Taihan Electric Wire Co Ltd and Another v. Lee Chi Yuen Arctic and Others

HCA 454/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 454 OF 2013

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D E C I S I O N

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1.This is an application by the 1^st, and 4^th to 7^th defendants (collectively "the defendants") for an order that the plaintiffs do produce the settlement agreement made between the plaintiffs and a non-party, Mr Lau Siu Ming (“Mr Lau”).

The relevant court rules

2.This application is taken out under Order 24, rule 10 of the Rules of the High Court, which provides that any party to a cause or matter shall be entitled at any time to serve a notice on any other party in whose affidavits reference is made to any document, requiring him to produce that document for the inspection of the party giving the notice and to permit him to take copies.

3.O 24 r 11(1) provides that if the respondent to the notice under rule 10(1) objects to production, the court may, subject to rule 13(1) and on the application of the party entitled to inspection, make an order for production of the documents in question for inspection, and in such manner, as it thinks fit.

4.No order for the production of any documents for inspection or to the Court or for the supply of a copy of any document shall be made unless the Court is of opinion that the order is necessary either for disposing fairly of the cause or matter or for saving costs: rule 13(1).

5.There are two separate stages to be considered. 

“First, the party who has referred to the document in a pleading or affidavit bears the burden of showing good cause why an order for production should not be made. As a matter of practicality, at that stage, the fact of reference to a document in a pleading or affidavit will make it difficult for the referring party to contend that the document does not exist and it may also make it difficult for him to contend that it is not relevant. However, that is not the end of the inquiry as there is not then a presumptive rule in favour of an order for production and the referring party may be able to show, for example, that the document is privileged from production. In any event, under O.24 r.13 there remains, secondly, and independent of the first stage, a burden on the applicant for an order for production to show the court that the order is necessary either for disposing fairly of the cause or matter or for saving costs.” Moulin Global Eyecare Holdings Ltd (in liquidation) v Olivia Lee Sin Mei, HCMP 2192/2012, 8 May 2013, at para 35, per Fok JA.

6.A party cannot use or rely upon the probative value of a document, yet deny the other party of the same forensic advantage: Zida Technologies v Tiga Technologies [2001] 3 HKLRD 698, 716E, per Deputy Judge McCoy SC.

7.The respondent may rely on privilege to refuse production.  However, if he has deployed the contents of a confidential document, any privilege is waived: Matthews and Malek, Disclosure (4^th ed), paras 16.21 and 16.22:

“The general rule is that:

‘Where a person is deploying in court material which would otherwise be privileged, the opposite party and the court must have the opportunity of satisfying themselves that what the party has chosen to release from privilege represents the whole of the material relevant to the issue in question. To allow an individual item to be plucked out of context would be to risk injustice through its real weight or meaning being misunderstood.’

The key word is “deploying”. A mere reference to a privileged document in an affidavit does not of itself amount to a waiver of privilege and this is so even if the document referred to is being relied on for some purpose, for reliance in itself is not the test. Instead, the test is whether the contents of the document are being relied on, rather than its effect.”

See also Goldlion Properties Ltd v Regent National Enterprises Ltd [2006] 1 HKLRD 793.

8.The court even has power to order disclosure of a settlement agreement involving the plaintiff and an ex-defendant.  Relevance is not sufficient but the guiding principle is one of justice as regards the trial.  If without the material the applicants have a reasonable apprehension that they might not have a fair trial that should outweigh any questions of confidentiality. The confidentiality could be preserved by appropriate means but ultimately if that was not effective then the disclosure must nevertheless be ordered: Cadogan Petroleum Plc v Mark Tolley [2009] EWHC 3291.

9.Where the court is minded to make an order for production, it may impose conditions.  For example, it may afford the other party to the settlement agreement an opportunity to make representations: Akai Holdings Ltd v Ernst & Young, HCCL 29/2004, 17 July 2009, Stone J, para 81.

10.The court may limit the production to only such parts of the settlement agreement as are necessary for the applicants to be able to conduct their defences fairly at the trial.  It may restrict disclosure only to the court and certain specified persons within the applicant’s team.  It may require an undertaking to be given by any person inspecting the document that he will not disclose the information to any other person.  See Cadogan Petroleum Plc v Mark Tolley [2010] EWHC 1107, paras 6 and 7; Akai Holdings, at para 81.

The background

11.The facts have been set out in my decision dated 15 April 2013.  So far as relevant, they are set out below.  The 1^st plaintiff is a Korean manufacturer of copper rods and 2^nd plaintiff (TGH) is its wholly owned Hong Kong subsidiary which managed the sales business of the 1^st plaintiff in Hong Kong and Southern China.  Between 2008 and 2011 a fraud was perpetrated by Mr Lau, the 1^st defendant (“Mr Lee”), 3^rd defendant (“Yuanzhi”) and 4^th defendant (“Winful”) on the plaintiffs, resulting in loss to the plaintiffs of about US$36m.  The 2^nd to 10^th defendants were said to be persons or entities holding properties acquired with proceeds of sale belonging to the plaintiffs.

12.Yuanzhi and Winful acted as sales agents for the plaintiffs.  Having received the proceeds of sale (which allegedly belonged to the plaintiffs), Mr Lau and Mr Lee diverted part of the money to their own money making venture and shared the profits.  The relationship between Mr Lau and Mr Lee fell apart towards the end of 2010.  By October 2011 the fraud was exposed.

13.In September 2011, the plaintiffs’ representatives came to Hong Kong to discuss with Mr Lau their concerns over the proceeds of sale but Mr Lau became uncontactable.  Relying on Mr Lee’s version of fraud, the 2^nd plaintiff instituted HCA 1687 of 2011 (“the Existing Proceedings”) against Mr Lau and others. 

14.Meanwhile, Mr Lau was prosecuted.  After his acquittal in 2012, Mr Lau entered into the subject settlement agreement whereby he admitted liability, agreed to entry of judgment against him in the Existing Proceedings, and provided assistance to the plaintiffs to prosecute the present action, which effectively pointed to Mr Lee as the chief fraudster.  An application has been taken out for a Mareva injunction against Mr Lau, amongst others, which was heard on 4 September 2013 but judgment is pending.

15.The affirmations that gave rise to this application were filed by the plaintiffs in support of that application for a Mareva injunction.  The parts of the affirmations material to this application were as follows:

(i)   Paragraph 5 of the affirmation of Mr Philip Loukis Georgiou sworn on 13 March 2013 and filed on 7^th May 2013 which stated:

“A privileged and confidential settlement agreement was reached between TGH and Mr Lau on 22 January 2013 …” (“the 1^st passage”)

(ii)   Paragraph 28 of the affirmation of Mr Oh Dong Jin sworn and filed on 9 April 2013, which stated:

“In January 2013 Mr Lau agreed to judgment being entered against him in the Existing Proceedings and TGH agreed not to commence enforcement proceedings on condition that Mr Lau provides full assistance to the Plaintiffs … If Mr Lau breaches the terms of our settlement, our enforcement proceedings will be of little benefit to TGH ...” (“the 2^nd passage”)

(iii)   Paragraph 3 of the affidavit of Mr Lau sworn and filed on 9 April 2013 which stated:

“… A settlement has been reached between myself and the 2^nd Plaintiff in the Existing Proceedings pursuant to which I have agreed to a judgment being entered against me for loss and damage suffered by TGH.” (“the 3^rd passage”)

16.The defendants sought production of the settlement agreement claiming that privilege had been waived; that the plaintiffs had relied on the settlement agreement to lay their claim against the defendants.  The defendants submit that it was necessary for fairly disposing of the action that the basis of Mr Lau’s provision of evidence was provided.  The settlement agreement was also highly relevant to Mr Lau’s credibility and his motive in assisting the plaintiffs in this action.

17.The plaintiffs oppose the application on the following grounds:

A.      That there has been no deployment of the contents of the settlement agreement;

B.      That this was a last minute application for production;

C.      That the settlement agreement was not necessary for the fair disposal of the Mareva injunction application;

D.      That production was not necessary to obtain a fair disposal of the action at trial.

18.The 3^rd defendant’s stance is neutral.

A.  No deployment of the contents of the settlement agreement

19.Mr Hughes, counsel for the plaintiffs, submitted that the plaintiffs were not relying on the contents of the settlement agreement at all, but have merely referred to its existence.  I agree with respect to the 1^st passage.  However, the 2^nd and 3^rd passages, clearly made reference to the contents of the agreement and the parties’ agreement not to enforce judgment subject to a condition. 

20.Further, it must not be forgotten that at the ex parte stage, the plaintiffs have handed up a copy of the settlement agreement to Anthony Chan J.  

21.Clearly, the plaintiffs have deployed the contents of the settlement agreement.  They have even referred to the without prejudice negotiations between them and Mr Lau: see paragraphs 25 to 29 of Mr Oh’s affidavit. The purpose was clear.  As admitted by the plaintiffs in Mr Oh’s affidavit, although the plaintiffs had suspicions about Mr Lee’s possible involvement in the fraud, without Mr Lau’s evidence, there was insufficient evidence at that time to sue Mr Lee as a defendant.  The plaintiffs wanted to impress upon the court the reason why Mr Lau (a defendant in the Existing Proceedings and co-conspirator of Mr Lee) turned round to give evidence on behalf of the plaintiffs and that Mr Lau ought to be believed.

22.The first ground of objection fails.

B.  Last minute application for production

23.This application was taken out on 26 August 2013, 9 days before the hearing of the Mareva injunction on 4 September 2013. That was despite the fact that the 3 relevant affidavits have been filed and served in April and May this year.

24.A late application of this sort would not meet with approval of the court. It was an attack on the court's diary. It diverted the attention of counsel from preparation for the main hearing of the Mareva injunction. No explanation has been provided by the defendants for their late application.  Partly on the ground of lateness, I have on the day of hearing declined to order production of the settlement agreement insofar as it concerned the hearing of the Mareva injunction.   However, I have reserved my ruling on whether or not production should be ordered for the purpose of the further conduct of this action.

25.This ground in opposition is partly made out.

C.  Settlement agreement not necessary for the fair disposal of the Mareva injunction application

26.Mr Lau's credibility has always been in doubt since taking out of the Mareva injunction application. There was no reason why the defendants had to defer making this application until shortly before hearing of the injunction. In any case, the court will not be engaged in findings of credibility of a deponent in an injunction application save in the clearest cases. The court is rather more concerned with whether or not there is a serious issue to be tried and dissipation of assets.  In the course of its consideration, the court will certainly consider why a party changed its case and whether its deponent’s version can be relied on.

27.The defendants have been able to prepare their affirmations in opposition to the Mareva injunction application without the need to have sight of the settlement agreement. The sheer lateness of this application was sufficient to demonstrate that the settlement agreement was not necessary for the fair disposal of the Mareva injunction application.

28.This ground in opposition has been made out.

D.  Production not necessary to obtain a fair disposal of the action at trial

29.Although this application was made in the context of an interlocutory injunction, the court is not barred from considering whether the settlement agreement is necessary for the fair disposal of the action under Order 24, rule 13: Moulin Eyecare, at paras 68-69, per Fok JA.

30.The plaintiffs have not contended that the settlement agreement was not relevant to the action.  For my part, I am of the view that it is relevant to the credibility of Mr Lau on which (at least as presently appears) the plaintiffs’ case rests heavily.  It may also be relevant in other aspects such as contribution of Lau in terms of liability and damages.  It will be necessary for the fair conduct of the defence.

31.This ground in opposition fails.

Conditions for disclosure

32.The settlement agreement ought to be produced.  However, the pleadings have not yet been closed and exchange of lists of documents has not even begun. It is premature at this stage to order inspection of the settlement agreement.  It will not be fair to the plaintiffs to have them produce a confidential document if this action will not move beyond the Mareva injunction.

33.I therefore make an order that the settlement agreement is to be produced only after exchange of lists of documents when the time for inspection comes.  Before inspection, Mr Lau should be given an opportunity of making representations in support of or in opposition to production and the terms to be imposed for disclosure.  The parties are at liberty to work out the terms that preserve confidentiality.

Conclusion and costs

34.I find that the settlement agreement is relevant and necessary for the fair disposal of the action but not the Mareva injunction.  The plaintiffs have deployed the contents of the settlement agreement and they ought to produce it at the time of inspection of documents.  Mr Lau should be given an opportunity to make representation before production.  The parties are at liberty to apply with regards to the terms of the production.

35.I make an order nisi that the 1^st, 3^rd, 4^th to 7^th defendants’ costs of this summons should be borne by the plaintiffs.

36.I make an order nisi that there shall be summary assessment of costs on 8 November 2013 at 4:30 pm on the papers without attendance.  The defendants shall file and serve their statement of costs by 22 October 2013.  The plaintiffs shall file and serve their grounds in opposition by 6 November 2013.

37.I thank counsel and Mr Leung for their assistance.

Mr Sebastian Hughes, instructed by Jones Day, for the 2^nd plaintiff

Mr Richard Zimmern, instructed by Smyth & Co, for the 1^st, 4^th‑7^th defendants

Mr William Leung, instructed by Eversheds, for the 3^rd defendant