and 14^th Defendants in HCA 1061/2011