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

HCMP 1812/2016

[2019] HKCFI 1555

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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Before: Hon Harris J in Chambers

Date of Hearing: 14 May 2019

Date of Decision: 15 May 2019

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D E C I S I O N

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1.The 2^nd to 19^th Respondents (“Directors”) seek by paragraph 2 of their summons filed 16 January 2019 an order pursuant to RHC O 24 rr 3, 11 and 11A for discovery by the Petitioner of 8 classes of documents broadly concerning the Petitioner’s motive in presenting and maintaining the Petition.

2.The documents are said to be relevant to paragraph 90 of the Amended Defence, which pleads:

“90… This Petition is presented and/or is maintained by the Petitioners for the purpose of:

(1) their own short-term investment strategy; and/or

(2) facilitating the preparation or furtherance of a takeover plan; and/or

(3) otherwise encouraging, procuring, facilitating, furthering or effecting a sale or takeover of BEA; and/or

(4) as further described at paragraph 89(2)(f) above, forcing BEA’s board to make a different commercial judgement by pursuing a takeover or sale of the Company; and/or

(5) exerting pressure on the Respondents in order to achieve one or more of the aforementioned purposes,

Rather than obtaining the relief claimed in the Prayer for Relief and/or to further their legitimate interest as shareholders of BEA or the interests of BEA.  In the circumstances, the Petition is not within the scope of s 724 of the Companies Ordinance and amounts to an abuse of the Court’s process.”

3.A specific discovery application has already been made for documents relevant to the original formulation of paragraph 90.          The categories of documents originally sought by the Directors summons filed on 31 May 2017 were:

“1 All documents (of whatever nature) relating to or reflecting the investment strategy, objectives or intentions of any of the Petitioners and/or their Associates in dealing in and/or holding any Interests of BEA during the period 15 January 2010 to the date of judgment in the Petition.

2 All investor updates or newsletters (in whatever format) issued any of the Petitioners and/or their Associates relating to or reflecting their dealing and/or holding of Interests in BEA and/or their views on the outlook for or prospects of BEA during the period 15 January 2010 to the date of judgment in this Petition.

3 All records (including, without limitation, recordings, transcripts, minutes, notes or other records) of any meetings, conference calls or other discussions between any of the Petitioners and/or their Associates and any of their investors and/or any other third party relating to or reflecting the Petitioners’ and/or their Associates’ dealing and/or holding of Interests in BEA and their views on the outlook for or prospects of BEA during the period 15 January 2010 to the date of judgment in this Petition.

4 All letters, email or other communications (including, without limitation, minutes, notes or other records of any meetings, conference calls or other discussions) between any of the Petitioners and/or their Associates and any other third party (including, without limitation, other shareholders of BEA and/or their affiliated and/or associated entities) relating to or reflecting the Petitioners’ and/or their Associates’ investment strategy in dealing in and/or holding Interests in BEA in the period 15 January 2010 to the date of judgment in this Petition.

5 All documents (of whatever nature) relating to or reflecting any preparation, plans or actions by any of the Petitioners and/or their Associates to encourage, procure, facilitate, further or effect a takeover of BEA during the period 15 January 2010 to the date of judgment in this Petition.

6 All letters, email or other communications (including, without limitation, minutes, notes or other records of any meetings, conference calls or other discussions) between any of the Petitioners and/or their Associates and any other third party (including, without limitation, other shareholders of BEA and/or their affiliated and/or associated entities) relating to or reflecting any suggestion or proposal to encourage, procure, facilitate, further or effect a takeover of BEA in the period 15 January 2010 to the date of judgment in this Petition.

7 All documents (of whatever nature) relating to, reflecting or referring to, the Petitioners’ and/or their Associates’ purpose, objective, intentions or strategy in presenting the Petition.

8 All letters, email or other communications (including, without limitation, minutes, notes or other records of any meetings, conference calls or other discussions) between any of the Petitioners and/or their Associates and any proxy research, proxy voting or other proxy services entity or any investor relations entity, in relation to BEA’s annual general meetings, any of the resolutions tabled thereat and/or to BEA, BEA’s Board or any one or more directors of BEA.

9 All documents (of whatever nature including, without limitation, communications with third parties) relating to or reflecting the Petitioners’ and/or their Associates’ plans, strategy or intentions regarding the voting of Interests in BEA in respect of any resolution of BEA regarding the election or re-election of its directors or the issuance of shares of BEA.

10 All documents (of whatever nature) relating to or reflecting the Petitioners’ and/or their Associates’ views or opinions on BEA, BEA’s Board, any one or more directors of BEA or the prospects of a takeover of BEA.

11 All documents (of whatever nature) relating to or reflecting advertisements, social media content or internet content (including, without limitation, in respect of www.fairdealforbea.com and Facebook advertisements) prepared by, or on the instructions of, any of the Petitioners and/or their Associates relating to BEA, BEA’s Board or any one or more directors of BEA, including, without limitation, all instructions to and proposals from third parties.

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.

13 All documents relating to or reflecting all occasions during the period from 15 July 2010 until the date of judgment in this Petition on which any of the Petitioners and/or their Associates engaged in any form of dealing in or relating to Interests in BEA (including, without limitation, any acquisition, disposal or short sale of shares of BEA and any derivatives trading relating to, or in connection with any dealing in, the shares of BEA).  Such documents shall include documents relating to or reflecting the entity which engaged in any relevant dealing, the dealing date and the number of BEA shares traded or relating to or underlying any equity derivatives traded, such as account statements issued by brokers.”

4.I ordered that categories of documents, which are substantially similar to those sought by the present application be disclosed. A material difference, and the one which explains the present application, is that the order requires discovery of documents to the date of presentation of the Petition. What is now sought is discovery from that date (19 July 2016) to judgment.  A point is taken by the Petitioners’ that as is apparent, they suggest, from the terms of the order previously sought and the terms of the order previously granted, I have already decided that discovery should not be ordered post-petition.  I agree with Mr Yu that this is a decision that I reached in the context of the original formulation of paragraph 90 and that the present application does not amount to re-litigating the question of whether or not documents produced after the presentation of the petition should be disclosed, because for the purposes of the first application I considered the issue in the context of a plea that the petition was presented for a collateral purpose whereas now it alleged that it was presented and maintained for a collateral purpose.In my view , however, the focus of the Directors’ complaint is plainly the Petitioners’ motives and strategy in acquiring a substantial position in The Bank of East Asia, Limited (“BEA”) and subsequently presenting the present Petition and that the Petitioners’ deliberations and strategizing subsequent to presentation are largely, probably exclusively, relevant in so far as they go to support the Directors’ complaint about collateral purpose in presenting the Petition rather than any freestanding complaint that the Petition is maintained for a collateral purpose.  It follows that the post-Petition documents are relevant in so far as they reinforce and support the picture that emerges from the documents that have already been disclosed for the pre-Petition period.  To that extent they are discoverable.

5.RHC O 24 r 8(2) provides that orders for discovery shall not be made unless the court is of the opinion that it is necessary for either disposing of the matter fairly or to save costs.  I agree with Mr Sussex that deciding whether or not the additional discovery now sought, which the Petitioners oppose, is necessary for disposing of the matter fairly involves balancing the likely benefit to be obtained from discovery against what I accept would, certainly if an order was made in precisely the form sought,      be a considerable amount of on-going work during the preparation of evidence and in the run up to what will be a complex and lengthy trial[1].

6.The Petitioners have disclosed a considerable amount of documentation which shows their approach to their investment in BEA and the strategies that they have developed and implemented for increasing the share price and creating a mechanism for exiting the investment.  It seems unlikely that the post-Petition documents will alter materially the picture that emerges from what has been disclosed so far, and I have read the documents exhibited for the purposes of this application, which go into considerable detail about the Petitioners’ strategy and how it has been implemented.  However, I accept that new documents may serve to add weight to the Directors case that the Petition is brought for a collateral purposes and also whether there has been prejudice and if so, whether it is unfair.  I also accept that given the magnitude of sums involved and the resources of the parties, as demonstrated by the large and sophisticated teams of lawyers deployed by both parties, what might in another context be onerous should be, particularly given my cutting down of the scope of the order (see [8]), manageable and in terms of costs not disproportionate to the potential benefit to be obtained from discovery.

7.I accept Mr Sussex’s submission that the order as formulated in respect of pre-Petition documents goes further than is necessary     post-Petition. What is relevant is the Petitioners’ strategy and its implementation. It is not necessary, for example, for discovery of documents relating to every order placed or hedging position taken since July 2016 or records of shareholding or routine internal documentation.

8.I will order the following be disclosed:

“1. The Petitioners shall, pursuant to the timetable set out in paragraph 2 hereof, make and serve on the Respondents lists of all documents (of whatever nature) from 19 July 2016 to 30 April 2020 (inclusive) which are or have been in their possession, custody or power relating to the Petitioners’ purpose, objective, intentions or strategy in presenting and/or maintaining the Petition, or dealing in and/or holding any legal or beneficial interest in the shares of BEA or any derivative of shares in BEA.

2. The documents falling:

(a) within the period 19 July 2016 to 31 October 2018 be disclosed by the Petitioners in a list of documents to be made and served on the Respondents by 30 August 2019;

(b) within the period 1 November 2018 to 31 January 2019 be disclosed by the Petitioners in a list of documents to be made and served on the Respondents by 31 October 2019;

(c)  within the period 1 February 2019 to 30 September 2019   be disclosed by the Petitioners in a list of documents      to be made and served on the Respondents by 31 December 2019;

(d)  within the period 1 October 2019 to 29 February 2020 be disclosed by the Petitioners in a list of documents to be made and served on the Respondents by 4 May 2020; and

(e)  within the period 1 March 2020 to 30 April 2020 be disclosed by the Petitioners in a list of documents to be made and served on the Respondents by 1 June 2020.”

9.I will also give liberty to apply in case the Directors take the view that having inspected the disclosed documents there are more that they can justify seeking.  I will make a costs order nisi that the costs be the Directors costs in the Petition with a certificate for two counsel.

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

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

Attendance of Simmons & Simmons, for the 1^st respondent, was excused