China Medical Technologies, Inc (in Liquidation) and Others v. Wu Xiaodong and Others

HCA 3391/2016

[2021] HKCFI 286

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

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Before: Hon Ng J in Chambers

Dates of Hearing: 18 and 24 August 2020

Date of Judgment: 3 February 2021

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J U D G M E N T

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Introduction

1.There is before this court Bank of China (Hong Kong) Limited’s (“BOC”) application by Summons dated 27 March 2018 (“Discharge Summons”) to discharge the bankers’ books Order granted by L Chan J ex parte without notice on 11 December 2017 (“BBO”) in the present action (“HCA3391”).[1]

2.Paragraph 1 of the BBO provides that pursuant to s 21 of the Evidence Ordinance, Cap 8, (“EO”)[2] the Plaintiffs be at liberty to  inspect and take copies of all entries in the books and records used and kept in the ordinary business by the banks in Hong Kong relating to the bank accounts set out in Schedule A to the Order, including but not limited to:

“1.1 all account opening documents, signature specimen cards, mandates and know your customer documents;

1.2 all documents and information relating to the person or persons authorised howsoever to operate such accounts;

1.3 all documents regarding the appointment of and changes in authorised account signatories;

1.4 all correspondence passing between the Banks and any of the 3rd to 10th Defendants and any other person(s) relating to such accounts for the period from November 2006 to the date on which that account was closed (or the date of this Order, if that account has not been closed) (the ‘Relevant Period’);

1.5 all detailed account statements for the Relevant Period;

1.6 all cheques paid into such accounts for the Relevant Period;

1.7 all cheques drawn on such accounts for the Relevant Period;

1.8 all credit vouchers and/or other documentation relating to funds paid into such accounts and the source of those funds for the Relevant Period;

1.9 all debit vouchers, transfer applications and orders and internal memoranda for the Relevant Period;

1.10 all documents, including SWIFT messages and/or telexes, evidencing or memorialising instructions to withdraw or transfer funds or recording or authorising payments from one account to another for the Relevant Period;

1.11 all documents which relate to letters of credit, standby letters of credit or other documentary credits and any applications for and/or enquires regarding the same which touch upon or concern such accounts for the Relevant Period; and

1.12 all account closing documents (if any) for the Relevant Period.”

3.Schedule A to the BBO covers 21 accounts of the 1st to 5th, 8th, 10th, 12th to 16th and 18th Defendants with 4 different banks in Hong Kong, of which BOC is only one of them.  The other 3 banks have complied with the terms of the BBO and have not taken issue with the scope of the Order or the form of Plaintiffs’ undertaking.  They include Bank of East Asia (“BEA”) which, like BOC, is the subject of a separate claim by the Plaintiffs. Further, the BBO has been served on the affected Defendants - no application has been made by any of them to vary or discharge the BBO or otherwise to protect their confidential information in the hands of BOC. 

4.For ease of reference, a simplified Schedule A to the BBO showing only those BOC accounts which are the subject of the present application is set out below.

No. In  BBO	Defendant	Payee Account No.	Total Amount Received (At Least) from Supreme Well, SWPs or FSWPs	Date/Date Range of Receipts
1	1st	012-737-9-201397-6 (“Mr Wu BOCHK Account”)	500,000	7 Apr 2009
3	2nd	012-737-9-203598-7 (“Mr Tsang BOCHK Account”)	3,265,000	30 Mar 2007 to 4 Oct 2007
5	3rd	012-737-9-204683-9 (“Second Dr Chen BOCHK Account”)	130,175	27 Jun 2008 to 15 Oct 2009
6	4th	012-737-9-203157-4 (“Second Mr Zhu BOCHK Account”)	1,383,000	30 Mar 2007
8	5th	012-891-0-800709-2 (“Second Chong Wing Hip BOCHK Account”)	20,980,000	25 Apr 2007 to 3 Mar 2009
9	5th	012-887-1-031181-1 (“Third Chong Wing Hip BOCHK Account”)	1,270,223	16 Jan 2008 to 27 Apr 2009
10	5th	033-662-0-002798-9 (“Second Kam Hing Trading BOCHK Account”)	73,000	16 Feb 2009
11	5th	033-662-1-015728-9 (“Third Kam Hing Trading BOCHK Account”)	120,000	2 Mar 2009
12	8th	012-737-1-009161-7 (“East Hope BOCHK HKD Savings Account”)	2,390,793	14 Dec 2006 to 12 Dec 2011
15	13th	012-737-9-203521-7 (“First Ms Bi BOCHK Account”)	5,000,000	30 Mar 2007
16	13th	012-806-9-219190-2 (“Second Ms Bi BOCHK Account”)	20,193	27 Dec 2012
17	14th	012-737-9-204921-0 (“Worldpro BOCHK Account”)	8,550,000	1 Sep 2010 to 19 Jul 2011
18	15th	012-737-9-203956-5 (“Long Chart BOCHK Account”)	1,000,000	13 Feb 2009
20	18th	012-737-9-202658-1 (“Chengxuan BOCHK Account”)	15,800,000	8 Nov 2006 to 6 Jul 2009

5.To accommodate some of BOC’s concerns or to narrow their differences with BOC, the Plaintiffs have prepared a draft Amended BBO (Annexure B to Mr Lee’s skeleton submissions).  At paragraph 10 of their submissions, the Plaintiffs invite this court to make an order in terms of the draft and dismiss the Discharge Summons.

Background

6.The Amended Statement of Claim of HCA3391 and HCA1417 of 2013 (“HCA1417”) consists of almost 200 pages[3].  The body of the 1^st Affidavit of Cosimo Borrelli dated 8 December 2017 (“Borrelli 1”) alone, which was filed in support of both the BBO and the mareva injunction before L Chan J on 11 December 2017, consists of over 60 pages.  For the present purpose, instead of trying to give a sufficiently detailed summary of these proceedings, it is only necessary to provide a very brief overview which is taken from paragraphs 15 and 16 of Borelli 1 as follows:

“15. The Orders[4] are sought in aid of the proceedings in HCA 3391/2016, in which it is claimed that the Company’s management and their associates stole hundreds of millions of dollars in cash from the Company and/or CMED Technologies (‘the Plaintiff Companies’).

16. The Plaintiffs’ claim in the Actions is that the Company’s management and their associates fraudulently misappropriated US$521.8 million of the cash belonging to the Plaintiff Companies (the ‘Fraud’).  The Plaintiffs claim that the Defendants perpetrated, participated in and/or benefited from the theft of US$521.8 million from the Plaintiff Companies pursuant to the Fraud.  There is substantial evidence of the Defendants’ participation in the Fraud and/or receipts of the stolen funds, including contemporaneous banking records that the Liquidators have identified in their investigations to date.  The Liquidators have traced the flow of the stolen funds to the bank accounts owned or controlled by the Defendants, including personal bank accounts of the Relevant Defendants and the bank accounts of entities controlled by them.  The ultimate recipients of the stolen funds have not been identified.”

Deliberation

(i) Whether to discharge the BBO?

7.BOC’s grounds for discharging the BBO have been succinctly summarised at paragraph 1 of its executive summary as follows.

Procedural irregularity

8.First, BOC submits that the Plaintiffs had no good justification to apply for the BBO ex parte and without notice to BOC as there was no urgency or any need for secrecy.  If there had been any concern that BOC might tip off its customers, at the ex parte hearing the Plaintiffs could have sought a gagging order against BOC and then proceeded to apply for the BBO inter partes: Goliath Far East Ltd v Teng Fei Run Trade Ltd [2019] 4 HKLRD 282; Asiya Asset Management (Cayman) Ltd v Dipper Trading Co Ltd [2019] 3 HKC 145.

9.On this ground alone, BOC submits the BBO ought to be discharged. 

10.In support of the first ground, BOC relies on the principles summarised by this court in China Medical Technologies Inc v Wu Xiaodong & Ors unrep, HCA3391 of 2016 and HCA1417 of 2013, 22 May 2019, Ng J at [24] - [26]:

“24. Fourth, an ex parte application is not simply a convenient alternative to an inter parte application. Ex parte applications without notice should only be made where either the delay would cause injustice to the applicant or the defendant would take action which would nullify the effect of the injunction: Ho Tak Eng v Fame Brilliant Ltd [2006] 1 HKLRD 34 at [8] and [11] (CA).

25. On the question of abuse of process in making an unjustified ex parte application, Johnson Lam J (as he then was) observed in Slik Hong Kong Co Ltd v Gerald Merlyn Rhoslyn Evans & Ors unrep, HCA 1424 of 2005, 25 July 2005, at [2]-[6] as follows:

‘2. Ex parte applications should be regarded as exceptional and the court should not entertain the same unless there are cogent justifications usually in terms of either extreme urgency or secrecy. See Bates v Lord Hailsham of St Marylebone & others [1972] 1 WLR 1373.

3. In Brand, Farrar Buxbaum v Samuel-Rozenbaum Diamond, HCA 5191 of 1998, 8 May 2002, Ma J (as he then was) said at Para 24,

‘One of the facets of equality before the law (a fundamental right guaranteed under Article 25 of the Basic Law) is that no order ought to be made by a court against anyone without his first being given a reasonable opportunity of being heard. An exception to this fundamental rule is where ex parte orders are made by the court. At the risk of repeating the obvious, ex parte orders are only made ‘where the situation is of such extreme urgency that there is literally no time to warn the defendant of what is proposed or where the purpose of the injunction will or may be frustrated if the defendant is informed of what is proposed or where the defendant simply cannot be found’: see TRP Limited v Thorley, unreported, 13 July 1993, English Court of Appeal, per Bingham LJ. I should perhaps out of completeness add that this salutary rule does not apply where express provisions are made in the Rules for the ex parte procedure to be used: see Hong Kong Civil Procedure at paragraph 32/6/5.’

4. It follows that the first thing the court should ask when it is faced with an ex parte application is whether the applicant can show such exceptional circumstances which justify him proceeding on ex parte basis. If he could not cross that hurdle, the court should not be concerned about the substantive merits of his application.

…’

26. Where it is found that there is no justification, either on the ground of urgency or the need for secrecy, to make the application ex parte, the Court will set aside an order obtained on this ground alone: Luck Continent Ltd v Leonora Yung & Ors unrep, CACV 42 of 2010, 22 October 2010 at [19]; Yifung Developments Ltd v Liu Chi Keung Ricky [2014] 4 HKLRD 483 at [15]-[16].” (emphasis added)

11.As submitted by the Plaintiffs, it is true that under s 21(2) EO, the court has jurisdiction to make an Order without summoning the bank or any other party. It is also true that in Tiger Resort Asia Ltd v Kazuo Okada & Ors [2018] HKCFI 472 at [22], DHCJ Keith Yeung (as he then was) observed that:

“… In my view, it will no doubt be fairer to serve an application under section 21 upon or otherwise give notice to the person whose account is to be inspected. That is however not always possible. The bottom line remains that such service is not a statutory requirement, and any insistence that service or notice should be a prerequisite for an application under section 21 would in my view impose unjustified fetters upon the courts’ discretion that can be exercised under that section.”

12.However, in Tiger Resort Asia Ltd v Kazuo Okada & Ors, the application was actually made by summons and the banks in question had been notified of the s 21 application but chose not to be heard.  It was only one of the defendants ie the 4th defendant together with an entity said to be controlled by the 1st defendant ie Skyrise who had not been served.  But it is apparent from [23] of the Judgment that the plaintiff had difficulty serving them.  This led the learned Judge to conclude at [24] that the circumstances in that case were not ordinary and there were sufficient justifications to proceed with the application without having served both.  The issue of the propriety or otherwise of applying ex parte without notice in the absence of such difficulties and in the absence of urgency or the need for secrecy did not arise in that case.

13.This court is bound by Luck Continent Ltd v Leonora Yung & Ors and cannot see any leeway for departing from it.  In any event, the principles quoted above are sound and of general application to all ex parte applications.  While China Medical Technologies Inc v Wu Xiaodong & Ors was concerned with the discharge of the mareva injunction granted by L Chan J on 11 December 2017, the principles cited are not simply confined to injunction applications. 

14.In the Plaintiffs’ skeleton argument for the ex parte hearing before L Chan J at para 82, the Plaintiffs submitted that it was not a requirement for the Court to make a BBO that notice be given to the banks. This may be so under the terms of s 21(2) EO but not according to the principles cited above.  The Plaintiffs’ then concern was that the banks might consider it necessary to notify the account holders thereby prompting them to take steps to put their funds beyond the Plaintiffs’ reach.  But that concern has in fact been answered by the Plaintiffs themselves at para 5 of the Plaintiffs’ Ex Parte Note on Full & Frank Disclosure (“Ex Parte Note”) supplied to L Chan J at the hearing in that if the Court granted the mareva injunction against the relevant Defendants, there would be no further dissipation of assets and notice could be given to the banks. 

15.Anyway, the proper way to address this concern is not, as suggested in para 7.2 of the Ex Parte Note, to allow a longer time (14 days) for BOC to comply with the BBO so that it could challenge the Order within the time limit for compliance.  The proper way is to seek a gagging order against BOC ex parte and then subsequently proceeded to apply for the BBO inter partes.

16.To conclude, this court agrees with BOC that there was no valid basis for the Plaintiffs to apply for the BBO ex parte without notice.  On this ground alone, the BBO should be set aside.

Material Non-Disclosure

17.Second, BOC submits there was material non-disclosure (“MND”) before L Chan J in that:

(1)  the Plaintiffs failed to explain that the BBO indiscriminately sought all entries in the books and records relating to the relevant accounts - the BBO was expressly “not limited to” the categories of documents enumerated therein; (“MND 1”)

(2)  the Plaintiffs failed to explain that the Collateral Use Undertaking in the BBO would not be effective to prevent oppression to BOC since the Plaintiffs and their solicitors are involved in both these proceedings and the BOC Action[5]; (“MND 2”) and

(3)  the Plaintiffs failed to disclose the oppressive administrative burden on BOC to obtain documents beyond 7 years, even though this had been disclosed to the Plaintiffs in earlier proceedings. (“MND 3”)

18.Given this court’s decision on the 1st ground, it is strictly not necessary to deal with this 2nd ground in any detail.  This court will therefore just briefly set out its views as follows. 

MND 1

19.BOC submits that the duty to present an ex parte application fairly requires the applicant to draw the Judge’s attention to any parts of the draft order which ought to be drawn to his attention so as to ensure that the Judge is actually aware of all the terms and their implications.  Further, questions about whether the wording of the draft order is sufficiently clear and certain should be drawn specifically to the attention of the Judge, relying on Gee, Commercial Injunctions 6^th ed at para 9-002 citing CEF Holdings Ltd v Mundey [2012] EWHC 1524 (QB) at [209] - [212].

20.In its skeleton submissions, BOC complains that the scope of the BBO was clearly problematic in that it was too broad - the breadth of the documents sought was not particularly identified and not limited by time and the Plaintiffs have not even tried to justify the broad scope of the wording of the BBO.  Had the excessive scope of the BBO been disclosed, L Chan J would most likely have insisted on a variation of its terms.

21.In this court’s view, MND 1 is clearly unjustified. 

22.In a very complicated case like CEF Holdings Ltd v Mundey, there may well be a duty for an applicant’s counsel to ensure that the Judge is actually aware of all the implications of the terms of the Order sought.  But this court has serious reservation as to the implicit suggestion in Gee, Commercial Injunctions that Judges do need counsel to tell them the terms of the Order sought or whether the wording of the draft Order is sufficiently clear and certain.  That seems to this court to be stating the duty of full and frank disclosure unnecessarily wide. 

23.In the present case, the terms of the BBO were there for the Judge to read and its intended scope was plain on its face.  The BBO is not a particularly difficult document to comprehend and BOC has not made clear in its skeleton submissions what sort of “implications” the Plaintiffs’ counsel was supposed to explain to L Chan J.  In fact, a perusal of the transcript of the hearing on 11 December 2017 shows the learned Judge was well aware of the terms sought by the Plaintiffs - the learned Judge even made suggestions to the Plaintiffs’ counsel as to how to improve the terms of the BBO. 

MND 2

24.As a matter of principle, a collateral use undertaking prevents the use of a disclosed document for any purpose other than the proper conduct of the action.  It applies not merely to the documents themselves but also to information derived from those documents whether it be embodied in a copy or stored in the mind: Sybron Corporation v Barclays Bank Plc [1985] 1 Ch 299, 318E, approved in Crest Homes Plc v Marks [1987] AC 829, 854, and quoted in Secretary for Justice v Florence Tsang Chiu Wing (2014) 17 HKCFAR 739 at [22].

25.In the present case, BOC accepts that it was disclosed in the Ex Parte Note at paras 6.3-6.4 that (i) the Plaintiffs had made a claim against BOC, that the claims against it are for inter alia dishonest assistance and knowing receipt and not a proprietary one in respect of money in Supreme Well’s bank account and (ii) BOC might argue that providing the documents sought would be tantamount to ordering advance discovery of documents by it.  BOC also accepts that at para 7.1 of the Ex Parte Note, the Plaintiffs had directed the court’s attention to undertaking (3) in the BBO (“Collateral Use Undertaking”) that the information and documents obtained could only be used for the purpose of these proceedings and to trace the monies misappropriated from the Plaintiffs. 

26.What BOC does complain is that the Plaintiffs had failed to disclose that undertaking (3) was ineffective in practice.  The reasons why it is said to be ineffective is set out in BOC’s skeleton submissions at para 96:

(1)  The parties are the same and the litigation is being conducted by the same set of solicitors.

(2)  Any information derived from eg the account opening and closing documents and operating mandates (“Account Documents”) and stored in the minds of the liquidators and solicitors cannot be forgotten. 

(3)  It can readily be inferred that, in the course of the Plaintiffs’ and their solicitors’ conduct of the BOC Action, their knowledge of the information in the Account Documents may become relevant and hence be “used”. 

(4)  The Plaintiffs and their solicitors have not put any measures in place to prevent the collateral use of information derived from the disclosed documents, such as a Chinese Wall. 

27.In this court’s view, MND2 is equally unjustified.

28.It may or may not be true that any information derived from the Account Documents and stored in the minds of the liquidators and solicitors cannot be forgotten - it rather depends on whether they have computer-like memories.  But given the Collateral Use Undertaking, even if some yet to be identified information cannot be forgotten, it still cannot be used in the BOC Action unless the Plaintiffs obtain a release from the Court.  An undertaking to the Court is a solemn promise and undertakings are treated as equivalent to injunctions ie a breach of an undertaking is equivalent to a breach of injunction: Arlidge Eady & Smith on Contempt 5th edpara 12-201.  There will be extremely serious consequences for breach of an undertaking not just for the parties but also their solicitors, the most obvious one would be committal for contempt. 

29.As for the suggestion that it can readily be inferred that the Plaintiffs’ and their solicitors’ knowledge of the information in the Account Documents may become relevant and hence be “used” in the BOC Action, this is pure speculation. 

30.For one thing, BOC has not been able to identify what information in the Account Documents is or will become relevant to the claims against it in a detrimental way which would make it oppressive for the Plaintiffs to get hold of them.  Instead, BOC simply asks the court to “readily infer” that the information may become relevant.  Worse still, BOC asks this court again to “readily infer” that if relevant, the information will be used, notwithstanding the serious consequences of a breach of undertaking.  The liquidators and their solicitors are professionals. While Mr Shieh SC has very fairly disclaimed any suggestion that they would consciously act in breach of the undertaking, there is no basis for BOC to suggest that these professionals cannot exercise control of themselves and will unwittingly make use of the Account Documents in the BOC Action.

31.As a matter of law, BOC has not been able to cite any authority in which a Court has refused to grant a bankers’ books or other disclosure Order against a third party merely on the ground that there is a risk of inadvertent or subconscious use of the information in separate proceedings against the third party.  For the reasons put forward by the Plaintiffs in their skeleton submissions, BOC’s attempt to draw from the s 221 authorities a general principle of oppression where separate proceedings against the third party are on foot is unsound and should be rejected.  In any event, as a matter of principle, since BOC cannot establish by cogent evidence that the risk is grave and the prejudice to it is real and substantial, this court, in the exercise of its discretion, is not minded to refuse disclosure on this ground of oppression or to accept the validity of MND2.

MND3

32.BOC submits the Plaintiffs have failed to disclose that it would object to the BBO on grounds of administrative burden, even though this objection has already been made and hence known to the Plaintiffs in a previous s 221 application.  The objection was made in the affirmation of Leung Ling Tsz Tiffany (“Leung 1”) filed in HCCW435 of 2012 (“HCCW435”) on 20 May 2015 which set out BOC’s document retention policy.  In HCCW435, the 3rd Plaintiffs were the Applicants while BOC was the 1st Respondent.  The application was for inter alia an Order that BOC do disclose a long list of documents specified in the summons, one of the items was Payment Approval Documentation for payments from Supreme Well Payees to Further Supreme Well Payees: see Leung 1 at paras 23 to 26.  It was primarily in relation to that item that BOC complained of the administrative burden on it should the application be allowed.

33.This argument was in fact rejected by Harris J in a decision dated 15 December 2015: Re China Medical Technologies Inc [2016] 2 HKLRD 962.  At [33] to [34], Harris J explained his decision as follows:

“33. The final objection is advanced only by BOC, which suggests that it is not practicable to obtain the Payment Approval Documentation generated 7 years before any search for them was commenced. The Liquidators are seeking Payment Approval Documentation back to 2005. Tiffany Leung, a senior operations manager with BOC, explains in paragraphs 16 and 17 of her first affirmation:

‘16. As of May 2014, in accordance with the 1^st Respondent’s policy and practice, it generally does not retain a client’s transaction history (‘Record of Transaction’) for more than 7 years. The Record of Transaction acts as an index for locating the relevant documents relating to each particular transaction, and contains very brief information such as the (i) date of the transaction; (ii) time of the transaction; and (iii) (most importantly) workstation number. The documents themselves are retained by the Bank for a period of 15 years. However, without the Record of Transaction or more particularly, the work station number, it is impossible to locate the relevant documents.

17. For this reason, although the 1^st Respondent may have in its possession documents going back to 2000, it is only able to retrieve documents from 12 March 2008 (calculated as from the date of the Summons). This applies to all categories of Documents sought under the Summons including §1.1(a).’

34. As I understand it, what Ms. Leung is saying is that there is no record, which would enable BOC to locate a particular document generated more than 7 years prior to the time it is decided to locate a document. I do not find Ms. Leung’s evidence in this regard very convincing. If BOC keeps records back to 2000, it must do so for a reason and have some way of identifying what those retained records are. I appreciate that BOC may have decided not to check prior to the determination of this application whether they can, in fact, find documents generated before 2007 (it seems to me that BOC should have at least kept the most recent transaction history when notified of the Liquidators’ request), but at this stage if I had been inclined to make an order I would have required them to produce documents for the entire periods sought by the Liquidators with liberty to apply in the event of them encountering insuperable problems in locating any of the documents.” (emphasis added)

34.BOC submits that although Harris J had rejected this argument, this was still a material matter that should have been drawn to L Chan J’s attention, not least because there was an obvious possibility that BOC would seek to supplement its evidence on this point.  Further, the Plaintiffs have failed to disclose that even though Harris J had rejected this argument, he still considered it appropriate to add a proviso so that BOC would have liberty to apply in the event that it encountered insuperable problems in locating any of the documents.  Had these matters been disclosed, L Chan J could well have refused the Order until BOC had the opportunity to respond or the learned Judge would have included a similar proviso giving BOC liberty to apply.

35.This court disagrees.

36.While the Plaintiffs concede that what had been stated in Leung 1 was not disclosed to L Chan J, they submit that they had no obligation to do so, given the argument had been resoundingly rejected by Harris J.  In these circumstances, it is inconceivable that if Leung 1 and Harris J’s decision had been disclosed at the ex parte stage, L Chan J could well have refused the Order.  As for liberty to apply, L Chan J had actually given it at para 5 of the BBO.

37.This court agrees.  This court also agrees with the Plaintiffs’ suggestion that impracticability of compliance is a matter more appropriately examined at the inter partes stage, if and in so far as the issue is raised by BOC.  There would be no prejudice to BOC since under the terms of the BBO, it had 14 days to comply with it and it had liberty to apply on notice to the Plaintiffs to vary or discharge the Order.

38.The reason for the suggestion is obvious.  Only BOC would know how impractical, if at all, it would be to give the discovery sought and only BOC would be in a position to adduce evidence in support of that objection.  In this court’s experience, save in the simplest of cases, it is always conceivable that the respondent to a s 21 EO application will complain of the administrative burden imposed by a BBO.  If an applicant is obliged to anticipate that sort of complaint and make full and frank disclosure in order to avoid the consequences of MND, that will put an unduly burden on the applicants in many cases. 

39.For these reasons, this court does not find MND3 justified.

(ii) Whether to re-grant a BBO and, if yes, on what terms?

40.It is trite that even when an ex parte Order has been discharged, the Court has a discretion to re-grant the Order at the inter partes hearing. 

41.In Yau Chiu Wah v Gold Chief Investment Ltd unrep, HCA 807 of 2001, 15 May 2001, Recorder Ma SC (as he then was) observed:

“43. Material non-disclosure is rightly regarded as a serious matter and in certain cases would not only justify the setting aside of an existing order but may also constitute the determining factor in the refusal of a fresh grant. However, it is important for a court, when considering whether or not to set aside an existing order or to grant a new injunction, to consider all the circumstances of the case to arrive at what is the justice of the situation. There is of course no doubt that the court does have the residual discretion not to set aside or to grant a fresh order even in circumstances where material non-disclosure has been shown.”[6] (emphasis added)

42.A fortiori in the present case where this court has found the Plaintiffs not guilty of any material non-disclosure but rather have taken the unjustified procedural step of applying ex parte without notice to BOC.  It seems to this court that justice of the situation lies in favour of ordering a re-grant, albeit not in exactly the terms now proposed by the Plaintiffs in the draft Amended BBO. 

43.In the present case, BOC has half-heartedly opposed a re-grant of the BBO by arguing that, in obtaining it on far broader terms than were justified, the Plaintiffs had obtained an unfair litigation advantage over BOC by putting it on the back foot and putting the burden on it to apply for and justify the discharge of the BBO.  It is unclear what unfair litigation advantage has been obtained by the Plaintiffs since BOC has not complied with the BBO, 3 years after its grant.  It seems to this court that the argument rather implicitly accepts that a more restricted BBO can be justified on the evidence, and rightly so.

44.In considering a re-grant, this court should remind itself that the main test under s 21 EO is relevance: Chan Wai Sun v Law Shiu Kai [2003] 3 HKLRD 954 at [10]; Tiger Resort Asia Ltd v Kazuo Okada & Ors at [28].  Further, if a case involves a proprietary claim where the plaintiff seeks to trace property which in equity belongs to him, the court has jurisdiction to make orders designed to ascertain the whereabouts of that property.  In particular, it may order a third-party bank to give discovery of documents in relation to the bank account of a defendant who is alleged to have defrauded the plaintiff of his assets: Pacific King Shipping Holdings Pte Ltd v Huang Ziqiang [2015] 1 HKLRD 830 at [29].

45.The starting point of the terms of a re-granted BBO against BOC is the draft Amended BBO which the Plaintiffs invite this court to make.  Compared with the BBO, the draft has been substantially reduced in scope to narrow the arguments of the parties.  For ease of comprehension, it is annexed to this Judgment as Annex I.

46.Judging from its skeleton submissions, it appears that BOC’s principal objection is still the scope of the draft Amended BBO. In summary, BOC submits that, should any BBO be re-granted, it should be made on terms that:

(1)  exclude the Account Documents as they are unnecessary and/or oppressive; (“Ground 1”)

(2)  on the ground of oppressive administrative burden, limit any disclosure of Transaction Documents to transactions after 14 December 2010; alternatively include a proviso that BOC does have liberty to apply in the event of it encountering serious problems in locating any of the documents; (“Ground 2”)

(3)  subject to (2) above, on the ground of excessive temporal scope, limit any disclosure to (1) the date of the first receipt of funds and (2) a reasonable period after the date of the receipt of funds (or date of last receipt, as the case may be), say 3 months.  (“Ground 3”)[7]

47.First, BOC objects to the Account Documents ie para 1.1 of the draft Amended BBO on the grounds that (i) it would be oppressive by reason of the Plaintiffs’ claim against BOC since the Collateral Use Undertaking would be ineffective; and (ii) they are not on the face of it necessary for the exercise of tracing the misappropriated funds.  It relies on American International Assurance Company (Bermuda) Limited v Cheung Sin Man unrep, HCA1556 of 2011, 4 January 2012, DHCJ Lok (as he then was) as an example where account opening forms etc were regarded as not necessary for the purpose of tracing the movement of funds. 

48.As far as (i) is concerned, that has already been dealt with under the section MND2 above.

49.As far as (ii) is concerned, to start with, every case is decided on its own facts and citing an authority for illustration as an example where account opening forms etc were regarded as not necessary for the purpose of tracing the movement of funds is of limited assistance, if at all. 

50.In the present case, the Plaintiffs submit and this court agrees that account opening documents and mandates help to identify the beneficial owner(s) and authorised signatories of an account, which, in turn, assist to identify the recipient(s) of a cash withdrawal.  As an example, the Plaintiffs have managed to trace almost HK$3 million of cash withdrawals by the 2nd Defendant from the Supreme Well Secondary BOCHK Account as he is named in the account mandate as the sole authorised signatory of that account.  Otherwise, the Plaintiffs would not have been able to do so.  The Plaintiffs have also identified other cash withdrawals from bank accounts of Supreme Well or the Supreme Well Payees between 2008 and 2011.  It is therefore reasonable to infer there could be similar cash withdrawals from the bank accounts covered by the draft Amended BBO and if so the Plaintiffs need to identify their recipients. 

51.As for closing documents, the Plaintiffs’ justification is that they often record transfers and bank account details which would enable the Plaintiffs to trace.  An example was given in a letter dated 15 June 2020 from Lipman Karas to KW Ng & Co enclosing an account closing voucher.  BOC’s counter argument is that one cannot simply assume that the misappropriated funds would have been kept in the relevant bank accounts until closure - indeed the opposite is more likely to be the case.  Further, even if the Plaintiffs can justify seeking account closing documents, the only document they should be entitled to is the account closing voucher.

52.It is purely speculative and utterly unhelpful to argue that there could be no funds left in the bank accounts at the time of closure.  The Plaintiffs are carrying out a tracing exercise.  At this stage and before the documents are disclosed, one just cannot be reasonably certain that there must or must not be any amount of funds left in the accounts in question.

53.Further, as a bank, BOC should know what account closing documents would reveal that funds had been transferred out at the time of closure.  The account closing voucher is only 1 example that the Plaintiffs are able to locate.  If BOC is adamant in opposing the disclosure of account closing documents other than the vouchers, it should assist the court by explaining why other types of account closing documents are irrelevant to the tracing exercise so that the court can limit the type of closing documents for the purpose of disclosure.  This BOC has not done. 

54.To conclude, BOC’s objection to the Account Documents is unjustified and Ground 1 must be rejected.

55.Second, BOC objects to disclosure of the Transaction Documents ie para 1.2 of the draft Amended BBO beyond 7 years on the ground of oppression owing to the administrative burden on it.  In gist, BOC says its transaction record keeping system operates in such a way which does not keep indices for documents ie the so-called RT[8] and WN[9] older than 7 years.  Once those indices are deleted, it is practically impossible to locate the documents in question. 

56.A BOC employee Mr Lo Chun Piu also stated in his 2nd affirmation that in a search conducted on 14 December 2017 ie the date the BBO was served on BOC, he could not locate documents earlier than 14 December 2010.  No details of the way his search was conducted, however, were provided in his 2nd affirmation.  Effectively, BOC is asking the court to accept its transaction record keeping system at its face value and that the system was the reason why Mr Lo could not locate documents earlier than 14 December 2010.

57.BOC also submits that by the evidence of Mr Lo, it has answered Harris J’s query in Re China Medical Technologies Inc supra at [34] as to why, under the BOC’s system, it is not able to identify records going back further than 7 years even though it may maintain physical possession of them up to 15 years. 

58.In this court’s view, Mr Lo’s evidence does not take the matter much further than Leung 1 quoted above in relation to MND3.  Both of them are relying on BOC’s record keeping system in support of their argument that documents going further than 7 years cannot be located except manually which would be a mammoth task given the size of BOC’s operation.  This court’s answer to that argument is substantially the same as Harris J’s - if BOC keeps records physically for 15 years, it must do so for a reason and it must have some way to identify what those records are and how to locate them.  As Mr Lo states in his 1st affirmation, BOC obviously knows it is one of the largest banking institutions in Hong Kong and handles large number of documents and daily transactions involving millions of pages of vouchers, payment slips etc.  It is quite inconceivable that it sees fit to keep records for 15 years without putting in place a system to locate them for the entire period.  This court asks rhetorically: what is the point of keeping something that one cannot find?

59.For these reasons, BOC’s objection is equally unjustified and Ground 2 must be rejected.  This court will however accede to BOC’s suggestion of including a proviso that it does have liberty to apply in the event of it encountering serious problems in locating any of the Transaction Documents pertaining to transactions more than 7 years before 14 December 2017.

60.Third, BOC objects to the disclosure of Transaction Documents as having an excessive temporal scope.  This is because in para 1.2 of the draft Amended BBO, the Plaintiffs ask for Transaction Documents

(1)  from November 2006 (ie when payments of the misappropriated funds began to flow to Supreme Well) (“Starting date”) which would cover periods before the accounts in question received any traced funds and therefore cannot assist with tracing, and

(2)  to the date of closure of the accounts or the date of the BBO to be re-granted (if the accounts are not yet closed) (“Closing dates”), even though the likelihood is that the traced funds would have already been transferred out long ago.

61.BOC’s position on the Starting and Closing dates is that they should be restricted to:

(1)  the dates on which the misappropriated funds were first transferred into the relevant accounts; and

(2)  the dates on which the funds were likely transferred out of the relevant accounts, say 3 months after the receipts. 

62.As far as Starting dates are concerned, the Plaintiffs’ case on seeking disclosure of Transaction Documents from November 2006 is rather weak. 

(1)  In Borelli 1 at para 198, he said:

“198. While the Liquidators are aware of the payments into the s.21 Inquiry Accounts on the dates specified in the s.21 Schedule, the Liquidators require the Banking Records for payments and receipts from November 2006 (the date on which payments of the stolen funds commenced flowing to Supreme Well), in order to investigate and trace any additional flows of funds through the s.21 Inquiry Accounts comprising funds stolen from the Plaintiff Companies.”

(2)  In the 12th affirmation of Mr Borelli dated 15 May 2019 (“Borelli 12”), at para 17, he said:

“17. 14 of the 21 s.21 Inquiry Accounts are BOCHK Accounts. The documents sought by way of the BBO, and those from BOCHK in particular, are crucial to the Liquidators’ ability to trace the Plaintiff Companies’ funds to further levels and identify the ultimate recipients of the stolen funds. For example, the Liquidators have traced US$15.8 million of the Plaintiff Companies’ funds to the Chengxuan BOCHK Account identified in Schedule A to the BBO. As the Liquidators do not have any records of the Chengxuan BOCHK Account, the Liquidators are unable to trace the whereabouts of the US$15.8 million. If the Chengxuan BOCHK Account is closed, the US$15.8 million would have been withdrawn or transferred to other accounts. Without the records of Chengxuan BOCHK Account (and other s. 21 Inquiry Accounts), the Plaintiffs do not know to whom the Plaintiff Companies’ funds were transferred.” (emphasis added)

63.In this court’s view, para 198 of Borelli 1 is little more than a bare assertion that the 3rd Plaintiffs require the Starting date to commence from November 2006 without stating the basis to show “there is a real prospect that the information may lead to the location or preservation of assets to which [they are] making a proprietary claim”: CTO (HK) Ltd v Li Man Chiu & Ors [2002] 2 HKLRD 875 at [13]^[10]. As for para 17 of Borelli 12, instead of justifying the Starting date to commence from November 2006, the Liquidators are really seeking to justify the Closing dates on the ground that they need to trace the whereabouts of the misappropriated funds already in the relevant BOC accounts.

64.For these reasons, this court accepts BOC’s suggestion that the Starting date should be the dates on which the misappropriated funds were first transferred into the relevant accounts and shall so order.

65.As for Closing dates, BOC’s submission that all the traced funds would likely have been transferred out of the accounts long ago is purely speculative while its suggestion that the Closing dates should be 3 months after the receipts of funds in the accounts is wholly arbitrary.  As this court has said in relation to account closing documents, the Plaintiffs are carrying out a tracing exercise.  At this stage and before the documents are disclosed, one just cannot be reasonably certain that there must or must not be any amount of funds left in the accounts in question. 

66.For these reasons, BOC’s suggested Closing dates cannot be accepted.

Disposition and costs order nisi

67.The bankers’ books Order granted by L Chan J on 11 December 2017 is hereby discharged. 

68.This court hereby re-grants a bankers’ books Order in terms of Annex I save and except that

(1)  for para 1.2,

(a)  the Starting date should be revised to the dates on which the misappropriated funds were first transferred into the relevant accounts;

(b)  a proviso be added that BOC does have liberty to apply in the event of it encountering serious problems in locating any of the Transaction Documents pertaining to transactions more than 7 years before 14 December 2017;

(2)  paragraph 6 be deleted.

69.In the event that, in light of this Judgment, the re-granted bankers’ books Order requires any further or consequential amendments on which the parties cannot agree upon, there be liberty to apply.

70.Since BOC manages to discharge the BBO on procedural ground only but fails to oppose a re-grant on substantially the same terms as submitted by the Plaintiffs, it seems to this court a fair Order would be for BOC to bear 50% of the Plaintiffs’ costs of and occasioned by the Discharge Summons, to be taxed if not agreed, and paid forthwith, certificate for counsel.  There shall be an Order nisi on costs to that effect.

Mr Thomas Lee, instructed by Lipman Karas, for the Plaintiffs

Mr Paul Shieh, SC and Mr Julian Lam, instructed by K W Ng & Co, for Bank of China (Hong Kong) Limited

Annex I

HCA 3391 / 2016 and HCA 1417 / 2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 3391 of 2016

___________________________

 BETWEEN

_________________________

ACTION NO. 1417 OF 2013

_________________________

BETWEEN

(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

BEFORE THE HONOURABLE MR JUSTICE NG

PLAINTIFFS’ PROPOSED DRAFT ORDER

UPON the application of the Solicitors for the Bank of China (Hong Kong) Limited (“BOCHK”) dated 27 March 2018

AND UPON READING the Affidavit of Cosimo Borrelli filed on 11 December 2017 and the exhibits thereto, the Affirmation of Ng Kwok Wing filed on 27 March 2018 and the exhibits thereto, the Affirmation of Chang Wing Nin Eric filed on 17 April 2019 and the exhibits thereto, the Affirmation of Lo Chun Piu filed on 17 April 2019 and the exhibits thereto, the Twelfth Affidavit of Cosimo Borrelli filed on 17 May 2019 and the exhibits thereto, the Second Affirmation of Chang Wing Nin Eric filed on 12 June 2019 and the exhibits thereto, the Second Affirmation of Lo Chun Piu filed on 12 June 2019 and the exhibits thereto, the Affirmation of Chan Kwok Wai filed on 20 November 2019 and the exhibits thereto, and the Fifteenth Affidavit of Cosimo Borrelli filed on 8 May 2020 and the exhibits thereto

AND UPON HEARING Leading Counsel and Junior Counsel for BOCHK and Counsel for the Plaintiffs

AND UPON the Plaintiffs undertaking:

(1)   To pay the reasonable costs of BOCHK in complying with this Order;

(2)   To comply with any order the Court may make if the Court later finds that this Order has caused loss to BOCHK or any other party and decides that BOCHK or that other party should be compensated for that loss; and

(3)   To use the information and documents obtained by them pursuant to this Order only for the purposes of these Consolidated Actions and to trace the proceeds of the monies misappropriated from the First or Second Plaintiffs, and not for any other purposes save with leave of the Court.

IT IS ORDERED THAT:-

1.   The Order made by the Honourable Mr Justice L. Chan on 11 December 2017 pursuant to section 21 of the Evidence Ordinance (Cap. 8) as against BOCHK be substituted by an Order in the following terms:

1.   Pursuant to section 21 of the Evidence Ordinance (Cap. 8), the Plaintiffs be at liberty by themselves, their agents or legal advisers to inspect and take copies of the following records used and kept in the ordinary business by BOCHK in respect of the bank accounts set out in Schedule A to this Order, whether such books and records are in written form or maintained as microfilm, magnetic tape or by means of any other form of mechanical or electronic data retrieval system:

1.1  all account opening and closing documents and operating mandates created by BOCHK (“Account Documents”); and

1.2  all account statements and all bank vouchers, forms, instructions, transaction advices, cheques, and correspondence created by BOCHK to record or effect payments in and out of the account, including fixed time deposits (“Transaction Documents”)_relating to such accounts for the period from November 2006 to the date on which that account was closed (or the date of this Order, if that account has not been closed).

2.   The books and records referred to in paragraph 1 above do not include:

2.1   payment approval documentation, as defined at paragraphs 2.1 to 2.4 and 2.9(a) and (e) of the Decision of the Honourable Mr. Justice Harris dated 15 December 2015 in HCCW 435 of 2012 (“s. 221 Decision”); 

2.2  client, credit and risk assessment documentation, as defined at paragraphs 2.7 and 2.9(c) of the s. 221 Decision;

2.3  internal policy documents, as defined at paragraphs 2.8 and 2.9(d) of the s. 221 Decision; and

2.4  any documents pertaining to the bank accounts set out in Schedule A to this Order which BOCHK has already produced to the Plaintiffs (or any one of them).

3.   BOCHK shall comply with paragraph 1 of this Order within 28 days of the date of this Order.

4.   The Plaintiffs do in the first instance reimburse BOCHK for the costs of complying with paragraph 1 of this Order on an indemnity basis.

5.   BOCHK and any person affected by this Order shall have liberty to apply on notice to the Plaintiffs’ solicitors to vary or discharge the Order. If any evidence is to be relied upon in support of such application, the substance of it must be communicated in writing to the Plaintiffs’ solicitors in advance.

6.   BOCHK’s summons dated 27 March 2018 be dismissed with costs to the Plaintiffs.

Schedule A to Order – BOCHK Section 21 Inquiry Accounts Schedule 

Defendants’ Hong Kong BOCHK Accounts for which the Liquidators Require Banking Records to Conduct Further Tracing