China System International Group Ltd and Others v. Henry Wai & Co and Another

HCA 133/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 133 OF 2013

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REASONS FOR DECISION

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I. Background

1.The 1^st plaintiff China System International Group Limited (“China System”), the 2^nd plaintiff Han Bing (“Han”) and the 3^rd plaintiff Qiang Bo (“Qiang”) are respectively the 4^th, 2^nd and 3^rd defendants in HCA 2118/2012 (“Main Action”).

2.The 2^nd defendant Zhang Xiuhong (“Zhang”) is the plaintiff in the Main Action.  The 1^st defendant Henry Wai & Co (“HKC”) is the solicitor firm acting for Zhang in the Main Action.

3.There are altogether seven defendants in the Main Action. The 1^st defendant is Liu Wenchen (“Liu”).  The 5^th, 6^th and 7^th defendants in the Main Action are respectively Tong Chor Yin Anthony practising as Augustine C Y Tong & Co (a solicitor firm, “ACYTC”), Fine Happy Secretarial Services Limited (a company secretarial service company, “Fine Happy”) and Li Pau Sing also known as Perry Li (ACYTC’s office manager and Fine Happy’s sole shareholder/director, “Li”).

4.China System is a Hong Kong company with an authorised and issued share capital of 40,000 shares (“Shares”). Their major asset is their investments/interests as Hong Kong partner in a Sino-foreign joint venture company in Shijiazhuang City, Heibei Province, PRC (“PRC JV”), which in turn holds various interests in property-related projects in Shijiazhuang City, Heibei Province, PRC.

5.Zhang brought the Main Action in respect of alleged fraudulent transfer of the Shares (which were originally registered in her name) to Liu in March 2012, which transfer was handled and effected by ACYTC, Fine Happy and Li all of whom used to act for China System and Zhang. Later in April 2012, Liu allegedly transferred the Shares to Han and Qiang who are not bona fide purchasers.

6.There were/are litigation in the PRC between the PRC JV and their PRC partner, and between the PRC JV (through their liquidators) and China System.

7.On 14 November 2012, Zhang by her solicitors HWC issued a summons in the Main Action for various injunctive reliefs against China System, Han and Qiang, and for the appointment of interim receivers and managers in respect of the Shares pending the trial of the Main Action (“Receivership Summons”).

8.By an acknowledgment of service filed on 26 November 2012 by Edward C T Wong & Co (“ECTWC”), China System gave notice of intention to defend in the Main Action. ACYTC (represented by Smyth & Co, “SC”) and Fine Happy and Li (represented by Chong Fu & Co, “CFC”) also respectively gave notice of intention to defend.

9.On 5 December 2012, HWC sent to ECTWC the skeleton argument, the list/bundle of authorities and the hearing bundles for use at the hearing of the Receivership Summons on 7 December 2012 at 10:00 am before L Chan J.

10.On 6 December 2012, Zhang by her solicitors HWC filed a summons pursuant to Order 67 rule 6 of the Rules of the High Court (“RHC”) for leave to cease to act for China System (“Cease to Act Summons”). Such summons was supported by the affidavit of Gordan Chan (partner of ECTWC, “Chan”) dated 6 December 2012 (“Affidavit”). Exhibited to the Affidavit was a series of email communications (with attachments thereto) amongst Li, a PRC Lawyer Wu Guolu (“Wu”) and Tse Sau Man (partner of ECTWC) (“Emails”).

11.At about or shortly after 6:00 pm on 6 December 2012, ECTWC faxed to HWC the Cease to Act Summons, the Affidavit and an affirmation of service of Fong Chi Sing filed on 6 December 2012 under cover of a fax cover sheet.

12.The Cease to Act Summons was returnable on 7 December 2012 at 9:30am before L Chan J who granted leave for ECTWC to cease to act.  However, since ECTWC had not yet completed the requirements under Order 67 rule 6(1) of the RHC, they still remained as solicitors on the record for China System, and their assistant solicitor was present at the hearing of the Receivership Summons at 10:00am before L Chan J.  By that time, leave had been obtained to serve Liu, Han and Qiang (who were PRC residents) out of jurisdiction, but they had not been served with the Writ of Summons and/or the Receivership Summons as yet.

13.At the hearing of the Receivership Summons, Zhang’s counsel Mr Lam referred to the Emails exhibited to the Affidavit, especially an email from Li to Wu dated 23 November 2013 which was copied to Liu.  ECTWC’s assistant solicitor who was present at the hearing of the Receivership Summons did not raise objection.

14.After hearing submissions, L Chan J appointed interim receivers and managers in respect of the Shares until the return date before the summons judge which shall be no sooner than 21 days after service out of jurisdiction had been effected on Liu, Han and Qiang (“Receivership Order”), and granted interlocutory injunctions (a) until further order or the return day to restrain Han and Qiang from dealing with the Shares without Zhang’s prior written consent and (b) until trial or further order to restrain China System from registering any transfer of the Shares (or any part of them) and issuing any new share certificates in relation to such transfer without Zhang’s prior written consent (“Injunction Order”).

15.On 20 December 2012, China System’s present solicitors Ma Tang & Co (“MTC”) filed Notice of Change of Solicitors in the Main Action.

16.On 28 December 2012, MTC on behalf of China System, Han and Qiang applied by summons to set aside the order of L Chan J dated 7 December 2012 in its entirety or alternatively to set aside the Receivership Order (“Discharge Summons”) (see paragraph 1(1) of Zhang’s affirmation filed on 12 April 2013 in the Main Action).

17.On 4 and 10 January 2013, MTC wrote to HWC to ask for their notes of the hearing on 7 December 2012.

18.On 10 January 2013, HWC wrote to CFC contending inter alia that from information available to Zhang, including the Affidavit and the Emails, there was reason to believe that Li had been acting in collusion with Liu, Han and Qiang in relation to the alleged fraudulent transfers of the Shares to Liu and then from Liu to Han and Qiang.  In such letter, HWC expressly referred to the contents of the Emails.

19.On 14 January 2013, HWC supplied the notes of the hearing on 7 December 2012 to MTC.  China System, Han and Qiang claim it was only upon their perusal of such notes of hearing that they became aware that HWC and Zhang had in their possession the Affidavit (and the Emails).

20.On 17 January 2013, MTC wrote to HWC to assert legal professional privilege (“LPP”) over the Affidavit and the Emails, and to demand the return of all copies thereof together with an undertaking not to use information derived therefrom.

21.On the same day, MTC wrote to ECTWC to seek confirmation as to whether the Affidavit and exhibits thereto were served on HWC and if so, under what circumstances was such service effected.

22.On 18 January 2013, MTC wrote to HWC to say they had instructions to commence legal action against HWC and Zhang in respect of the matters raised in their letter dated 17 January 2013.

23.On the same day, HWC replied disputing MTC’s assertions on the basis the Affidavit was voluntarily provided by ECTWC and any privilege had been waived.

24.By a letter dated 18 January 2013 to HWC, CFC stated it was obvious to them that service of the Affidavit on HWC was a mistaken oversight, and they were in the course of confirming with ECTWC that this was indeed the case.  CFC stated that their clients Fine Happy and Li claimed LPP over the email dated 23 November 2012 in the Emails exhibited to the Affidavit.  They also wrote to ECTWC for confirmation and clarification as to the circumstances in which the disclosure of the Affidavit and the Emails was made to HWC.

25.Chan claims this was when he found out that the Summons and the Affidavit had been sent to HWC.  His assistant solicitor who was present at the hearing of the Receivership Summons on 7 December 2012 did not report to him that such documents had been referred to at such hearing.

26.On 19 January 2013, ECTWC wrote to MTC and HWC to explain that their clerk acting on his own accord made the mistake of inadvertently faxing a copy of the Affidavit and exhibits thereto to HWC on 6 December 2012.  ETCWC asked HWC for the return of all copies of such documents together with an undertaking not to use information derived therefrom.

27.On 21 January 2013, SC wrote to MTC stating they had come across the Affidavit and the exhibits thereto in the course of searching the court file, but they stopped reviewing such materials in view of their privileged nature.

28.On the same day, HWC wrote to the court to complain against MTC’s threat of legal proceedings and to seek directions.  HWC expressly referred to the contents of the Emails in such letter.  On the same day, MTC wrote to the court to set out their stance and position.  Again, on the same day, L Chan J directed that HWC should seek counsel’s advice on whether it would be necessary to and, if so, how to deal with the matters raised in their letter.

29.On 22 January 2013, HWC replied to ECTWC to rebut their allegations that the Affidavit including the Emails were sent by mistake to HWC or that such documents were privileged.

30.On the same day, MTC wrote to the court registry to ask for the Affidavit and the exhibits thereto to be sealed and not to allow inspection without leave.

31.On the same day, China System, Han and Qiang commenced the present action (“LPP Action”) against HWC and Zhang to seek inter alia the following reliefs:

(a)   a declaration that the contents of the Affidavit are subject to the protection of LPP;

(b)   an order that HWC and Zhang shall forthwith deliver to China System, Han and Qiang the Affidavit and all copies thereof which HWC and Zhang have taken and/or are in their possession;

(c)   an order that HWC and Zhang shall forthwith deliver to China System, Han and Qiang any note, letter and/or any written record within the possession or power of HWC and Zhang containing any information which has been derived from the Affidavit;

(d)   an order that HWC’s handling solicitor shall within 3 days from the date of the order to be made make an affirmation confirming to the best of his knowledge/belief that no other persons have obtained information about the contents of the Affidavit;

(e)   an order that HWC and Zhang shall give an undertaking to the court and to China System, Han and Qiang that they shall not make any or further use of any of the legally privileged information derived from the Affidavit;

(f)    interim/final injunction and/or other equitable relief as the court thinks fit.

32.On 23 January 2013, China System, Han and Qiang issued an ex parte summons in the LPP Action under section 21L of the High Court Ordinance Cap 4 (“HCO”) and Order 29 rule 1 of the RHC for the reliefs sought in (a) and (d) in the above paragraph, and in (b)-(e) in the above paragraph in respect of HWC.

33.On the same day, L Chan J dismissed the application for want of urgency, but granted liberty for China System, Han and Qiang to issue inter partes summons for the same or similar reliefs against HWC and Zhang.

34.At the hearing of the Discharge Summons on 29 January 2013, upon various undertakings given by China System, Han and Qiang in relation to certain legal proceedings in the PRC, L Chan J ordered inter alia that the Receivership and the Discharge Summonses be adjourned for argument with consequential directions for filing affirmation evidence, and that certain powers of the receivers and managers under his order dated 7 December 2012 be suspended pending the determination of such summonses or further order.  The substantive hearing for argument in respect of such summonses has been fixed to be heard before L Chan J on 20 June 2013.

35.On 30 January 2013, MTC filed and served Notice to Act for Han and Qiang in the Main Action.

36.On 4 March 2013, China System, Han and Qiang issued fresh inter partes summons in the LPP Action again under section 21L of the HCO and Order 29 rule 1 of the RHC for the reliefs in paragraphs 31(a)-(e) above (“Summons”).

37.On 5 March 2013, HWC filed Notice to Act on behalf of Zhang in the LPP Action.  On 6 March 2013, L Chan J granted an order by consent for the parties to file and serve affirmation evidence and for the Summons to be adjourned for argument.

38.In support of the Summons, China System, Han and Qiang rely on three affirmations of their solicitor Ma Sai Yam filed on 23 January, 23 January and 4 March 2013 respectively, Chan’s affidavit dated 22 May 2013 (“Chan Affidavit”), and Han’s affirmation filed on 23 May 2013.  On 2 May 2013, Zhang filed her affirmation in opposition.  HWC state they have no personal or independent interest in the LPP Action and will abide by the decision of the court.

39.The substantive hearing for argument in respect of the Summons came before me on 6 June 2013 (“Hearing”).

II.  Hearing

40.At the Hearing, I granted the following order (“Order”):

(a)   the Summons be adjourned for argument to be heard by L Chan J at 10:00 am on 20 June 2013 at the same time as the hearing of the Discharge Summons in the Main Action (“Adjourned Hearing”);

(b)   written submissions and list of authorities in respect of the Summons lodged for the Hearing do stand for the Adjourned Hearing;

(c)   liberty to the each party to lodge with the court and serve on the other party(ies) supplemental submissions pursuant to practice direction;

(d)   costs be reserved.

41.These are my Reasons for Decision which I have reserved for handing down after the Hearing.

III.  China system’s, Han’s and Qiang’s case

42.It is the case of China System, Han and Qiang that without their knowledge and consent ECTWC mistakenly and negligently served on (and disclosed to) HWC the Affidavit including the Emails, which were/are subject to LPP that belongs to China System, Han and Qiang.  Hence, the Affidavit and the Emails are inadmissible and cannot be used as evidence in court by HWC and Zhang.  But HWC and Zhang have wrongfully used and threatened to continue to use the Affidavit and the Emails.

43.China System, Han and Qiang claim that the Affidavit and the Emails by their nature must not be served on the opposing party.  Affirmations of this type often involve privileged and confidential information concerning a party and his solicitors, and are normally placed in sealed envelops upon filing.  Indeed, leave of the court is required before any inspection by the opposing party.  Therefore it should have been obvious to HWC that the Affidavit and the Emails were sent by ECTWC to them by mistake, which mistake has been confirmed by ECTWC by letter and by Chan by the Chan Affidavit.  In the Chan Affidavit, Chan also claims that his assistant solicitor has failed in her professional duty to assert LPP over the Affidavit and the Emails at the hearing of the Receivership Summons on 7 December 2012, and to object to the use of such documents by HWC and Zhang.  Chan adds that although ECTWC formally acted for China System, Han and Qiang had approached ECTWC and ECTWC had given them preliminary legal advice.

44.China System, Han and Qiang claim they never knew about or consented to the Emails being served on HWC, and they did not give instructions to ECTWC for such purpose.  Han and Qiang claim they did not enquire with ECTWC nor were they apprised of the results of the hearing of the Receivership Summons on 7 December 2012.  They only became aware that HWC had copies of the Affidavit and the Emails on 15 January 2013 when MTC received from HWC the notes of the hearing on 7 December 2012.

45.China System, Han and Qiang further claim that LPP over the Affidavit and the Emails has not been lost or waived by the aforesaid inadvertent or mistaken disclosure to HWC, which mistake should have been obvious to HWC.  Proper professional conduct requires HWC to return the Affidavit and the Emails to ECTWC, but they have failed to do so.  Instead, HWC and Zhang have wrongfully made use of the contents of the Emails at the hearing on 7 December 2012 before L Chan J.  Even so, this does not mean that LPP protection over the Affidavit and the Emails have been lost or waived.  Since HWC and Zhang want to make further use of such documents in the Main Action (ie to support the Receivership Summons, to oppose the Discharge Summons and, according to counsel for HWC and Zhang, Ms Eu SC (and with her Mr Lam), to eventually include the Emails and their contents in Zhang’s pleadings by way of amendment), China System, Han and Qiang claim it is therefore necessary and proper to “turn back the clock” and debar HWC and Zhang from doing so.

IV.  Zhang’s case

46.Zhang claims that the LPP Action and the Summons should be dismissed and/or stayed to be dealt with in the Main Action for the following reasons:

(a)   China System, Han and Qiang have failed to show LPP attaches to the Affidavit and the Emails, the basis of such LPP or such LPP (if any) belongs to them;

(b)   even if there has been LPP, it has been waived and China System, Han and Qiang have failed to show HWC must have known the Affidavit has been sent by mistake such that there are grounds for equitable intervention by the court;

(c)   even if there has been LPP, it has been lost once the Emails or their contents have been read out in court at the hearing on 7 December 2012 with permission by L Chan J and with no objection from the assistant solicitor of ECTWC (who were then still China System’s solicitors) present at the hearing,;

(d)   the LPP Action and the Summons are plainly an abuse of process with the intention of exerting improper pressure on HWC and Zhang and pre-empting the trial judge’s decision as to the admissibility of evidence in the Main Action.

47.In respect of the argument in (d) in the above paragraph, Zhang claims that HWC has repeatedly emphasised in correspondence that the LPP Action constitutes wholly unnecessary satellite litigation, complete waste of costs and abuse of process.  Zhang considers the appropriate forum for determining whether the Affidavit and the Emails are admissible evidence is the judge hearing the Main Action as he will be fully apprised of the issues in the Main Action, especially when he has to decide whether or not there has been collusion amongst the defendants in the Main Action and whether or not Han and Qiang have been bona fide purchasers.

48.Zhang argues that the Summons could and should have been issued in the Main Action by way of a proper inter partes application, and there is no need to join HWC as a party especially when they have confirmed they will abide by the order of the court.  Zhang suggests that the LPP Action has been commenced with the intention to avoid the questions raised by HWC in their correspondence concerning possible collusion amongst the defendants in the Main Action, which matters ought to be taken into account by the court in considering the application by China System, Han and Qiang for equitable reliefs (such as declaratory and injunctive reliefs) under the Summons.  Zhang contends that the court should exercise its discretion against granting the reliefs sought in the Summons. 

V.  Case Management Issue

49.In light of the opposing stance of the parties, it appears (and both Mr Kwok, counsel for China System, Han and Qiang, and Ms Eu SC agree) that the first matter to be considered is whether the Summons should properly be heard before me at the Hearing or before L Chan J on 20 June 2013 together with the Receivership and Discharge Summonses (“Issue”).

50.Whilst Ms Eu SC maintains that the LPP Action is unnecessary and an abuse of process, she is content (and Mr Kwok also agrees) to reserve such consideration and to simply address the Issue as a matter of case management.

51.Mr Kwok submits that I should deal with the Summons substantively because the parties need to resolve the core issue in the LPP Action (ie whether or not the Affidavit and the Emails were/are subject to LPP and whether or not HWC and Zhang were/are entitled to make use of such documents at all, “LPP Issue”) before the Discharge Summons is heard by L Chan J on 20 June 2013.  It is said that the parties will need to know where exactly they stand before they embark upon detailed submissions in respect of the Discharge Summons.  Mr Kwok also argues that China System, Han and Qiang have adopted the correct procedure in raising the LPP Issue by commencing the LPP Action and issuing the Summons separate from the Main Action.

52.Ms Eu SC says otherwise.  She submits that the LPP Issue could have been dealt with in the Main Action had China System, Han and Qiang made proper inter partes application for the judge hearing the Receivership and Discharge Summonses to determine the admissibility of the Affidavit and the Emails as evidence in the Main Action.  Ms Eu SC argues that such approach will result in a final decision on the LPP Issue thereby bringing certainty to the parties and obviate the need to join HWC as a party to the lis between Zhang and China System, Han and Qiang.  After all, HWC have confirmed their willingness to abide by the order of the court, and any injunction order on the LPP Issue in favour of China System, Han and Qiang can simply be served on HWC to bind them against breach of the same.

53.In support of his contentions, Mr Kwok refers to English & American Insurance Co Ltd v Herbert Smith [1988] FSR 232.  In that case, the papers of counsel acting for certain parties in a pending action in the Commercial Court (which were entitled to LPP) were mistakenly sent to the solicitors for the other side.  Those solicitors told their clients, who instructed them to read the papers.  They did so and informed their clients of what they had discovered; they then returned the papers.  By notice of motion, interlocutory relief was sought to restrain the solicitors for the other side and their clients from making use of any information derived from the privileged documents, which would have the effect of preventing the clients of those solicitors from using that information for the purpose of the pending action.  The court, following Ashburton (Lord) v Pape [1913] 2 Ch 469 and Goddard v Nationwide Building Society [1986] 3 ALL ER 264, granted an order limited to overt use of such information.

54.Mr Kwok further submits that since paragraph 6 of the commentary in Chapter 8.03 of the Guide to Professional Conduct Vol 1 issued by The Law Society of Hong Kong expressly refers to English & American Insurance Co Ltd, the procedure adopted in that case by commencing fresh action against both the other side and their solicitors is plainly the correct procedure to resolve the dispute over LPP protection.  In such circumstances, Mr Kwok says the Summons should be heard and determined separate from and before the Discharge Summons.

55.Mr Kwok next refers to Zheng Lie Lie & ors v Prosperfield Ventures Ltd & anor (No 1) [2003] 2 HKC 33, which he says is a local illustration of the correct procedure adopted in English & American Insurance Co Ltd.  In that case, the defendants brought the main actions against the plaintiffs and made discovery of a document which the 1^st plaintiff recognised as his handwritten instructions to his solicitors.  The plaintiffs’ solicitors demanded to know how the defendants’ solicitors managed to obtain the document, and further demanded an undertaking not to use such document in the main actions.  Not satisfied with the reply, the plaintiffs’ solicitors made an ex parte application and obtained an injunction restraining the defendants from using the document and the information therein in the main actions.  The trial of the main actions was scheduled to begin shortly.  By the inter partes summons, the plaintiffs sought to have the injunction continued until trial or further order on the basis that the document in question was subject to LPP.

56.DHCJ Carlson directed a speedy trial of the dispute over LPP before the main actions, and ordered the ex parte injunction restraining use of the subject document to continue in the interim.  He further ordered that if the matter could not be accommodated, then it must be listed together with the main actions, and the trial judge would have to decide the issue himself in such a way as he would consider convenient.  DHCJ Carlson said this might put the 15-day estimate for the trial at risk of overrunning, but that would be unavoidable if a judge could not be found beforehand.

57.In Zheng Lie Lie & ors, there was disagreement as to how the disputed document came into the hands of the defendants such that no safe conclusion on a number of crucial and necessary findings of fact could have been made in the absence of cross-examination on the conflicting affirmation evidence.  It was on such basis that DHCJ Carlson concluded that the issue of admissibility should be adjudicated before the start of the trial.  But in the present context, there is no need to make findings of primary facts for the LPP Issue because there is no apparent dispute as to how the Affidavit and the Emails came into the hands of HWC.  Since there is little dispute over the underlying factual foundation for the LPP Issue, the true bone of contention is over the legal effect of what has happened.  That being the case, it is in my view not absolutely necessary to have a hearing to deal with the LPP Issue separate from the hearing of the Receivership and Discharge Summonses.

58.I note with interest that even in Zheng Lie Lie & ors DHCJ Carlson observed at pp 44-45 that “[a] separate action has been brought by the plaintiffs to prevent [use of the disputed document].  It would have been far simpler for them to have taken out a summons in both main actions to determine the issue, although perhaps this does not matter very much, it being a question of form; the substance remains the same”.  I echo these sentiments in the present context.  As explained in paragraph 50 above, I am not presently concerned with the propriety of commencing the LPP Action and issuing the Summons thereunder, but with the balancing of the case management considerations in deciding which is the most appropriate forum to hear the LPP Issue.

59.Further, I note that in Zhang Lie Lie & ors DHCJ Carlson found a way to achieve finality in respect of the determination of the dispute over LPP protection (ie by ordering a speedy trial), and thereby avoid any difficulty that might have arisen from acting on any interlocutory injunctive relief granted under the inter partes summons.  He felt it would be unsatisfactory to deal with such issue on an interlocutory basis:

“30. It seems to me that there is every reason why this issue of admissibility should be determined before trial. Why should the defendants be able to use a document which in fact may turn out to be privileged upon proper enquiry or vice versa, particularly where the plaintiffs have applied at the earliest opportunity to protect their position? This is nothing like the usual sort of application for an injunction where, for example, a prohibition of some commercial activity is sought. This is a question of the admissibility of the document and I propose to direct matters in such a way that the issue should be determined before the start of the trial of the main action. An issue of this type could well have arisen at any time before or during the trial itself and determined on proper enquiry into the facts alleged to give rise to the claim of privilege. …… The issue demands a proper adjudication. The plaintiffs should not be able to shut the defendants out on the basis of ‘a balance of the risk of doing an injustice’ …… by the process of effectively not having the evidence properly examined and tested. And likewise, the defendants should not have their victory just because at this stage the plaintiffs cannot show that their case is a sure-fire winner on the affirmations.” (my emphasis)

60.The learned judge considered a final determination on the issue of LPP protection was essential for bringing certainty to the parties for the main trial.  Likewise, even though there is little or no factual dispute as to how the Affidavit and Emails came into the hands of HWC, a final determination of the LPP Issue is nevertheless still beneficial for bringing certainty to the parties for their conduct of the Main Action, including the Receivership and Discharge Summonses.

61.Yet Mr Kwok acknowledges that by the Summons as it now stands, China System, Han and Qiang only seek interlocutory declaratory and injunctive orders.  The interlocutory injunctive orders sought include both prohibitory (eg restraining use of the Affidavit and the Emails) and mandatory (eg delivering up copies of the Affidavit and Emails, and providing a confirmatory affidavit) aspects.  Mr Kwok submits these reliefs if granted may have a finality effect despite their interlocutory nature.  Whilst this may arguably be the case with interlocutory mandatory injunctions, question arises as to whether the same can be said for the negative interlocutory injunctive relief.  Further, interlocutory injunctions usually last until trial or further order, which means there is potential risk that China System, Han and Qiang may fail to obtain final reliefs at the trial of the LPP Action.  It will be unsatisfactory if in the meantime further conduct of the Main Action is premised on interlocutory orders that may in due course be jeopardised.

62.It will be preferable for the parties to proceed with the Receivership and Discharge Summonses and/or with the Main Action generally on firm ground in respect of the LPP Issue.  It is therefore far better for L Chan J who is seized of the hearing of the Receivership and Discharge Summonses on 20 June 2013 to render definitive ruling as to the admissibility of the Affidavit and the Emails (which of course turns on the LPP Issue) rather than for me to determine whether the interlocutory reliefs sought under the Summons should be granted or not at the Hearing.  I therefore urge both parties to take a fresh look at the Summons (which has now been adjourned to be heard before L Chan J on 20 June 2013) and to see a way to achieving a final order over the LPP Issue and the admissibility of the Affidavit and the Emails as evidence in the Main Action at the Adjourned Hearing.

63.Mr Kwok next relies on Marcel & ors v Commissioner of Police of the Metropolis & ors [1992] Ch 225.  In that case, the police seized documents of the plaintiffs (who were witnesses in two civil main actions) in the course of a criminal investigation.  The solicitors for the defendant in the main actions issued subpoenas that required the police to produce such documents at the trial.  The police allowed the solicitors for the defendant to inspect and copy of some of those documents before the subpoenas were served.  The trial commenced and the defendant intended to use the documents disclosed by the police.  On the following day, the plaintiffs made an ex parte application to the trial judge for leave to serve short notice of motion.  Leave was granted, and they issued a writ and served notice of motion on the police for an injunction to restrain the use of such documents seized by the police and disclosed to the defendant’s solicitors.  The documents action was heard before the trial judge.

64.Mr Kwok submits that this case supports the procedure adopted by the plaintiff.  However, the factual matrix of Marcel & ors is different from that of the present case.  A separate documents action is understandable in that case because (a) trial had already commenced and (b) the party to be restrained was a subpoenaed witness extraneous to the main actions.  Nevertheless, the question of admissibility of the subject documents as a result of LPP protection was heard and determined by the trial judge.  I do not think this case goes against any suggestion that the LPP Issue should be heard by the judge seized of the main action or proceeding.

65.On the other hand, Ms Eu SC relies on Attorney General v Tin Shui Wai Development Ltd & ors [1989] 1 HKC 360, a case which Mr Kwok has fairly cited in his list of authorities.  In that case, the 1^st defendant in the main action sought damages from the Crown for an alleged breach of terms of an agreement for the reclamation and development of Tim Shui Wai.  In the course of discovery of documents, the Crown disclosed some privileged documents by mistake, and such documents were inspected and copied by the 5^th defendant. The Crown claimed privilege either on the ground that it would be contrary to the public interest to disclose their contents or that they contained legal advice for which professional privilege could be claimed. The solicitors for the Crown sought an undertaking from the 5^th defendant that no use would be made of the copies of the privileged documents. The undertaking was not received, and the Crown commenced separate action seeking an injunction to restrain the defendants from using or disclosing the contents of the privileged documents. Such claim was listed before Penlington J, but Sears J would be hearing an application for discharge of the Chief Secretary’s certificate that was required for asserting public interest privilege in the main action. 

66.It was held on balance that the claim in the documents action should be heard by the same judge who was to deal with the challenge to the Chief Secretary’s certificate:

“…… He will be familiar with the background of the matter and I do not consider that, in the light of the inadvertent disclosure of the papers in the missing file, the challenge to the Chief Secretary’s certificate is totally separate to the claim for professional legal privilege. I think there will be considerable saving in time if both matters are dealt with together. ……” (p 364)

67.Ms Eu SC says that the reasons put forward by defendants for having the two matters heard together in Tin Shui Wai Development Ltd & ors (see p 363) are equally applicable to the present case. She submits that not only was L Chan J the judge who presided at the hearing on 7 December 2012 in the Main Action during which the contents of the Emails were expressly referred to, he is also the judge to hear the Receivership and Discharge Summonses on 20 June 2013.

68.I note that L Chan J has also made some observations on the Affidavit at the hearing on 7 December 2012.  It can fairly be said that he has a “feel of it”, and if I were to hear the Summons I may well come to a different decision to the learned judge which should be avoided.  This ruling on the LPP Issue is important and, for reasons discussed above, should be made in the context of (if not exactly within) the Main Action.

69.Mr Kwok submits that Tin Shui Wai Development Ltd & ors is unique in that privilege is claimed for some of the subject documents only under public interest, some only for professional privilege and a few come within both categories.  I am persuaded that whilst this may have impact on the ultimate question as to whether privilege can properly be asserted or whether the Chief Secretary’s certificate should be discharged, this is not a significant matter for the purpose of determining the appropriate forum.

70.Mr Kwok next relies on the Crown’s arguments in Tin Shui Wai Development Ltd & ors which he says are applicable to the present case.  In that case, the Crown suggested that the application for injunction restraining the defendants from using or disclosing the contents of the privileged documents was a separate issue from the main claim and should be separately decided by a different judge.  The Crown conceded that the defendants would be able to raise the “dirty hands” argument, but claimed that once privilege over the documents was established and the 5^th defendant knew it was an obvious mistake for the Crown to let them see the documents, the court had no discretion but to grant equitable relief.

71.However, in the present case, Zhang claims that the contents of the Emails will show that Li was acting in concert with Han and Qiang to fraudulently deprive Zhang of the Shares (since Han and Qiang purportedly as bona fide purchasers should not be collaborating with Liu and Li), which lends weight to her contention that the transfers of the Shares from her to Liu and from Liu to Han and Qiang as handled by ACYTC, Fine Happy and Li were fraudulent.  Ms Eu SC submits that even if the Affidavit and the Emails were/are privileged, Zhang should not be restrained from using them in the Main Action.

72.On this, Ms Eu SC refers to ISTIL Group Inc & anor v Zahoor & anor [2003] 2 All ER 252 which held that after a privileged document has been seen by the opposing party, the court may intervene by way of injunction if the circumstances warrant such intervention on equitable grounds.  If the party in whose hands the document has come (or his solicitor) either has procured inspection of the document by fraud or on inspection realised that he has been permitted to see the document only by reason of an obvious mistake, the court has power to intervene by the grant of an injunction.  In such cases the court should ordinarily intervene unless the case is one where the injunction can properly be refused on the general grounds affecting the grant of a discretionary remedy.

73.In that case, the defendants argued that privilege did not protect documents which had come into existence in furtherance of fraudulent conduct and that steps taken by or on behalf of the claimants in order to place a false case before the court could not be the proper subject matter of a claim to privilege.  They contended that, even if the documents were confidential, the public interest required their disclosure because they indicated “iniquity”.  It was held that the court should balance the public interest in supporting legal professional privilege on the one hand and the public administration of justice on the other hand.

74.It was further held that on any view of that case, there had been forgery and a deliberate decision not to adduce evidence in a context which made the evidence which was put forward misleading.  Moreover, it was likely that the forgery was produced for the purpose of the litigation.  In the circumstances, the combination of the forgery and the misleading evidence made it a case where the equitable jurisdiction to restrain breach of confidence gave way to the public interest in the proper administration of justice, and the injunction was refused.

75.Ms Eu SC submits that it is Zhang’s case that the Emails reveal Liu and Li were acting in collusion with Han and Qiang, and the reliance by China System, Han and Qiang of the common interest legal privilege of co-defendants in the same action over the Email between Wu and Li and copied to Liu only adds to Zhang’s concern.  In my view, given such argument which will be made on behalf of Zhang on the LPP Issue, it will be useful to have the matter heard by L Chan J who is seized of the Receivership and Discharge Summonses since he will have an overall feel of the evidence regarding the circumstances of the transfers of the Shares and the position of Han and Qiang as transferees.  He will be able to place such argument in context which I cannot do by adopting a blinkered approach to the Summons without the benefit of the contextual background of the Main Action.

76.Mr Kwok submits there were already many complex issues involved in respect of the Discharge Summons which is listed for hearing for only one day on 20 June 2013.  Listing the Summons for hearing on a separate hearing day will avoid over-crowding the hearing on 20 June 2013 and/or resulting in part-heard hearing.

77.I am not persuaded that the LPP Issue will hog the hearing on 20 June 2012.  L Chan J is familiar with what has happened at the hearing on 7 December 2012, and he has the benefit of appreciating the contextual background relevant to the Receivership and Discharge Summonses.  If there are arguments on the LPP Issue that are interlinked with the main proceedings, then such arguments need not be repeated when the parties deal with the Receivership and Discharge Summonses.  In any event, it will not be a long wait for the Adjourned Hearing on 20 June 2013.

78.Balancing the above considerations, I find it is more appropriate for the LPP Issue to be heard by L Chan J at the hearing on 20 June 2013.  In coming to this view, I am mindful that different courts may adopt different approaches for different cases.  In the exercise of case management discretion in the context of the LPP and Main Actions, the balancing exercise leads me to the above conclusion.  In coming to such view, I make no definitive determination as to the propriety of the choice made by China System, Han and Qiang in commencing the LPP Action and issuing the Summons, which matters remain disputed and may perhaps be determined at the hearing on 20 June 2013 if the learned judge sees fit.

79.Ms Eu SC seeks costs of the Hearing on the basis that costs follows event. However, Mr Kwok argues that costs should be in the cause of the Summons or at least be reserved on the basis that my decision is one of case management upon a balancing exercise. Given that I have reserved the issue as to the propriety of the procedure adopted by China System, Han and Qiang, and further given that I have adjourned the Summons to be heard by L Chan J inter alia on the basis of the need to consider the wider contextual background, it is only appropriate that the costs of the Hearing be reserved for consideration and, where appropriate, determination at the Adjourned Hearing.

VI.  Summons

80.The Summons is now adjourned to be heard on 20 June 2013 before L Chan J.  However, the reliefs sought in the Summons raise a number of questions which bear consideration.

81.First, I have raised the concern as to how best to achieve finality on the LPP Issue in order to bring certainty to the parties in their conduct of the Main Action (see paragraphs 59-62 above).

82.Secondly, Mr Kwok accepts that by the Summons China System, Han and Qiang seek interlocutory and not final declaratory and injunctive orders.  Question immediately arises as to whether the court has any jurisdiction to grant interim or interlocutory declarations.  This issue will have to be addressed at the Adjourned Hearing.

83.In Gab Gesellschaft Fur Auslandbeteiligungen AG v Italorient Enterprise Limited & ors HCMP 2752/1987 (unreported, 3 March 1988), Jones J granted inter alia an ex parte order declaring that the resolution to wind up the company was null and void together with consequential orders including taking any step to present a petition to wind up the company under the Companies Ordinance Cap 32.  The learned judge said as follows:

“35. In respect of the first ground, Mr Smith cited in support of his argument International General Electric Company of New York Ltd, & Another v Commissioners of Customs and Excise [1962] 1 Ch 784 where it was held that an order declaring the rights of parties must in its nature be a final order and (subject to appeal) be res judicata between the parties. In his judgment at page 789 and 780 Upjohn, L J had this to say:-

“…… It is, however, perfectly plain that the court in proceedings between subjects could not grant some form of interlocutory relief in the sense of some interim declaration. …… But, as Romer J. pointed out, an order declaring the rights of the parties must in its nature be a final order after a hearing when the court is in a position to declare what the rights of the parties are, and such an order must necessarily then be res judicata and bind the parties forever, subject only, of course, to a right of appeal. It may be – and this is the only reservation I make upon the observations of Romer J. – that in certain cases it is proper on a motion or on a summons under Order 25, r 2, to make some declaration of rights upon some interlocutory proceeding. That, however, is infrequent and should only sparingly be exercised, but the point is that if it is determined on some interlocutory proceeding, it finally determines and declares the rights of the parties: it is not open to further review except on appeal.”

36.   I am quite satisfied that this submission is correct and indeed Mr Allman-Brown for the plaintiff conceded that the order in these terms was a mistake although he did not concede that it amounted to a declaration. In my judgment, however, I am of the opinion that it does amount to a declaration and that the order as drawn should not have been made. The intention of the order was to preserve the status quo not to determine finally the rights of the parties. In fact the second part of the order adequately protects the rights of the plaintiff and reflects the true intention of the order. The first part was drawn in error and I overlooked the mistake when I approved the order.”

84.Thirdly, the Summons seeks an order that HWC and Zhang shall give an undertaking to the court and to China System, Han and Qiang that they shall not make any or further use of any of the legally privileged information derived from the Affidavit.  It is doubtful whether the HWC and Zhang can be compelled by court order to give an undertaking.  Indeed, L Chan J by his paper directions to the parties on 6 March 2013 in the LPP Action stated as follows:

“2. The court notes that it cannot order an undertaking to be given by the defendants as prayed for in para 5 of the [Summons] but can grant an injunction in terms of the undertaking sought.”

85.Fourthly, Ms Eu SC submits that practically speaking it is not possible for HWC’s handling solicitor to comply with any order (if granted) to make an affirmation confirming to the best of his knowledge/belief that no other persons have obtained information about the contents of the Affidavit because there were persons sitting in the public gallery of the court at the hearing of the Receivership Summons on 7 December 2012 who were unknown to him but who would have heard the express reference to the contents of the Affidavit and the Emails in the course of Mr Lam’s submissions at such hearing.  Mr Kwok indicates that China System, Han and Qiang will give further consideration to the scope and ambit of this relief sought in the Summons.

86.Notwithstanding the above matters and my invitation to Mr Kwok to consider whether any amendment of the Summons will be required given the imminence of the Adjourned Hearing, Mr Kwok declines to make any application to amend the Summons at the Hearing.  In the circumstances, both parties should be prepared to address L Chan J on the above matters at the Adjourned Hearing.

VII.  Chan Affidavit

87.I note with concern that the Chan Affidavit dated 22 May 2013 has not been filed to date.  However, as China System, Han and Qiang intend to use such affidavit for the purpose of the Summons at Adjourned Hearing (indeed they have intended to use the same for the Hearing), such affidavit should be filed.  Even though such affidavit refers to the Affidavit and the Emails, these matters are already known as between China System, Han and Qiang on the one hand and HWC and Zhang on the other hand, and they are indeed the very subject of the Summons and the LPP Issue.  In any event, such affidavit cannot be searched by non-parties without leave of the court (see Order 63 rule 4(1)(c) of the RHC).  I therefore direct that China System, Han and Qiang shall file the Chan Affidavit on or before 3:30 pm on 19 June 2013.

Mr Dennis Kwok, instructed by Ma Tang & Co, for the 1^st, 2^nd and 3^rd plaintiffs.

Ms Audrey Eu SC and Mr Douglas Lam, instructed by Henry Wai & Co, for the 1^st and 2^nd defendants.