Tenwow International Holdings Ltd (in Liquidation) and Another v. Pricewaterhousecoopers (A Firm) and Another
Read the full judgment text of CAMP 194/2024 on BabelCite. This Court of Appeal judgment was delivered on 23 December 2024.
1. The 2 nd defendant, a firm of accountants practising in Mainland China (“ Mainland ”), has, in its list of documents filed by way of discovery in the action below, enumerated documents that are its working papers for the audit of the plaintiffs. But the 2 nd defendant contends that under the provisions of Mainland law, it cannot produce these documents to the plaintiffs in Hong Kong without obtaining approval from the authorities in the Mainland. It says that approval should be obtained via a
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CAMP 194/2024 & CACV 522/2024 (Heard together) [2024] HKCA 1193 On Appeal From [2024] HKCFI 1146 CAMP 194/2024 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL MISCELLANEOUS PROCEEDINGS NO 194 OF 2024 (ON AN INTENDED APPEAL FROM HCCL 5 OF 2023 & HCCL 6 OF 2023 (Consolidated)) ____________
____________ CACV 522/2024 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 522 OF 2024 (ON APPEAL FROM HCCL 5 OF 2023 & HCCL 6 OF 2023 (Consolidated)) ____________
____________ (Heard together)
_________________ J U D G M E N T _________________ Hon G Lam JA (giving the Judgment of the Court): A. Introduction 1.The 2nd defendant, a firm of accountants practising in Mainland China (“Mainland”), has, in its list of documents filed by way of discovery in the action below, enumerated documents that are its working papers for the audit of the plaintiffs. But the 2nd defendant contends that under the provisions of Mainland law, it cannot produce these documents to the plaintiffs in Hong Kong without obtaining approval from the authorities in the Mainland. It says that approval should be obtained via a letter of request issued by the Hong Kong court to the Shanghai High People’s Court. The question in this appeal is whether the Hong Kong court should issue such a letter of request. 2.The letter of request, if granted, is to be issued pursuant to the Arrangement on Mutual Taking of Evidence in Civil and Commercial Matters between the Courts of the Mainland and the Hong Kong Special Administrative Region (《關於内地與香港特別行政區法院就民商事案件互相委托提取證據的安排》) which was signed on 29 December 2016 between the Supreme People’s Court and the Hong Kong SAR (“Mutual Arrangement”). 3.By his decision dated 2 May 2024 (“Decision”),[1] Anthony Chan J declined to issue a letter of request and dismissed the 2nd defendant’s application. Having failed to obtain leave to appeal from the judge,[2] the 2nd defendant applied to this court for leave to appeal. Directions were given for an expedited rolled-up hearing of that application and, if leave be granted, the appeal itself. An application by the 2nd defendant for leave to adduce new evidence was heard at the same time. At the end of the hearing, we granted leave to appeal and reserved our judgment on the appeal and our decision regarding the new evidence, which we now give. B. Background 4.The 1st plaintiff was an investment holding company incorporated in the Cayman Islands. It, together with its subsidiaries (collectively, “Tenwow Group”), were principally engaged in the manufacturing and distribution of beverages, food and snacks in the Mainland. Its shares had been listed on the Main Board of the Stock Exchange of Hong Kong since 2013 but trading was suspended from 4 May 2018. On 24 October 2018 a winding up petition was presented against the 1st plaintiff and on 16 November 2018 it was put into provisional liquidation by the Grand Court of the Cayman Islands. It was wound up by order of the Cayman Islands court dated 11 March 2021. 5.The 2nd plaintiff was a company incorporated in Hong Kong and an indirect wholly-owned subsidiary of the 1st plaintiff. It was placed into creditors’ voluntary liquidation on 4 June 2021. Two of the 1st plaintiff’s joint official liquidators became the joint and several liquidators of the 2nd plaintiff. 6.The 1st defendant was (and is) a firm of certified public accountants practising in Hong Kong.[3] It was engaged by the 1st plaintiff as (i) the reporting accountant for the purpose of its listing on the Main Board of the Stock Exchange of Hong Kong, and (ii) the auditor of its consolidated financial statements for the financial years ended 31 December 2013 to 2017. The 1st defendant issued unqualified audit opinions on the 1st plaintiff’s consolidated financial statements for those years (“2013-2017 Audits”). 7.The 2nd defendant was (and is) a firm of certified public accountants practising in the Mainland. It was tasked by the 1st defendant with performing audit work on the Tenwow Group’s Mainland subsidiaries for the 2013-2017 Audits. It is not in dispute that various documents relating to those audits are held by the 2nd defendant in its Shanghai office, some on its proprietary audit software platform and some in physical folders. It is with regard to these documents, which we shall refer to as the “D2 Documents”, that a letter of request is sought by the 2nd defendant. 8.On 18 March 2021, the plaintiffs issued a writ of summons (HCA 425/2021) against the 1st defendant as the sole defendant. On 15 November of the same year, the plaintiffs issued another writ of summons (HCA 1724/2021) against the 1st and 2nd defendants.[4] The two actions were subsequently transferred to the Commercial List (HCCL 5 and 6 of 2023) and consolidated. 9.In the consolidated action (“Action”), the plaintiffs allege that the defendants breached their duties by, inter alia, failing to detect defalcations by way of prepayments made to three suppliers and illegitimate financial assistance given to a non-Tenwow Group company related to a director and his associates. It is alleged that the 1st plaintiff’s financial statements were as a result materially misstated. The plaintiffs claim to have suffered losses of over RMB 3.1 billion as a result of the defendants’ negligence, in the form of dividends, excess income tax, finance costs, audit fees, and defalcations. 10.The defendants deny the alleged breaches of duties. They contend that the relevant audits were performed by the 1st defendant with the care and skill of a reasonably competent auditor, in compliance with the applicable auditing standards, with sufficient audit procedures and sufficient appropriate audit evidence. In addition, in relation to the 2nd plaintiff and the 2nd defendant, they contend that:
11.In respect of the audit working papers, on 29 April 2020, the 1st plaintiff’s liquidators first wrote to the 1st defendant in connection with the 1st plaintiff’s winding up. The 1st defendant was asked to assist by providing, inter alia, its working papers in relation to its engagements by the plaintiffs between 2011 and 2017. On 15 May 2020, the 1st defendant responded pointing out that documents located in the Mainland were “subject to China legal impediments which prevent [the 1st defendant] from disclosing them unless with permission from the Mainland China regulators or through the regulator-to-regulator mechanism”. 12.On 16 March 2022, the plaintiffs served the writs in the two actions on the 1st defendant. On 19 May 2022, the plaintiff obtained leave to serve the writ in the second action out of the jurisdiction on the 2nd defendant in the Mainland and did so on 4 August 2022. A combined Statement of Claim was served on the 1st and 2nd defendants respectively on 11 April and 1 September 2022. 13.The defendants aver in their Defence and Counterclaim filed on 1 December 2022 that “… Chinese laws and regulations applicable to [the 2nd defendant] prevent it from transferring [the D2 Documents] out of Mainland China without approval from relevant authorities in the PRC”.[5] This is denied by the plaintiff’s in their Reply filed on 12 April 2023. 14.In response to the plaintiffs’ proposal on case management directions, on 17 May 2023 the defendants proposed to the plaintiffs, for the first time, that a joint application for a letter of request be issued by the Court of First Instance pursuant to the Mutual Arrangement. On 31 May 2023, the plaintiffs rejected the proposal on the ground that no approval from any Mainland authority was required. 15.At the first case management conference of the Action on 8 November 2023, the 2nd defendant sought, and the judge gave, inter alia, the following directions:
16.On 22 November 2023, the 2nd defendant filed and served its List of Documents which identified 1,513 documents. 17.On 29 November 2023, four of the partners of the 2nd defendant attended a meeting with the Supervision and Evaluation Bureau of the Ministry of Finance of the PRC and sought directions with regard to the requirements and interpretation of relevant Mainland laws and regulations on the transfer of audit working papers to Hong Kong. On the same day, the 2nd defendant issued a letter to the Bureau setting out the background to the Action and the Hong Kong court’s directions for discovery and the basis of the 2nd defendant’s proposed application for a letter of request, and asked the Bureau for guidance and confirmation on the provisions of relevant Mainland law and regulations. 18.On the following day, the Ministry of Finance issued a letter to the 2nd defendant (“MoF letter”) which read as follows:
C. The application for letter of request 19.On 1 December 2023, the 2nd defendant issued an application in the Court of First Instance for (1) a letter of request to be issued by the High Court of Hong Kong to the Shanghai High People’s Court; and (2) an order that the 2nd defendant provide copies of the D2 Documents (subject to redactions as required by the relevant authorities, if any) within 14 days after they are received by its solicitors in Hong Kong. 20.The application was filed together with (1) an affirmation made by a partner of the 2nd defendant setting out the general background to the application, (2) an affirmation made by Prof Huang Hui, a professor in the Chinese University of Hong Kong, giving his expert opinion on Mainland law, and (3) an affirmation made by Ms Melody Wang Xiaomeng, a Mainland practising lawyer, giving evidence on her experience in assisting accounting firms in applying for approval for transfer of documents out of the Mainland and on the expected procedure after a letter of request is issued. 21.As the basis of its application, the 2nd defendant takes the position that there is under Mainland laws and regulations a blanket prohibition, binding on it, over the unauthorised transfer of audit working papers out of the Mainland. It is also said that the prohibition applies not only to any transfer of the D2 Documents to Hong Kong, but also to the inspection of those documents by the plaintiffs’ representatives in the Mainland. 22.The draft letter of request attached to the 2nd defendant’s application essentially requests that the Shanghai High People’s Court consider the request for the D2 Documents to be screened and coordinate with the relevant authorities in the Mainland (such as the Ministry of Finance and the Archives Bureau) to facilitate the screening and approval process, with a view to allowing copies of the D2 Documents as approved (subject to redactions as required) to be delivered to the defendants’ solicitors in Hong Kong for production to the plaintiffs, for use solely for the Action. 23.Opposing the application, the plaintiffs filed (1) an affirmation of Prof Fu Hualing, a professor at the University of Hong Kong, giving his opinion on Mainland law, (2) an affirmation of Prof Yao Jinju, giving her opinion on the effect of the 2nd defendant’s meeting with the Ministry of Finance on 29 November 2023 and the MoF letter, (3) an affirmation of Mr Ma Zhihua, a Mainland practising lawyer, giving his opinion on whether it was necessary and appropriate to invoke the Mutual Arrangement for the transfer of the D2 Documents to Hong Kong, and how a letter of request from Hong Kong pursuant to the Mutual Arrangement is likely to be dealt with as a matter of Mainland law, and (4) an affirmation of Ms Lee Hoi Ching, giving evidence on the statistics of the processing time and rate of completion for letters of request issued by Hong Kong courts to the Mainland courts under the Mutual Arrangement. D. The judge’s Decision 24.In his Decision, the judge dismissed the applications for four main reasons. First, the authorities show that letters of request are normally issued for obtaining evidence from non-parties, or at most for taking the evidence of a party overseas, rather than for the production of documents and discovery. A party’s disclosure obligations are subject to the powers of the Hong Kong court. It is wrong to subjugate the court’s power to the criminal law of another jurisdiction. If the 2nd defendant has difficulty in complying with its obligation to produce the D2 Documents, it may apply to the court to modify its obligations. The use of a letter of request in this context is not appropriate.[7] 25.Secondly, Art. 6 of the Mutual Arrangement provides, inter alia:
26.Obtaining approval of the Mainland authorities in the way envisaged by the 2nd defendant does not fall within the taking of evidence in any of the categories referred to in Art. 6. The Mutual Arrangement therefore does not apply.[8] 27.In connection with the above point, the judge also considered that there was no adequate explanation why the 2nd defendant is prohibited from directly approaching the Mainland authorities to seek any necessary approval. There is a lack of evidence on what information in the D2 Documents is prohibited from transfer to Hong Kong and under which law or regulation, which competent authorities may be involved, and which provisions of the Mutual Arrangements can be invoked.[9] The MoF letter was a standard form reply with no instruction given by the Ministry and was not of much evidential value.[10] 28.Thirdly, there is no evidence as to what documents are amongst the D2 Documents which may be covered by any of the eight sets of laws and regulations referred to by the 2nd defendant as restricting the production and transfer of documents.[11] There is no blanket restriction on the transfer of all audit working papers introduced by Art. 9 of Regulation 44 (defined and quoted in §60(4) below). Instead, it only prohibits the transfer of documents containing confidential or sensitive information (including State secrets) or other specifically proscribed information.[12] 29.Fourthly, on the two discretionary factors urged by the plaintiffs upon the court, namely, futility and delay, the judge was not prepared to say that a letter of request should be declined on the ground of futility alone.[13] However, the delay in making the application was both lengthy and unexplained and, if granted, would have an adverse impact on the preparations for the 30-day trial, which had been set down to commence in March 2026. The court would therefore be inclined to exercise its discretion against granting the application even if it was otherwise properly made out.[14] 30.As a result, the judge dismissed the application and ordered the 2nd defendant to produce the D2 Documents to the plaintiffs. The order for production was stayed by the judge up to 12 November 2024 and has since been stayed by order of this court pending the resolution of the appeal. E. Developments after the hearing before the judge 31.Two matters have occurred since the hearing before the judge that need to be mentioned. First, on 15 April 2024, another set of Mainland regulations, namely, the Interim Measures for Data Security Management by Accounting Firms (《會計師事務所數據安全管理暫行辦法》) (“2024 Interim Measures”) was issued jointly by the Ministry of Finance and the Cyberspace Administration of China. The 2nd defendant seeks leave to adduce it as new evidence. 32.Since it was promulgated after the hearing below, whether it may be adduced is not governed by the usual Ladd v Marshall conditions[15] but is subject to a wide discretion of this court albeit exercised sparingly with due regard to the need for finality in litigation: Re China Fishery Group Ltd [2020] HKCA 169 at §26. In the hearing below a consultation draft (徵求意見稿) had already been exhibited and relied upon in Prof Huang’s reply affirmation.[16] The finalised version of the 2024 Interim Measures has since come into effect and is now part of the Mainland laws and regulations that govern the 2nd defendant’s conduct as an accounting firm. The plaintiffs have had full opportunity to consider the new evidence and make their response. In these circumstances we think it right to give leave for the 2024 Interim Measures to be adduced as further evidence. 33.The second development is that on 14 November 2024, the 2nd defendant gave an update in writing to the Ministry of Finance regarding the litigation in Hong Kong including the judge’s Decision, and sought the Ministry’s confirmation of the 2nd defendant’s understanding in relation to the restriction on the transfer of audit working papers out of the Mainland. On 26 November 2024, the Ministry of Finance replied by letter (“second MoF letter”). The 2nd defendant seeks leave to adduce the two letters as further evidence for the appeal. 34.In our judgment leave should be refused. The documents came in very late indeed. The 2nd defendant explains that the delay was due to the fact that it was having sensitive discussions with the Ministry of Finance in relation to the Evergrande matter. In our view whilst the 2nd defendant might have had its own commercial reasons for deciding to delay raising the present matter with the Ministry of Finance, they are not a valid justification for visiting upon the plaintiffs the prejudice of having to face such last-minute new evidence with no real opportunity of making any inquiry or proper response. This court has emphasised time and again the need for an application to adduce new evidence to be made promptly and without delay, and has warned that late applications with no satisfactory explanation of the delay would be refused on that ground alone: see Silver Starlight Ltd v China CITIC Bank Corporation Limited, Tianjin Branch [2021] HKCA 1248 at §44 and the cases cited there. In our view the same principle applies here since although the letters were very recent, they were generated by the 2nd defendant with inexcusable delay. F. Grounds of appeal 35.The 2nd defendant has raised the following grounds of appeal directed against each of the judge’s reasons for refusing the application:
36.We deal with these grounds below, but in a different sequence, under the following 5 areas:
G. Is the use of the letter of request procedure to aid in the production of a party’s own discovery documents inappropriate in principle? G1. Use of a letter of request for obtaining a party’s own documents 37.There is no doubt that the letter of request applied for here is not a typical one for the taking of evidence, either oral or documentary, from a third party out of the jurisdiction. The D2 Documents are already identified and in the possession of the 2nd defendant, who as a party to the Action is amenable to the jurisdiction of the Hong Kong court and is willing and indeed required by the court’s order, albeit stayed, to produce them to the plaintiffs. The obstacle, according to the 2nd defendant, is a legal impediment under Mainland law. The request is accordingly not for the Shanghai court to summon anyone to attend before it to be orally examined or to produce documents (as is the form of letter of request in Appendix A to the Rules of the High Court (“RHC”), Form No. 35), but for that court to “coordinate with the relevant authorities in the PRC … to facilitate the screening and approval process” so that copies of the D2 Documents as approved may be transferred to the 2nd defendant’s solicitors for production to the plaintiffs. The judge found this use of the letter of request procedure “not appropriate” and that for this reason the application failed “at the first hurdle”.[17] To see if this is correct, we shall first examine the general principles on letters of request. 38.In a broad sense a letter of request is simply a formal written medium whereby the court of one jurisdiction requests the court of another jurisdiction to assist the administration of justice in the former, whether pursuant to a convention between the two jurisdictions or simply in the expectation that it will be executed out of comity and reciprocity. The assistance requested can take various forms, such as service of process, the recognition of liquidators,[18] and the taking of oral and documentary evidence. It is the last-mentioned kind of request for assistance with which we are concerned in this case. 39.There is no dispute that the power to issue a letter of request to a judicial authority of another jurisdiction exists as part of the inherent jurisdiction of the court. In issuing it, the court is doing no more than making a request to a court of the other jurisdiction for assistance; it is not making an order, still less an order addressed to the other court or to witnesses: Kwan Chui Kwok Ying v Tao Wai Chun (CACV 194/2002, 13 December 2002), §§19-21, citing Panayiotou v Sony Music Entertainment (UK) Ltd [1994] Ch 142 at 149G. 40.Whilst RHC Order 39 makes rules for the issue of a letter of request for the taking of evidence, those rules regulate and prescribe the practice and procedure to be followed without in any way ousting the inherent jurisdiction of the court to issue a letter of request in cases that may not neatly fit within the wording of those rules: Panayiotou at pp 149G & 151B; Chan Mei Yiu Paddy v Secretary for Justice [2008] 2 HKC 596, §23. 41.It is also common ground that the issuance of a letter of request is not a matter of right of the party applying for it, but a matter for the discretion of the issuing court. This being a matter of discretion, it is “impossible to lay down any general rule” as to when a letter of request will be granted. It depends on the circumstances of the particular case: Coch v Allcock & Co (1888) 21 QBD 178 at 181. 42.Naturally the power ought not to be exercised in vain such as where it does not appear the recipient court would be receptive to the request, but it is not necessary for there to be an obligation, either under a treaty or similar instrument or under local law, on the part of the recipient judicial authority to execute the request. An established practice of executing such letters is sufficient for the Hong Kong court to exercise its discretion to issue a letter of request to the jurisdiction in question: Kwan Chui Kwok Ying, at §§21-22. 43.Letters of request are issued often for taking the oral evidence of non-parties, with or without requiring the production of documents. Thus, for example, in Kwan Chui Kwok Ying, a letter of request was issued on the application by one defendant to the courts in Macau in order to obtain evidence and documents from a third party for use against another defendant. But, as held in Panayiotou, a letter of request can also be issued purely for the production of documents by a non-party (including a corporate entity which could not itself give oral testimony). The law insists on particularity in specifying the documents to be produced, so that the person concerned is not in effect required to go through an exercise of discovery. 44.Furthermore, a letter of request can issue on a party’s application for the purpose of taking that party’s own evidence. In Coch, a commission was granted for the plaintiff’s witnesses including the plaintiff himself, who were resident in Norway, to be examined there, although the court said that the discretion for granting a commission to examine a party himself would be exercised in a stricter manner. In Ross v Woodford [1894] 1 Ch 38, an order was made for the defendants’ evidence to be taken abroad by commission or special examiner, the court observing that a foreign defendant’s application would be regarded with less strictness than a foreign plaintiff’s as the former did not choose the forum. The same approach was taken in Emanuel v Soltykoff (1892) 8 TLR 331 and New v Burns (1894) 64 LJ QB 104. Huang Yu Hui v Zheng Shizhi [2021] HKCFI 3362 also concerned an application by a defendant for a letter of request to enable the defendant himself to be cross-examined in the Mainland. The application was rejected by Au-Yeung J not because a letter of request cannot be issued for the purpose of taking a party’s own evidence, but on the ground that, in her Ladyship’s view, cross-examination did not fall within the scope of assistance that may be provided under the Mutual Arrangement. 45.The judge concluded that the cases he examined were all applications either directed at a third party, or for taking the oral evidence of a party. This is true, but in our view the fact that letters of request are typically issued for the purposes of obtaining evidence from third parties does not mean that it would necessarily be inappropriate for one to be issued in aid of a party’s compliance with its own discovery obligation to produce documents. The cases about taking a party’s own evidence (Coch, Ross, Emanuel, New and Huang) show that the power does not depend for its existence on the person in question not being amenable to the jurisdiction of the court or an absolute impossibility of obtaining the evidence otherwise. As Mr Yu SC points out on behalf of the 2nd defendant, it was said in Coch that the court ought to take care that “a party has reasonable facilities for making out his case” and in Panayiotou at p 149H that the jurisdiction stems from the “power to do those acts which the court needs must have to maintain its character as a court of justice”. In the context of the court’s inherent jurisdiction to issue a request to enable or facilitate a party in obtaining evidence, there seems to us to be no principled distinction between documentary and oral evidence. 46.The D2 Documents have been identified so there is no question of any lack of particularity. They are in the 2nd defendant’s possession. In the ordinary case involving a third party, the documents whose production is sought by letter of request, just as in the case of a subpoena duces tecum, must be material and admissible in evidence in the proceedings: see e.g. Panayiotou, p 153H; To Kan Chi v Pui Man Yau [1998] 3 HKC 371, 379B-C, 383G-H, 384H-I. Here the documents in question are all those disclosed in the 2nd defendant’s list, which are documents relevant in the Peruvian Guano sense[19] but may not necessarily become evidence in the Action. We do not however think this is a categorical bar to the issue of a letter of request for the kind of purpose under discussion. It does not exceed the court’s jurisdiction, nor is it necessarily inappropriate in every case. G2. Use of the letter of request procedure to overcome foreign legal impediment 47.The 2nd defendant’s case is that assistance should be sought from the Mainland court for the purpose of overcoming the legal impediments to production of audit working papers under Mainland law. The tension between a party’s obligations to give discovery in the forum and bars to disclosure under foreign law binding on the party has arisen before in other jurisdictions. In his Decision,[20] the judge referred to the principles set out in Bank Mellat v Her Majesty’s Treasury [2019] EWCA Civ 449 at §63 as follows:
48.The 2nd defendant does not dispute these principles. It accepts the basic premise that, as summed up by Hoffmann J in MacKinnon v Donaldson, Lufkin and Jenrette Securities Corporation [1986] 1 CH 482, 494H: “If you join the game you must play according to the local rules. This applies not only to plaintiffs but also to defendants who give notice of intention to defend”. Equally, however, as recognised in Bank Mellat, the local rules do take account of prohibition by foreign law and the court will not lightly make an order for discovery, compliance with which will involve a foreign litigant contravening his own law. 49.It is in our view important to see that in situations such as this the court does not simply have to make a binary choice between, on the one hand, ordering production simpliciter, leaving the party ordered to bear either the consequences under foreign law of compliance or the consequences under the lex fori of non-compliance, and, on the other hand, not requiring production altogether. Nor is the 2nd defendant here suggesting that the plaintiffs should themselves seek the documents through a letter of request. What is being sought in the present case, as a way of reducing the concerns under Mainland law, is a letter of request for the Mainland court to facilitate compliance with the order for production already made against the 2nd defendant. 50.Bank Mellat was itself a case about whether an order should be made against the bank so that customer identities on the bank’s discovery documents were to be redacted and replaced by ciphers (as the bank suggested) or the documents were to be provided effectively unredacted to the Treasury’s confidentiality ring (as the Treasury suggested).[21] It is not a case about whether a request should be made to a court of the foreign place where the documents are located for assistance to enable the party concerned to perform his discovery obligations under the local rules. Where that is the issue, the Bank Mellat principles are self-evidently not the end of the analysis. 51.In Société Nationale Industrielle Aérospatiale v United States District Court for the Southern District of Iowa 482 US 519 (1987), a dispute arose as to whether discovery (involving production of documents, answers to interrogatories and to requests for admission) by the French defendants in an action in the United States should be ordered under US Federal rules of procedure or obtained through procedures under the Hague Convention on the Taking of Evidence Abroad in Civil or Commercial Matters (“Hague Convention”) which involved obtaining evidence via a letter of request or through diplomatic officers, consular agents or commissioners. The defendants contended that under French penal law, they could not respond to foreign discovery requests that did not comply with the Hague Convention, and applied for a protective order, but failed at first instance and in the Court of Appeals for the Eighth Circuit. Allowing the defendants’ appeal, the US Supreme Court held as follows:
In so saying, the court unanimously rejected the Court of Appeals’ conclusion that the Convention simply did not apply to discovery sought from a foreign litigant who was subject to the jurisdiction of an American court. At the same time, however, the majority of the court also rejected any principle that “first use” should be made of the Hague Convention, and said that the matter must be decided in each case by the trial court “based on its knowledge of the case and of the claims and interests of the parties and the governments whose statutes and policies they invoke”.[23] In the result that case was remanded for further proceedings. Following Aérospatiale the Hague Convention route has indeed been adopted for discovery in some subsequent US cases.[24] In our view, Aérospatiale supports the proposition that even though a party is subject to the forum’s procedural rules for discovery, a request for assistance from a foreign court for the purpose of overcoming foreign legal impediments to the production of documents in the possession of the party can be appropriate. 52.Likewise, in Morris v Banque Arabe et Internationale d’Investissement SA [2001] I. L. Pr. 37, the French defendant to an English action resisted the inspection of certain documents mentioned in its list of documents on the ground that it would be acting in contravention of a French statute if it were to permit inspection. The defendant urged that assistance should instead be sought from the French court via a letter of request under the Hague Convention. That suggestion was rejected by Neuberger J of the English High Court not because the letter of request procedure would by its nature be inappropriate for the production of a party’s own documents, but on discretionary grounds. Indeed his Lordship described the course suggested as “attractive in terms of international comity and in terms of enabling [the defendant] to avoid even the hypothetical risk of prosecution”,[25] although he eventually declined to adopt it in the circumstances of that case. 53.On behalf of the plaintiffs Mr Manzoni SC relies on Secretary of State for Health v Servier Laboratories Ltd [2014] 1 WLR 4383 but we do not read it as an authority that the use of a court-to-court request procedure in connection with the production of a party’s own documents must in principle be inappropriate. The main question in that case was whether it was mandatory for the English court to make use of the procedure provided by Council Regulation (EC) No. 1206/2001 on cooperation between the courts of the EU member states in the taking of evidence in civil or commercial matters in order to obtain the information and disclosures sought by the claimants from the French defendants in the English actions. The judges at first instance had declined to use that procedure, and simply made orders under the lex fori requiring the defendants to make disclosure. The English Court of Appeal held that it was not mandatory for the English courts to use the procedure under the Regulation, and found the judges’ exercise of discretion unimpeachable. Plainly this is not a ruling that using the Regulation procedure is inevitably inappropriate. Indeed, at first instance in one of the cases that went on appeal, Henderson J said if he had felt that there was any real risk of the defendants being exposed to prosecution by compliance with an order of the English court to provide the information in question, he “would have been disposed to direct the claimants in the first instance to attempt to use the procedure of Regulation No. 1206/2001, despite the extra time and expense which would be involved.”[26] 54.Mr Manzoni drew attention to the fact that in both Morris and Servier the court eventually did not take the course of requesting the assistance of a foreign court. In both cases, and indeed in the rest of this series of cases concerning French defendants, including The Heidberg [1993] 2 Ll. R. 324, Qatar Airways Group QCSC v Airbus SAS [2022] EWHC 3678 (TCC) and Joshua v Renault SA [2024] EWHC 1424 (KB), what was relied on by the party concerned was a “French blocking statute” that prohibited the communication of “documents or information of an economic, commercial, industrial, financial or technical nature” for use in foreign proceedings. In each case however it was found on the evidence that the risk of prosecution of the party in France for breach of that statute as a result of complying with an English order for discovery or disclosure was non-existent or theoretical rather than real: see The Heidberg at p 332; Morris at §33 & 75; Servier at §§27, 29, 45, 102 & 117; Qatar Airways at §58; and Joshua at §139. On this basis it is understandable, if we may respectfully say so, that the English courts were not impressed by the case built on the French blocking statute. 55.Mr Manzoni further relies on Byers v Samba Financial Group [2020] EWHC 853 (Ch). In that case the defendant contended that its ability to give disclosure of certain documents depended on the approval of the Saudi Arabian Monetary Authority (SAMA). Not having obtained approval, the defendant fell into default of its disclosure obligations. It applied to be discharged from those obligations, whereas the claimants applied to strike out the defence. The defendant also submitted that the English court should issue a letter of request to the Ministry of Foreign Affairs of the Kingdom of Saudi Arabia, asking for a direction or request to SAMA to approve disclosure by the defendant. In rejecting this course, Fancourt J said that the distinction between evidence and disclosure is fundamental, and that where a party is ordered to give disclosure, the court has all the power it needs to enforce its order.[27] We do not read this however to mean that his Lordship intended to say that it would never be appropriate to issue a letter of request to a foreign court to enable a party itself to make discovery. This is evident from the reasons he went on to give for declining to issue a letter of request in that particular case: first, such an order “is wrong in principle: attempting to engage the support of a foreign government to remove an obstacle to a foreign litigant’s compliance with an order for disclosure is not a request for assistance from a foreign court to secure material evidence. This court does not have diplomatic relations with foreign governments.” Secondly, there was no credible evidence such an approach was likely to bear fruit. Thirdly, it was all too late given the imminent trial date.[28] 56.We do not consider that the authorities show that it would be inappropriate in principle for a letter of request to be issued for assistance in connection with the production of specified documents in a litigant’s own possession in light of a legal impediment in the foreign jurisdiction. Nor do we think that issuing a letter of request would necessarily be tantamount to subjugating the court’s powers over its own procedures to the penal law of another jurisdiction, as the judge seems to suggest.[29] In our view there is nothing wrong in principle, inherent in the nature of a letter of request and in the nature of discovery by a party, for the former to be used in aid of the latter. It is a matter of discretion to be exercised in the circumstances of the particular case. There is no rule that foreign law will be disregarded or will be given primacy. Even where a request is issued the court retains full control over its processes. 57.We should also mention that letters of request have been issued in at least two cases of a similar nature in Hong Kong. First, two letters of request were issued by consent in the KPMG case referred to in §95 below. Secondly, in China Metal Recycling (Holdings) Ltd (in liquidation) v Deloitte Touche Tohmatsu (a firm) [2024] HKCFI 877, on the defendant’s unopposed application, Cheng J ordered a letter of request to be issued under the Mutual Arrangement to the Shanghai High People’s Court for the provision of various audit working papers kept on the Mainland by a sister firm of the defendant, “Deloitte China”. The underlying action was likewise one brought by a company in liquidation alleging negligence in the audit of its financial statements. It is true that Deloitte China was not sued and was technically a non-party, but it was specifically noted that the Hong Kong defendant made the application in order to obtain the documents “for the purpose of complying with its own obligations of disclosure”,[30] perhaps because the documents concerned, whilst physically with Deloitte China, were in the power of the defendant.[31] The fact that the letter of request was sought for the purpose of enabling the defendant to meet its own discovery obligations was not seen as a peremptory obstacle. The plaintiff in that case did not oppose the application, taking the stance that how the defendant went about obtaining its discovery documents for production to the plaintiff was a matter for the defendant. Our enquiries show that the letter of request was delivered to the designated Mainland court in late May or June 2024 and that as of this date no response has been received. H. Is there in Mainland law a blanket prohibition against the transfer of audit working papers out of the Mainland without approval of the relevant authorities? H1. The position as found in Securities and Futures Commission v Ernst & Young 58.The scope and effect of Mainland law on the transfer of audit working papers outside Mainland China had been the subject of discussion in previous cases in the Court of First Instance. In Securities and Futures Commission v Ernst & Young [2015] 5 HKLRD 293, which was argued in 2013, the accountants firm Ernst & Young resisted enforcement of notices issued by the Securities and Futures Commission under section 183 of the Securities and Futures Ordinance (Cap 571) for them to produce, inter alia, audit working papers relating to Standard Water Ltd on the ground that there were restrictions under PRC laws on the transmission of audit working papers from the Mainland to Hong Kong. The discussion was based mainly on, inter alia, a set of Mainland rules called Provisions on Confidentiality and Archives Administration for Overseas Securities Offering and Listing (Announcement [2009] No. 29) (《關於加强在境外發行証卷和上市相關保密和檔案管理工作的規定》) issued on 20 October 2009 (“Regulation 29”), Art. 6 of which provided as follows:
Having considered the texts of the various laws and regulations and the expert evidence before him, Ng J held that under Regulation 29, only those audit working papers that involved state secrets, national security and significant public interest were prohibited from being transmitted overseas without prior approval (see §§171-179). 59.In Joint & Several Liquidators of China Medical Technologies Inc v KPMG (a firm) (HCCW 435/2012, 24 February 2016), at §§61 & 88, Harris J came to the same conclusion, rejecting KPMG’s principal ground based on PRC laws for opposing an application by the liquidators under section 221[33] of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) for the production of documents that included audit working papers. There were subsequent applications to vary the section 221 order resulting in a decision by this court[34] on appeal: China Medical Technologies Inc (Joint Liquidators) v KPMG [2017] 2 HKLRD 1091, but it appears that the scope and effect of Mainland law was assumed and not debated there.[35] The same may be said of Deputy High Court Judge To’s decision in China Medical Technologies Inc (in liquidation) v KPMG (a firm) [2018] HKCFI 655 at §43. H2. Further legal developments in the Mainland 60.Since the decision in Securities and Futures Commission v Ernst & Young, however, a number of Mainland laws and regulations have been promulgated. The main provisions referred to in the evidence include the following, in chronological order:
61.None of these more recent Mainland laws and regulations was considered in Securities and Futures Commission v Ernst & Young or (with the exception of the 2015 Interim Provisions) in Joint & Several Liquidators of China Medical Technologies Inc v KPMG (a firm). Although the debate before us has focused on Regulation 44, it is necessary not to approach that set of rules in isolation and out of its legal context. H3. The scope for appellate review 62.There is no dispute that the 2nd defendant was a “securities service provider” and that its working papers for the 2013-2017 Audits fell within the scope of Art. 9 of Regulation 44, which covers not only services rendered for an IPO but also annual audits following the listing. The main debate between the parties before the judge and this court has centred around whether there is a blanket prohibition on the transfer of audit working papers offshore without prior authorisation as the 2nd defendant contends, or a restriction on such transfer only for audit working papers involving state secrets, national security or vital interests, as the plaintiffs contend. The judge accepted the plaintiffs’ contention, holding that there is no material change in the legal position under Regulation 44. 63.While Mainland law is a question of fact for the Hong Kong courts and the 2nd defendant’s challenge on this point is therefore an attack on a finding of fact, it is to be noted that not only did the judge not hear oral evidence from the Mainland law experts, but he also expressly stated that he derived “little assistance” from the widely diverging views of the experts and instead used his legal training and formed his own view on the meaning of Art. 9 of Regulation 44.[47] In these circumstances, the strictures on this court in reviewing the question do not apply to the same extent as in relation to other findings of fact. As stated in the joint judgment of Ribeiro and Fok PJJ and Lord Neuberger of Abbotsbury NPJ in Zhang Hong Li v DBS Bank (Hong Kong) Ltd (2019) 22 HKCFAR 392 at §95 (footnotes omitted):
64.Furthermore, the 2024 Interim Measures was not in the evidence before the judge. As discussed below, we consider that this recent piece of law supports the 2nd defendant’s case. Accordingly, we shall ourselves analyse the evidence on Mainland law, whilst paying regard to the judge’s views. H4. The present position in Mainland law 65.Art. 9 of Regulation 44, which suggests that approval needs to be obtained when working papers are to be transferred offshore, does not contain any qualification. The wording, read in its natural and ordinary meaning, suggests that the prima facie restriction on transfer offshore and the requirement for approval apply to all working papers alike, irrespective of their content. 66.This is to be contrasted with its predecessor, i.e. Art. 6 of Regulation 29. The wording of the second part of that article was an important part of Ng J’s reasoning leading to his conclusion that the prohibition was conditional on the content of the audit working papers: see Securities and Futures Commission v Ernst & Young at §§175(1) & 177. That wording no longer appears in Art. 9 of Regulation 44. Even if one does not infer any specific intention from that deletion, the fact remains that a principal reason for reading the prohibition restrictively is now absent. 67.The judge noted that Art. 3 of Regulation 44 requires, inter alia, a domestic company to first obtain approval from competent authorities according to Mainland law before making disclosure of or providing documents and materials that contain “state secrets” or “working secrets of government agencies”;[48] and that Art. 4 requires, inter alia, a domestic company to strictly fulfil relevant procedures stipulated by applicable national regulations before making disclosure of or providing documents and materials that, “if leaked, will be detrimental to national security or public interest”.[49] The judge further noted that the second paragraph of Art. 6 provides: “… securities service providers that publicly disclose or provide to overseas regulators or other relevant entities or individuals such documents and materials [being documents and materials provided by a domestic company that contain ‘state secrets or working secrets of government agencies, or other documents and materials that will be detrimental to national security or public interest if leaked’] shall fulfil relevant procedures pursuant to Articles 3 and 4 of this Provisions”.[50] The judge considered that, reading Art. 6 in conjunction with Arts. 3 and 4, it is reasonably clear that a securities service provider who has obtained any specific regulated information from its client is not free to transfer such information overseas without compliance with relevant Mainland laws and regulations. 68.We do not however share the judge’s implicit view that the restriction in Art. 9 is confined to working papers that contain information falling within the purview of Arts. 3, 4 and 6. On the contrary it seems to us that working papers are treated as a special category of documents for which specific provision is made in Art. 9. 69.Likewise, specific provision is made in Art. 11 of Regulation 44 in relation to the inspection, investigation or collection of information by an overseas authority, irrespective of the content of the information:
70.Regulation 44 should, it seems to us, be read together with Art. 12 of the 2015 Interim Provisions, which require audit firms to abide strictly by Regulation 29 (presumably now to be read as a reference to Regulation 44). Art. 12 specifically provides that provision of access to audit working papers to overseas authorities, including judicial authorities, is to be conducted via procedures agreed between the domestic and overseas regulatory authorities, without confining the requirement by reference to the nature of the information contained in such working papers. We note that Art. 12 of the 2015 Interim Provisions was considered by Harris J in Joint & Several Liquidators of China Medical Technologies Inc v KPMG (a firm) (HCCW 435/2012, 24 February 2016) at §§68-69, but the translation of the last part of Art. 12 there as “the regulatory agreements reached by domestic and overseas regulatory authorities shall prevail” is cryptic and, in our view, not accurate. The plaintiffs’ expert, Prof Fu, agrees that Art. 12 expressly regulates inspection of audit working papers, but opines that it only applies to inspection by the overseas judicial authorities or regulators themselves and is therefore irrelevant to the question of disclosure to the plaintiffs in this case.[52] We have some doubt whether Art. 12 can be given such a narrow meaning where access to working papers is being given to common law jurisdictions with an adversarial litigation system in which disclosures are first made mutually between the parties before being shown to the court. But in any event, in the present case, the 1st plaintiff is controlled and represented by its joint official liquidators who are officers of the Cayman Islands court so that it may be argued that Art. 12 comes into play even on that narrow view of its scope. 71.In addition there is the 2016 Audit Records Measures, Art. 13 of which imposes a blanket general prohibition against “external provision” (對外提供) of audit records. The plaintiffs’ expert again accepts there is such prohibition but he considers that it does not apply in the present case because the plaintiffs are not “external parties” since they were the defendants’ clients and the relevant audit records concern the plaintiffs’ own businesses.[53] We doubt that the prohibition can be brushed aside in this manner. First, as far as working papers are concerned, in the sense of papers brought into existence by the auditors in the course of their work, they may well be the auditors’ property to which the clients have no right of access. That is the position at common law (Chantrey Martin v Martin [1953] 2 QB 286 at 292-293) and there is no evidence that Mainland law is different in this regard. In any event, the plaintiffs are no longer the defendants’ clients; they are not even going concerns but companies in liquidation controlled by liquidators who, in the 1st plaintiff’s case, are officers of a foreign court, and, in the 2nd plaintiff’s case, are voluntary liquidators appointed by its creditors in Hong Kong. The documents are moreover potentially to be shown to the Hong Kong court in public hearings. In our view the present case cannot simply be considered as a client seeking access to working papers. 72.Further, Arts. 162 and 177 of the PRC Securities Law (2019 revision) respectively provide that a securities service institution (of which the 2nd defendant is one) is prohibited from, inter alia, divulging various materials including “working papers” and from providing documents and materials related to securities business activities to overseas parties without the requisite approval. The plaintiffs’ expert says that the restriction in Art. 162 is on the divulging of the clients’ documents.[54] But it seems to us that that is only the first category of documents proscribed. Working papers is expressly mentioned as another category and in our view is not to be read as “clients’ working papers” since working papers are not generally regarded as the clients’ documents. The plaintiffs’ expert considers that Art. 177 targets activities carried out in the Mainland by overseas securities regulatory agencies and does not regulate the transmission of documents in the context of civil proceedings between private parties. Whilst the first sentence of Art. 177 is so limited, there is nothing in the second sentence to qualify the restriction in this way. The prohibition, as expressed, seems to apply to the provision of materials to anywhere outside the Mainland (向境外提供). As the 2nd defendant’s expert points out, there would be a major loophole if the restriction only applied to direct transmission to an overseas regulatory agency. 73.Finally there is the 2024 Interim Measures. There is no expert evidence available on this piece of law. Reading it for ourselves, it seems to us that the first sentence of Art. 13 and the second sentence of Art. 19 of the 2024 Interim Measures together reflect Art. 9 of Regulation 44. Whilst Regulation 44 covers securities service providers generally, the 2024 Interim Measures deals specifically with accountants and their audit work. Arts. 13 and 19 make specific provision in relation to the safekeeping and transmission overseas of audit working papers. In so doing they likewise do not differentiate between audit working papers involving state secrets, national security and vital interests and those that do not. They appear to be blanket provisions applicable to all audit working papers irrespective of content. Art. 30 expressly stipulates that violations will be punished. These provisions seem to us to apply to the 2nd defendant generally since it is an accounting firm that provided “audit services for overseas listing of domestic enterprises” within the meaning of Art. 2 and not only in relation to “important data” and “core data” as Mr Manzoni suggests. 74.The judge placed reliance on the Revision Notes explanatory of and published at the same time as Regulation 44. The Revision Notes recited as background to the revision that Regulation 29 had “played a positive role in ensuring the secure administration of information related to overseas offering and listing by domestic companies, particularly the external provision of audit working papers in the cross-border context.”[55] The Revision Notes set out five areas of major revision but did not mention any blanket prohibition on the transfer of working papers or any change in the approach to working papers compared with Regulation 29. The judge considered that it would be remarkable if Regulation 44 was intended to effect a fundamental change but the Revision Notes omitted to mention it.[56] 75.With respect, we do not think that the Revision Notes can bear the weight placed on it by the judge. It is not part of any laws and regulations and cannot override the wording of laws and regulations. The judge’s reasoning proceeds upon the assumption that those who compiled the Revision Notes believed or accepted that the restriction on transmitting audit working papers overseas applicable immediately before Regulation 44 was limited in the way found by Ng J in Securities and Futures Commission v Ernst & Young. This is not, in our view, a safe assumption to make, especially given the further laws and regulations promulgated in the intervening period. 76.The judge also thought it would be against common sense for every set of audit working papers to have to be vetted by the relevant authorities prior to their transfer overseas because the authorities would be inundated and the Mainland economy could not properly function.[57] With respect we do not think this is a valid consideration. The evidence is that in any event the screening of the documents would in practice be done by an independent PRC law firm. The burden of the screening process and the effect on the economy would seem to us to be similar whether the screening was conducted under the direction and supervision of the relevant authorities or on the audit firm’s own initiative. The same kind of screening is apparently envisaged under the protocols for cooperation between Mainland and Hong Kong regulators, and there is no evidence that this has created any intolerable burdens. 77.Finally we note that in China Metal Recycling (Holdings) Limited (in liquidation) v Deloitte Touche Tohmatsu (a firm) [2024] HKCFI 877 at §§29-30, Cheng J accepted that Regulation 44 imposed a blanket restriction on the transfer of audit working papers outside the Mainland without prior approval. As the application in that case was unopposed, however, we place no weight on this aspect of the decision and simply mention it for completeness. H5. Conclusion in relation to Mainland law 78.We are very conscious that there has not been any oral examination of the experts in this case, and there is no expert evidence at all on the 2024 Interim Measures. The hearing before us was an expedited one with no sufficient time to cover all the evidence on Mainland law, much of which concerns quite recent legislative measures in what is evidently a highly fluid area. In these circumstances we hesitate to make any firm findings of Mainland law. But in our view the 2nd defendant has shown a real risk that it would be penalised in the Mainland if it simply handed over copies of the D2 Documents to the plaintiffs without prior approval of the Mainland authorities. As the 2nd defendant’s expert Prof Huang points out, there have undeniably been significant changes in recent years in the geopolitical environment for China, and Mainland authorities have tightened up regulation of overseas-listed Chinese companies and regulation over data security. This is not a case in which the court can conclude, as the English courts did in relation to the French blocking statute in the cases mentioned above (see §§52-54 above), that the risk of prosecution and penalty is non-existent or no more than theoretical. I. Is a request for assistance from the Shanghai court the only appropriate way to obtain approval for the transfer of the D2 Documents for production in Hong Kong? 79.Connected with the above is the point whether the 2nd defendant could use other avenues for obtaining the requisite approval instead of applying to the Hong Kong court for a letter of request. 80.In this regard the MoF letter (quoted in §18 above) is in our view evidence that under Mainland law: (1) the protocols agreed between regulatory authorities in the Mainland and Hong Kong are not applicable in relation to the production of audit working papers in the context of judicial proceedings in Hong Kong; (2) the Ministry of Finance could not or would not give approval for the 2nd defendant’s audit working papers in question to be produced to the court or the liquidators in Hong Kong; and (3) if in the course of civil or commercial proceedings in the Hong Kong court it is necessary to obtain those audit working papers, it is appropriate to seek assistance from the Mainland courts for such purpose via avenues of mutual judicial assistance under the Mutual Arrangement. The judge was entitled to disregard the experts’ attempts to opine on the meaning of the MoF letter,[58] but in our respectful opinion he erred in effectively giving the letter itself no evidential value at all.[59] 81.Further, there is the evidence of Prof Huang that any requisite approval for the transmission of audit working papers for the purposes of judicial proceedings should be sought pursuant to the applicable protocol for mutual judicial assistance. It seems to us that this opinion is supported by Art. 12 of the 2015 Interim Provisions which he cites (see §60(1) above). In the parallel situation where audit working papers are sought for regulatory or investigatory purposes, Prof Huang’s and Ms Wang’s evidence, unchallenged in this respect, is that the documents are requested and provided at the regulator-to-regulator level pursuant to established mutual assistance protocols. Mr Ma on behalf of the plaintiffs disagrees and suggests that accounting firms may themselves seek approval for outbound transfer of papers to overseas jurisdictions in civil disputes, but he has provided no basis or particulars for this view. The MoF letter is firm evidence that the principal Mainland authority regulating accountants, namely the Ministry of Finance, will not give approval directly to the 2nd defendant and has suggested that recourse be made under the Mutual Arrangement instead. 82.In these circumstances we consider the resort to the letter of request procedure justified. J. Is the assistance to be sought from the Shanghai court under the letter of request applied for within the scope of the Mutual Arrangement? 83.Although both Hong Kong and Mainland China are jurisdictions in which the Hague Convention apply, that Convention does not operate as between them because they are parts of the same State, albeit separate law districts. Instead, Art. 95 of the Basic Law of the Hong Kong SAR provides that the Hong Kong SAR may, through consultations and in accordance with law, maintain juridical relations with the judicial organs of other parts of the country, and they may render assistance to each other. Pursuant to Art. 95, the Hong Kong SAR entered into the Mutual Arrangement with the Supreme People’s Court of the PRC. The Mutual Arrangement, which came into effect on 1 March 2017, designates the competent authorities in the two jurisdictions for transmission of letters of request, specifies the scope of assistance available, and stipulates the procedures and timeframe for execution of letters of request. 84.In particular, Art. 6 provides as follows on the scope of assistance available:
85.In theory a letter of request could be issued by the Hong Kong court to a Mainland court even in the absence of the Mutual Arrangement. It is common ground however that if the assistance sought does not fall within the scope of the Mutual Arrangement, then a letter of request should not be issued for there would be no basis to believe it would be executed. 86.The judge held that the 2nd defendant’s application did not fall within Art. 6 of the Mutual Arrangement since he could not see “how the obtaining of approval in question can fall within any of the categories of evidence which may be taken by a Mainland Court”. Further, the judge referred to the dictum of Beatson LJ in Servier that an order for ordinary disclosure should not be equated with the taking of evidence in another state and to passages in Fancourt J’s judgment in Byers (referred to in §55 above).[60] This raises a question of law, turning on the proper construction of the Mutual Arrangement, on which this court can come to our own conclusion. It is unnecessary to deal with the 2nd defendant’s complaint of procedural irregularity. 87.On behalf of the 2nd defendant Mr Yu criticises the Judge’s reasoning for distinguishing obtaining approval from obtaining documents. If that was the judge’s approach, we agree that it takes too narrow a view of the Mutual Arrangement. It is possible that the person in possession of a document is willing to provide it for use in Hong Kong, but needs the Mainland court’s direction or approval in order to overcome a legal impediment. If the request is otherwise appropriate, to reject it simply because it is in substance one for obtaining “approval” rather than “documentary evidence” would be to adopt an overly literal approach. The relevant scope of assistance is described in Art. 6 as “provision of documentary evidence” (提供書證). How such assistance may be rendered by the requested party is a matter for itself under the provisions of the law of its jurisdiction: see Art. 7. 88.But we do not think the judge took this literal approach. Instead, it seems to us his Lordship was concerned about the distinction between discovery of documents and obtaining evidence, as suggested by his reference to the dicta in Byers and Servier. We note that under the Mutual Arrangement, the scope of assistance that may be requested by the Hong Kong court from a Mainland court is set out in different words to the scope of assistance in the converse situation. We are also aware that discovery is a concept alien to the civil law system, and that under Hong Kong law letters of request, both incoming and outgoing, are not supposed to be used for obtaining discovery from third parties. Indeed, as far as the Hague Convention is concerned, China has made declarations pursuant to Art. 23,[61] both in relation to the Mainland and Hong Kong, limiting the assistance given in respect of letters of request “issued for the purpose of obtaining pre-trial discovery of documents as known in common law countries”. The present case, however, is not one of discovery in the sense that to respond to the letter of request, a person would be required to trawl through his documents to identify those that are relevant in a wide sense to the matters in question in the Action. Here the documents are fully enumerated. The objection of lack of specificity in the documents to be obtained is absent. Art. 6 is not in terms limited to obtaining documentary evidence from a non-party; in fact Art. 8(3) mentions that the request should specify, inter alia, “the specific document … to be obtained from the parties” (需向當事人……取得的指明文件). 89.Having regard to the fact that the Mutual Arrangement is intended to help litigants of the two jurisdictions obtain evidence in civil and commercial matters with enhanced efficiency and greater certainty,[62] there is no reason to read the Mutual Arrangement so restrictively as to exclude in principle an application of the present kind. If, as discussed in section G above, a letter of request can in an appropriate case be issued under the Hague Convention to aid in the production of documents by a party, we do not see why the Hong Kong court should construe the Mutual Arrangement as having a narrower scope. 90.Further, having regard to the laws and regulations discussed in section H above, it seems to be the policy of Mainland law that the production of the 2nd defendant’s audit working papers to the plaintiffs in Hong Kong should be done through a court-to-court arrangement. A letter of request under the Mutual Arrangement would be consistent with that legal policy. It would frustrate an application of the Mutual Arrangement to which the Mainland court may be expected to be receptive for the Hong Kong court to hold that the present application falls outside its scope. There is no compelling reason for us to adopt that restrictive construction. 91.Accordingly, we hold that the application comes within the scope of the Mutual Arrangement. K. Should the court in its discretion issue the letter of request applied for? 92.Lastly we come to the question of discretion. The judge did not have to exercise his discretion because in his view the application failed as a matter of principle on the other grounds. His Lordship nevertheless stated that even if the application was otherwise properly made out, he would have been inclined to dismiss it in his discretion,[63] having regard to two factors: futility and delay. This being a matter of discretion, this court should not interfere unless the well-established limited grounds for impugning an exercise of discretion are made out: that is to say, where the judge has misdirected himself on the applicable principles or taken into account irrelevant matters or failed to take into account relevant matters, or where his decision is plainly wrong.[64] 93.For their submission of futility, the plaintiffs rely on two matters: (1) no previous letter of request issued under the Mutual Arrangement has ever resulted in the production of documents, and (2) the letters of request in the KPMG case produced no results for some three years. 94.The former is based on the Director of Administration’s reply in January 2024 to a request for statistics, which stated that of the nine requests made by Hong Kong thus far under the Mutual Arrangement, “none has been completed with the requested evidence obtained.” However, given the reasons provided, which “include unavailability of the requested information, discontinuance of the proceedings concerned or non-compliance of the requested assistance with the relevant law in the Mainland, etc”, we do not think any inference can be drawn that a letter of request in the present case would be futile. 95.The latter refers to two letters of request issued by consent in October 2019 and August 2021 respectively in China Medical Technologies Inc & another v KPMG (a firm) (HCA 1822/2013, HCA 1138/2014 and HCA 2276/2016 – consolidated as HCCL 7/2020) which, we are told, produced no result up to the time of trial in 2022 with no reason given. The judge concluded that it was apparent that the Mutual Arrangement was “not working in the way intended, at least in the KPMG case,” although he would not say that the application should be refused on this ground alone.[65] For our part, given that the court has no evidence of any details as to what actually happened in relation to the letters of request in that case or as to the reasons the letters of request were not executed, like the judge we are not prepared to infer that a letter of request in the present case would be futile. 96.It is in general sufficient that there is reason to suppose that the requested court would be receptive to the request; it is not necessary that there should be complete certainty as to what it would do: see China Metal Recycling (Holdings) Ltd (in liquidation) v Deloitte Touche Tohmatsu (a firm) [2024] HKCFI 877 at §15.1 and the cases cited there; China Medical Technologies Inc (in liquidation) v KPMG (a firm) [2018] HKCFI 655 at §53. 97.We agree that delay is a potentially relevant factor in every case. Here, the judge considered that the 1st defendant had been aware of the need to obtain approval from the Mainland authorities since at least May 2020 and inferred that the 2nd defendant was likewise aware. It is true that the 1st defendant was first requested for documents in April 2020, but the liquidators’ request at that time was a general one essentially for all documents relating to the audits for the financial years from 2011 to 2017, including “details of all matters” on which the 1st defendant had been instructed in relation to the 1st plaintiff, “all internal documents and working papers” for the seven financial years, and all correspondence with the 1st plaintiff’s representatives in relation to all engagements for all those years. In response the 1st defendant by letter dated 15 May 2020 requested the liquidators to provide a basis for their request and identify the focus of the investigation with reference to specific documents and information, whilst pointing out that to the extent that documents responsive to the liquidators’ request were located in the Mainland, they were subject to Mainland legal impediments to disclosure. The actions were commenced in 2021, but only by generally indorsed writs. The Statement of Claim was only served on the 1st and 2nd defendants in April and September 2022 respectively. Their Defence was filed in December 2022, and the plaintiffs’ Reply in April 2023. In holding that the defendants had delayed in making an application since May 2020, it seems to us that the judge failed to take into account the fact that the issues in dispute – and hence the scope of discovery – only emerged much later, though we should not be taken as saying that in every case the necessary work for an application for a letter of request should only commence after the close of pleadings. 98.Furthermore, the application was taken out on 1 December 2023, by the deadline fixed at the first CMC (8 November 2023). At that CMC the judge also gave leave for the action to be set down for trial, which was subsequently fixed to commence in March 2026. In these circumstances, to say that even if the application is otherwise well-founded, it should be rejected because the time needed for the letter of request to be executed would have a negative impact on the case’s readiness for trial, would seem to leave out of account the fact that the trial date was fixed having the letter of request in contemplation.[66] 99.It should also be noted that Art. 10 of the Mutual Arrangement provides:
There is no in our view basis to assume that this provision would not be complied with in the present case. 100.In these circumstances this court is entitled to exercise the discretion afresh. There is a real and potentially delicate balancing to be carried out, and an application for a letter of request should not be acceded to simply on the basis that there would be “no harm done”. We bear in mind that the general rule is that even foreign parties have to comply with the ordinary discovery obligations of a litigant subject to the jurisdiction of the Hong Kong court. The 2nd defendant on its own case took on the audit work in question as a component of the overall audit of the Tenwow Group, and must be taken to have known that litigation and investigation may well take place in the jurisdictions where the holding company was listed or incorporated, necessitating an examination of the audit working papers. Any prohibition under Mainland law on the export of documents does not deprive the Hong Kong court of the power to order the 2nd defendant to produce the documents in compliance with the procedural rules of discovery. Audit working papers are generally important documents for the fair disposal of a claim alleging auditors’ negligence. The interests of the proper administration of justice in Hong Kong strongly demand that those documents which are in the possession of a party to the litigation be made available for the purposes of the litigation. Using the letter of request procedure under the Mutual Arrangement is slower, more cumbersome and more costly, without any guaranteed outcome. 101.On the other hand there is a real risk that the 2nd defendant would be acting in infringement of Mainland laws and regulations if it simply produced the D2 Documents without approval being obtained through the Mutual Arrangement – clearly a relevant consideration in the interests of justice. In addition the principle of comity, which is no less applicable as between separate law districts within China than between sovereign nations (see Ryder Industries Ltd v Chan Shui Woo (2015) 18 HKCFAR 544 at §50), requires mutual respect for the integrity of the legal system of each jurisdiction. Comity is of course a mutual concept. Just as the Hong Kong court takes into account the effect of Mainland law and strives to avoid circumstances resulting in conflicting requirements, it is to be expected that the legitimate interests of the due administration of justice in Hong Kong are also recognised across the border. 102.Whilst the 2nd defendant may not have acted with the utmost promptitude in taking out the application, it did propose to make a joint application for a letter of request in May 2023 and went on to draw up a detailed list of documents. The present case is in our view quite far removed from the dilatoriness found in Morris and Byers. Trial dates have been set for March 2026 and we are now approaching 2025 though the action has not gone far past the pleadings stage. That is a matter of concern but the lack of progress in the Action between December 2023 and now cannot, in light of our conclusions herein, fairly be blamed on the 2nd defendant. 103.As stated above the choice is not a binary one between compelling the production of documents regardless of the consequences and dispensing with the documents altogether. The 2nd defendant says it is not resisting production of the documents, but only seeking to have it achieved in a way that does not involve contravening Mainland law. It has stated that it intends to fulfil its discovery obligations so that the Action can proceed expeditiously. It has also pointed out that it may itself require the use of the working papers to support its defence. An undertaking has been offered, at this court’s request, by the 2nd defendant including each of its partners that they will use their best endeavours to facilitate and bring about the implementation of the letter of request with a view to the production of the documents enumerated in its Lists of Documents to the plaintiffs as expeditiously as possible. 104.We bear in mind that a letter of request is, ultimately, only a request. It does not permanently relieve the 2nd defendant of its discovery obligations. There is in our view sufficient basis in the materials available to believe that the request would be entertained by the Shanghai court though its execution is of course beyond the Hong Kong court’s control. If it should become apparent that the request cannot or will not be executed or that for whatever reason there is no prospect of approval being given for the production of the D2 Documents in Hong Kong, the matter can be revisited and the Hong Kong court retains the authority to order the 2nd defendant to produce the D2 Documents under the RHC. 105.For all these reasons we would grant the order sought for a letter of request to be issued under the Mutual Arrangement. L. Conclusion and orders 106.For the reasons explained above, we take the view that it is not necessarily inappropriate in principle for a party to apply for a letter of request to be issued to aid in its own discovery and production in Hong Kong of documents located beyond the jurisdiction. There is a real risk that the 2nd defendant will be prosecuted and penalised for breach of Mainland law if the D2 Documents which comprise audit working papers are produced to the plaintiffs without prior authorisation of relevant Mainland authorities. The assistance proposed to be sought through the letter of request falls within the scope of the Mutual Arrangement, and the use of this court-to-court procedure is justified. As a matter of discretion, we consider that the letter of request should be issued. 107.It follows that the appeal is to be allowed. There will be the following orders, made upon the undertaking referred to above:
108.It should be noted that whilst we give liberty to apply, apart from questions relating to the wording of the letter of request we do not expect all consequential matters to come back to this court instead of the Court of First Instance. 109.We make an order nisi that (1) the 2nd defendant do have the costs of the appeal, including the costs of the applications for leave to appeal and for stay of execution below and in this court, with a certificate for one senior counsel and one junior counsel, to be taxed if not agreed; (2) there be no order as to the costs of the application to adduce new evidence; and (3) the costs of and relating to the 2nd defendant’s application below be to the 2nd defendant with a certificate for two counsel (except that the costs of the notice of application itself and of the first round of the supporting evidence be in the cause).
Mr Charles Manzoni SC, and Mr Jason Karas (Solicitor Advocate), instructed by M/s. Karas So LLP, for the Plaintiffs Mr Benjamin Yu SC, Mr Paul Shieh SC and Ms Astina Au, instructed by M/s. Reynolds Porter Chamberlain, for the 2nd Defendant [1] [2024] HKCFI 1146; [2024] 2 HKLRD 1211. [2] See the judge’s decision dated 30 September 2024 refusing leave to appeal: [2024] HKCFI 2692. [3] For convenience we refer to the 1st defendant and the 2nd defendant respectively in the singular even though they are partnerships and the defendants are in truth the individual partners albeit sued in the firm’s names pursuant to RHC Order 81 rule 1. [4] There was initially a 3rd defendant, namely, PricewaterhouseCoopers Zhong Tian Cpas Limited Company, which was a predecessor of the 2nd defendant and was deregistered in 2013. The action was discontinued as against it on 7 September 2023. [5] §14(3). [6] The Chinese original read as follows:
[7] Decision, §§24-44. [8] Decision, §§45-47. [9] Decision, §§48-54. [10] Decision, §§55-61. [11] Decision, §65. [12] Decision, §§66-85. [13] Decision, §91. [14] Decision, §§92-95. [15] See Ladd v Marshall [1954] 1 WLR 1489 at 1491. [16] We note that the provisions in Art. 18 of the consultation draft referred to by Prof Huang are now divided between Arts. 13 and 19 in the final promulgated version. [17] Decision, §44. [18] See e.g. Re Global Brands Group Holding Ltd (in liquidation) [2022] 3 HKLRD 316. [19] as explained in the case of Compagnie Financiere et Commerciale du Pacifique v The Peruvian Guano Company (1882) 11 QBD 55 at 63, namely, “every document … which, it is reasonable to suppose, contains information which may – not which must – either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary”, including “a document which may fairly lead him to a train of enquiry, which may have either of these two consequences”. [20] §23. [21] See §10. [22] See p 541, opinion of the Court given by Stevens J, in which 4 other Justices joined; Blackmun J filed an opinion, in which 3 other Justices joined, concurring on this point and dissenting on the “first resort” point. [23] pp 542-544, 546. [24] See e.g. Hudson v Hermann Pfauter GmbH & Co, 117 F.R.D. 33 (N.D.N.Y. 1987); In re Perrier Bottled Water Litigation, 138 F.R.D. 348 (D. Conn. 1991); William B. Pitt et al v Angelina Jolie et al (Case No. 22STCV06081, Ruling by Superior Court of California on 4 March 2024). [25] See §75. [26] See §64 of Henderson J’s judgment [2012] EWHC 2761 (Ch), quoted in the Court of Appeal’s judgment at §29. [27] §67. [28] §68. [29] §42. [30] §§12, 27, 34. [31] In a similar vein, in Joint & Several Liquidators of China Medical Technologies Inc v KPMG (a firm) (HCCW 435/2012, 24 February 2016) at §§25-27, Harris J held that KPMG HK’s partners exercised or purported to exercise ultimate de facto control over the affairs of the associate firm, KPMG Huazhen. [32] The Chinese original reads: “在境外发行证券与上市过程中，提供相关证券服务的证券公司、证券服务机构在境内形成的工作底稿等档案应当存放在境内。前款所称工作底稿涉及国家秘密、国家安全或者重大利益的，不得在非涉密计算机信息系统中存储、处理和传输；未经有关主管部门批准，也不得将其携带、寄运至境外或者通过信息技术等任何手段传递给境外机构或者个人。” [33] See now sections 286B and 286C. [34] Lam VP and Chu and Barma JJA. [35] See §§7, 22-25, 43-44. [36] The Chinese original reads: “第五條 中國內地企業依法委托境外會計師事務所審計的，該受托境外會計師事務所應當與中國內地會計師事務所開展業務合作。雙方應當簽訂業務合作書面協議，自主協商約定業務分工以及雙方的權利和義務，其中在境內形成的審計工作底稿應由中國內地會計師事務所存放在境內。” [37] The Chinese original reads: “第十二条 中国内地企业与为其提供境外上市审计服务的会计师事务所应当严格遵守《关于加强在境外发行证券与上市相关保密和档案管理工作的规定》（中国证券监督管理委员会 国家保密局 国家档案局公告〔2009〕29号）。 中国内地企业境外上市涉及法律诉讼等事项需由境外司法部门或监管机构调阅审计工作底稿的，或境外监管机构履行监管职能需调阅审计工作底稿的，按照境内外监管机构达成的监管协议执行。” [38] The Chinese original reads: “第三条 本办法所称审计档案，是指会计师事务所按照法律法规和执业准则要求形成的审计工作底稿和具有保存价值、应当归档管理的各种形式和载体的其他历史记录。” [39] The Chinese original reads: “第六条 …… 会计师事务所从事境外发行证券与上市审计业务的，应当严格遵守境外发行证券与上市保密和档案管理相关规定。” [40] The Chinese original reads: “第十三条 会计师事务所对审计档案负有保密义务，一般不得对外提供；确需对外提供且符合法律法规和执业准则规定的，应当严格按照规定办理相关手续。手续不健全的，会计师事务所有权不予提供。” [41] The Chinese original reads: “第一百六十二条 证券服务机构应当妥善保存客户委托文件、核查和验证资料、工作底稿以及与质量控制、内部管理、业务经营有关的信息和资料，任何人不得泄露、隐匿、伪造、篡改或者毁损。上述信息和资料的保存期限不得少于十年，自业务委托结束之日起算。” [42] The Chinese original reads: “第一百七十七条 国务院证券监督管理机构可以和其他国家或者地区的证券监督管理机构建立监督管理合作机制，实施跨境监督管理。 境外证券监督管理机构不得在中华人民共和国境内直接进行调查取证等活动。未经国务院证券监督管理机构和国务院有关主管部门同意，任何单位和个人不得擅自向境外提供与证券业务活动有关的文件和资料。” [43] The Chinese original reads: “为境内企业境外发行上市提供相应服务的证券公司、证券服务机构在境内形成的工作底稿应当存放在境内。需要出境的，按照国家有关规定办理审批手续。” [44] The Chinese original reads: “第十三条 审计工作底稿应当按照法律、行政法规和国家有关规定存储在境内。相关加密设备应当设置在境内并由境内团队负责运行维护，密钥应当存储在境内。” [45] The Chinese original reads: “第十九条 会计师事务所对于审计工作底稿出境事项应当建立逐级复核机制，采取必要措施严格落实数据安全管控责任。对于需要出境的审计工作底稿，按照国家有关规定办理审批手续。” [46] The Chinese original reads: “第三十条 会计师事务所及相关人员违反本办法规定的，应当按照《中华人民共和国注册会计师法》、《中华人民共和国网络安全法》、《中华人民共和国数据安全法》、《中华人民共和国个人信息保护法》等法律、行政法规的规定予以处理处罚；涉及其他部门职责权限的，依法移送有关主管部门处理；构成犯罪的，移送司法机关依法追究刑事责任。” [47] Decision, §68. [48] Art. 3 provides: “境内企业向有关证券公司、证券服务机构、境外监 2 管机构等单位和个人提供、公开披露，或者通过其境外上市主体等提供、公开披露涉及国家秘密、国家机关工作秘密的文件、资料的，应当依法报有审批权限的主管部门批准，并报同级保密行政管理部门备案。是否属于国家秘密不明确或者有争议的，应当依法报有关保密行政管理部门确定；是否属于国家机关工作秘密不明确或者有争议的，应当报有关业务主管部门确定。” Translation: “A domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level. Where there is ambiguity or dispute over the identification of a state secret, a request shall be submitted to the competent secrecy administrative department for determination according to law; where there is ambiguity or dispute over the identification of a working secret of government agencies, a request shall be submitted to the competent authority for determination.” [49] Art. 4 provides: “境内企业向有关证券公司、证券服务机构、境外监管机构等单位和个人提供、公开披露，或者通过其境外上市主体等提供、公开披露其他泄露后会对国家安全或者公共利益造成不利影响的文件、资料的，应当按照国家有关规定，严格履行相应程序。” Translation: “A domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations.” [50] The second paragraph of Art. 6 in its Chinese original reads: “证券公司、证券服务机构应当遵守我国保密及档案管理的要求，妥善保管获取的上述文件、资料。存储、处理、传输上述文件、资料的信息系统、信息设备应当符合国家有关规定。证券公司、证券服务机构向境外监管机构和其他相关机构等单位和个人提供、公开披露上述文件、资料的，应当按照第三条、第四条有关规定履行相应程序。” [51] The Chinese original of Art. 11 reads: “境外证券监督管理机构及有关主管部门提出就境内企业境外发行上市相关活动对境内企业以及为该等企业境外发行上市提供相应服务的境内证券公司、证券服务机构进行检查或调查取证的，应当通过跨境监管合作机制进行，证监会或有关主管部门依据双多边合作机制提供必要的协助。境内有关企业、证券公司和证券服务机构，在配合境外证券监督管理机构或境外有关主管部门检查、调查或为配合检查、调查而提供文件、资料前，应当经证监会或有关主管部门同意。” [52] See Affirmation of Fu Hualing filed on 9 February 2024, §§45.2 & 90. [53] See Affirmation of Fu Hualing filed on 9 February 2024, §48. [54] See Affirmation of Fu Hualing filed on 9 February 2024, §§60-61. [55] The Chinese original reads: “在规范境内企业境外发行上市过程中的信息安全管理、特别是对外提供审计工作底稿的程序管理方面发挥了一定的积极作用。” [56] Decision, §§77-78. [57] Decision, §80. [58] Decision, §58. [59] Decision, §61. [60] Decision, §46. [61] Art. 23 of the Hague Convention provides: “A Contracting State may at the time of signature, ratification or accession, declare that it will not execute Letters of Request issued for the purpose of obtaining pre-trial discovery of documents as known in Common Law countries.” [62] See Paper for the Panel on Administration of Justice and Legal Services of the Legislative Council, on the Mutual Arrangement, dated December 2016 (LC Paper No. CB(4)333/16-17(01)), paragraph 5. [63] Decision, §95. [64] See e.g. Bright Shipping Ltd v Changhong Group (HK) Ltd (No 2) [2019] 5 HKLRD 30, §5. [65] Decision, §91. [66] Decision, §§93-94. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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