Chen Yung Ngai Kenneth and Another v. Oldham, Li & Nie (A Firm)

HCB 3819/2011

[2024] HKCFI 3710

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3819 OF 2011

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BETWEEN

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D E C I S I O N

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A. INTRODUCTION

1.The Trustees in Bankruptcy of David Ho obtained an order under s.29 Bankruptcy Ordinance (“”)  for the Respondent (“OLN”), a firm of solicitors, to produce various documents (“OLN Order”).  This is the Trustees’ summons dated 5 May 2023 for leave to use the documents produced by OLN (“Disclosed Documents”)  pursuant to the OLN Order for the following specified purposes:

(1)  Disclosing and using the same in HCA 2587/2017 (“2587 Action”)  (“1^st Purpose BO”);

(2)  Commencing a civil action against OLN for the purpose of enforcing and/or pursuing and/or accounting for the Trustees’ rights over monies belong to David Ho (“2^nd Purpose”);

(3)  Lodging a criminal complaint against OLN (“3^rd Purpose”);

(4)  Lodging a complaint to the Law Society of Hong Kong (“Law Society”)  (“4^th Purpose”); and

(5)  Facilitating other relevant investigations, whether civil, criminal or regulatory in nature (“5^th Purpose”).

2.OLN oppose the present application.

B. BACKGROUND

B1. Background leading to the OLN Order

3.On 2 August 2011, a bankruptcy order was made on David Ho’s own petition and his bankruptcy was discharged on 2 August 2019.  

4.On 7 June 2012, the Former Trustees (Ip Pui Lam Arthur and Ip Pui Sum)  commenced HCA 971/2012 (“971 Action”)  against David Ho and various defendants.  D2 to D5, D8 and D9 (“971 Defendants”)  were originally represented by Tanner de Witt, and then Hugill & Ip (“H&I”), until trial in September 2019, when they were replaced by OLN.  

5.On 28 September 2020, Ng J gave judgment in the 971 Action in [2020] HKCFI 2518 (“971 Judgment”)  and found, amongst others, that the 971 Defendants were nominees of David Ho and/or beneficially owned and controlled by David Ho.

6.The Trustees considered that there was at least an arguable case based on circumstantial evidence that the litigation expenses for the trial of the 971 Action must have been funded by David Ho.  They took out a summons under s.29 of BO against H&I and OLN for disclosure of certain documents in each firm’s possession, custody or power relating to, amongst others, details of payment records made to in respect of the 971 Action.  As a result, the OLN Order was made on 13 January 2023.  See the “OLN Decision” in [2023] HKCFI 151. 

7.Pursuant to the OLN Order, OLN disclosed the Disclosed Documents to the Trustees under a cover letter dated 10 February 2023 (“OLN’s Cover Letter”). 

8.The Trustees accept that there is an implied undertaking not to use the Disclosed Documents for other purposes than those of the proceedings for which the documents were disclosed (“the implied undertaking”).

9.Upon OLN’s complaint that the Trustees were trying to seek a wholesale uplifting of the implied undertaking, and as directed by the Court, the Trustees have classified the Disclosed Documents into 5 classes:

(1)  Class 1: Summary of OLN’s legal fees (HCA 971/2012);

(2)  Class 2: Details of payments made to OLN for its legal fees in the 971 Action;

(3)  Class 3: Retainer agreements in the 971 Action;

(4)  Class 4: Affirmation of Chiu Eunice Kwan Yee (“Chiu 1^st”)  confirming matters as ordered; and

(5)  Class 5: Communications with Liu Shu (held by Ng J to be a person closely associated with David Ho under the 971 Judgment)  in the 971 Action.

B2. The Trustees’ Case

10.It is the Trustees’ case that the Disclosed Documents reveal, amongst others, the following matters.

11.First, OLN received a total sum of HK$4,823,100.00 as costs on account for the 971 Defendants in the 971 Action, the breakdown of which was as follows:

Table 1

	Date	Payor	Amount (HK$)
1.	16 July 2019	Shang Jinglin (“Shang”)	1,500,000
2.	16 September 2019	Unidentified account holder of HSBC Premier account 718-533599-888 (“Unidentified HSBC Account Holder”)	680,000
3.	18 October 2019	Unidentified HSBC Account Holder	420,000
4.	14 January 2020	Unidentified HSBC Account Holder	600,000
5.	7 July 2020	Unidentified HSBC Account Holder	1,600,000
6.	9 October 2020	Transferred from client account of Grassmere Services Limited (“Grassmere”)  in the 2587 Action to client account of Gladius Limited (“Gladius”)  in the 971 Action	23,100
		Total:	4,823,100

12.It can be seen from Table 1 that a total sum of HK$3,300,000.00 was received from the Unidentified HSBC Account Holder and placed as costs on account for the 971 Defendants.

13.OLN’s position, as set out in Class 1, is that “OLN accounts department did not receive any notification from HSBC as to the name of the account holder”. 

14.Pursuant to another s.29 BO order dated 29 May 2023 made by this Court on the Trustees’ application: [2023] HKCFI 1429, HSBC disclosed that the Unidentified HSBC Account Holder was Shang.  The account number for his remittance to OLN in item 1 of Table 1, was the same as that for item 2.

15.Further, in respect of items 1 and 6 of Table 1, the Trustees submit that there was no due diligence by OLN to verify the source of those funds and their relationship with the 971 Defendants. 

16.Second, all the 971 Defendants were struck off and/or dissolved at some point after the trial of the 971 Action, between 1 November 2019 and 5 June 2020.  Accordingly, the retainers with the respective 971 Defendants would have been terminated by operation of law, despite the fact that OLN’s applications to cease to act were only formally granted on 30 November 2020 (for D3)  and 16 December 2020 (for D2, D4, D5, D8 and D9).

17.However, it appeared that OLN continued to receive funds as costs on account of the 971 Action and continued to request for and receive instructions from the 971 Defendants, including instructions regarding the allocation of funds on the costs on account in item 6 of Table 1.

18.Third, out of the total sum of HK$4,823,100.00 received, there were instructions for the sum of HK$3,180,000.00 to be transferred to Grassmere’s client account or to settle Grassmere’s liabilities.  Ultimately, there were transfers totalling HK$2,406,821.97 from the 971 Defendants’ client account, in accordance with those instructions.  

19.The Trustees say that these were “extremely unusual” and “highly improper” circumstances:

(1)  No due diligence appeared to have been conducted by OLN as to whether there was any valid authorization to transfer the sums from the 971 Defendants’ clients account to Grassmere’s client account.

(2)  In fact, a total sum of around HK$845,475.59 was transferred to Grassmere’s client’s account from 30 October 2020 to 29 January 2021 after the 971 Judgment was handed down on 28 September 2020. Such transfers were highly suspicious given that Ng J already found the 971 Defendants to be nominees of David Ho and that they were beneficially owned and/or controlled by David Ho.

(3)  After the 971 Judgment was handed down, OLN was still taking instructions from Liu Shu. And yet OLN had represented to the Trustees that they had ceased to act for and did not have further instructions from the 971 Defendants on 9 and 14 October 2020.

20.Fourth, in respect of items 3, 4 and 5 in Table 1 which were purportedly, on instructions, allocated to Grassmere’s client account, OLN has not produced any written instructions. 

21.Specifically, in respect of item 5, whilst OLN has enclosed an email from Alison Sun Li Hua dated 7 July 2020 and stated that it had “instructions to allocate [the COA of $1,600,000.00] to Grassmere’s client account”, that email in fact did not contain any such instructions.  Instead, the email expressly referred to the 971 Action only and stated, amongst others, “I also enclose the Remittance of HK$1,600,000 to your firm’s bank account as costs on account”.

22.There was no conceivable reason why money for Grassmere had to be routed through the 971 Defendants’ clients’ account.  Accordingly, the Trustees submit that OLN’s file for the 971 Action (“971 File”)  was served “as a conduit to channel monies from Shang to Grassmere’s client account.” 

23.Fifth, given that the Trustees’ claims in both the 971 Action and the 2587 Action are actions for recovery of assets belonging to David Ho, the suspicious transfers of monies between the 2 clients’ accounts suggested that the legal fees for both actions were (and are)  funded by David Ho.  Further, Shang and the 971 File were allowed to be used as channels through which David Ho continued to use his own assets to pay for legal fees in participating in legal proceedings against the Trustees.

24.Sixth, the Trustees submit that it was suspicious that the retainers were all dated 15 July 2019 by OLN when, they were all signed and pre-dated by Sun Li Hua on 12 July 2019.  For D5 and D9 of the 971 Defendants, they were already close to being struck off in the BVI for non-payment of fees at the time.

25.However, I place little weight on the preceding paragraph.  D5 and D9 were only struck off in November 2019.  Absent any evidence before this Court to justify any suggestion that OLN was complicit in the actions of David Ho or his nominees, there was no reason why OLN would know that D5 and D9 would be struck out in the BVI within 4 months of the signing of the retainer agreements.  In particular, I note from an email dated 27 November 2020 that Ms Eunice Chiu, the handling partner of the 971 Action, told Liu Shu that “[t]o be honest, had you told us that the BVI companies were struck off, we could have saved a lot of work and time.”  This email suggested that Ms Chiu only found out about the striking off in around November 2020, i.e. over a year after the retainers were signed.

26.Seventh, the Trustees refer to certain Disclosed Documents (at tab 5/57-58, 62-63, 71, 76, 79 of the hearing bundle)  alleging that OLN have “clearly intentionally blurred” certain documents to make them illegible”.  However, this is not part of the Trustees’ case on affirmation and I place no weight on this.

27.Based on the first 5 matters above, the Trustees submit that they have legitimate grounds to believe that there was a potential breach of the anti-money laundering provisions found in the (a)  Organized and Serious Crimes Ordinance (Cap 455)  (“OSCO”); (b)  Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615)  (“AMLO”); (c)  Practice Directions P and K issued by the Law Society; (d) Solicitors’ Accounts Rules (Cap 159F); (e)  any other relevant provisions and rules; and (f)  Solicitors Guide to Professional Conduct Rules and the Solicitors Practice Rules. 

28.Accordingly, the Trustees took out the present Summons on 5 May 2023 to lift the implied undertaking for the 5 Purposes.  

B3. Grounds in opposition

29.OLN challenge each of the 5 Purposes and the relevance of the Disclosed Documents to each of them.  OLN questions whether it is the Trustees’ functions to pursue criminal and disciplinary complaints.  The 5^th Purpose, in particular, is too broad and vague.  The legal fees were not funded by David Ho but Grassmere, who had reason to do so and had funds all along.  OLN was satisfied that the reasons for Grassmere’s payment of legal fees for the 971 Defendants’ defence were bona fide and that all necessary “know your client” (“KYC”)  and anti-money laundering (“AML")  checks had been properly performed and fulfilled.  Those checks involved Grassmere’s Legal Professional Privilege (“LPP”).  No special circumstances are shown for lifting the implied undertaking. To do otherwise would cause injustice to OLN.

30.After hearing counsel’s submissions on 12 September 2023, upon the Court’s directions, the parties have lodged further written submissions to address this Court on the applicability of Order 24, rule 14A and the privilege against self-incrimination (“PSI”).

31.In their further written submissions, the Trustees raised new issues as to whether leave of the Court is required, as Classes 1 and 5 were not produced under compulsion; and the Disclosed Documents were read in open Court by OLN such that the implied undertaking has been waived.

C. ISSUES

32.I have distilled from the affirmations and the written submissions, the following issues:

(1)  Whether Order 24A rule 14A of RHC is applicable to the present Summons to lift the implied undertaking;

(2)  Whether the trustees need leave to use the Disclosed Documents;

(3)  Whether the Trustees are the “owners” of the Disclosed Documents;

(4)  Whether Classes 1 and 5 were produced without compulsion of law such that no leave is required to use them;

(5)  Whether the Disclosed Documents have been referred to by OLN in open court such that the implied undertaking was waived;

(6)  Whether each of the 5 Purposes justify release of the implied undertaking.

33.I have at one stage considered if PSI can be relied on by OLN, especially in relation to the 3^rd Purpose.  However, I am persuaded by Mr Wong, counsel for the Trustees, that this is not in issue since OLN have never relied on it.  A person will lose his PSI if he has not claimed it before producing the incriminating documents, whether or not he knew of the privilege.  The witness will suffer the consequences and no retrospectivity of protection was available: Yaron Brown v Lexinta Ltd [2018] HKCFI 2302, §30.  In any case, due to my findings in relation to the 3^rd Purpose in Section K below, PSI is irrelevant anyway. 

D. WHETHER ORDER 24A, RULE 14A OF RHC IS APPLICABLE

34.This Summons was taken out under Order 24 rule 14A of the RHC and the inherent jurisdiction of the Court.

35.Order 24, rule 14A provides as follows:

“Any undertaking, whether express or implied, not to use a document for any purposes other than those of the proceedings in which it is disclosed [limb 1] shall cease to apply to such document after it has been read to or by the Court, or referred to, in open court [limb 2], unless the Court for special reasons has otherwise ordered on the application of a party or of the person to whom the document belongs [limb 3].” (underline and words in square brackets added)

36.This rule is applicable and has constantly been referred to by the courts when releasing an implied undertaking. 

37.Limb 1 stems from the common law rule in Home Office v Harman [1983] 1 AC 280, 307F-G.  It was applied in the context of insolvency proceedings, eg Re NDT (BVI)  Trading Ltd (No.2) [2009] 5 HKLRD 615, Kwan JA (as she then was, sitting as an additional judge of CFI)  at §4-5; and Li Bao Tian [2019] HKCFI 1961, §§6 & 11, DHCJ William Wong SC (concerning documents disclosed to trustees in bankruptcy under s.29 BO).

38.Limb 2 applies to automatic cessation of the implied undertaking and has been applied in the context of insolvency proceedings: Re Ho Yuk Wah David (bankrupt)  (No 3), [2019] HKLRD 961, §26(1),Recorder Eugene Fung SC.   

39.Limb 3 refers to the power of the Court to release the implied undertaking on the application of the party to whom the document belongs.  

40.The test governing the release of the implied undertaking over documents disclosed under a s.29 BO order have been set out in a decision in the present case on 30.6.2015, at §§41-42, Lok J, following Secretary for Justice v Florence Tsang (2014)  17 HKCFAR 739, 22-23. 

“41. The general rule is that there is an implied undertaking not to use information or documents obtained by the liquidators or trustees by the use or under the threat of the exercise of their statutory powers (such as private examinations)  other than for the purposes for which their powers were conferred.

42. However, the implied undertaking can be released by the Court. It is for the applicant to demonstrate cogent and persuasive reasons as to why it should be released. Each case turns on its own facts and no general principle can be formulated beyond stating that the Court will not release or modify the implied undertaking save in special circumstances and where the release will not occasion injustice to the person giving discovery.” (underline added)

See also NDT, §§4-9.

41.The words underlined in §41 of Lok J’s decision regarding the use of documents subject to the implied undertaking are different from the words underlined in Order 24, rule 14A, as a trustee in bankruptcy’s powers are different to that of a litigant in an action.

42.The court has discretion to relax or modify the implied undertaking for special reasons: Re NDT, §§6-8:

(1)  In exercising this discretion, the court may have regard to many factors and they vary from case to case. It is not possible to give an exhaustive list. The factors include the nature of the document, the nature of the information in the document, any prejudice the author of the document may sustain, and the likely contribution of the document to achieving justice in the second proceedings.

(2)  Leave of the court is required before reporting any wrongdoings revealed by documents disclosed on discovery to the appropriate authorities. It is a balancing exercise whether what is sought to be achieved by relaxing the implied undertaking is more important for the administration of justice generally, such as in discouraging and punishing false evidence, than in maintaining confidentiality so as not to operate as a disincentive to full and frank discovery.

(3)  Whilst acknowledging the public interest in full and frank disclosure on discovery, if a court is satisfied there had been illegal or unlawful conduct which it had no power to deal with itself, it should generally report the relevant material to the relevant public authority. In the absence of any other factors argued to constitute some injustice, the public interest in the investigation or prosecution of serious fraud should take precedence over the general concern of courts to control the collateral use of compulsorily disclosed documents.

43.To justify release of the implied undertaking, the applicant only needs to show a prima facie case of misconduct or criminal conduct: e.g. Re NDT, §11 (prima facie case of forgery); Anite Telecoms Limited v World Best Cargo-Link Company Limited, HCA 2560/2013, 19 October 2015, B Chu J (prima facie case of a serious fraud)  (§159).

E. WHETHER THE TRUSTEES NEED LEAVE TO USE THE DISCLOSED DOCUMENTS

44.Despite the apparent stance in the Summons that leave to use the Disclosed Documents is required, Mr Wong gives 3 reasons why no leave is required:

(1)  The Trustees have stepped into the shoes of the 971 Defendants and Liu Shu (OLN Decision, §§29 and 41). The Trustees are essentially the “owner” of the Disclosed Documents”, using their “own” documents for the purpose of seeking relief in other proceedings.

(2)  Classes 1 and 5 were not produced under compulsion.

(3)  The Disclosed Documents have been referred to by OLN in open court.

I will deal with each of these in turn.

45.Mr Wong also submits that no leave is required where the production of the materials by the office holder is (i)  for the beneficial pursuit of the insolvency  proceedings in the sense that there is at least some real as opposed to fanciful prospect of recovery for the estate (1^st and 2^nd Purposes in this case); and (ii)  to facilitate discovery of dishonesty or other malpractice by bankrupts and officers of insolvent companies (limited to disclosure to public authorities for the purposes of criminal investigations and directors’ disqualification proceedings)  subject to the caveat that the production of such material is not made to third parties (3^rd and 4^th Purposes).  Mr Wong relies on Willmont v Shlosberg; Re Webinvest Ltd [2017] EWHC 2446 (Ch), 57, 66, 74-80.

46.With respect, the issue in Willmont involved sharing of information between common office holders, which does not arise in the present summons.  The 2 examples in paragraph 45 on use of documents are still guided by the principles set out in paragraphs 40-43 above.

F. WHETHER THE TRUSTEES ARE THE “OWNERS” OF THE DISCLOSED DOCUMENTS

47.I agree with Mr Kwok that the finding that the Trustees have stepped into the shoes of the 971 Defendants addresses the issue of whether OLN can assert LPP against the Trustees.  However, that does not mean that the Trustees are the owners of the Disclosed Documents.

48.Not all documents in a solicitor’s file belong to the client.  Principle 5.23 of the Hong Kong Solicitors’ Guide to Professional Conduct, §1(b)  and (c)  contain examples like books of account of the solicitor, documents sent to the solicitor during the retainer like letters, authorities or instructions.  They belong to the solicitor.

49.The Disclosed Documents have their source from OLN.  As a party compelled to make disclosure (“document producer”)  for the purpose of particular proceedings, OLN should not be in peril of, amongst others, having those documents made available to third parties who might use them to the detriment of OLN: Yang Foo Oi v Wai Wai Chen [2013] 3 HKC 131 at §§19-20, DHCJ B Chu (as she then was).  This applies to the 1^st, 3^rd to 5^th Purposes in the present case.

G. WHETHER CLASSES 1 AND 5 WERE DISCLOSED WITHOUT COMPULSION OF LAW

50.Compulsion is the bedrock of the implied undertaking: Derby & Co Ltd v Weldon (No. 2) [1988] 10 WLUK 175,  Times, October 20, 1998, Browne-Wilkinson VC, adopted in Shun Kai Finance Co Ltd v Japan Leasing (HK)  Ltd, CACV 87/2000, Rogers VP, §§14-15. 

“The voluntary disclosure of documents in the course of interlocutory proceedings by a party does not come within the rationale which is the basis of the implied undertaking relating to documents disclosed on discovery. In relation to documents voluntarily disclosed the Court has not invaded the privacy of the party. The party has, for his own purposes in defending a case, decided himself to use the documents rather than maintain his privacy. It is the party who has destroyed the privacy of the document, not the plaintiff or the Court ...”

51.There is no dispute that Class 1 was produced by OLN voluntarily in a bid to assist the Trustees. 

52.Mr Kwok submits that the disclosure was made before it was known that the Trustees were targeting OLN.  Had OLN known this, they would never have prepared and provided Class 1 at all.  There was material non-disclosure on the part of the Trustees.  It would be wrong for the Trustees to be given leave to use Class 1 irrespective of whether it was voluntarily disclosed.  Mr Kwok cites the Australian authority of Re Southern Equities Corporation Ltd at headnote §§(v)  to (viii)  in support.

53.With respect to Mr Kwok, the facts of Southern Equities are distinguishable. There, the liquidator had the intention to institute an action for misfeasance against the examinee prior to the application for an examination order. The liquidator did not disclose it by affidavit but only informed the court orally before the examination order was made.  Here, the OLN Order was, like any s.29 BO order, a kind of “fishing expedition” for the Trustees, premised on reasonable suspicion: OLN Decision §8.  The Trustees only discovered the alleged misconduct of OLN after the Trustees have perused the Disclosed Documents.  There was no material non-disclosure which would have invalidated the OLN Order.

54.I hold that no leave is required to use Class 1. 

55.I would add that Class 1 is relevant to all of the 5 Purposes as guiding the reader to understand the relevant Classes and the flow of funds.  Class 1 will not be covered in the discussion below.

56.With regard to Class 5, Mr Wong submits that it was sought but was not ordered. Hence, Class 5 was voluntarily produced, as stated in OLN’s Cover Letter, §4. 

57.I am unable to agree because the implied undertaking applies not only upon a s.29 order but also under the threat of the exercise of the s.29 BO powers: Lok J’s Decision, §41. 

(1)  In §41 of the OLN Decision, this Court rejected OLN’s assertion of LPP in relation to Class 5, in view of Ng J’s express finding that Liu Shu was a nominee of David Ho and hence the Trustees stepped into the shoes of Liu Shu.

(2)  In OLN’s Cover Letter, OLN specifically acknowledged that Class 5 was not included in the OLN Order. However, they referred to §41 of the OLN Decision and stated that there was no basis for OLN to withhold production of the Cindy Liu Shu Communications. OLN’s stance accorded with this Court’s intention.

58.I hold that Class 5 was produced under compulsion.

H. WHETHER THE DISCLOSED DOCUMENTS HAVE BEEN REFERRED TO IN OPEN COURT

59.Mr Wong submits that the Disclosed Documents were openly discussed at the hearing on 12 September 2023, attended by members of the public.  Accordingly, the implied undertaking has been waived by OLN.

60.I reject the submission on the following grounds:

(1)  Hong Kong legislation maintains a distinction between open court hearings and chambers hearings. See eg s.32A of the High Court Ordinance, Cap 4 (“HCO”)  entitled “proceedings in court and in chambers”; section 33 of HCO entitled “powers of judge in chambers”; and 5 of the Bankruptcy Rules (Cap 6A)  concerning matters and applications that “shall be heard and determined in open court”; and rule 6 concerning adjournment from chambers to court and vice versa. Under PD 25.1, §2, all chambers hearings are held in public subject to specified exceptions The hearing on 12 September 2023 was a chambers hearing open to the public but it was not an open court hearing.

(2)  Mr Wong concedes that he is unable to find any authority to support his proposition that a hearing in chambers (open to public)  could be regarded as a hearing in open court.

(3)  Mr Wong’s reliance on Slade v Abbhi [2020] EWHC 2181 (Comm)  is misplaced as that case is based on CPR 31.22, which does not refer to “open court” but “a hearing which has been held in public” and thus includes chamber hearings.

61.I hold that OLN has not referred to the Disclosed Documents in open court which would have caused waiver of the implied undertaking.

62.I now turn to each of the 5 Purposes.

I. 1^st PURPOSE: PURSUING THE 2587 ACTION

63.The Trustees seek leave to use Classes 1, 2, 4, 5 for the 1^st Purpose. This Purpose is aimed at recovering assets for David Ho’s estate, a legitimate purpose that follows on a s.29 BO Order. 

64.Leave is required to use Classes 2, 4 and 5 because they have to be disclosed to third parties who were not the document-producer.

65.In the 2587 Action, the Trustees claim that David Ho has beneficial ownership in Grassmere through the use of nominees. 

(1)  The shares in Dan Form International Limited (“DFIL Shares”)  were held on resulting trust by Grassmere for David Ho who had solely funded the capital injection for the DFIL Shares; and

(2)  The alleged sale of Grassmere shares from APIDL to Yu Yang in June 2010, and onward sales to Luck Creation Limited in July 2012 and to Su Lan Lan in July 2016 were sham transactions with intent to defraud David Ho’s creditors. The 971 Judgment has now provided the “building blocks” for the Trustees’ alternative claim under the second route. Accordingly, David Ho still retains beneficial ownership of the DFIL Shares by reason of his control over APIDL and Grassmere through his nominee and associate, Sun Li Hua.

66.Grassmere is the only active defendant in the 2587 Action.  Its defence is that David Ho had not funded the capital injection for the DFIL Shares and that the 2 transfers of Grassmere shareholding in July 2010 and July 2016 were genuine arms’ length transactions.  

67.The Trustees assert that the documents disclosed by OLN are material to the 2587 Action as showing that the 971 Defendants and Grassmere were funded by the same entities and that costs were actually transferred from the 971 Defendants’ to Grassmere’s account to fund the legal fees in the 2587 Action. It was inevitable to draw the inference that the funds received and processed by OLN for the 971 Defendants and Grassmere were in fact related to David Ho. 

68.The Trustees also considered it material that Luck Creation, which apparently divested itself of its interest in Grassmere since July 2016, would still be settling Grassmere’s liabilities concerning Henry Ho’s professional fees even as of 2019.  This would be a significant piece of evidence for the Trustees in challenging the genuineness of the transactions regarding the interest in Grassmere concerning Luck Creation.  

69.OLN opposes the application.  In sum, their grounds are that:

(1)  The 971 Action and 2587 Action are different and unrelated actions with different defendants.

(2)  Grassmere’s sole shareholder is Su Lan Lan and she is not alleged to be a nominee of David Ho.

(3)  There is no obligation on Grassmere to disclose any of the Disclosed Documents.

(4)  It is unjust to OLN to grant leave to the Trustees.

(5)  The Trustees have not identified why each Class or which document is relevant.

70.With regard to the 1^st ground of opposition, no doubt the 2 Actions are different and involve different parties.  But the common thread is the Trustees’ case that the 971 Defendants and Grassmere are nominees of David Ho.

71.In fact, this Court has in [2023] HKCFI 826 at §3, referred to Ng J’s findings that David Ho has been operating a complex scheme using offshore companies and nominees to conceal his assets, carry on his business ventures and litigation, and pay his personal and family expenses. Through his nominees, David Ho has diverted significant amount of funds out of reach of his creditors.  When those findings are viewed together with Classes 2, 4 and 5, I am of the view that there is a prima facie case as stated in paragraphs 67-68 above.

72.With regard to the 2^nd ground of opposition, Mr Kwok points out that there is no assertion, evidence or finding that Su Lan Lan is a nominee of David Ho. 

73.With respect to Mr Kwok, it is unnecessary for there to be any actual finding of nomineeship. A prima facie case to that effect suffices.  As held by this Court in [2023] HKCFI 1462 at §§56 and 117, the terms of the sale of the DFIF Shares to Su Lan Lan were unusual and looked more like a loan agreement than a sale and purchase agreement.  As such, Su Lan Lan may not even have enjoyed any rights as Grassmere’s shareholder. With the same source of funding, and transfer of funds from the 971 File to that of Grassmere through OLN, it is at least reasonably arguable that there is connection between those entities.  It would reinforce the Trustees’ case in the 2587 Action that the transfer to Su Lan Lan was in fact a sham transaction.  This is not the forum to debate the strength of the 2587 Action. 

74.With regard to the 3^rd ground of opposition, I am unable to agree.  Classes 2, 4 and 5 would arguably fall with the Peruvian Guano principle of discovery, in leading to a train of inquiry that may advance the Trustee’s case or damage Grassmere’s.

75.Whilst the Trustees can seek discovery from Grassmere in the 2587 Action, the Trustees would still need to disclose their bases for the application.  They have to seek leave in the present case anyway.

76.With regard to the 4^th ground of opposition, OLN contend that their legal fees for the 971 Defendants’ defence at the trial were paid by Grassmere and OLN was satisfied that the reasons for it were bona fide and that all necessary KYC and AML checks had properly been performed and fulfilled.  With Grassmere as its existing client, OLN is unable to disclose Grassmere’s reasons in this regard as they are subject to LPP.  The Trustees themselves acknowledge that Grassmere had an incentive to see that the former’s claim against the 971 Defendants fail as judgment in the Trustees’ favour in the 971 Action would provide the building blocks for the Trustees’ alternative claim under the second route against Grassmere in the 2587 Action.  It is incorrect to say that Grassmere had no legitimate interest in helping the 971 Defendants.

77.With respect to Mr Kwok, even if his submission is correct, why would Grassmere’s funds need to be channelled to the 971 File first and then back to Grassmere’s client’s account with OLN?  This is best answered in the 2587 Action.

78.If the funds were really Grassmere’s, there could not be conflict of interest between OLN and Grassmere.  If OLN had really done the necessary KYC or AML checks, there is nothing to bar OLN from seeking approval from Grassmere for disclosure. In fact, such evidence is necessary for Grassmere’s defence in the 2587 Action as well.

79.OLN further claims that they would be left in the awkward position in the 2587 Action that:

(1)  OLN will be the source of the Disclosed Documents to be produced by the Trustees in the 2587 Action for use against OLN’s own client, Grassmere.

(2)  Grassmere would not continue to use OLN’s service.

(3)  It will cause injustice to Grassmere who would be forced to produce privileged information as to why it funded the 971 Action at the trial and its tactics for the 2587 Action.

80.I am unable to accept these arguments.

(1)  It is not uncommon for solicitors to have prepared documents for, or have received written instructions from or is in possession of documents on behalf of a client. I do not see OLN/Grassmere being in a different position from any litigant who is obliged to disclose relevant documents in compliance with his discovery obligation, whether the document is for or against him.

(2)  That a party ceases to use a firm of solicitors due to eg conflict of interest oft arises in litigation and cannot form the basis for asserting injustice in this Summons.

(3)  It is disingenuous for OLN to claim LPP on behalf of Grassmere now. Under the OLN Order, all the Disclosed Documents were in relation to the 971 Defendants or 971 Action. The fact that Grassmere was mentioned would not make the Disclosed Documents less so. LPP was a core issue in the OLN Decision (eg in §§13, 38 and 39). As the Court of Appeal stated in Citic Pacific Ltd v Secretary for Justice (No 2) [2015] 4 HKLRD 20 at §76(1), the person claiming LPP should (a)  identify the materials over which LPP is claimed; (b)  specify, with respect to each of the materials identified, whether the LPP claimed is legal advice privilege or litigation privilege; and (c)  support the LPP claims by statement or affirmation setting out the full factual context upon which LPP is claimed in respect of each of the materials. Being the solicitors for Grassmere, OLN has not identified, at the hearing which led to the OLN Decision or in their submissions for the present Summons, which of the Disclosed Documents are covered by Grassmere’s LPP and why OLN has not seen fit to assert LPP for Grassmere then.

81.With regard to the 5^th ground of opposition, OLN question the relevance of each Class. I have no doubt that Classes 2, 4 and 5 are relevant to assist the Trustees in establishing the alleged nomineeship of Grassmere and to testing the credibility of Grassmere. 

(1)  Class 2: The Trustees are relying on the overall fund flows. I accept that it is practically impossible to identify each single document for each specified Purpose. Singling out documents may cause them to lose their context.

(2)  Class 4 (Chiu 1^st)  states OLN’s side of the story, which should be weighed against the Trustees’ case in the 2587 Action. It disclosed for the first time that Shang is Su Lan Lan’s son, plainly a matter relevant to credibility of Grassmere.

(3)  Class 5 consists of continuous communications between Liu Shu and OLN. It is relevant to show Liu Shu’s involvement as a nominee herself, giving instructions to OLN concerning the transfer of funds in the 971 File. It would be difficult to the Trustees to identify individual documents as the context in which a document appeared might be lost.

82.For the reasons given, I grant leave to the Trustees to use Classes 2, 4 and 5 for the 1^st Purpose.

J. 2^nd PURPOSE: COMMENCING A CIVIL ACTION AGAINST OLN

83.The Trustees say that the 2^nd Purpose is for the beneficial pursuit of insolvency proceedings as there is real prospect of recovery for the estate. They seek leave to use Classes 2, 4 and 5. 

84.The undisputed facts were that OLN acted for the 971 Defendants until it applied to cease to act on 9 October 2020 and the application was formally granted on 30 November 2020 (for the 3^rd Defendant)  and 16 December 2020 (for the remaining 971 Defendants).

85.OLN were and still are solicitors on record for Grassmere in the 2587 Action since 17 July 2019.

86.The Disclosed Documents show that OLN had failed to verify the source of funds of HK$4,823,100 as costs on account.  OLN received “instructions” after the 971 Defendants were struck off or dissolved.  OLN used the 971 File to channel funds to the 2587 File, after the retainers of the 971 Defendants were terminated.  The Trustees allege that all funds originated from David Ho and/or assets of or beneficially belonged to David Ho.  Shang had made the transfers as nominee of David Ho.

87.From the draft Statement of Claim, it can be seen that the causes of action against OLN are as follows: 

(1)  Claim of trust over the HK$4,832,100 paid to OLN for costs on account for the 971 Action;

(2)  Claim of trust over the HK$2,358,221.87 transferred to the account of Grassmere under the 2587 Action File;

(3)  Fraud against creditors of David Ho pursuant to s.58 of BO;

(4)  Knowing receipt and/or dishonest assistance in David Ho’s money-laundering and/or asset-dissipating scheme; or

(5)  Alternatively, dishonest assistance in champerty and/or maintenance in the event that the payors were found to be third party funders.

88.The causes of action in (1)  to (3)  fall within the purpose of the OLN Order.  However, I decline to give leave to use any Class for the causes of action in item (4)  money laundering, and item (5)  champerty or maintenance.  The reasons will appear under the 3^rd Purpose below. 

89.OLN oppose saying that the legal fees were received in 5 tranches from 16 July 2019 to 9 October 2020. All but the 1^st tranche was received by OLN after David Ho’s discharge from bankruptcy (on August 2019).  Section 32(2)  of BO provides that, subject to certain exceptions, the discharge of bankruptcy releases a discharged bankrupt from all bankruptcy debts.  The Trustees therefore have no claim over the last 4 tranches (totalling HK$3,323,100)  after his discharge (even assuming that David Ho was the one who paid the monies in question).

90.The first tranche of HK$1,500,000 was received from Shang.  Whilst Su Lan Lan’s alleged ownership of Grassmere is yet to be investigated in the 2587 Action, there is no allegation that her son Shang is a nominee of David Ho, or reason for OLN to suspect the same. 

91.However, OLN claims not to be aware of the dissolution of the 971 Defendants until after OLN applied to cease to act after the 971 Judgment.  OLN was obliged to follow Grassmere’s instructions as to its funds (which are subject to privilege belonging to Grassmere).  The dissolution of the 971 Defendants would not have any impact upon Grassmere’s instructions in this regard.

92.As stated above, this is not the forum to assess the strength of the Trustees’ intended claim against OLN’s defences.  The consistent flow from the 1^st to the last 4 tranches of money go to merits and credibility of the Trustees’ intended claim. 

93.I am satisfied that Classes 2, 4 and 5 require leave of the Court and they are relevant to the pleaded causes.  There is no need to identify individual documents in order not to lose the context in which each Class ought to be considered.  I grant leave to use them for the causes of action in §87(1)  – (3)  above in respect of the 2^nd Purpose.

K. 3^rd PURPOSE: LODGING CRIMINAL COMPLAINT AGAINST OLN

94.The Trustees want to lodge a criminal complaint, especially relating to AML regulations and champerty/maintenance.  However, they have not identified any other suspected criminal conduct.  They seek to rely on all 5 Classes. 

95.Mr Wong submits that the complaint is to facilitate discovery of dishonesty or other malpractice by bankrupts and officers of insolvent companies: Willmont, §§76-80.  With respect, OLN is neither of these categories of persons.

96.The 3^rd Purpose can be dealt with simply.  There is no hint at all that the funds received by OLN were proceeds of an indictable offence or that the transfer of part of them to a third party (Grassmere)  was to launder money.  The money was used for OLN’s legal fees and disbursements in the 971 Action (and probably 2587 Action).  OLN’s fee notes for the 971 Action were among the Disclosed Documents.  It cannot be suggested that OLN’s acting in either Action was a sham or that the legal fees and disbursements were not incurred for so acting. 

97.Further, it is one thing to suggest that David Ho has been hiding his funds and disposing of them through his nominees.  It is another to say that the channelling of funds to Grassmere involved champerty and/or maintenance.  In Unruh v Seeberger(2007)  10 HKCFAR, 31, §§ 82, 89-94, Ribeiro PJ, held that champerty and maintenance are directed at “officious intermeddling in a suit” and excludes cases where the funder has a “legitimate common interest in the outcome of litigation sufficient to justify him in supporting the litigation conducted by another”.

98.This is not the situation here.  As proven/suspected nominees of David Ho, the 971 Defendants and Grassmere may be acting in concert.  Even so, there is nothing to suggest that OLN was complicit in their common interest other than acting on the purported instructions of their clients then.  And if the payor were a third party, what loss would have been caused to David Ho’s estate to warrant fixing OLN with liability?

99.In the Decision of this Court in this case [2023] HKCFI 151, at §47, on a s.29 BO application by the Trustees, this Court stated that:

“I have disregarded the Trustees’ submission that OLN were not analogous to a completely innocent party under a Norwich Pharmacal application because OLN were acting for David Ho’s corporate nominees and were receiving instructions from Yu Yang and Liu Shu. This is because there is nothing before the Court to justify any insinuation that OLN were complicit in the actions of David Ho or his nominees at the time OLN acted for the 971 Defendants.”

100.I maintain the same view even taking all Classes at their highest.  Findings against David Ho and/or the 971 Defendants cannot be imputed to OLN.  To hold otherwise would dissuade lawyers from acting for persons accused of wrongdoing to the detriment of the rule of law in Hong Kong.

101.As there is not a prima facie case shown,I decline to give leave to use any Class for the 3^rd Purpose and the intended claim relating to money laundering, champerty or maintenance under the 2^nd Purpose.

L. 4^th PURPOSE: LODGING COMPLAINT TO LAW SOCIETY AGAINST OLN

102.The Trustees intend to lodge a complaint to the Law Society in respect of the irregularities of OLN in acting on behalf of the 971 Defendants and transferring monies from the 971 File to Grassmere’s client’s account.  The Trustees seek to rely on all 5 Classes.

103.There is a prima facie case that for over 3 years (from the time of receipt of the funds until disclosure pursuant to the OLN Order)  OLN did not know the source of a significant amount of HK$3,000,000 (62.5% of the total received).  It had caused the Trustees to incur considerable effort and expenses in seeking the information from HSBC.

104.It is all the more incredible that Chiu-2^nd affirmed on 3 November 2023 stated that Shang is Su Lan Lan’s son, and Su Lan Lan was and is OLN’s client in the 2587 Action.

105.These matters are in stark contradiction to the alleged KYC checks done by OLN. 

106.It is normally not the function of a trustee in bankruptcy to police the professional conduct of solicitors.  However, OLN channelled money from one client’s account to another without written instructions.  The irregular conduct of OLN had a direct impact on funds of David Ho’s estate and the Trustee’s investigation. 

107.The Classes named by the Trustees are relevant to the Trustees’ complaint and may assist the Law Society:

(1)  Class 3, which sets out OLN’s client due diligence obligations and handling partner’s role in the 971 Action, shows OLN’s awareness of their professional obligations.

(2)  Class 4 will enable the Law Society to take into account OLN’s side of the story as well.

(3)  Classes 2 and 5 will give the background on fund flows and the context to the complaint.

108.I do not see any injustice to OLN.  Public interest in punishing breach of professional standards in a case where the bankrupt’s estate and the Trustees investigation are directly affected outweighs the adherence to the implied undertaking.  Grassmere is still the client of OLN.  There is no suggestion that Grassmere will not permit OLN to disclose information relating to KYC checks.  Whilst the documents will be handed to the Law Society, it is up to the Law Society to decide whether to investigate OLN’s conduct.  The Court need not give any directions to the Law Society.

109.For the reason given, I give leave to use Classes 2 – 5 for the 4^th Purpose.

M. 5^th PURPOSE: FACILIATATION OF OTHER RELEVANT CIVIL, CRIMINAL OR REGULATORY INVESTIGATIONS

110.This purpose is too wide and too vague.  Till the hearing, the Trustees have not been able to identify what other investigations are required.  Releasing the implied undertaking will put OLN in peril of having their documents used generally for limitless purposes other than for which disclosure was ordered: Yang Foo Oi v Wai Wai Chen.  I decline to release the implied undertaking for the 5^th Purpose.

N. CONCLUSION AND COSTS

111.Having regard to the above analyses, I hold that Class 1 is not subject to the implied undertaking and the Trustees are at liberty to use it.

112.I am satisfied that the Trustees have shown cogent and persuasive reasons to release the implied undertaking and permit the use of the Classes of Disclosed Documents for the following purposes:

(1)  1^st Purpose – Classes 2, 4 and 5;

(2)  2^nd Purpose, except for the intended causes of action relating to money laundering, champerty and maintenance – Classes 2, 4 and 5;

(3)  4^th Purpose – Classes 2-5;

113.The application to release the implied undertaking in respect of the 3^rd and 5^th Purposes is dismissed.

114.The Trustees have succeeded on some Purposes but lost on others.  I make an order nisi that there be no order as to costs.

115.I thank counsel for their assistance.

Mr Joseph Wong, instructed by Lee, Wong & Lam, for the applicants

Mr Eugene Kwok, instructed by Oldham Li & Nie, for the respondent