China Reserve Securities Ltd v. Global Mastermind Securities Ltd and Another

HCMP 1280/2025

[2025] HKCFI 5973

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1280 OF 2025

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BETWEEN

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D E C I S I O N

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By Introduction and Background

1.By Originating Summons dated 31 July 2025 (“the OS”), the Plaintiff (“P”) seeks disclosure against the Defendants under the court’s inherent jurisdiction to grant Norwich Pharmacal relief and/or pre‑action discovery under s.41 of the High Court Ordinance, Cap. 4 (“HCO”) and/or O.24, rr.7A and 11A of the Rules of the High Court, Cap. 4A (“RHC”).

2.Essentially, the OS seeks the disclosure of information and/or documents:

(1)  Against the 1^st Defendant (“D1”) concerning: (a) the number of shares in KuangChi Science Limited  (“KC Shares”) held by New Horizon Wireless Technology Limited (“New Horizon”) in account no. 130831 held with D1 (“the Account”) as at 26 January 2022; (b) since 27 January 2022, whether New Horizon has sold/transferred the KC Shares or any part thereof from the Account; (c) if the KC Shares or any part thereof have been transferred via settlement instruction(s) out of the Account, to provide the dates of the relevant transactions, the number of shares being sold/transferred in each transaction, copy of settlement instructions and copy of the HKSCC‑CCASS settlement reports concerning the transactions; (d) if the KC Shares or any part thereof have been withdrawn by way of physical share certificates to disclose the specified particulars of the share certificates; (e) if the KC Shares or any part thereof have been converted into physical share certificates and held by D1, to disclose the specified information; and (f) records of off-exchange sales or transfers of the KC Shares by New Horizon to other parties if any; and

(2)  Against the 2^nd Defendant (“D2”): (a) on whether there has been any physical share certificates being transferred from New Horizon to other transferees(s) on or after 27 January 2022; and (b) if so, the identity of the transferee(s), number of shares being transferred, the date of such transfer and relevant share certificate number.

3.The applicable principles on pre-action discovery under s.41 of HCO were stated by G Lam J (as he then was) in Zhang Shouen & Anor v Standard Chartered Bank (Hong Kong) Limited (unrep) HCMP 682/2015, 15 October 2015 at §21 as follows:

(1)  The applicant appears to be likely to be a party to subsequent proceedings in the court in which a claim is likely to be made.  In order to satisfy the requirement that a claim is likely to be made, the applicant must show a claim “may” or “may well” be made if discovery is granted;

(2)  The respondent appears likely to be a party to such proceedings;

(3)  The respondent appears likely to have or have had in his possession, custody or power the document requested;

(4)  The requested document is “directly relevant” to an issue arising or likely to arise out of that claim.  “Direct relevance” is shown only if:

(a)  the document would be likely to be relied on in evidence by any party in the proceedings; or

(b)  the document supports or adversely affects any party’s case;

(5)  The applicant must satisfy the court that the order for pre-action discovery is necessary either for disposing fairly of the cause or matter or for saving costs.

4.As explained by the learned judge ibid at §22, the first four requirements above are jurisdictional conditions and unless they are satisfied the jurisdiction to order pre-action discovery does not arise.  If they are satisfied, the court has a discretionary “power” which will not be exercised unless discovery is necessary either for disposing fairly of the cause or matter or for saving costs.

5.There is also in addition important requirements imposed by O.24, r.7A of RHC including, in particular, the need for an affidavit that satisfies the requirements of r.7A(3) as modified by r.7A(3A).  This means that the affidavit must:

(1)  State the grounds on which it is alleged that the applicant and the respondent are likely to be parties to subsequent proceedings in the court;

(2)  Specify or describe the document in respect of which pre-action discovery is sought;

(3)  Show, if practicable by reference to any pleading intended to be served in the proceedings, that:

(a)  the document is “directly relevant” to an issue arising or likely to arise in the proceedings, in the sense that: (i) the document would be likely to be relied on in evidence by any party in the proceedings; or (ii) the document supports or adversely affects any party’s case; and

(b)  the respondent is likely to have or have had the document in his possession, custody or power;

(4)  Where there is relevant evidence to meet the requirement in r.8(2) that discovery is necessary either for disposing fairly of the cause or matter or for saving costs, the affidavit should of course also cover those matters.

See ibid, §23 and the need for particularity in the supporting affidavit of what the intended claim is, what issues arise or are likely to arise out of it and how the documents sought is directly relevant to such issues (ibid, §§29 and 43).

6.At the first hearing of the OS on 11 September 2025 (“the First Hearing”), I indicated to counsel that I was not entirely clear from the affirmation filed in support of OS who were the intended defendants to P’s intended claims and how the documents sought were directly relevant to an issue arising or likely to arise in the proceedings.  The OS was adjourned sine die with leave to P to file a further affirmation which has now been done. 

7.By Summons dated 15 October 2025, P applies to restore the OS for summary disposal today (which as indicated at the outset of today’s hearing I was prepared to do so).

8.According to the affirmations now filed on behalf of P in support of the OS, P’s case in gist is that:

(1)  P is a limited company incorporated in Hong Kong.  Amongst other things, P provides custodian services as part of the operation of its business;

(2)  D1 is a limited company incorporated in Hong Kong and, similar to P, provides custodian services;

(3)  D2 is the share registrar and transfer office of KC Shares in Hong Kong responsible for the registration of transfer of KC Shares;

(4)  New Horizon is a business company limited by shares incorporated with limited liability under the laws of British Virgin Islands;

(5)  On 15 August 2019, P and New Horizon entered into 3 tripartite custodian agreements (collectively, the Custodian Agreements”) with P being the Custodian as chargor, New Horizon being the Client and three others as Chargees respectively, for the deposits of various amounts of KC Shares;

(6)  By three letters dated 15 August 2019, it was confirmed that KC Shares were deposited by New Horizon in the account held with P (“P’s Account”);

(7)  The standard terms of the Custodian Agreements are substantially the same and included Clause 4.3 which provides: “Each of the Client and the Chargee acknowledges and confirms that: …(c) other than in accordance with Clause 7 below, the Client is not permitted to withdraw, transfer, assign, dematerialize, re-materialise, grant any rights over or otherwise deal with any Client Assets in the Listco Shares Account without the prior written consent of the Chargee… (e) it will not give any notice or instruction to the Custodian which would or be likely to cause the Custodian to be in breach of its undertakings and obligations under this Agreement and the Standard Terms…”

(8)  Clause 7.1 also provides inter alia that an Instruction must be in writing and signed by the Client or Chargee;

(9)  On 27 January 2022 and 28 March 2022, New Horizon executed two settlement instructions (respectively, the “SI January 2022” and “SI March 2022”, collectively, the “Settlement Instructions”) and instructed P to respectively transfer 144,739,603 and 40,000,000 KC Shares (“Subject Shares”) from P’s Account to the Account;

(10)  The transfers of the Subject Shares to the Account were without the Chargees’ consent in breach of clauses 4.3 and 7.1 of the Custodian Agreements;

(11)  Further or alternatively, P had a mistaken belief that it was subject to an existing legal liability to New Horizon to follow New Horizon’s instructions under the Settlement Instructions.  P would not have transferred the Subject Shares to the Account if it had realized the Subject Shares were transferred by New Horizon in breach of the Custodian Agreements.  P intends to seek a restitutionary claim against D1 and New Horizon for the return of the Subject Shares.

9.Both D1 and D2 have been served the OS, the Summons and supporting affirmations.

10.By way of an acknowledgment of service filed on 12 August 2025, D1 indicated that it does not intend to contest the OS.  D1 did not attend today’s hearing.

11.By letter dated 13 August 2025, through its solicitors, D2 has indicated that subject to their comments in relation to the proposed order, it adopts a neutral stance to the OS.  D2 has asked its attendance to be excused at the hearing of the OS and was excused by me.  By a further letter dated 17 October 2025, D2’s solicitors maintained a neutral stance and has asked to be excused from attending today’s hearing.  D2’s attendance today was excused by me.

12.Mr Fong, counsel, appeared for P today as he did at the First Hearing.

Analysis and Disposition

13.Applying the applicable legal principles to the facts of the present case, I am satisfied from the affirmations filed in support of the OS and the submissions of Mr Fong that the jurisdictional and procedural requirement for pre-action discovery has been satisfied as against D1:

(1)  P intends to bring a legal action inter alia against D1 for restitution of the Subject Shares on the basis of P’s mistake that execution of the Settlement Instructions was not in breach of the Custodian Agreements and/or it was bound to follow New Horizon’s instructions;

(2)  D1 appears likely to have the requested information/document in its possession, custody or power.  If the Subject Shares, whether by way of electronic means or physical share certificate, are still kept by D1 as a custodian, it must have the relevant records.  If the Subject Shares, or any part thereof, have been transferred out of the Account, the electronic transactions must have been recorded in the HKSCC‑CCASS Settlement Reports.  If the Subject Shares originally kept in the Account have been converted into a physical share certificate, D1 has a duty to keep record of the physical script withdrawal form, the acknowledgment of receipt issued by the Central Clearing and Settlement System and the client’s confirmation note for 7 years.  Besides, D1 has not contested the OS or suggested that it cannot provide the requested information;

(3)  The requested information/document are directly relevant to the intended proceedings because if the Subject Shares, or any part thereof, have been transferred out of the Account, P has to assess whether New Horizon, D1 or other transferee(s) may have potential defences to P’s intended claims and whether it needs to take further legal action to preserve the Subject Shares;

(4)  The order for pre-action discovery is necessary for disposing fairly of the cause or matter or for saving costs because P has to make an assessment of the merits and potential defences to its intended claims, to decide whether to incur further legal costs to pursue its intended claims against D1 and whether further legal action should be taken to preserve the Subject Shares.

14.Since I am of the view that the orders sought can and should be ordered under s.41 of HCO and O.24, r.7A of RHC, it is not necessary to consider whether the same order could be granted under the Norwich Pharmacal jurisdiction as against D1.  Besides, on P’s case, it is not that D1 is an innocent party mixed up in the wrongdoing.

15.On the other hand, it is now clear that D2 will not be a party to P’s intended claims but was only mixed up in the tortious or wrongful activities of others.  It is necessary to consider whether disclosure orders sought should be made against D2 under the Norwich Pharmacal jurisdiction.

16.The applicable principles for Norwich Pharmacal relief are well-settled:

(1)  It is not a usual order and will not be lightly granted in the absence of powerful factors;

(2)  It is made against an innocent party whose only involvement is to become mixed up in the tortious or wrongful activities of others;

(3)  The wrongdoing exists only on the part of a person or persons against whom no relief may be sought at the stage of the application and against whom there is probably insufficient evidence to found an action;

(4)  There will usually be a legal relationship between the innocent person against whom a discovery order is sought and the alleged wrongdoer, and the relationship may involve strict duties to be observed on the innocent party’s part.  Any discovery to be made will involve a breach of confidentiality and may expose the innocent party to civil liability and possibly even criminal liability; and

(5)  The court must accordingly balance the competing interests of the victim of the alleged wrongdoing and an innocent party caught up in the wrongdoing.

See A Co v B Co [2002] 3 HKLRD 111 at §12 per Ma J (as he then was).

17.In A Co v B Co at §13, the main requirements for Norwich Pharmacal relief were set out:

(1)  There must be cogent and compelling evidence to demonstrate that serious tortious or wrongful activities have taken place (where fraud or similar serious allegations are made, the degree of proof must correspondingly be high);

(2)  It must be clearly demonstrated that the order will or will very likely reap substantial and worthwhile benefits for the plaintiff, and where a tracing claim is likely to be made there must be a serious possibility that the discovery sought will either allow the plaintiff to preserve what may well be his assets or realistically lead to the discovery of such assets; and

(3)  The discovery sought must not be unduly wide, so an order must be specific and also restricted to those documents or those classes of documents that are necessary to enable the plaintiff to preserve or discover assets.

18.It has also been held that in an appropriate case, where it is necessary in the interests of justice, Norwich Pharmacal discovery can be obtained, not on the basis of an actual tort, but to find out if a wrong has been committed against the applicant, and if so, the precise nature of the wrong.  Even if the applicant is not able to show a prima facie case of wrongdoing, it may act on a reasonable suspicion (founded upon facts and circumstances which plausibly give rise to the suspicion and which the court can reasonably act on) that wrongdoing may have been committed: see Evergreen International Storage and Transportation Corp v The Hong Kong and Shanghai Banking Corporation Limited [2008] 5 HKLRD 49 per DHCJ Lisa Wong SC (as she then was) at §§59-62; Chang Wa Shan v Chan Chun Chuen [2009] 6 HKC 201 per Poon J (as he then was) at §11 and Yuen Yick Hang Aliston v District Officer (North) [2022] HKCFI 2857 per Ng J at §§22-27.

19.Furthermore, as mentioned by Chow J (as he then was) in Leung Yiu Ting v MTR Corp Ltd [2020] 5 HKC 550, in Rugby Football Union v Consolidated Information Services Ltd (formerly Viagogo Ltd) [2012] 1 WLR 3333 at §16, Lord Kerr stated the need to make a Norwich Pharmacal order disclosure will be found to exist only if it is a necessary and proportionate response in all the circumstances.  However, the test of necessity does not require the remedy to be one of last resort.  Whether the relevant information can be obtained from another source is only one of the relevant considerations (see §20).

20.It is also important to bear in mind that the essential purpose of the Norwich Pharmacal remedy is to do justice which involves the exercise of discretion by a careful and fair weighing of all relevant factors: see ibid, §23 and Rugby Football Union, §17.

21.Applying the above legal principles to the circumstances of this case, I am satisfied that it is just and convenient to grant Norwich Pharmacal relief against D2.

22.Firstly, I am satisfied that there is cogent and compelling evidence to demonstrate a prima facie case that New Horizon was in breach of the Custodian Agreements by executing the Settlements Instructions and procuring or causing P to make the transfers of the Subject Shares to the Account.  According to P’s evidence neither the Settlement Instructions were counter-signed by the authorised person of the Chargees nor were written consents obtained.  The HKSCC-CCASS Settlement Reports demonstrate that the transfers had taken place.

23.Secondly, I am satisfied the order for information and documents will or will very likely reap substantial and worthwhile benefits for P to ascertain whether there are and the number of KC Shares in the Account, whether they have been transferred to other parties and whether those parties are bona fide purchasers for P to make an informed decision as to whether the contemplated proceedings against New Horizon and D1 should be commenced and/or if other legal proceedings or injunctions should be taken out to prevent the Subject Shares being transferred to other parties.  D2 being the share registrar and transfer office of KC Shares is the only avenue for P to obtain the information regarding the shareholding status of the Subject Shares.

24.Thirdly, I am of the view that the order sought is specific and not unduly wide and being limited to the time of the first transfer of the Subject Shares to the Account.  I take into account D2 has not objected to the terms of the order sought against it nor suggested it has difficulties to comply with the terms of the order save for the timing for providing the information sought.

25.Accordingly, I will make an order in terms of the OS as amended by me to allow D2 21 days from the service of the order to make the disclosure sought.

26.On the question of costs, the starting point is that the person against whom pre-action discovery is sought is entitled to his costs of and incidental to the application and of complying with any order made thereto: see O.62 r.3(12) of RHC.  I see no basis to depart from this starting point.  As for Norwich Pharmacal orders, the usual costs order is for the applicant to pay to the innocent party its reasonable costs of and incidental to the application, including costs of compliance with any orders made, on an indemnity basis, to be taxed if not agreed: see e.g. A Co v B Co at §31 and Cinepoly Records Company Limited & Others v Hong Kong Broadband Network Limited & Others [2006] 1 HKLRD 255 at §71 per DHCJ Poon (as he then was).

27.I therefore will make an order in terms of the OS subject to the amendments mentioned above.

28.I thank Mr Fong for his assistance in this matter.

Mr John Fong, instructed by Messrs. Khoo & Co. for the Plaintiff

The 1^st Defendant was not represented and did not appear

Messrs. Bowers for the 2^nd Defendant, attendance excused