上海諾港科學集團有限公司 (Formerly Known As 上海諾港科技有限公司) v. World Laureates Management Ltd (Formerly Known As World Laureates Association Ltd)
Read the full judgment text of HCMP 1544/2023 on BabelCite. This High Court CFI judgment was delivered on 16 July 2024.
1. By originating summons filed on 14 September 2023 (the “ Originating Summons ”), the plaintiff (“ P ”) applies for pre-action discovery against the defendant (“ D ”). In the Originating Summons, section 41 of the High Court Ordinance (Cap 4) and Order 24 rule 7A of the Rules of the High Court (Cap 4A) are relied upon.
Cited by 3 cases · Cites 3 cases
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HCMP 1544/2023 [2024] HKCFI 1540 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 1544 OF 2023 ________________________
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________________________ DECISION ________________________ Introduction 1.By originating summons filed on 14 September 2023 (the “Originating Summons”), the plaintiff (“P”) applies for pre-action discovery against the defendant (“D”). In the Originating Summons, section 41 of the High Court Ordinance (Cap 4) and Order 24 rule 7A of the Rules of the High Court (Cap 4A) are relied upon. 2.P seeks disclosure of the following (the “Requested Documents”):
Background Facts 2.The background facts as summarised by Mr William Wong S.C. and Ms Ebony Ling, counsel for P, and the basis for the application are as follows:
3.P therefore took out the present application to seek discovery of documents which are directly relevant to P’s intended claim, against D, Wang and other related parties. Legal principles 4.Mr Wong and Mr Christopher Chain S.C., counsel for D, agree on the applicable principles for pre-action discovery as follows. 5.The relevant statutory provisions are contained in section 41 of the High Court Ordinance (Cap 4) and Order 24 rules 7A and 8 of the Rules of the High Court (Cap 4A). 6.Section 41 of the High Court Ordinance provides as follows:
7.Order 24 rule 7A of the Rules of the High Court provides as follows:
8.Lastly, Order 24 rule 8(2) of the Rules of the High Court provides:
9.The principles governing pre-action discovery are set out and explained by Zervos J (as he then was) in VTB Debt Centre LLC v Top Fuel Corporation Ltd HCMP 1543/2013, 16 April 2014 and by G Lam J (as he then was) in Zhang Shouen & Anor v Standard Chartered Bank (Hong Kong) Ltd HCMP 682/2015, 15 October 2015. 10.There are five requirements:
11.The first four requirements are jurisdictional conditions. Unless they are satisfied, the jurisdiction to order pre-action discovery does not arise. If they are satisfied, the court has a discretion to order pre-action discovery of the document in question. The fifth requirement means that the court will not exercise its discretion to make an order unless discovery is necessary either for disposing fairly of the cause or matter or for saving costs[1]. 12.In order to take advantage of the section, the applicant must disclose the nature of the claim he intends to make and show not only the intention of making it but also that there is a reasonable basis for making it. Ill-founded, irresponsible and speculative allegations based merely on hope would not provide a reasonable basis for an intended claim in subsequent proceedings. The burden of persuasion rests with the applicant. He needs to show a potentially meritorious claim which comes within the section[2]. 13.The court must be clear what the issues in the litigation are likely to be. This involves knowing the nature of the intended claim, the constituent elements of the cause of action, the allegations being made by the intended plaintiff, and the issues that are likely to arise. This requires the applicant to supply meaningful details of the intended claim, so that the potential defendant can properly respond to the application and evidence and so that the court can see from the combined evidence of the parties the likely issues and assess, by reference to the issues, the direct relevance, if any, of the documents sought[3]. 14.Pre-action discovery is not intended to be simple general discovery or specific discovery taking place before commencement of an action. It is not intended to extend to “background” documents or documents simply leading to a possible “train of inquiry”[4]. 15.In pre-action discovery, the onus is on the applicant to show that the order is necessary either for disposing fairly of the cause or matter or for saving costs[5]. It is incumbent for an applicant to show that discovery of the document before commencement of the action is necessary. The pre-action discovery regime is intended to strike: “a reasonable balance between the need to protect against harassment and fishing applications on the one hand and the need to enable a potentially meritorious plaintiff to bring a claim which could not effectively otherwise be brought.”[6]. 16.An allegation that costs can be saved by avoiding the need for amendment of pleadings is unlikely to be a sufficient reason to render disclosure of the relevant documents “necessary”, if a plaintiff already has sufficient information to plead a prima facie case[7]. Discussion Requirements 1 & 2: The applicant appears to be likely to be a party to subsequent proceedings in the court in which a claim is likely to be made 17.In his written submissions, Mr Wong submitted that given the cause of action based on unlawful interception and/or misappropriation by D of the Sequoia Payments belonging to P, a proprietary claim will likely be made by P against D, and P and D are both likely parties in the claim. However, it became apparent at the hearing that Mr Wong’s focus was not so much on a claim against D, but more on the intended claims against further potential defendants who were the recipients of any transfers from D based on tracing. 18.On behalf of D, Mr Chain submitted that there was no reasonable basis for P’s intended claims against D:
19.In response to such explanation, Mr Wong submitted that they do not constitute a valid defence as the expenditures in the total amount of around US$2.89M were incurred prior to the receipt of the first instalment of Sequoia Payments in 2019. There are also insufficient payment details to substantiate D’s allegation that it had paid out the entirety of the receipts to scientists overseas. Wang also admitted in his affirmation that payments made in a particular year may not be for the Forum in that particular year. 20.In my view, short of D successfully demonstrating the intended claim lacks reasonable basis and is ill-founded, irresponsible or speculative, there is no need, and indeed it would be inappropriate, for the court to resolve at this stage whether D’s explanation provides a complete defence to P’s allegations. So long as there is a reasonable prospect that a claim may well be made, this jurisdictional requirement is satisfied. 21.I am of the view that based on the following, there is a reasonable prospect that a claim may well be made by P against D, and that such a claim cannot be said to be “ill-founded, irresponsible and speculative allegations based merely on hope”[8]:
22.I am of the view that Requirements 1 and 2 have been satisfied. Requirement 3: D likely to have the Requested Documents in his possession 23.D does not seem to dispute it has possession of the records relating to the bank account maintained by D. However, D objects to the suggestion that D has in its possession “records relating to any bank account(s) held by … Wang”. Mr Chain submitted that D, as a separate legal entity, cannot be said to be likely to have documents relating to Wang’s bank account in its possession. 24.At the hearing, Mr Wong clarified that P is only seeking “all entries and records relating to any other bank account(s) of Wang held by the Defendant”. Paragraph (2) under the Schedule to the Originating Summons is to be amended accordingly. 25.Mr Wong submitted that as the Sequoia Payments were received by D and as Wang is the ultimate sole shareholder of D, Wang is potentially a receiving party. This is supported by the fact that in the Audited Accounts of D, there are clearly funds being paid by D to Wang. If Wang had received the Sequoia Payments from D, D, as the paying party, would have in its possession records of such transactions. 26.Mr Chain does not seem to object that if there were such payments, D would be in possession of records showing such payments being paid to accounts held by Wang. Thus, insofar as Requirement 3 is concerned, there is no further objection to the fact that D is likely to have the Requested Documents in its possession. 27.I am of the view that Requirement 3 is satisfied. Requirement 4: Requested Documents are “directly relevant” 28.A document is “directly relevant” if it would be likely to be relied on in evidence by any party in the proceedings, or if it supports or adversely affects any party’s case. When considering this requirement, Mr Chain’s complaint that certain document requests are too wide is considered at the same time under this requirement – if the document is directly relevant, it will certainly not be too wide. Payments Into the Accounts 29.As P’s case primarily rests on diversion of the Sequoia Payments to D, documents in relation to the Sequoia Payments made into any of D’s account would clearly be directly relevant. 30.P already has in its possession the remittance forms showing that 3 out of 4 of the Sequoia Payments were paid into D’s BOC Account. As for the 1st Sequoia Payment, Wang already confirmed on oath (without disclosing any bank statements or documents in support) that it was also paid into D’s BOC Account. Although D has not provided any bank statement in support, there is nothing at the moment which would suggest Wang had lied on oath in relation to this payment. 31.At the same time, P’s case is that other than the Sequoia Payments, all other income from sponsorships were received by P. 32.As such, I am unable to see how documents or information in relation to all other payments into D’s HSB Account and D’s BOC Account or other of D’s accounts would be relevant. Payments Out of the Accounts 33.Mr Wong submitted that as a tracing exercise would be impossible without documents in relation to payments out of the accounts, documents in relation to payment out of D’s bank accounts are clearly “directly relevant”. The case of Malayan Banking Berhad v Legend Six Holdings Ltd [9] is relied upon as the Court of First Instance having ordered pre-action discovery of documents on the basis that it would enable P to trace into the relevant payments. 34.Mr Chain submitted that the circumstances in Malayan Banking is an exceptional case. In the absence of special circumstances (where there were concerted fraud, parallel proceedings against different defendant fraudsters and injunctions in place), pre-action discovery cannot and should not be invoked to allow a tracing exercise to be conducted and/or completed at a pre-action stage. The entitlement to trace is, normally, a final relief. If there was any genuine exceptional urgency to trace in the present case, proceedings could already have been commenced against D and ex parte injunctive relief could have been sought. 35.Mr Wong submitted that the relevant tests do not impose such requirements of “exceptional circumstances” as suggested by Mr Chain. P has already, in the affidavit evidence made clear the basis for their tracing claim, namely:
36.Based on the purpose of tracing, which has been set out, Mr Wong submitted that the records and documents in relation to payments made out of D’s relevant accounts in relation to the Sequoia Payments would be directly relevant. 37.On the issue of tracing, I agree with Mr Chain, that it is rare for a court to grant pre-action discovery to assist with a tracing claim. This is demonstrated by the fact that Mr Wong and Ms Ling only managed to find one case in Hong Kong (being Malayan Banking) where the court had allowed for pre-action discovery to enable tracing. This is the basis upon which Mr Chain submitted that there would be some special circumstances, such as that on par with that in Malayan Banking where there were parallel proceedings against different defendant fraudsters. 38.The basis for P’s tracing claim runs thus: if Wang has diverted P’s business to D and entered the Sponsorship Agreements with Sequoia Capital, he would have breached his fiduciary duties owed to P by causing P to perform D’s obligations under the Sponsorship Agreements at P’s expense. If that were the case, D could be liable for dishonest assistance, knowing receipt etc. I am of the view that if P had wanted to pursue this claim against D, which is based on a breach of director’s duties against Wang, the evidence directly relevant to this liability would be that related to D’s knowledge of Wang’s breach of fiduciary duties. 39.However, what is being sought to be disclosed are in fact the tracing of the fund flow from D back to Wang (or to other parties). The true intention for seeking disclosure of such documents is to add Wang (or other recipients) as a defendant. If that were the true intention, P should have also made Wang a defendant to the present application and demonstrate that a case may well be made against Wang, and that Wang is likely to be a party. That has not been done. 40.Tracing of the whereabouts of the Sequoia Payments is a remedy that would only be available to P after liability is established and sometimes, after an election has been made, if there is an alternative claim for damages. I am of the view that it is not the intention for pre-action discovery to allow a plaintiff to begin a tracing exercise at the pre-action stage. I bear in mind that pre-action discovery is not intended to extend to “background” documents or documents simply leading to a possible “train of inquiry”. 41.After the hearing, I had asked parties to submit further cases where the court has allowed pre-action discovery in aid of tracing. Mr Wong and Ms Ling had found a UK case, Re Sustainable Wealth Investments (UK) Limited [10] and an Australian case, Peter Bentley Guest v Verna Anne Guest & Anor[11]. 42.In Re Sustainable Wealth Investments (UK) Limited, the facts are such that the defendant company was being investigated on carrying out a ponzi scheme involving fictitious investment and there were more victims than the plaintiff. Several directors of the defendant company had already been convicted. Ultimately, only a settlement document was allowed in the pre-action discovery application, on the basis that the funds into which the applicant must trace are derived from it. As such, it can be seen that disclosure of all other documents enabling the entire tracing exercise were not allowed. Further, the learned Judge was also of the opinion that the receiver and the Serious Fraud Office ought to be heard before further documents would be ordered to be disclosed. 43.In Peter Bentley Guest v Verna Anne Guest & Anor, it can be seen that the applicable principles are not entirely the same as those that are applicable in Hong Kong. Again, not all documents sought to be disclosed were allowed. Only documents for the identification of trust assets and beneficiaries were ordered to be disclosed. In that case, however, there was no dispute that a trust arrangement existed, as opposed to the present case. Further, the Judge also noted[12] that:
44.I thus find that the above cases do not assist P. 45.I am of the view that documents in relation to payments out of D’s bank accounts are not directly relevant to an issue arising or likely to arise out of the claim against D. The jurisdictional requirement is not satisfied for this class of documents. Documents relating to the opening of the accounts and mandates 46.Mr Wong submission is that these are the normal documents which would be sought for a tracing exercise where wrongdoing is alleged. However, I am not convinced that that alone would make such documents “directly relevant” to any of the issues raised. Mr Wong has not demonstrated how the information likely to be on such documents would assist P’s intended claim. 47.I am of the view that these documents are not directly relevant. The jurisdictional requirement is not satisfied for this class of documents. D's books and records in relation to the Sponsorship Agreements 48.I agree with Mr Chain’s submission that (3) of the Schedule is a mere catch-all provision as the documents sought thereunder would already be included in (1) or (2) of the Schedule. The discussion above would thus equally apply. Requirement 5: Pre-action discovery is necessary 49.Mr Wong submitted that the pre-action discovery as sought is necessary either for fairly disposing of the cause or matter or for saving costs for the following reasons:
50.Mr Chain submitted that it is clear that P already possessed sufficient information to commence proceedings against D as it could already particularize the date, amount, and recipient account of the Sequoia Payments. P is already in possession of the underlying contracts pursuant to which the Sequoia Payments are made. The remittances notices of the Sequoia Payments are also available to P. Pre-action discovery is thus not necessary. 51.I agree with Mr Chain’s submission that pre-action discovery is not an investigative tool, it should not be granted to “assist a claimant in developing and finessing his causes of action”, to obtain evidence to “boost one’s case”, for “refinement” of a pleading, or simply to avoid the need to amend pleadings later – otherwise it would render general discovery otiose. 52.Reasons 1 and 3 put forward by Mr Wong relate to refining any pleading that P is already able to produce, with the information that is already available. P should already be able to formulate a claim against D based on the Sponsorship Agreements and the remittance notices of 3 out of the 4 Sequoia Payments. Although the remittance notice of the 1st Sequoia Payment is missing, I do not think that will bar a plea against D, as the designated account for payment under the Sponsorship Agreements is D’s HSB account and D has already deposed to the 1st Sequoia Payment having been paid into D’s BOC Account. 53.Reasons 2 and 4 can be resolved in the natural course of litigation that follows once a statement of claim has been filed. 54.I am therefore not persuaded that the requirement of “necessity” has been satisfied in relation to the Requested Documents. Abuse of Process 55.D alleges that this application is being taken out to exert improper pressure against Wang due to other disputes between Wang and a Mr Wu Xiangdong of China Fortune, in relation to an alleged failure to pay for the value of the shares. 56.I do not see how an application for pre-action discovery would exert pressure against Wang. If the Sequoia Payments are all accounted for, whether there are other disputes between Wang and other parties are irrelevant. Conclusion 57.To conclude, in this pre-action discovery application, P has failed to satisfy the fundamental jurisdictional requirement of direct relevance in relation to documents on the payments out of D’s bank accounts and the opening of bank accounts and mandates. 58.Further, P has failed to demonstrate that pre-action discovery of the Requested Documents is necessary. P’s present application thus fails. Order 59.I order that the Originating Summons be dismissed. 60.I order, on a nisi basis, that the defendant do have costs of the Originating Summons, to be summarily assessed, with certificate for 2 counsel. 61.The defendant do lodge and serve a statement of costs within 14 days hereof. The plaintiff do lodge and serve its list of objections, if any, within 14 days thereafter. 62.I thank counsel for their helpful assistance.
Mr William Wong SC leading Ms Ebony Ling, instructed by Gallant, for the plaintiff Mr Christopher Chain SC leading Mr Alex Yeung, instructed by Fangda Partners, for the defendant [1] Zhang Shouen at §§ 21 to 22 [2] VTB at §§ 33, 35 and 37 [3] Zhang Shouen at §§ 30 and 45 [4] Zhang Shouen at §28 [5] Zhang Shouen at §28 [6] The Final Report of the Chief Justice’s Working Party on Civil Justice Reform (2004) at §487 [7] Zhang Shouen at §46 [8] VTB, §§36 – 37 [10] [2015] EWHC 1674 (Ch) [11] [2015] VSC 761 [12] §80 |
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