Orient Finance Holdings (Hong Kong) Ltd v. China Vered Asset Management (Hong Kong) Ltd and Another

HCA 682/2022

[2024] HKCFI 459

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 682 OF 2022

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BETWEEN

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REASONS FOR DECISION

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1.On 18 September 2023, Master Frances Lok (“the Master”) granted the application of Orient Finance Holdings (Hong Kong) Limited (“the Plaintiff”) for 3^rd party discovery and ordered China Vered Financial Holding Corporation Limited (“the Respondent”) to produce the Investigation Report[1] (“the Discovery Order”).

2.In connection with its appeal from the Discovery Order (scheduled to be heard by this Court on 8 February 2024), on 27 December 2023, the Respondent filed a summons (“the Summons”). It sought leave to file the 4^th affirmation of Mak Tsz Yeung (“Mak 4^th”) which would contain the Investigation Report and related privileged material (collectively “the sealed documents”) in a sealed envelope.

3.The Court heard and dismissed the Respondent’s application on 26 January 2024 with reasons to be handed down which I now do.

Procedural history

4.On 11 November 2022, the Plaintiff issued the summons for 3^rd party discovery (“the Summons”). The underlying action was brought by the Plaintiff against the 1^st defendant China Vered Asset Management (Hong Kong) Limited (“D1”), the investment manager of the 2^nd defendant, the Shareholder Value Offshore Fund for breach of contract and consequential relief.

5.The discovery sought from the Respondent related to 2 types of documents specified in the Schedule 1 to the Summons, namely, (1) the Investigation Report; and (2) the underlying supporting documents.

6.The Discovery Order related only to the disclosure of the Investigation Report but not the supporting documents which the Master dismissed[2]. This being the Respondent’s appeal, it only concerns the disclosure of the Investigation Report ordered by the Master.

The Respondent’s application

7.Mr Harrison Miao, counsel for the Respondent, submitted that at the appeal hearing inspection is potentially an available option and the proper course would be for the court to allow the filing of the sealed documents so that they would be available at that hearing if the inspection option is chosen.

8.That approach (referred to as the “staged approach”) was said to gel with the approach articulated by Beatson J in West London Pipeline and Storage Limited v Total UK Ltd [2008] 2 CLC 258. At §86 (4)[3], the judge set out four options open to the court where it is not satisfied on the basis of the affidavit and the other evidence before it that the right to withhold inspection is established, namely:

“(a) It may conclude that the evidence does not establish a legal right to withhold inspection and order inspection.

(b) It may order a further affidavit to deal with matters which the earlier affidavit does not cover or on which it is unsatisfactory.

(c) It may inspect the documents: see CPR 31.19(6) …. Inspection should be a solution of last resort, in part because of the danger of looking at documents out of context at the interlocutory stage. It should not be undertaken unless there is credible evidence that those claiming privilege have either misunderstood their duty, or are not to be trusted with the decision making, or there is no reasonably practical alternative.

(d) At an interlocutory stage a court may, in certain circumstances, order cross examination of a person who has sworn an affidavit, for example, an affidavit sworn as a result of the order of the court that a defendant to a freezing injunction should disclose his assets.”

9.Some of the options can only be invoked at the 2^nd stage. The Respondent emphasized that inspection by the court is one of the available options. If, at the appeal hearing, the court were to order inspection, to allow the Respondent’s application to adduce the sealed documents would facilitate the process: the option could be exercised without further delay.

10.As regards the Plaintiff’s reliance[4] on the fact that West London and other English authorities are founded upon the express provisions in CPR 31.19(6)[5], the Respondent accepted that CPR 31.19 provides for the court’s power to order inspection and that there is no equivalent provision in Hong Kong. Nevertheless, the Respondent submitted that the rule does not provide for the ‘staged approach’ which is based on case law[6].

11.The Respondent’s complaint is that the Master failed to follow the right procedure in failing to give proper regard to the option of inspection after she was not satisfied that privilege had been made out on the evidence before her.

12.The nub of the Respondent’s submissions was that if the court cannot rule out the possibility of inspection, the application for leave to file the sealed documents should be allowed.

13.Mr Byron Chiu, counsel for the Plaintiff, submitted that to allow the Respondent to re-introduce materials that it could have placed before the Master is an abuse of the Ladd v Marshall rules.

14.The Investigation Report is not new material that came into existence after the hearing before the Master. The Respondent was in possession of the Investigation Report all along and certainly prior to 18 September 2023.

15.The Respondent chose not to place the sealed documents in an envelope marked confidential at the hearing below and prior to the Master making any order. As noted by the Master, the Respondent did not ask for an adjournment nor did it seek leave to file further material at the commencement of the hearing nor request the Master to inspect the sealed documents before she made her order.

16.At the hearing below, it was only after the order was made that the Respondent requested the Master to give it a chance to make good the claim for privilege i.e. to have the further inspection.

17.The Plaintiff submitted that Court of Appeal’s judgment in Citic Pacific Limited v Secretary for Justice (No 2) [2015 ] 4 HKLRD 20[7] made no reference to any equivalent staged approach or such further private inspection by the court of the relevant documents after the court is not satisfied that the LPP claim is made out.

18.Even assuming the existence of such a staged approach, of the 4 options open to the Master set out in §86 of West London, it is clear that the Master had adopted option (a) at which point the remaining options became irrelevant.

19.It is also clear that the application to adduce the sealed documents for the appeal hearing cannot succeed without overcoming the hurdles posed by the Ladd v Marshall requirements. I do not accept the Respondent’s suggestion that it could not reasonably have been expected to have the documents available for the Master’s ‘potential’ inspection without explaining why that was so. Nor do I accept that the Master had adopted an ‘incorrect’ procedure such that the application of Ladd v Marshall requirements now would “entrench” the incorrect procedure.

20.It is plain as a pikestaff that the present application is an attempt to have a 2^nd bite at the cherry.

21.Citic Pacific as well as Nu Pharm Limited v Champ Group Limited & Others [2021] HKCFI 751 featured in the parties’ submisions.

22.It is common ground that the guidance given by the Court of Appeal in Citic Pacific of the procedure for making a claim to privilege was in the context of materials seized upon the execution of a search warrant. The Respondent emphasized that guidance was given in that specific context. Further, as the CA never rejected that it has the power to inspect the documents, the Respondent submitted that the guidance given went to discretion rather than jurisdiction.

23.The Plaintiff referred to §76 (4) where the CA considered the procedure for a full-blown determination of LPP claims. The procedure outlined is the usual procedure. There is no scope for the filing of additional materials once the court has made a decision. Even if the staged approach were applicable, everything would be placed before the court prior to any decision decision. Nothing in Citic Pacific suggests otherwise. I agree.

24.In Citic Pacific, privileged documents were produced to the judge unilaterally prior to the court making any decision on the application. Even then, that procedure[8] did not find favour with the CA, causing it to highlight its unsatisfactory consequences[9].

25.In Nu Pharm, in a specific discovery application, Lok J had to consider whether the court should order unredacted copies of documents to be produced. Counsel for the party providing the redacted copies supplied the court with unredacted copies in a sealed envelope and invited the court to look at the documents themselves. The court declined to do so. Lok J remarked (at §86) that

“The court may in appropriate cases peruse the documents themselves with a view to determine whether the redacted parts are relevant, the court should be reluctant to do so unless it is absolutely necessary. After all it would be against natural justice if the other side, or at least their legal representatives, do not have the opportunity of looking at the documents themselves.”

26.Lok J considered (at §88) that the practice resorted to by the party seeking to rely on unredacted documents in the sealed envelope to make good the point “should not be encouraged”.

27.For present purposes, the relevance of Nu Pharm is the fact that not only were the sealed documents already before the court when it was asked to exercise its discretion to inspect the unredacted documents, that also took place prior to any decision made by the court on the application.

28.For my part, I share the disquiet on the subject of unilateral inspection of documents by the court without the assistance of the parties.

Order

29.The Summons is dismissed with an order nisi that costs, with certificate for counsel, be to the Plaintiff, such costs to be summarily assessed and paid by the Respondent forthwith.

30.It is further directed that (1) the Plaintiff do lodge its statement of costs within 14 days; (2) the Respondent do lodge its list of objections (not exceeding 2 pages) within 14 days thereafter; and (3) the Plaintiff do lodge the reply (not exceeding 2 pages if any) within 7 days thereafter.

Mr Byron Chiu instructed by Jingtian & Gongcheng LLP, for the Plaintiff

Mr. Harrison Miao instructed by Deacons, for the Respondent