Global Gaming Philippines Llc v. Deutsche Bank Ag, Hong Kong Branch
Read the full judgment text of HCCL 1/2017 on BabelCite. This HCCL judgment was delivered on 15 February 2019.
1. Before the court is the summons issued on 26 September 2017 (“Summons”) by the plaintiff Global Gaming Philippines LLC (“GGAM”) pursuant to s 42(1) of the High Court Ordinance (Cap 4) (“HCO”) and Order 24 rule 7A(2) of the Rules of the High Court (Cap 4A) (“RHC”) for discovery of 4 classes of documents against the respondent Mr Enrique K Razon Jr (“Mr Razon”) who is not a party to the underlying action herein between GGAM and the defendant Deutsche Bank AG (“DB”), Hong Kong Branch (“DBHK”).
Cited by 7 cases · Cites 4 cases
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HCCL 1/2017 [2019] HKCFI 405 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMMERCIAL ACTION NO 1 of 2017 ____________________
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____________________ D E C I S I O N ____________________ Application 1.Before the court is the summons issued on 26 September 2017 (“Summons”) by the plaintiff Global Gaming Philippines LLC (“GGAM”) pursuant to s 42(1) of the High Court Ordinance (Cap 4) (“HCO”) and Order 24 rule 7A(2) of the Rules of the High Court (Cap 4A) (“RHC”) for discovery of 4 classes of documents against the respondent Mr Enrique K Razon Jr (“Mr Razon”) who is not a party to the underlying action herein between GGAM and the defendant Deutsche Bank AG (“DB”), Hong Kong Branch (“DBHK”). Background leading to the underlying action: dispute and proceedings between GGAM and the Bloomberry Parties 2.GGAM, a Delaware company, is a member of the group of companies under Global Gaming Asset Management LP, which develop, acquire, invest in, advise on and manage hospitality projects around the world, especially those in the casino sector. 3.More particularly, GGAM was established to enter into a Management Services Agreement dated 9 September 2011 (“MSA”) with Sureste Properties Inc (“Sureste”) and its direct wholly-owned subsidiary Bloomberry Resorts and Hotels Inc (“BRHI”) to provide management and technical services in the development and construction of the Solaire Resort & Casino (“Solaire”), a luxury hotel and gaming resort in Manila, Philippines, and to manage the operation of Solaire (once completed) for 10 years. BRHI is the licence holder and operator of the casino component of Solaire whereas Sureste operates the hotel and other non-gaming components of Solaire. 4.Sureste is in turn a direct wholly-owned subsidiary of Bloomberry Resorts Corporation (“BRC”), a company listed on the Philippine Stock Exchange. 5.Mr Razon, a Filipino billionaire and one of the richest persons in the Philippines, is by himself and through various holding companies including Sureste and one Prime Metroline Holdings Inc (“Prime Metroline”) the single largest and controlling shareholder of BRC. He also acts as the Chairman and Chief Executive Officer of BRC. 6.To become a co-owner of the Solaire project, GGAM also entered into an Equity Option Agreement dated 16 April 2012 (“EOA”) with the predecessor in interest to Prime Metroline and BRC, pursuant to which GGAM, at a consideration of US$37.43 million, purchased and received 921,184,056 shares in BRC (“Shares”) in December 2012. 7.The Shares were initially held for GGAM by Deutsche Regis Partners Inc (“Deutsche Regis”), a joint venture of DB in the Philippines. They were subsequently transferred to DB’s Manila Branch (“DB Manila”) pursuant to a Multi-Market Custody Agreement dated 19 December 2012 between GGAM and DBHK (“MMCA”).[1] Following a restructure of GGAM’s accounts with DB in October 2013, in place of DB Manila, DBHK became the direct custodian of the Shares. This was done pursuant to the MMCA as extended to DBHK and amended on 12 September 2013 (“Amended MMCA”). 8.While the Shares are in DBHK’s custody, dividends in the sum of PHP32,241,441.96 (approximately US$643,014) (“Dividends”) were distributed in respect of the Shares on 5 May 2015.[2] 9.Dispute subsequently arose between GGAM on the one hand and Sureste, BRHI and Prime Metroline (“Bloomberry Parties” collectively) on the other hand, which culminated in the purported termination of the MSA by BRHI and Sureste on the ground of GGAM’s breach thereof. Such dispute generated two sets of proceedings. 10.First:
11.Second, arising from BRHI and Sureste’s said assertion, prior to the constitution of the tribunal (“Singapore Arbitral Tribunal”) in the Singapore Arbitration:
12.DB itself was not a party to the said proceedings before the Makati Court but the Injunction, the Attachment and the Garnishment (“Philippine Injunction Orders” collectively) were served on DB Manila on 28 February 2014 and 3 March 2014 respectively. 13.On 11 March 2014, GGAM filed a Petition for Review on Certiorari (“Review Petition”) with the Philippine Court of Appeals (“Philippine CA”) seeking to annul the Philippine Injunction Orders. 14.In the meantime, the Singapore Arbitral Tribunal was constituted on 28 March 2014. Thereafter:
15.GGAM took the view that, under Philippine law, the Interim Arbitral Order was self-executing and that no additional action (in the form of recognition and enforcement) was required to vacate and lift the Philippine Injunction Orders. 16.However, as directed by the Interim Arbitral Order and because the Review Petition was pending, by Manifestation and Motion dated 15 December 2014, the GGAM notified the Philippine CA of the Interim Arbitral Order, contending that it was self-executing and asking the Philippine CA to enter judgment to confirm it and to remand the case to the Makati Court for any further implementing measures that might be necessary or appropriate. 17.This was met with opposition from the Bloomberry Parties who, by a Comment/Opposition dated 29 January 2015, disagreed that the Interim Arbitral Order was self-executing. 18.By a Resolution issued on 29 May 2015, the Philippine CA
(“1st Philippine CA Resolution”). 19.The 1st Philippine CA Resolution provoked:
20.On 27 November 2015, the Philippine CA issued a second Resolution, denying the Bloomberry Parties and GGAM’s said respective motions but expressly ruling that the Interim Arbitral Order was not self-executing and that the Philippine Injunction Orders would remain effective until GGAM applied for and obtained a Philippine court order to vacate it and repeated its earlier direction for the case to be remanded to the Makati Court for recognition and enforcement of the Interim Arbitral Order (“2nd Philippine CA Resolution”). 21.There was no appeal by GGAM against either the 1st or 2nd Philippine CA Resolutions. On 17 May 2016, the Philippine CA issued an Entry of Judgment, confirming that the 1st Philippine CA Resolution became final and executory on 21 January 2016. 22.GGAM ultimately succeeded in the Singapore Arbitration. On 20 September 2016, the Singapore Arbitral Tribunal made a Partial Award on Liability in favour of GGAM (“Liability Award”), ruling that:
23.Since 3 October 2016, GGAM has requested DBHK, and DBHK has refused, to release to GGAM the Shares and the Dividends. On 28 November 2016, GGAM provided a copy of the Liability Award to DBHK. The reason given by DBHK for not releasing the Shares and the Dividends to GGAM is its concern that the Philippine Injunction Orders still subsist. 24.In the meantime, the Bloomberry Parties have continued to renew the annual surety bonds (in the sum of PHP800 million equivalent to US$15.97 million) conditional upon which the Philippine Injunction Orders were issued, with the last such renewal in February 2017. The Makati Court made an order “noting” such renewal on 10 February 2017. GGAM’s claim against DBHK 25.By the writ of summons issued herein on 31 March 2017, GGAM claims against DBHK for the immediate release of the Shares and the Dividends and for damages for the loss caused to GGAM by DBHK’s refusal to release the Shares and the Dividends. It is GGAM’s case that DBHK has acted in breach of the Amended MMCA in that DBHK has refused to release the Shares and the Dividends despite GGAM’s repeated demands therefor since about 3 October 2016. DBHK’s defence and action after commencement of this action 26.In defence, DBHK refers to and relies on, inter alia, the following terms of the Amended MMCA:
27.DBHK claims to have formed the opinion that the existence of the Philippine Injunction Orders renders the release of the Shares and/or the Dividends to GGAM contrary to applicable Philippine law, rules and/or regulatory requirements. Further or alternatively, DBHK has, by reason of the Philippine Injunction Orders, been notified of adverse claims or disputes in relation to the Shares and/or the Dividends and has reasonably deemed it necessary to decline to act on GGAM’s instructions for the release of the Shares and the Dividends. 28.After the commencement of this action, on 11 September 2017, taking the view that any issue as to the continuation or effect of the Philippine Injunction Orders should be determined by the courts in the Philippines, DB (through DB Manila) itself brought a Motion for Clarification in the Makati Court seeking orders as to: (1) whether the Philippine Injunction Orders remain valid; and (2) whether the Shares and the Dividends may be released to GGAM. 29.On 23 November 2017, the Makati Court held that the Philippine Injunction Orders have remained valid. GGAM does not accept, and would appeal against, this decision.[4] GGAM’s reply and response 30.At the hearing on 18 December 2017, Mr Victor Joffe (with Miss Sheena Wong) for GGAM referred to Braganza v BP Shipping Ltd [2015] 1 WLR 1661 for the proposition that, where a contractual term gives one party to the contract the power to exercise a discretion, or to form an opinion as to relevant facts and where the decision would affect the rights and obligations of all parties, there is a conflict of interest. While the court will not make that decision for the parties, the court will seek to ensure that the power is not abused by implying a term in appropriate cases that the power should be exercised not only in good faith but also without being arbitrary and capricious or even irrational in the sense in which the term is used when reviewing the decisions of public authorities, so that such a decision can be impugned, not only where it is one that no reasonable decision-maker could have reached but also where the decision-making process has failed to exclude extraneous considerations or to take account of obviously relevant ones. 31.By way of illustration, in Braganza v BP Shipping Ltd, the defendant employer was entitled to withhold compensation for death, accidental injury or illness if, in its or its insurer’s opinion, the death, accidental injury or illness resulted from the employee’s willful act, default or misconduct. On the basis of a report by an internal investigation team that the most likely explanation for the disappearance of the claimant’s husband was that he had committed suicide, rather than accidentally falling overboard, the defendant’s general manager decided for the purposes of the death in service benefit clause that the claimant’s husband had committed suicide and that no benefit was payable to the claimant. It was held that, applying the above test, the correct approach to an investigation into cause of death for the purposes of a death in service benefit claim was that suicide was such an inherently unlikely act that a positive conclusion as to its occurrence could not be made without cogent evidence to support it and that, on the evidence, the investigation team’s report and conclusion did not amount to sufficiently cogent evidence to justify a conclusion by the general manager that the claimant’s husband had committed suicide. The general manager’s decision could not stand and the claimant was entitled to the contractual death in service benefit. 32.Bearing in mind such principle, GGAM contends in reply that:
33.For present purpose, it is pertinent to note paragraphs 6.3 and 6.4 of GGAM’s reply by which GGAM pleads that:
34.I note that although Mr Farry recalls speaking with Mr Popok and Mr Weiner in about later 2016 or early 2017, he does not recall making the said statements attributed to him. He has further produced an email from Mr Weiner to him on 20 December 2016 which referred to a conversation between the 3 gentlemen earlier on that day and which also referred to the Injunction and related appeals and arbitration, but not pressure allegedly been placed on DB by BRC or Mr Razon. Application for third party discovery and service of application 35.Against such background, by the Summons, GGAM applies against Mr Razon for discovery of 4 classes of documents (“Documents” collectively):
36.Mr Razon is ordinarily resident in the Philippines. Nevertheless, GGAM served the Summons on Mr Razon when he was visiting Hong Kong for the 2-day Forbes Global CEO Conference in 2017, which was a public event. Bases for the Summons 37.In taking out the Summons, GGAM suggests that in refusing to release the Shares and the Dividends, DBHK acted on Mr Razon’s instructions. GGAM so suggests on 4 bases:
Mr Razon’s grounds of opposition 38.Mr Razon opposes the Summons principally on 5 grounds:
Analysis 39.Non-party discovery is granted by the discretionary exercise of the power vested in the court by s 42 of the HCO and Order 24 rule 7A(2) of the RHC and there is no existing ‘right’ or ‘entitlement’ to such discovery vested in a plaintiff: per Bharwaney J in Chan Yim Wah Wallace v New World First Ferry Services Limited [2015] 3 HKC 382 at [18]. 40.Such exercise of discretion involves the conventional considerations of ‘existence, relevance and necessity’ under Order 24 rules 7A and 8(2) as well as a balancing exercise of the need for disclosure in the interest of the administration of justice to ensure a fair trial on full evidence and applicable countervailing factors: see again Chan Yim Wah Wallace[5] at [19]. 41.So at the first stage, the usual criteria of existence, possession custody or power, relevance and necessity apply equally to discovery from a non-party. 42.The Peruvian Guano test[6] applies to determine whether the documents sought from the non-party are relevant to an issue arising out of the claim that has been made: per To J in Tullett Prebon (Hong Kong) Limited v Chan Yeung Fong Nick, HCA 219/2009, unreported, 9 June 2011 at [74] and [76]. 43.Nevertheless, the need to ensure reasonable proportionality and procedural economy in the conduct of proceedings under Order 1A may inhibit the court from granting non-party discovery under s 42 and Order 24 rule 7A(2) for background or ‘chain of inquiry’ documents: Chan Yim Wah Wallace at [20] and [53]. 44.When what is sought is a class of documents, each document of the class must be relevant in the Peruvian Guano sense. The court has power to order a non-party to disclose relevant documents which meet the Peruvian Guano test but has no power to order disclosure of documents that do not. This principle cannot be circumvented by including the relevant documents in a class which also includes documents which do not meet the Peruvian Guano test. See Tullett Prebon (Hong Kong) Limited at [81]-[84], where To J adopted what Chadwick LJ said in Three Rivers District Council v Bank of England (No 4) [2003] 1 WLR 210 (CA) at [34]-[38]. 45.Fishing expedition with a view to hunting around the documents in the hope that they will reveal some improprieties on the part of the opposite party or will provide information for the applicant to pursue more inquires is not permitted. See Ngan In Leng v Chu Yuet Wah (No 1) [2013] 1 HKLRD 717, per Deputy Judge Queeny Au-Yeung (as her Ladyship then was) at [26] and [62(5)]. 46.The court must also consider whether disclosure is necessary in order to dispose fairly of the claim or to save costs. The following considerations are relevant: (1) how important is the information to the issues; (2) has the applicant taken appropriate steps to obtain the information within the proceedings before seeking discovery from the third party; (3) would it be sufficient to draw adverse inferences on the basis that the party from whom the information was sought within the proceedings has failed to supply the information; (4) what is the nature of the relationship, if any, between the parties to the proceedings and the third party; and (5) if disclosure is necessary and proportionate, will the editing of documents protect private information? See Tullett Prebon (Hong Kong) Limited at [85] at which To J adopted, for the purposes of considering whether to exercise his discretion to order non-party disclosure, Hartmann JA’s approach in SMSE v KL (No 2), HCMC 2/2006, unreported, at [63] in the context of an application to set aside a subpoena duces tecum. 47.The condition of necessity requires the court to focus on the necessity of the third party being required to make discovery. A third party should not be ordered to make discovery if it is not necessary to do so, e.g. where the information can be obtained from within the proceedings or other sources: Chan Yim Wah Wallace v New World First Ferry Services Limited at [55]. 48.If there is no other route to obtain the relevant and necessary information, the court must in the third and final stage proceed to balance the different interests: Chan Yim Wah Wallace v New World First Ferry Services Limited at [60]. 49.The third party’s right to privilege is preserved by Order 24 rule 7A(6). 50.Where the non-party is a foreign person, as in this case, additional considerations must be made. A non-party can only be compelled to produce documents that are abroad in exceptional circumstances of urgent necessity. See: Dicey, Morris and Collins on The Conflict of Laws, 15th edition, Volume 1, at 8R-067, 8-069, 8-072 and 8-073. Where it is necessary to obtain evidence under compulsion from a third party who is outside the jurisdiction, the proper procedure should be, inter alia, by way of a letter of request to the foreign court. See Dicey, Morris and Collins on The Conflict of Laws, supra, Rule 23(3) at paragraph 8R-067 and paragraph 8-740 and Mackinnon v Donaldson, Lufkin & Jenrette Securities[1986] Ch 482 at 499F-H. 51.Turning to the case before me, it is unnecessary for the proper disposal of the Summons to examine whether there is sufficient evidence in support of GGAM’s allegation that Mr Razon had required DBHK not to release the Shares and the Dividends to GGAM and, in holding onto the Shares and the Dividends, DBHK has acted on Mr Razon’s instruction. 52.Applying the principles summarised above, the Summons can in my opinion be dealt with on the following bases. 53.First, even assuming existence, Mr Razon is ordinarily resident in the Philippines. One would expect the Documents to be in his possession custody or power in the Philippines. GGAM has not suggested otherwise. GGAM was able technically to enliven the Hong Kong court’s jurisdiction only by taking advantage Mr Razon’s visit and stay for a 2-day conference here. However, the same principle should apply even if the foreign non-party is served within jurisdiction. The court should not demand foreign non-parties to obey its sovereign authority in respect of conduct abroad. Ordering discovery by a foreigner of documents outside the jurisdiction concerning their conduct outside the jurisdiction would encroach on the sovereignty of a foreign state. See Mackinnon v Donaldson, Lufkin & Jenrette Securities[1986] Ch 482, per Hoffmann J at 493G-H and 498C-E (in the context of an application by a non-party American bank to discharge an ex parte order under s 7 of the Bankers’ Books Evidence Act 1879 which required it to produce books and papers held in New York relating to an account of one of the defendants and to set aide a subpoena duces tecum against an officer at its London office) and R v Grossman (1981) 73 Cr App R 302, per Lord Denning MR, at 307-308. 54.GGAM has not raised any urgency or exceptional circumstances to take this case out of the ordinary. The correct course for it to take, if it really wants discovery from Mr Razon, is to apply to the Philippine court or to ask the Hong Kong court to issue a letter of request to the Philippine court. The Hong Kong court should not be asked to encroach upon the sovereignty of the Philippines by making an order against Mr Razon who is in the Philippines for discovery of documents which (if existing) are also in the Philippines. 55.On this ground alone, the Summons should be dismissed. 56.Second, I see no merit in the Summons insofar as it relates to the Classes 1 and 2 Documents on the additional ground that they can or should in any event be obtained from within the proceedings so that it is unnecessary to seek them from Mr Razon as a non-party. 57.The Classes 1 and 2 Documents, if they exist, would be generated in the course of communications between Mr Razon and DBHK and/or DB Manila, which means that DB should and would have possession custody or power over the same documents. DBHK is the defendant to this action. Any such documents can be obtained from DB. 58.In this connection, on 21 November 2017, GGAM’s solicitors Kobre & Kim (“K&K”) wrote to DBHK’s solicitors Davis Polk (“DP”), seeking discovery of all correspondence and notes etc of meetings and phone calls between “any of the Bloomberry Parties and DBHK or DB Manila discussing the Shares or the Dividends”, i.e. the Classes 1 and 2 Documents. By a letter dated 28 November 2017 to K&K, DP questioned inter alia why the documents sought are relevant and necessary to the determination of the contested issues in these proceedings. I do not read DP’s said letter as containing DBHK’s refusal to disclose the Classes 1 and 2 Documents. Rather, DBHK was just asking to be satisfied that such documents are properly discoverable by it. 59.Indeed, even where the other party to the action does refuse to give discovery, it does not follow that it would then become necessary to obtain the documents from the other party to the documents but who is a stranger to the proceedings. The proper course is not to drag in a third party who is thought to have the documents because it is open to the party seeking the documents to, and he should simply, apply for specific discovery against the other party to the proceedings. If the 4 criteria of existence, possession custody or power, relevance and necessity are fulfilled, discovery by the other party within the proceedings should and would be ordered. 60.Third, on the premises that the Classes 1 and 2 Documents, if discoverable, should and would be discovered by DB, one questions the relevance of the Classes 3 and 4 Documents or how their discovery would be necessary for the fair disposal of this action or the saving of costs. If the Classes 1 and 2 Documents should reveal pressure/influence having been brought by Mr Razon on DB not to release the Shares and the Dividends, then GGAM would not need the Classes 3 and 4 Documents. Even if the Classes 1 and 2 Documents do not verify or support GGAM’s suspicion about the true reason why DBHK has refused to release the Shares and Dividends, I fail to see how papers documenting the internal communications between Mr Razon and the Bloomberry Parties about the release or otherwise of the Shares and the Dividends would assist GGAM. That Mr Razon and the Bloomberry Parties should so discuss is unremarkable. After all, the Shares and the Dividends were/are a subject of the Singapore Arbitration and the Philippine Injunction Orders. This is so even if Mr Razon and the Bloomberry Parties expressly wish the Shares and the Dividends not to be released. Of course, they so wish. The issue put forward by GGAM for the purpose of the Summons is whether Mr Razon instructed DBHK to hold onto the Shares and the Dividends, and not whether Mr Razon desired the Shares and the Dividends to remain with DBHK. 61.Fourth, GGAM is here not searching for material to support an allegation of fact which haa been raised bona fide with adequate particularization. Rather, it is trying to solicit information which may enable an allegation of fact to be raised or lead to a line of inquiry which would disclose evidence. This is a classic fishing expedition. See C v C, CACV 410/2005, unreported, 28 July 2006, per Rogers VP at [8]. Disposition 62.For these reasons, I dismiss the Summons and make an order nisi that GGAM should pay Mr Razon’s costs of and occasioned by the Summons to be taxed forthwith on a party and party basis with certificate for counsel, if not agreed.
Mr Victor Joffe and Miss Sheena Wong, instructed by Kobre & Kim, for the plaintiff Mr Kevin So of Davis Polk & Wardwell for the defendant Mr Laurence Li, instructed by Herbert Smith Freehills, for the respondent [1] According paragraph 6(2) to (6) of BDHK’s defence, DB Manila deposited the Shares in its main account (“Main PDTC Account”) with the Philippine Depository & Trust Corporation (“PDTC”), which acts as the depository for securities listed in the Philippine Stock Exchange. And despite the replacement of DB Manila by DBHK as the direct custodian, the Shares have remained in the Main PDTC Account with DB’s Singapore Branch (“DB Singapore”) acting as sub-custodian for DBHK and DB Manila acting as sub-custodian for DB Singapore. Upon being served with the Philippine Injunction Orders (defined in paragraph 12 below), on 7 March 2014, DB Manila opened, and moved the Shares into, a segregated account with PDTC where the Shares have remained. [2] According to paragraph 7 of DBHK’s defence, the Dividends were initially paid into DB Manila’s account with the Bangko Sentral ng Pilipinas, the central bank of the Philippines. In light of the Philippine Injunction Orders, on 22 May 2015, the Dividends were moved to, and have since remained in, a segregated cash account maintained with DB Manila in DB Singapore’s name, DB Singapore being the sub-custodian for DBHK. [3] Notwithstanding that Deutsche Regis was no longer the custodian of the Shares. [4] On 5 December 2017, through solicitors, GGAM informed DB and Mr Razon that it will be appealing such ruling by the Makati Court and invite consent to stay both the action and the Summons. By its solicitors’ letter of the same date to the court, GGAM applied for a stay of the Summons and the adjournment of the hearing of the Summons sine die. I refused the application at the hearing on 18 December 2017. [5] In Chan Yim Wah, the countervailing factors were the need to preserve the confidentiality of witness statements/declarations obtained and reports prepared by the Marine Department in relation to a collision involving a local vessel pursuant to ss 60 to 62 of the Merchant Shipping (Local Vessels) Ordinance (Cap 548) and the potential prejudice of the fair trial of a possible criminal prosecution. [6] Under which a document is relevant if it is reasonable to suppose, contains information which may – not which must – either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary or if it is a document which may fairly lead him to a train of inquiry, which may have either of these consequence: per Brett LJ in The Compagnie Financiere Du Pacifique v Peruvian Guano Co (1882) 11 QBD 55 (CA). | ||||||||||||||||||||||||||||
Cases cited in this judgment