Value Convergence Holdings Ltd v. Zhou Quan Co., Ltd

HCA 1078/2019

[2019] HKCFI 1631

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1078 OF 2019

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Before: Hon Lisa Wong J in Chambers (Open to Public)

Date of Hearing: 21 June 2019

Date of Decision: 21 June 2019

Date of Reasons for Decision: 25 June 2019

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R E A S O N S   F O R   D E C I S I O N

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Application & decision

1.On 21 June 2019, as Summons Judge, I made no order on the inter partes summons taken out by the abovenamed plaintiff on 18 June 2019 (“Summons”) for the continuation, until trial or further order, of the following order obtained by the plaintiff on an ex parte basis on 17 June 2019:

“Subject to any order to be made by the judge at the hearing on the Return Day on 21 June 2019, the court file in relation to these proceedings be sealed and not be available for inspection by any third-party and these Proceedings be referred to and identified in the daily cause list issued by the Registry of the High Court by its action number and not by reference to the name of the plaintiff, which shall be referred to as V” (emphasis added)

(“Anonymity Order”).

2.Although after some discussion between Bar and Bench at the hearing on 21 June 2019 (“Hearing”), Mr Vincent Chen, counsel for the plaintiff, had indicated on behalf of the plaintiff that it would not insist on pursuing the Summons, given the plain impropriety of an anonymity order (not to mention a hearing in camera) on the facts of this case, I consider it desirable to give written reasons for my decision so as to remind practitioners that restrictions on open administration of justice, in any form or to any extent, should not be lightly applied for unless properly and adequately justified.

Background facts

3.It is unnecessary to set out the facts leading to the Summons in any detail beyond the following brief outline.

4.This is another email fraud case.  The plaintiff fell victim to such fraud while its chief financial officer (“CFO”) was on sick leave and  In short, on 3 June 2019, a fraudulent email was received by a senior account manager of the plaintiff from an email address identical to the one habitually used by the CFO, instructing him to pay in Hong Kong dollars a sum equivalent to US$450,000 to an account held by the defendant with the Bank of China (Hong Kong) Limited (“BOC Account”) under the pretext that it was for a capital call distribution payment due on 4 June 2019.  Such instruction was complied with in the afternoon on 3 June 2019, resulting in a loss of HK$3,527,617.50 to the plaintiff, subject to recovery in this action.

The ex parte applications and orders

5.On 17 June 2019, the plaintiff applied for and obtained ex parte:

(1)  a Mareva injunction[1], restraining the defendant from dealing with its assets in Hong Kong, including the BOC Account, up to the value of HK$3,527,617.50, which I continued at the Hearing until the next return day before the Summons Judge on 19 July 2019; and

(2)  the Anonymity Order, which I refused to continue.

It is worthy of note that the Anonymity Order was sought and granted as a lesser alternative to an order that the Hearing be held in chambers not open to the public!

Plaintiff’s grounds for applying for the Anonymity Order

6.In support of the application for the Hearing to be held in camera or alternatively, the Anonymity Order, the plaintiff relied on:

(1)  the “sensitive nature” of the application; and

(2)  it being a Hong Kong listed company.

See paragraph 3 of Mr Chen’s written submissions dated 17 June 2019 (“Submission”).

7.However, I find no elaboration in the Submission as to why the application for interlocutory injunctive relief in this case, which arose out of a fraud committed in a manner which has unfortunately become too familiar to the courts in Hong Kong, is or should be treated as sensitive.  It appears to me that any perceived sensitivity stemmed entirely from the listed status of the plaintiff.

8.In this regard, reliance was placed on the June 2012 edition of the “Guidelines on Disclosure of Inside Information” (“Guidelines”) published by the Securities and Futures Commission.  Counsel in particular set out paragraph 40 in full as follows:

“A corporation must disclose any inside information to the public “as soon as possibly practicable” unless the information falls within any of the Safe Harbours as provided in the SFO. For this purpose, “as soon as reasonably practicable” means that the corporation should immediately take all steps that are necessary in the circumstances to disclose the information to the public. For example, if a corporation faces an event that might significantly affect its business and operations, the necessary steps which the corporation should immediately take prior to the issue of a public announcement may include ascertaining sufficient details, internal assessment of the matter and its likely impact, seeking professional advice where required and verification of the facts.” (plaintiff’s emphasis)

9.The court was then informed that under paragraph 35 of the Guidelines, “legal disputes and proceedings” is one of the common examples of inside information that a listed corporation should consider whether a disclosure obligation arises.

10.Against this backdrop, counsel then contended on behalf of the plaintiff in paragraphs 35-37 and 42 of the Submission that:

(1)  The disclosure of the fact that the plaintiff had fallen victim of an email fraud would cause the plaintiff’s share price to fluctuate (most likely to drop), which may cause substantial loss to not only the plaintiff but also the public investors, to an extent which may even outweigh the recovery through these proceedings.

(2)  It was therefore reasonable and prudent for the plaintiff to collect more information as to the likelihood and extent of recovery of the defrauded sum before any disclosure to the public be made.

(3)  Given that any premature disclosure of the fraud perpetrated on the plaintiff would cause loss to not only the plaintiff but also the public investors who are not parties to the application, it was in the interest of the administration of justice that the Hearing be held in camera or that the plaintiff’s identity be protected by anonymisation.

Discussion

11.Conducting hearings and trials in open court; delivering and making available orders and judgments containing full details, including the parties’ identities, to the public; and allowing unrestricted publication and press reporting of proceedings and outcome of proceedings are different facets of open administration of justice.

12.It is trite that any restriction on the open administration of justice necessarily compromises the important interests, rights and freedoms which open justice in the first place serves to protect and give effect, and must be justified by considering and balancing all the interests, rights and freedoms involved.  For a comprehensive review of the applicable principles for open administration of justice and its restriction, see the Court of Appeal’s judgment in Asia Television Ltd v Communications Authority [2013] 2 HKLRD 354, per Cheung CJHC (as the Permanent Judge then was) at [19]-[36].

13.I need not set out in these reasons all the principles gathered by the Court of Appeal in Asia Television Ltd.  Insofar as it is material to the plaintiff’s applications in this case, the following principles are apt:

(1)  The restriction of open justice should not and does not arise unless the open administration of justice in a case would frustrate the ultimate aim of doing justice or the attainment of other similarly important interests such as public order, national security etc; or would or might jeopardise the right or interest of one or both parties outside of their case: Asia Television Ltd at [26]-[32].

(2)  Publicity of litigation leading to embarrassment and inconvenience does not by itself justify any restriction on open administration of justice: Re Wong Tung‑kin [1989] 1 HKLR 93; R v Chief Registrar of Friendly Societies, ex parte New Cross Building Society [1984] QB 227 at 235F; Asia Television Ltd at [23(1)].

(3)  Nor does publicity leading to economic damage, even very severe economic damage: R v Dover Justices, ex parte Dover District Council and Wells (1992) 156 JP 433; Asia Television Ltd at [23(2)].

(4)  Indeed, insofar as the person who initiates the proceedings is concerned, it has been said that it is not unreasonable to regard him as having accepted the normal incidence of the public nature of proceedings: R v Legal Aid Board, ex parte Kaim Todner [1999] QB 966 at 978D/E‑G; Asia Television Ltd at [24], [25] and [35].

14.It goes without saying that the application of principles depends very much on the facts of each particular case.

15.In the present case, the primary factual premise underlying the plaintiff’s (1) ex parte application for the Hearing to be held in camera or alternatively, the Anonymity Order and (2) inter partes application for the continuation of the Anonymity Order until trial or further order was that the disclosure of the successful perpetration of an email fraud upon the plaintiff would most likely cause its share price to drop.

16.Such statement is nothing but a bare assertion. It is further an assertion that does not sit well with the relatively modest loss caused by the email fraud or what the plaintiff claims itself to be.

17.While I have no wish to belittle the loss sustained by the plaintiff, as a result of the bogus email on 3 June 2019, the plaintiff parted with HK$3,527,617.50, an amount which exceeds the civil jurisdiction of the District Court by not very much.

18.According to paragraph 5 of the CFO’s affirmation dated 17 June 2019, the plaintiff is listed on the Main Board of the Stock Exchange of Hong Kong Limited and “provides brokerage, corporate finance and asset management services to a broad base of clients in the Greater China region”.

19.I find it difficult to anticipate any or any significant movement in the share price of a company listed on the Main Board of the Hong Kong Stock Exchange and serving a broad base of clients in the Greater China region in brokerage, corporate finance and asset management merely because it has suffered a one-off loss of just HK$3.5 million through no fault of its own.

20.If, as suggested by the plaintiff, public knowledge of the loss of HK$3.5 million by the plaintiff through an email fraud would cause its share price to fall, then I do not quite understand how the citation of paragraph 40 of the Guidelines would assist the plaintiff.  As I understand it, paragraph 40 imposes an obligation on a listed corporation to make prompt disclosure of events and circumstances that may affect the price of its listed securities.  It is ironic to see the plaintiff use paragraph 40 to prevent disclosure of its identity as plaintiff in this action so that it would not be associated with the loss that it said would most likely cause the price of its shares to drop.  One would have thought that independent of proceeding with this action in the usual manner consistent with open justice, the plaintiff should at the same time proactively seek to discharge its disclosure obligation under paragraph 40.

21.For the above reasons, I did not see fit to continue the Anonymity Order.

Mr Vincent Chen, instructed by WT Law Offices, for the plaintiff

The defendant absent