Hwang Joon Sang and Another v. Golden Electronics Inc. and Others

HCA 1529/2019

[2021] HKCFI 544

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1529 OF 2019

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Before: Hon Coleman J in Chambers (Open to Public)

Date of Hearing: 2 March 2021

Date of Judgment: 2 March 2021

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J U D G M E N T

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A.     Introduction

1.In these proceedings, the plaintiffs assert proprietary claims over funds in the bank accounts held by the defendants. Essentially, the funds held in the various accounts are said to be the proceeds of the plaintiffs’ business activities, and to belong beneficially to the plaintiffs.  The particular relief claimed includes declarations as to the defendants holding the funds on constructive trust, and as to liability to account and orders for payment of sums due on taking of the account.

2.Numerous previous Mareva and proprietary injunction orders have been made and continued against the various defendants, into whose hands the plaintiffs seek to trace the funds over which they make a proprietary claim.  Further, various disclosure orders have been granted in relation to the various tiers of recipient of the funds over which the plaintiffs assert the proprietary claim.

3.The broad background to the proceedings, which provides sufficient context for today’s purposes, can be found in my previous Decision [2020] HKCFI 1084, to which reference can be made.

4.By summons dated 26 February 2021, the plaintiffs now seek a ‘bankers’ books’ disclosure order pursuant to section 21 of the Evidence Ordinance Cap 8 (“EO”), alternatively Norwich Pharmacal relief against the Taipei Fubon Commercial Bank, Hong Kong branch (“Bank”).  The application seeks disclosure relating to the operation of the accounts held at the Bank by the 1^st and 2^nd defendants.

5.The application follows the information obtained from previous ordered disclosure, from which it seems that the 6^th defendant, with the knowledge or assistance of others including the 20^th defendant, misappropriated money from a time earlier than June 2016, which previously was understood to be the commencement of the misappropriation.  Out of the 1^st to 5^th defendant’s’ accounts, only the accounts of the 1^st and 2^nd defendants were active in the period before 1 June 2016.  Their respective account opening dates were 15 March 2013 and 2 April 2015.

6.In those circumstances, the plaintiffs seek a disclosure order against the bank accounts of the 1^st and 2^nd defendants, held with the Bank, for the periods from the respective account opening dates until 31 May 2016.

B.     Applicable Principles

B.1    Bankers’ Books Orders

7.The principles concerning an application for ‘bankers’ books’ disclosure orders are well-established: see, for example, Golden Brothers, Inc v Medicare Asia Ltd (unreported, HCA 2590/2016, 14 October 2016).

8.The primary purpose of a discovery order made under section 21 of the EO is to preserve the assets or property which might otherwise be dissipated notwithstanding an injunction not to do so. Though the court will not lightly use its powers to order disclosure of full information touching the confidential relationship of banker and customer, such an order may be justified where the plaintiff seeks to trace funds which, in equity, belong to it and of which there is strong evidence that it has been fraudulently deprived, where delay might result in the dissipation of the funds before trial.

9.There are three limits to the exercise of the power, being: (1) the plaintiff must demonstrate a real prospect that the information may lead to the location or preservation of assets to which he is making a proprietary claim; (2) where documents are required to be disclosed, the third party should be entitled to the same specificity in the documents he is asked to produce as he would be if served with a subpoena; and (3) even if the application prima facie falls within the principle for disclosure, the court needs to balance the potential advantage of disclosure against the detriment to the person against whom the order is sought, not merely in terms of costs (for which he is ordinarily compensated on an indemnity basis by the terms of the order) but by way of invasion of privacy and requiring breach of obligations of confidence owed to others.

10.Further, the plaintiff is ordinarily required to give an undertaking that whatever information is obtained would be used only for the purposes of the action to trace the funds, and not for any other purpose.

11.I shall return, in the ‘Postscript’ below, to the question of the terms of the order providing for the costs of providing disclosure being ordinarily compensated on an indemnity basis.

B.2    Norwich Pharmacal Orders

12.As to the alternative Norwich Pharmacal basis for a disclosure order, the principles are also well-established: see A Co v B Co [2002] 3 HKLRD 111 at §13.  There are three essential requirements, being: (1) there must be cogent and compelling evidence to demonstrate that serious tortious or wrongful activities have taken place; (2) the order will, or will very likely, reap substantial and worthwhile benefits for the plaintiff; and (3) the discovery sought must not be unduly wide.

C.     This Application

13.The application made by summons dated 26 February 2021 is primarily supported by the evidence found in the 2^nd and 10^th affirmations of the 1^st plaintiff.  (The final signed version of the 10^th affirmation has not yet been properly affirmed, but is exhibited to an affidavit of the plaintiffs’ solicitor, with an undertaking that the 1^st plaintiff will travel to Hong Kong and sign the affirmation before a Hong Kong solicitor within 28 days of the lifting of the travel restrictions which currently prohibit him from so doing.  In the exercise of my discretion, I proceed on the basis of the material contained in that affirmation notwithstanding.)

14.On the evidence, I am satisfied that the circumstances are such as make it appropriate to grant the disclosure orders sought.  There seems to me to be real purpose in the application, in obtaining information of assistance in seeking to trace and preserve the assets, and the order can specify the documents to be produced.  The balancing of the potential advantage in ordering disclosure against the potential detriment to the Bank seems to me to point firmly in favour of ordering disclosure.  Further, the plaintiffs have given an undertaking that the information obtained would be used only for the purposes of investigating the whereabouts of the assets over which the proprietary claim is made, and the identities and/or wrongdoings of the persons or entities involved in the receipt, handling, transfers or disposal of such assets, including for commencing and pursuing legal proceedings in Hong Kong or elsewhere.

15.If necessary, I am also satisfied that there is cogent and compelling evidence to demonstrate that serious tortious or wrongful activities have taken place, and that the order will very likely reap substantial and worthwhile benefits for the plaintiffs on a discovery order which is not unduly wide.

16.The plaintiffs have also agreed to reimburse the Bank their reasonable costs of complying with any disclosure ordered.

17.Further, I take into account that the plaintiffs’ solicitors have written to the Bank, and have received a reply indicating that the Bank has no objection to the making of the order.

D.     Postscript

18.However, the non-objection of the Bank to the making of the order is conditional upon the plaintiffs’ agreement and undertaking to pay specific charges for handling the request for disclosure. It is the particular level of charges put forward which leads me to make the following comments.

19.In this case, the Bank is seeking a handling fee of HK$3,000 per account and an additional fee of HK$200 per page of document to be provided.  The plaintiffs’ solicitors’ suggestion in correspondence that HK$200 per page is wholly excessive, not least when the previous agreed charge was HK$25 per page in April 2020 for another disclosure application involving the same Bank in this Action, has not had the courtesy of a reply.  Nor has the Bank provided the requested simple breakdown of the fee as was sought.

20.In the circumstances, but only in the interest of saving time and the costs of any contested hearing, the plaintiffs have agreed to the proposed fee in this instance.  But, Mr Park, Counsel for the plaintiffs, points out that the charges raised by banks providing disclosure in compliance with orders of court vary significantly, and that it is a topic usually unaddressed by the court.

21.Of course, I recognise that I do not have any information from the Bank, or indeed from any other bank, explaining the charge of HK$200 per page.  But, on its face, that charge does seem to be somewhat arbitrary, and at least on the high side, if not wholly excessive.  But the obvious problem arising from such level of fees is that it may deter victims of fraud from seeking to trace their assets.

22.In another previous Decision in this Action, [2020] HKCFI 1233, I pointed out the problem broadly in the following way:

(1)  On the face of the plaintiffs’ claim – and in circumstances where no defendant has yet identified any defence to any part of the claim – the plaintiffs appear to have at least a strongly meritorious proprietary claim to the funds that have been the subject of various transfer between the defendants’ bank accounts.

(2)  Yet, despite the strong claim to being defrauded of significant sums, the plaintiffs are required to expend significant further sums in an attempt to trace and recover what they have lost.

(3)  Of course, even though the discovery sought must not be unduly wide, it is also correct that the plaintiffs are not in a position to make a narrowly focused application for documents, as they do not know precisely the number of documents (or pages) which will be made available by any particular bank.

(4)  No doubt, some of the documents produced will be of rather less assistance than those which identify the core elements of the transfers which may permit the intended tracing exercise.

(5)  Whilst the plaintiffs are willing to give undertakings to reimburse the banks for their reasonable costs of complying with any disclosure ordered by the Court, there is a good argument that the Court should actively approve and adopt a practice and procedure which may help reduce costs that can be otherwise saved, so long as it is possible and fair, just and reasonable to do so.

(6)  In light of the underlying objectives under RHC Order 1A rule 1, I agreed.

(7)  Those objectives include increasing the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court; promoting a sense of reasonable proportion and procedural economy in the conduct of proceedings; and ensuring fairness between the parties.

23.Therefore, on that occasion, I specifically left it as a term of the order made to permit the individual bank to consider whether it would be more economical and environmentally friendly to adopt the provision of disclosure through use of the data room.

24.I also pointed out that, in practical terms, the banks being required to provide disclosure probably hold the relevant materials in electronic or digital form.  It would seem to be an unnecessary expenditure of time and cost to print out hard copy documents so as to provide them to the plaintiffs.  That is particularly so where the plaintiffs will likely have to scan those documents, and thereby to create their own electronic or digital versions of them, to pass them to (for example) forensic accountants or others involved in the tracing exercise.  Turning paper documents back into electronic documents would also seem to be an unnecessary expenditure of time and costs. The use of paper, at least much more paper than is likely to be required for any focused exercise, would also seem to be environmentally unattractive.

25.I expressed the view that most banks would probably prefer to avoid the unnecessary expenditure of both time and administrative resources, or would at least prefer to minimise such expenditure.

26.Relevantly for today’s purposes, I also expressed the view – which I maintain – that I do not think it is part of the profit making of a bank to charge for compliance with orders for disclosure on a basis greater than the actual reasonable costs of compliance.  Indeed, the whole point of ordering the costs of providing disclosure to be paid on an indemnity basis, against the applicant’s undertaking to do so, is to ensure full (but no more than full) compensation for the costs of complying with the order.

27.If banks were to engage in a practice of levying extravagant photocopying or administrative charges, rather than seeking genuinely to provide for full (but no more than full) compensation for the costs of complying with the order, victims of fraud may face a significant dilemma.  Either they are stuck with a “take it or leave it” situation and have no choice but to accede to the bank’s demanded charges, or they may have to chance the costs of an argument at a contested hearing, where the only contest is as to the proper or reasonable charge for compliance with the order for disclosure.  An even worse alternative would be for the victim not to pursue the disclosure at all, as in some cases it may appear commercially not worthwhile to do so.

28.Such a situation would be at best unfortunate. It therefore seems to me that banks and financial institutions who are asked to provide disclosure should give careful thought as to the real and reasonable costs of compliance, which would justify the full indemnity extracted from the applicant as part of the consideration in granting or refusing the application.

29.It is regrettable that applications for ‘bankers’ books’ orders and/or Norwich Pharmacal relief have become commonplace with the explosion of email and other similar financial frauds, where proceeds of fraud are passed through tiers of bank accounts, which may require complex investigation and tracing processes.

30.Again, as in my previous Decision, I am conscious that I have not heard from any bank (or any association of banks) as might usefully add to the debate.  Without further detail, I do not say that the fees put forward on this occasion could not be justified; perhaps they could.  But, as the fees have been agreed, that question does not arise, and the plaintiffs have been careful to point out no actual complaint is being made today.

31.But, it seems to me that failing a justified approach in future, it may be that the court will on some occasion be forced to consider identifying the reasonable indemnity costs for compliance with an order in any particular case, through a process of taxation or otherwise.  Perhaps the time has come for a suitable association of banks to consider in broad terms what would be fair and reasonable charges for complying with disclosure orders, as might justify the undertaking to meet those costs of compliance on an indemnity basis.

32.The more consistent the charges, the more questions of proportion and procedural economy and fairness to all can be addressed, and all involved parties can properly assess those and related matters.

Mr Moses Park, instructed by ONC Lawyers, for the plaintiffs