K & L GATES v. NAVIN KUMAR AGGARWAL AND OTHERS

HCA 1061/2011 & HCA 349/2012
(Consolidated)
[2019] HKCFI 702

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1061 OF 2011

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 349 OF 2011

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(Consolidated by the order of
Deputy High Court Judge B Chu dated 10 July 2013)

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DECISION

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1.   These are two discovery applications issued in October 2015 against the various Defendants.

2.   There have been a series of discovery applications in this case.  The previous applications were taken out by the various Defendants against the Plaintiff, and these two are the ones made by the Plaintiff.

3.   I have handed down a detailed Decision on the previous applications on 27 November 2017 (“the Previous Decision”).  For the purpose of this Decision, I will adopt the same abbreviations and monoculture that I have used in the Previous Decision.

4.   The background of this case has been set out in §§2 to 13 of the Previous Decision, and I do not want to repeat the same here.

THE RELEVANT LEGAL PRINCIPLES

5.  I have also summarised the relevant legal principles on discovery application in §§15 to 24 of the Previous Decision.  I will adopt the same principles here.

6. Since most of the requests in the present applications relate to a class of documents, it is also well established that the class for discovery should not be defined or described too widely, and should not be defined so as to include documents which are not relevant.[1] Further, the class of documents must be classified by their nature, and cannot be described simply as documents going to a particular issue.[2]

7.  On the question of relevance, the following legal principles are also applicable for the purpose of the present applications:

(i)   Although relevance will primarily be determined by reference to pleadings, relevance of an issue cannot be dictated by a party unilaterally simply by importing it in the pleadings.[3]

(ii)   Thus, discovery is not required of documents which relate to irrelevant allegations in pleadings which even if substantiated cannot affect the result in the action.[4]

8.  After the hearing, I am given to understand that the relevant parties have agreed for the dismissal of the claim against the Melco Defendants.  The relevant parties have also confirmed that they do not require the court to give the decision on the discovery application vis-à-vis K&L Gates and the Melco Defendants.  Despite that, I agree with K&L Gates that the court should take into account the evidence filed in the applications involving the Melco Defendants in considering the other discovery applications against the Wynn and Venetian Defendants.

THE DOCUMENTS REQUESTED IN THE PRESENT APPLICATIONS

9.  The documents sought to be disclosed by the Wynn and Venetian Defendants are:

(i)   Documents pertaining to the Defendants’ business and/or the casino entities related to the Defendants and relationship between these entitles (“the Intra-Group Relationship Documents”)[5].

(ii)   Communications and documents, whether internally, with associated companies in the same group or other third parties, in relation to and/or arising out of the gambling activities of Aggarwal, including communications and documents pertaining to approval processes, policies, regulations, rules and applications and/or bank documents of the Defendants in relation to the remittances of money to and from the Defendants and/or casino entities related to the Defendants (“the Gambling Activities Documents”)[6].

(iii)   Communications and documents relating to regulatory/statutory compliance, anti-money laundering compliance, policies and procedures on the part of each of the Defendants and their related entitles the subject of this action (“the Compliance Documents”)[7].

10.  K&L Gates also requests the Wynn and Venetian Defendants to file a further and better list of documents (“the Further List”).

11.  Apart from the aforesaid, additional request is made against the Wynn Defendants for the discovery of the credit agreement dated 10 January 2010 referred to in certain Answers to Request for Further and Better Particulars[8]. This has been disclosed.  I assume that, because of the dismissal of the claim against the Melco Defendants, K&L Gates is not pressing for the document referred to in §1 of Schedule 2 of the summons against the Melco Defendants.

12.  K&L Gates has identified 5 broad issues as to why the requested documents are relevant to the determination of the claim:

(i)   Knowledge issue (“Knowledge Issue”): Did the Casino Defendants actually know, or ought they have known, that the monies Aggarwal paid to the Casino Defendants were not Aggarwal’s own money?

(ii)   Authority issue (“Authority Issue”): What was the relationship between the different defendants within the group?  On whose authority and on what basis were the moneys transferred between the different defendants within the group to allow Aggarwal to use these monies to gamble at the casino and/or to apply them to “settle” Aggarwal’s indebtedness to the casino arising from the gambling activities?

(iii)   Consideration issue (“Consideration Issue”): Did the Casino Defendants indeed provide valuable consideration in exchange for the monies they received?  Insofar as they allegedly provided credit to Aggarwal (which was not all the time), how, when, why and how much credit was provided?  How, when and how much of the misappropriated monies were applied to settle the credit allegedly extended, and by whom?

(iv)   Jurisdiction issue (“Jurisdiction Issue”): For the 10^th Defendant (“D10”) and the 11^th Defendant (“D11”) who deny that they were subject to the supervision of the Gaming Inspection and Coordination Bureau of Macau (Direcção de Inspecção e Coordenação de Jogos)(“DICJ”) at all, what was their relationship with their “associates”, i.e. the 14^th Defendant (“D14”) and the 9^th Defendant (“D9”)?  Did their dealing with the latter make them agents of the concessionaires or sub-concessionaires, such that they were likewise subject to reporting duties?  For the Casino Defendants who all deny they were obligated to make reports (“the JFIU Reports”) to the Joint Financial Intelligent Unit in Hong Kong (“JFIU”), whether or not they made such reports and why, or if they did not, why not.

(v)   Compliance issue (“Compliance Issue”): Regarding D14 and D9, who accept that they were licensed by DICJ but make no admission or deny their obligations to file any report, were they obligated to file any report with the DICJ or the Financial Intelligence Office of Macau (Gabinete de Informação Financeira)(“GIF”), and if so, what reports were filed?  Did they breach their reporting obligations?  What documents were generated leading to the submission of reports to DICJ?  In the case of the Casino Defendants incorporated in Hong Kong and/or had bank accounts in Hong Kong where the misappropriated monies were remitted (D10 and D11), did they breach their obligations to file reports to the JFIU?  What documents were generated internally leading to the submissions of reports to JFIU?  D10 has disclosed JFIU reports, but D11 have not.

13.  With these possible issues in mind, I then deal with the specific requests made by K&L Gates.

THE INTRA-GROUP RELATIONSHIP DOCUMENTS

14.  There is no dispute that the Wynn and Venetian Defendants received various remittances or transfers from K&L Gates (“the Transfers”): 3 transfers in the respective sums of $8 million, $3.6 million and $5 million in the case of the Wynn Defendants and the total sum of $36.4 million in the case of the Venetian Defendants.  These sums were either withdrawn by Aggarwal in gaming chip for gambling or were used to repay credits previously advanced by the casinos to Aggarwal.

15.  K&L Gates seeks to recover these sums of money from the Wynn and Venetian Defendants.  The basis of the claim is summarised in §10 of the Previous Decision.

16.  According to K&L Gates, it needs to obtain the Intra-Group Relationship Documents in order to ascertain the exact relationships between the various companies within the Wynn’s group and the Venetian’s group.  It is necessary because of the nature of the defence pleaded by these Defendants.

17.  According to Mr Coleman, SC, counsel for K&L Gates, the Intra-Group Relationship Documents would be relevant to all the 5 Issues.

18.  First, I must point out that the request is far too widely formulated to be a proper “class”.  Many documents covered by this class are plainly irrelevant. Documents concerning, say, the procurement of playing cards or the employment of croupiers would fall under this class, but can have no possible relevance to the issues in the case.  Further, the request would basically include every document relevant to Casino Defendants’ businesses, e.g. balance sheets, management accounts, tax returns, promotional materials, customer and hotel guest information, membership information, food and beverage operations.  It is clear that these documents cannot all be relevant.  Indeed the vast majority are plainly irrelevant.

19.  Mr Coleman cannot defend these criticisms.  In the course of his submission, he submits a revised schedule (“the Revised Schedule”) which does not contain any request for “documents pertaining to the Defendants’ business and/or the casino entities related to the Defendants and the relationship between these entitles”.  The only thing that resembles the earlier general request for Intra-Group Relationship Documents is Item A of the Revised Schedule which reads as follows:

“Documents which show:

(1)the authorization given by … … D9 to D11 and D14 to D10 to receive or pay money or act for and on behalf of the latter (or vice versa) in respect of the remittances caused to be made by/to Aggarwal to/from each of them separately; and

(2)the scope or type of services provided by … …  D11 to D9 (or casinos operated by D9), and D10 to D14 (or casinos operated by D14) in respect of the remittances caused to be made by/to Aggarwal to/from each of them respectively.”

20.  This is no application to amend the discovery summonses limiting the requests to the ones stated in the Revised Schedule.

21.  In the Previous Decision, I have applied the blue pencil test to revise some of the wordings of the original requests so as to narrow down the scope of the discovery.  Mr Coleman argues that the new formulated request is only a sub-set of the original request and so the court should likewise apply the blue pencil test to allow the revised request.

22.  In my judgment, it would be too far-fetch to ask the court to apply the same test to reformulate a totally different class of documents in respect of the Intra-Group Relationship Documents.  This is clearly a classic case of a sweeping class drafted without regard to whether all documents in the class would be relevant; or worse, an attempt to fish for irrelevant documents.  It is incumbent on an applicant for discovery to precisely formulate his request, and not cast the net widely and then say, at least some relevant documents will be caught.  Such kind of exercise should not be allowed.[9]

23.  I appreciate that, taking into account the unusual nature of the claim, some allowance should be given to K&L Gates for the difficulty in formulating a class with great precision.  However, the reformulated class in the Revised Schedule is totally different from the unnecessary wide formulation in the original request, and there is simply no justification for K&L Gates to have drafted the original class in such way.  For this reason alone, I refuse to apply the blue pencil test and disallow the general request for Intra-Group Relationship Documents.

24.  Even if the class was first formulated in the revised form, the result would be the same.

25.  As I understand it, K&L Gates is seeking discovery of two kinds of documents in the revised request: (i) documents relating to authorization in respect of remittances made by Aggarwal; and (ii) documents relating to the type of services provided by one defendant to another defendant within the same group regarding the remittances made by Aggarwal.

26.  First, I do not see the relevance of the documents relating to remittances other than the Transfers which are the subject matters of the claim.

27.  For the documents relating to the authorization in respect of the Transfers, this particular request will be dealt with in some length in the latter part of this Decision on the request relating to Aggarwal’s gambling activities.  The two requests overlap to a great extent.  I will adopt the same reasoning there in rejecting such request.

28.  For the documents relating to the type of services provided, I cannot see the relevance of further discovery.  As I see it, the relationships between the different defendants in the same group of casino are now clear from the pleadings and the documents so far disclosed by the parties.  Being casinos operated in Macau, the Wynn and Venetian Defendants have also given detailed accounts as to the roles of the different defendants in the operations.  Any further investigation in this area is simply a fishing expedition which is a waste of time.

29.  Further, though the relationships between the different defendants are mentioned in the pleadings, it is quite immaterial to the overall scheme of the litigation.  As to the Jurisdiction Issue and whether a particular defendant was subject to the Macanese regulatory regime, these are very much issues of Macanese law and the parties can make submissions at the trial based on the relevant statutory provisions.  I cannot see how these documents would affect the real issues that have to be determined at the trial.  This case has already gone into an advanced stage and witness statements have been exchanged, and so the court should focus on the main issues and not be distracted by unnecessary discovery which would only prolong the proceedings.  Hence, even if a case of marginal relevance can be made out, I will still exercise the discretion against such discovery.

THE GAMBLING ACTIVITIES DOCUMENTS

30.  This is serious confusion in the formulation of the requests relating to the Gambling Activities Documents.  The wordings used in the two summonses are different.  To summarize the requests under Items B, C and E of Schedule 1 of the summons against the Wynn Defendants and Items B & D of the Schedule of the summons against the Venetian Defendants, the requests cover basically documents relating to the gambling activities of Aggarwal (“the Gambling Activities Request”).  They also specifically cover documents “pertaining to approval processes, policies, regulations, rules and application and/or bank documents of each of the Defendants in relation to the remittances of money the subject of this Action” (“the Remittance Process Request”).  In the summons against the Venetian Defendants, the latter is formulated as a sub-set of the former.  In the summons against the Wynn Defendants, it is formulated as two separate requests.

31.  Both requests cover documents and communications whether internally, with other associated companies in the same group or other third parties.

32.  In the Revised Schedule, these requests are now contained in Items B, C and E.  The requests are in substance the same but with some minor amendments in the wordings.  As K&L Gates now accepts that the requests against the Wynn and Venetian Defendants are the same, it is difficult to understand why different formulations are used in the original summonses.  It only complicates the task of the court.

33.  According to my understanding, it is K&L Gates’ case that the Gambling Activities Documents are relevant mainly on the Knowledge, Authority and Consideration Issues.

(i)   The Remittance Process Request

34.  I first start with the narrower Remittance Process Request.

35.  I agree with Mr Man, SC, counsel for the Wynn Defendants, that the formulation is confusing and embarrassing. 

36.  There are 3 different parts to this formulation: (i) “communications and documents”; (ii) “pertaining to approval process, policies, regulations, rules and applications and/or bank documents of [the Defendants]”; (iii) “in relation to the remittances of money the subject of this Action” (presumably referring to the Transfers). This leads to many possible combinations and thus uncertainties.  Some of these combinations do not make sense.  It is not clear why there would be communications pertaining to the approval processes or regulations etc., or why they would be relevant.  Even more confusing is “communications and documents… pertaining to… bank documents of the Defendants in relation to [the Transfers]”.  In fact, bank documents relating to the Transfers have already been disclosed.

37.  In the Revised Schedule, Mr Coleman finally agrees to delete the reference to the bank documents.

38.  Second, the class is clearly too wide, too vague and imprecise to constitute a proper “class”.  The references to “policies, regulations, rules” are too imprecise.  Clearly not every rule and policy in relation to remittance of moneys would be relevant.

39.  Again, a sweeping class was drafted without regard to whether all documents in the class would be relevant.  As mentioned above[10], it is incumbent on an applicant for discovery to precisely formulate his request, and not cast the net widely and then say, at least some relevant documents will be caught.

40.  Third, I have serious doubt as to whether the documents requested are relevant to the issues in the present case. Even if one were to consider the internal policies of the Casino Defendants as to anti-money laundering matters or suspicious transfers, they are irrelevant to the issue of their knowledge as to the propriety of the Transfers.

41.  The question of whether the Casino Defendants had actual knowledge is a question of fact.  Either they had actual knowledge, or they did not.  It would not matter what the policies said. As to constructive knowledge, the internal policies do not represent the standard imposed by the general law as to what would amount to constructive knowledge of Aggarwal’s alleged wrongs.

42.  K&L Gates also seeks to justify the discovery on the basis of that being relevant to whether valuable consideration had been given by the Casino Defendants.  However, it is obvious that the Remittance Process Request, or indeed the Gambling Activities Request, has nothing to do with whether consideration had in fact been given by the Casino Defendants.  The discovery concerning that issue has already been given in the form of the markers issued to Aggarwal by the Casino Defendants as well as the various credit agreements and approvals made in favour of Aggarwal.

43.  Finally, substantial discovery has already been made by the Wynn and Venetian Defendants and K&L Gates has failed to prove the existence of other documents not disclosed.

44.  As for the Wynn Defendants, they have already disclosed the following documents relating to the Transfers and Aggarwal’s gambling activities: (i) remittance advices by banks, and internal records of remittance and receipt of funds from Aggarwal[11]; (ii) internal records (in the form of a table) of the transfer of funds from Aggarwal to the Wynn Defendants and out of them, and Aggarwal’s player history showing his gaming activities and his overall record against the casino[12]; and (iii) a credit report of Aggarwal by Central Credit LLC (“the Central Credit Report”)[13].

45.  As to why the Wynn Defendants eventually made a report to the Hong Kong Police, their solicitors had provided a detailed account in their letter to the Police dated 5 March 2010.

46.  Mr Jason Martin Schall (“Mr Schall), who is the Senior Vice President (Legal) of D14, has confirmed on oath that “the procedures of D14 in respect of third party transfer was not contained in the written anti-money laundering policy effective at the material times”.[14]  He has also explained that back in 2010, Wynn Macau was not required to conduct real-time enquiry in respect of third party wire transfers, though it would conduct retrospective reviews.[15]

47.  Mr Coleman submits that even if there was no written procedure, there would have been some guidelines or documents (contained in various documents, notes or memoranda) about how to handle remittances from third parties.  This, however, is just another way to describe a “written procedure”.   Plainly, Mr Schall’s confirmation must be conclusive.

48.  Mr Schall has also explained that it was just a matter of administrative convenience whether funds would be received by D10 or D14, and there were no procedure or policy governing fund transfers between them.  Further, the funds were transferred between them generally, and that no specific transfers was made from D10 to D14 in relation to the Transfers, as they were mixed in the general fund transfers and possibly formed part of a $50 million transfer on 14 January 2010 and a $100 million transfer on 24 September 2010.[16] Thus, there were no persons or documents that specifically dealt with the transfer of Aggarwal’s funds from D10 to D14.

49.  Mr Coleman also relies on the reference in the internal records of the Wynn Defendants to one “Eddie Tseng” (“ Mr Tseng”) to suggest that there are other relevant documents.   But as explained by Mr Schall, Mr Tseng was simply the former marketing officer who looked after Aggarwal’s account.[17] Indeed, it has also been confirmed that there is no record or document which shows that Mr Tseng dealt with the monies transferred by Aggarwal to D10 or D14, as he had no authority to deal with such funds.[18]

50.  Faced with this confirmation, Mr Coleman then suggests in its skeleton that there would probably be “reports, memoranda or notes” sent by Mr Tseng to his superior.  However, it has not been explained the basis why such documents exist.  Indeed, the internal records of the Wynn Defendants noted “refer to Eddie Tseng” rather than “refer to Eddie Tseng’s notes/reports etc”.

51.  K&L Gates also seizes upon the answer that Mr Tseng did not have authority to remit funds out of D10, and says that “someone else must have authority” and there should be documents regulating who had such authority.[19] For myself, I do not see how the question about who had authority, or the rules governing who had authority, would be relevant to the issues in this case.  Further, the Wynn Defendants have already confirmed that fund transfers between D10 and D14 were general and not specific to the Transfers. It has also been confirmed that there are no written authorisations dealing with the relationship between them.  Under such circumstances, there is simply no basis for K&L Gates to suggest that there are other relevant documents.

52.  As a further attempt, K&L Gates relies on the transfer remittance forms already disclosed and says that there should be other “internal communications, approvals, memoranda, notes and procedural forms”.[20]  But it is quite plain that any comments and accounting approvals were also marked on the same form, and K&L Gates has not explained any basis to suggest that there would be further documents.

53.  K&L Gates also refers to an obligation by D10 to maintain “books and records” under a Marketing and Secondment Services Framework Agreement made between D10 and D14.[21]  However, that Agreement only provides in general terms that D10 shall maintain “such books and records as may be required by the laws applicable to the jurisdiction” in which D10 operates.  This does not indicate that there are further relevant documents which have not been disclosed.

54.  K&L Gates also seeks discovery of documents relating to the credit committee of Wynn Macau (“the Credit Committee”) “to ascertain its remit, its scope of operations and policies, including minutes and memoranda”.[22]

55.  This is clearly not a legitimate request. The Wynn Defendants have disclosed an email dated 21 July 2010, which recorded the decision by the Credit Committee to stop granting credit to Aggarwal and to return any money not from Aggarwal’s own account, due to suspicions as to the source of Aggarwal’s funds.  It is plain that the general remit and policies of the Credit Committee is irrelevant, and K&L Gates is only conducting a fishing exercise hoping to find some materials to substantiate its claim.  As to the said email, Mr Schall has explained that the decision was his, which was endorsed by the Chief Financial Officer (“the CFO”), and there was no meeting involved in making the decision.[23] There is simply no basis for K&L Gates to challenge the Wynn Defendants’ confirmation by affidavit on this point.

56.  As to the Credit Committee, it is suggested that such committee would have minutes showing discussions about a patron’s credit status and “irregular remittances”.   However, it has not been explained why Aggarwal’s credit status (and D14’s view thereof) is relevant.  As to any discussion of “irregular remittances”, D14 has already disclosed the email dated 21 July 2010, which recorded Mr Schall’s decision to refuse further credit to Aggarwal following the various “irregular remittances”, which Mr Schall has explained.  K&L Gates has not put forward any basis why there should be other documented discussions on this topic.

57.  For the Venetian Defendants, all documents concerning the receipt and handling of the Transfers, and practically all documents concerning the “trail” of the Transfers up to the utilization by Aggarwal, have been disclosed.  Moreover, the Venetian Defendants have also disclosed, even before the present application, the internal policies on handling of remittances as well as the grant of facilities to Aggarwal in the 1^st and 2^nd Lists of Documents.  The exercise was completed by the filing of the 3^rd List of Documents, which disclosed all relevant internal policies concerning receipt of funds, grant of gambling chips and grant of credit, as well as all instances where credit was granted to Aggarwal.   In particular, the following documents have been disclosed: (i) the initial credit check of Aggarwal; and (ii) the credit check of Aggarwal on each occasion when he was granted credit in respect of which the Transfers were ultimately used to discharge his debts arising therefrom.^[24]  Finally, D9’s General Counsel (Litigation), Mr Alun Wyn Hughes (“Mr Hughes”), has confirmed on oath that all relevant documentation relating to the Transfers and the trail of funds have been disclosed.[25]

58.  K&L Gates tries to “nit-pick”, a word used by Ms Sit, counsel for the Venetian Defendants, on various items of documents already disclosed to try to salvage its “class”.  However, this is impermissible.  If K&L Gates has a genuine request in respect of a specific document, it should tailor its request accordingly, and not use an unacceptably wide request with a view to “catch” some documents.  In any event, the Venetian Defendants have already disclosed the policies for the grant of credit and credit patron classification, and I do see the need for further discovery which will help to resolve the issues in the present case.

59.  For the above reasons, I disallow the Remittance Process Request.

(ii)    The Gambling Activities Request

60.  I then turn to the broader Gambling Activities Request.  Again, I agree with the Wynn and Venetian Defendants that the request, whether in the original or revised form, is extremely wide and vague.

61.  First, the words “in relation to and/or arising out of” are words of the widest import, and include practically everything conceivable that may have anything to do with the gambling activities of Aggarwal.  As such, documents concerning the actual bets placed by Aggarwal (even in respect of the transactions involving the Transfers), all the bets ever placed by Aggarwal (whether they were concerned with the Transfers), which rooms Aggarwal slept in and even which restaurant he ate at whilst staying with the Casino Defendants to gamble, would fall to be disclosed.  Aggarwal had been a patron of D9’s clubs since July 2004 and the Wynn Defendants since November 2006, and so the documentation involved should have been substantial.

62.  Further, the present case concerns the recovery of the specific remittances and transfers made to the Casino Defendants, and it is hard to justify the discovery relating to all the gambling activities of Aggarwal without specifying the relevant periods.  As mentioned above[26], it is incumbent on an applicant for discovery to precisely formulate his request, and not cast the net widely and then say, at least some relevant documents will be caught.

63.  It seems that K&L Gates is really interested in documents relating to the due diligence conducted on Aggarwal and his credit worthiness. In its supporting affidavits, K&L Gates attempts to identify the documents that it seeks to obtain: (i) policies for the grant of credit to customers and classification of credit customers; (ii) the internal processing of remittances; and (iii) contacts made with other casinos concerning the credit worthiness of Aggarwal.  If that is the case, there is simply no point for K&L Gates to make such a wide and vague request in the first place.  It is also impossible for the court to reformulate the whole request using the blue pencil test.

64.  Even if the request was targeted against these documents in the first place, I would still refuse the request on the ground that K&L Gates has failed to show that there are other relevant documents not disclosed.

65.  As mentioned above[27], the Wynn and Venetian Defendants have already made substantial discovery about the gambling activities of Aggarwal.  Further, Mr Schall and Mr Hughes have both given detailed explanations about the process of granting and later denying credit facilities (the latter in the case of the Wynn Defendants) to Aggarwal, and how the Transfers were used to fund the gambling activities of Aggarwal and to relay credits previously advanced by the casinos to Aggarwal.  They have also explained why the Wynn and Venetian Defendants have disclosed all the relevant documents concerning the credit worthiness of Aggarwal.  There is simply no basis to suggest that there are other relevant documents which have not been disclosed.

66.  Whilst accepting that certain documents have been disclosed, K&L Gates suggests that “there has been no confirmation that what has been disclosed represents the entirety of all documents pertaining to [Aggarwal’s] account”.  However, it is wrong for K&L Gates to draft an impermissibly wide class and say that some documents within this class exist, and ask the Casino Defendants to confirm that there is nothing else in such a class.  It is not the function of such an application to allow the applicant to check whether his opponent has given sufficient discovery, and the burden is on the applicant to show that there are other relevant documents not disclosed.[28]

67.  As against the Wynn Defendants, K&L Gates say that there must be records and documents in relation to their decision to continue giving credit to Aggarwal from January up to July 2010.  However, Mr Schall has given a detailed account about the process.

68.  Mr Schall was the person who decided in July 2010 to stop Aggarwal’s credit.  He has explained that Aggarwal had a pre-existing credit line, and until this was terminated in July 2010, no decision would be required to give Aggarwal fresh credit.  As to the discussion between Mr Schall and the CFO about this decision, Mr Schall has explained that he made the decision and relayed the suggestion to the CFO, who had no objection and sent out the email dated 21 July 2010.  He explained that the “decision” by the Credit Committee was really this discussion between him and the CFO.  He confirmed that there are no other written records or communications in relation to the credit given to Aggarwal.

69.  As to the “internal review” referred to in Mr Schall’s Witness Statement which led to the report to JFIU[29], Mr Schall has in fact confirmed that there was “no report, internal communications, attendance note and the like regarding [his] instructions to file the reports”[30].

70.  Mr Schall explained that there are no other documents.  There is nothing to contradict such assertion.  This must be conclusive and it is not for K&L Gates to speculate that there must be other documents or written communications.

71.  K&L Gates also refers to due diligence documents regarding Aggarwal’s position as a partner of K&L Gates, and documents of internal discussions as to the making of reports to JFIU. However, Mr Schall has confirmed that he made the decision to make the reports solely, and that he did not conduct any internet searches, write internal notes or send emails, whereas any discussion with lawyers would be privileged.[31] K&L Gates criticizes the process, but that has nothing to do with whether there should be other documents to be disclosed.  At most it is a matter for trial.

72.  As to the possible existence of third party communications, K&L Gates relies on the gaming report in respect of Aggarwal prepared by Central Credit LLC for the Wynn Defendants and asserts that: (i) there exists “a convention” of casinos communicating with each other in relation to their patrons and their credit worthiness; and (ii) the casinos were communicating with each other to ascertain Aggarwal’s activities and funding, and as such, all of them would have knowledge of Aggarwal using K&L Gates’ money to gamble at various other casinos.[32]

73.  However, there is no basis to support these assertions. As explained by the Wynn Defendants, Central Credit LLC is an agency based in the United States which gathers information of players from major casinos to allow the casinos to share credit information.[33] This does not provide any basis to suggest that any inter-casino communications such as “emails, correspondence, notes, reports, forms, memoranda” exist. Plainly, the whole point is that the sharing of information occurred through the credit agency.  Much less does this show that all information in relation to a patron, including his source of funds, would be provided to the information collecting agency. The gaming report itself does not contain such information.  As explained by Mr Schall, the main purpose of such reports is to provide information as to a patron’s credit status, whether he owes money to other casinos and whether his balance has been settled.[34]

74.  In any event, the Wynn Defendants have confirmed on oath that there was no such written communication in relation to Aggarwal, and no note, report or other similar documents on the subject other than the report disclosed.^[35] Mr Schall drew a distinction between a patron’s gambling activities and funding (which is not something that would be shared) and credit intelligence (which is often shared), and what he said was that generally, there would rarely be written communications about credit intelligence.  Mr Schall then specifically confirmed that in relation to Aggarwal, there was “no written communications” with other casinos “whether as to credit, source of funds or otherwise”, and there was “no note, report or the like” other than those already disclosed.[36]

75.  To salvage this request, K&L Gates says that Mr Schall has not disclosed or confirmed the existence or otherwise of “communications which led to the making or requisitioning of a Central Credit LLC report”.[37] It is not clear why such communications would be relevant or necessary.  Further, this is moving the goalposts, as such “communications” (which cannot be communications with other casinos in light of Mr Schall’s confirmation) do not even fall within the class as formulated.

76.  Then K&L Gates tries to rely on documents disclosed by other casinos (D13) to suggest that there were verbal communications between D14 and other casinos on Aggarwal.

77.  Again this cannot salvage the application.  Such documents have never been relied on by K&L Gates as evidence in the discovery application. It cannot simply insert other documents into the hearing bundle and rely on the same as evidence in the application.  More importantly, verbal communications cannot be the subject of a discovery application.

78.  As against the Venetian Defendants, Mr Coleman relies on the handwritten annotations in the “gaming reports” prepared by Central Credit LLC for D9, as well as the internal “Preferred Patron Call Log” to argue that there must be documents in existence which record the communications with other casinos that resulted in such compilation.   However, it is clear that the documents are titled “Preferred Patron Call Log”, indicating it is a record of telephone calls made by D9 to other casinos to gather the information recorded therein.  The information in the call log was then transposed, by hand, into the Central Credit LLC report.  As such, there is no basis for K&L Gates to allege that there exist other documents which the Venetian Defendants have not disclosed.

79.  Hence, in light of the excessive width and the vagueness of the Remittance Process and Gambling Activities Requests, the lack of relevance and the substantial discovery already made, it is clear that these requests are not necessary for the fair disposal of the matter or for saving costs.  The wide and open-ended nature of the requests, in the context where all relevant and conceivably relevant discovery has already been given, will only occasion oppression to the Wynn and Venetian Defendants.  Further, it is incumbent upon K&L Gates to properly draft and specify any class of documents it seeks.  Plainly, K&L Gates has failed in such duty.  The fact that it can later in the supporting affidavits identify the specific documents requested only shows that the original requests have been drafted unreasonably wide.

80.  Further, this is a classic case of a fishing expedition.  Without knowing the details of the operation of the casinos, K&L Gates wishes to find some communications or documents which might have alerted the Casino Defendants about the unlawful activities of Aggarwal.  However, extensive discovery and explanations have already been given by the Wynn and Venetian Defendants, and so any further discovery can only be regarded as a fishing exercise.  I therefore refuse the request for Gambling Activities Documents.

THE COMPLIANCE DOCUMENTS

81.  The request for the Compliance Documents is one of the main battlefields between the parties. In the Revised Schedule, K&L Gates has revised the class to cover “communication and documents (including internal documents) relating to regulatory/statutory compliance, [anti-money laundering] compliance on the part of each of the Defendants in relation to and/or arising of the gambling activities of Aggarwal”.  According to K&L Gates, the Compliance Documents are relevant to the Knowledge, Jurisdiction and Compliance Issues.

82.  Apart from the knowing receipt and the money had and received claims, K&L Gates is also bringing a breach of duty claim against the Casino Defendants for failing to make certain reports to the relevant authorities in relation to the Transfers^[38], including:

(i)   the “ROVE”^[39]report (“the ROVE Report”) for any bets or gaming credit taken out exceeding MOP 500,000, which may be filed with DICJ; and

(ii)   the “RTS”^[40]report (“the RTS Reports”) for suspicious transactions, which may be filed with GIF.

83.  It is alleged that if timely reports had been made, police investigation would have commenced, and Aggarwal’s fraud would have been “intercepted, prevented, or curtailed”.^[41]

84.  It is to be noted that the Wynn Defendants actually made a report to the Hong Kong regulatory authorities which eventually led to the arrest of Aggarwal.  According to the Wynn Defendants, they did not consider there to be any real risk that the Transfers came from stolen monies.  Nevertheless, out of caution, D10 reported each of the Transfers, so far as they relate to the Wynn Defendants, to JFIU by way of 3 reports dated 5 March, 15 and 22 July 2010 respectively.

(i)   Width of the request and relevance

85.  First, I agree with the Wynn and Venetian Defendants that the original request is simply too wide.  To begin with, the class covers “documents relating to regulatory/statutory compliance”.   The Casino Defendants could be subject to many different regulatory regimes, including, e.g. tax, business registration, food and beverage licenses, etc., and I cannot see how those documents relating to other statutory regimes are relevant in the present case.  Further, this class is not formulated by reference to the Transfers.

86.  In the Revised Schedule, Mr Coleman has narrowed down the request to the documents relating to the gambling activities of Aggarwal.  However, the request is still too wide as it would cover documents relating to all sorts of statutory regimes which concern the gambling activities of Aggarwal, for example, tax papers arising from the gambling activities of Aggarwal.  Further, the words “in relation to and/or arising out of the gambling activities” simply cast the net too wide.

87.  K&L Gates tries to limit the scope of the request in the affidavits.  It is suggested that this class of documents relate to the Casino Defendants’ reporting obligations to make reports to regulatory authorities in Macau, i.e. GIF and DICJ.  It includes the ROVE and RTS Reports and the underlying documents which caused the creation thereof.  If so, the proper approach would have been to draft a request along those lines, and not to have an open-ended category which serves no real purpose other than fishing.

88.  Second, I have great reservation as to whether the class of documents, whether in the general form or in the trimmed down version concerning the ROVE and RTS Reports, are relevant at least in respect of the Jurisdiction Issue.

89.  K&L Gates claims that each Wynn and Venetian Defendants owed it a duty to make the reports to, inter alia, DICJ and GIF, and had failed in such duty.

90.  For the Venetian Defendants, D9 admits that it had filed ROVE Reports but denies that there were facts or matters as to warrant filing of RTS Report at the time.  On the other hand, D11 denies being subject to the requirements of ROVE or RTS Reports altogether. Thus, the position is clear on the pleadings.  D9 had filed ROVE Reports but not RTS Report at the time of the Transfers, and D11 had filed neither.  It is then up to K&L Gates to demonstrate at trial that: (i) D9 owed the duty as alleged vis-à-vis K&L Gates; (ii) D9 had breached that duty with respect to RTS Report; (iii) D11 was subject to the jurisdiction of DICJ or GIF, both Macanese authorities; (iv) D11 owed the duty as alleged vis-à-vis K&L Gates; and (v) D11 had breached that duty with respect to ROVE and RTS Reports.

91.  These are all issues of law as well as Macanese law.  How and why ROVE Reports were generated by D9 have nothing to do with them.  Accordingly, the ROVE Reports or their underlying documents have nothing to do with the live issues between the parties.

92.  For the Wynn Defendants, it is D10’s case that it was not subject to the jurisdiction of DICJ and GIF, and it would not have made any ROVE or RTS Reports.  The issue only relates to D14, who accepts that it is subject to the supervision of DICJ.

93.  So far as the Jurisdiction Issue is concerned, whether D10 and D11 are subject to supervision of the Macanese regulatory authorities are matter of Macanese law.  It is clear that the contents of the ROVE and RTS Reports have nothing to do with at least the Jurisdiction Issue.

(ii)    Necessity for the fair disposal of the case

94.  More importantly, neither the discovery of the ROVE or RTS Reports would be necessary for the fair disposal of the case.

95.  Mr Man has correctly pointed out that K&L Gates is adopting an inconsistent stance as to the existence of the ROVE or RTS Reports in relation to the Casino Defendants.  Its pleaded case, as verified by Statement of Truth, is that the Casino Defendants failed to make such reports.  Yet in the discovery application, K&L Gates criticizes the Casino Defendants for not having made discovery of the ROVE or RTS Reports.  This can only be on the basis that such reports exist but are not disclosed.

96.  K&L Gates’ stance is therefore convoluted and inconsistent. If it accepts that such reports exist, then the basis for its whole case on the failure to make reports to the Macanese authorities would be gone.  If it maintains its case that such reports do not exist, then the case for discovery is not made out.

97.  Mr Coleman submits that, since it is the pleaded case of the Wynn and Venetian Defendants that D14 and D9 had filed the necessary reports in fulfilment of their reporting obligations, the contents of the ROVE and RTS Reports filed by these Defendants are relevant.  Further, the reports would also show when these Defendants did have knowledge of the suspicious activities of Aggarwal, and that would be relevant to the determination of the knowing receipt claim.

98.  I first deal with the Knowledge Issue.  It has all along been K&L Gates’ case that the Casino Defendants, at the time when they received the Transfers, knew or should have known that such Transfers were not Aggarwal’s own money because the relevant cheques came from K&L Gates’ client account.  For the knowing receipt claim, the main focus of the investigation is whether the Casino Defendants did have knowledge when they received the Transfers, and so the subsequent reports filed by the Casino Defendants would not help the court in determining such issue.

99.  Further, it is clear that the ROVE Reports were filed on the basis of the amount of the bets and not by reason of the suspicious activities of the casino’s clients.  Hence, the ROVE Reports would hardly be relevant to the Knowledge Issue.

100.  For the breach of duty claim, the discovery of the actual ROVE and RTS Reports is unlikely to be of significant impact to K&L Gates’ case.  In order to establish causation for the breach of duty claim, K&L Gates would have to prove that, had the Macanese regulatory authorities received the ROVE and RTS Reports earlier, they would have taken certain measures leading to the arrest of Aggarwal.  I imagine that the regulatory authorities would have received voluminous reports from the casinos each day, and K&L Gates would then have to tell the court how the authorities would have handled and acted upon those reports.  Unlike what happened in Hong Kong in respect of the JIFU reports, the court cannot assume that once the reports had been made, the Macanese regulatory authorities would have taken immediate actions.  Without knowing the operations of the Macanese regulatory authorities and how they conduct investigation of money laundering activities, it is impossible for K&L Gates to prove that, had the Casino Defendants made the reports earlier, it would have led to the arrest of Aggarwal soon thereafter. 

101.  This case has gone into an advanced stage and witness statements have been exchanged.  According to my understanding from Mr Coleman, it is extremely unlikely that K&L Gates will adduce evidence relating to the operational procedures of the Macanese regulatory authorities.  Further, taking into account the stance of the authorities as stated in the DICJ Letter mentioned below, it is quite impossible for K&L Gates to obtain supporting evidence in this regard.  Under such circumstances, the probative value of the actual ROVE or RTS Reports is marginal, and the court should not therefore order discovery of such reports as they would not seriously affect the result of the case.

(iii)    The risk of sanction by the Macanese regulatory authorities

102.  Even if I am wrong on the aforesaid analysis, I will still exercise my discretion in not allowing the discovery of the ROVE and RTS Reports, as there is serious risk of sanction by the Macanese regulatory authorities in the case of such disclosure. 

103.  In law, the fact that compliance with a disclosure order sought will or may entail a breach of foreign law is not an absolute bar to discovery, but is a relevant consideration for the court in determining whether disclosure should be ordered as a matter of discretion.[42]  This is because the privilege against self-incrimination is not available in respect of criminal liability under foreign law.[43]

104.  There is no clear guidance in the authorities as to how the discretion is to be exercised.  It appears that an important factor is whether the party from whom discovery is sought faces a real risk of prosecution in the foreign jurisdiction.[44]  The test is whether there is reasonable ground to apprehend danger.[45]

105.  There is expert evidence on Macanese law from 3 different experts before the court: Mr Jorge Menezes (K&L Gates’ expert), Mr Nuno Simoes (the Wynn Defendants’ expert), and Mr Henrique Saldanha (the Venetian Defendants’ expert).

106.  The experts have not been required to give oral evidence or be cross-examined at the present hearing.  The court is therefore faced with their conflicting evidence (so far as there is conflict) in the written reports. Insofar as the court is required to resolve the disputes, the court would have to do the best it can, and such a situation would call for a “careful, balanced analysis”, and a legitimate consideration may be the way in which the respective expert reports are argued.[46]

107.  In the context of the discovery application, the question for the court is whether there is a real risk that a discovery order would in effect compel the Wynn and Venetian Defendants to breach the Macanese law, and if so the court would be entitled to take this into account.  It follows that the court is not required to finally resolve the dispute between the experts.

108.  It is common ground between the experts that there is a prohibition against the disclosure of the contents or information contained in the ROVE and RTS reports.[47]

109.  It is accepted by all the experts that the applicable law is found in Law No. 2/2006, Article 7(4) & (5).  Further, in Instructions No. 2/2006 issued by DICJ, §10.1 states that the information in ROVE and RTS Reports would be classified as confidential.  §10.2 specifically states that the persons subject to the Instructions cannot communicate the filing of RTS Reports to any other persons or entities.

110.  It is common ground that a breach of Art 7(4) of Law No.2/2006 may lead to the following sanctions:[48]

(i)   A fine of MOP$10,000 to MOP$500,000 for individuals, and MOP$100,000 to MOP$5,000,000 for legal persons under Administrative Regulation no.7/2006.

(ii)   There may also be criminal liability under Art 348 of the Criminal Codefor violation of secrecy, albeit this only applies if there is an intention to benefit or consciousness that this would cause loss to the public interest or another person.

111.  The persons who may be liable for the above sanctions would include the Casino Defendants and their employees.[49]

112.  These kinds of statutory provisions do have serious public interest implications.  In order to effectively tackle the crime of money laundering and to encourage the provision of information to the regulatory and law enforcement agencies, it is essential to protect the confidentiality of such kind of reports.

113.  There seems to be a dispute as to whether the disclosure of the internal documents of the Casino Defendants relating to the existence of a ROVE or RTS Report is unlawful, as K&L Gates’ expert argues that such secondary documents can be disclosed.  However, since the purpose and effect of the statute is to prohibit the information and existence of ROVE and RTS Reports to be disclosed, it should follow that secondary evidence of the existence or contents of the reports cannot be disclosed.  Further, it is very difficult to see how there could realistically be internal documents which only relate to the existence of ROVE or RTS Reports for a particular transaction, but not the contents of such reports.  Hence, I prefer to accept the expert evidence of the Wynn Defendants in this regard.

114.  One of the main disputes between the experts is whether the Casino Defendants’ compliance with a court order for disclosure would fall within one of the exceptions prohibiting disclosures of the ROVE or RTS Reports.  K&L Gates’ expert suggests that the purpose of the confidentiality provisions is to protect the secrecy of the criminal investigation and the privacy of a defendant.  Thus, the confidentiality provisions do not apply now since several years have passed since Aggarwal’s arrest and conviction in Hong Kong, that Aggarwal was not under any confidential criminal investigation or proceedings in Macau, that the relevant facts have been revealed in the Hong Kong criminal proceedings.

115.  However, there is no express exception provided for in the said provisions, and so what K&L Gates’ expert is asking the court to do is to read a whole new sub-paragraph of exception into Article 7 to the effect that the prohibition ceases to have effect when the relevant criminal investigation is completed.  Apart from his personal opinion, I find no basis to support such exception.

116.  In fact, such kind of confidential documents may shed light as to how the Macanese authorities would investigate money laundering activities and the details of their operations.  They may also reveal the criteria and circumstances under which the casinos would make a report of suspicious activities to the law enforcement agency, which, if made public, may affect the efficiency in policing money laundering activities in Macau.  In the case of disclosure, it may also discourage the casinos to provide similar information in the future.   The information in the ROVE and RTS Reports may therefore remain sensitive even after the completion of the investigation works.  Hence, in the absence of precedents, it would be dangerous to improvise an exception for the purpose of this case.

117.  More importantly, the court cannot ignore the view of the DICJ about the confidentiality of the ROVE and RTS Reports, and there is a real risk of sanction being applied against the Wynn and Venetian Defendants if they disclose any reports as a result of a discovery order by this court.

118.  On 28 November 2016, the DICJ had written a letter to D14 (“the DICJ Letter”), in which the DICJ cited various statutory provisions and reinstated the confidential nature of the ROVE and RTS Reports.   DICJ also directed that, if D14 comes to be notified by the court to disclose any such reports, it shall refuse to do so, otherwise it would be subject to the penalty of the applicable administrative and criminal responsibility.  In effect, the DICJ agrees with the views on the law expressed by the experts of the Wynn and Venetian Defendants.

119.  The DICJ Letter strongly suggests that DICJ would take steps to investigate or prosecute or refer to authorities or apply sanctions against the Casino Defendants in the case of disclosure. 

120.  Such views of DICJ are particularly important given that it is the regulatory authority overseeing casinos in Macau, and that it is authorised to issue directives regarding anti-money laundering and anti-terrorism measures (which is the DICJ Instruction).  Such directives represent how the relevant authorities would likely enforce the relevant legal provisions.  Based on such express view indicated in the DICJ Letter, there is real risk of enforcement if the Wynn and Venetian Defendants are to make discovery even pursuant to an order of the Hong Kong court.

121.  K&L Gates’ expert tries to discredit the DICJ Letter by arguing that DICJ is a mere supervisory body and has no authority to classify documents as confidential or to authorise or prohibit disclosure of information, or to provide legal advice, or to apply any sanctions.

122.  However, I prefer to accept the views of the DICJ and the experts of the Wynn and Venetian Defendants in this regard.  DICJ was specifically given authority to set out directives on how to comply with Law no. 2/2006.  It is also common ground that part of the DICJ’s function is to “evaluate and sanction incompliance with the substantive and procedural applicable laws, the administrative breaches committed”, as provided in Article 2(9) of Administrative Regulation no. 34/2003.  The fine under Administrative Regulation no.7/2006 is precisely an administrative sanction for breaching Art 7(4) of Law no. 2/2006.   Hence, the risk of sanction is real.

123.  Furthermore, the regulatory dimension is also important.  As explained by the expert of the Wynn Defendants, DICJ is the regulatory authority on gaming matters, and acting against the views and instructions of DICJ can cause operational issues and prejudice to the Casino Defendants, especially when it comes to the renewal of their gaming concessions. This is a major risk to the Casino Defendants if they act against the instructions of DICJ.[50] Specifically, breach of the relevant laws and administrative sanctions may affect whether the Casino Defendants or their employees are considered “suitable” person to hold the gaming concession.[51]  It follows that an order compelling disclosure would in practice cause great prejudice to the Casino Defendants.

124.  Mr Coleman argues that the risk of sanction is speculative as ROVE Reports had been disclosed by other Casino Defendants (i.e. the 3^rd and 12^th Defendants) with no follow-up actions taken against them.  However, I do not accept such submission in light of the clear stance of the Macanese regulatory authorities stated in the DICJ Letter.

125.  For the above reasons, I prefer to accept the evidence of the Wynn and Venetian Defendants’ experts on Macanese law.  In fact, it is not necessary for the court to resolve the difference in opinion between the experts, for all the court needs to be satisfied for present purpose is whether there is reasonable ground to apprehend danger.  Based on the existing evidence, there are more than sufficient materials to support the existence of such danger. 

126.  K&L Gates relies on the case of Wynn Resorts (Macau) SA v Mong Henry[52] to argue that no weight should be placed on the DICJ Letter.  However, the context of Mong Henry is very different.  In that case, the court entertained substantive argument of Macanese law in a summary judgment application on whether a statute only covered credit agreements between casinos and junkets, or extend to those between casinos and patrons generally.  In making her determination, Chu J (as she then was) considered but did not place decisive weight on 2 documents emanating from DICJ which were clearly not directly on point.[53]  On the other hand, in this case, on the face of Art. 2(1) and 9 of Reg n^o 7/2006 and the DICJ Letter, one cannot simply say there is no appreciable risk of sanction resulting from the disclosure of the reports.

127.  Nor does the case of China MedicalTechnologies Inc (Joint Liquidators) v KPMG[54] assist.  All parties accepted in that case that there was no longer any risk of contravening Mainland secrecy laws or any issue of confidentiality arising from the “sensitive information”.  That is very different from the present case.

128.  Real risk of sanction is an important consideration for the court in exercising the discretion whether to order discovery of the ROVE and RTS Reports.  Taking into account such risk and other factors as mentioned above such as relevance, necessity for the fair disposal of the case and the marginal probative value of the reports, I will exercise my discretion against the discovery of such reports.

(iv)    Documents apart from the ROVE and RTS Reports

129.  In its supporting affidavits, K&L Gates refers extensively to “regular meetings” in relation to the requirements and internal controls relating to money laundering activities, DICJ audits, “procedures in relation to high value and suspicious transactions”, code of business and ethics, training modules relating to anti-money laundering etc.  This is impossibly wide and K&L Gates has made no attempt to identify what the relevant documents are.  It is difficult to understand why documents such as DICJ audits and code of business conduct and ethics are relevant to the issues in this case.

130.  K&L Gates also suggests that there should be internal communications in relation to the reports made by D10 to JFIU.  However, as mentioned above, Mr Schall has confirmed that he alone made the decision to make the reports.  He had not involved other staff, and there are no other internal communications, reports or attendance notes.

131.  As to the “Anti-Money Laundering and Procedures” of the Casino Defendants, as explained above[55], whether it has been breached is not relevant to any issues.

132.  For the above reasons, I refuse the request for the Compliance Documents.

133.  It is also clear that there is no basis for the court to order the Wynn or Venetian Defendants to file a Further List.

CONCLUSION

134.  Based on the aforesaid analysis, I dismiss both discovery summonses against the Wynn and Venetian Defendants.  It is clear that the requests have not been formulated properly.  They were drafted in the widest possible terms with a view to catch some relevant documents.  In the subsequent affidavits, K&L Gates was able to identify some specific targeted documents.  If those are the documents sought to be disclosed, there is no justifiable reason as to why the original class was formulated so wide.  All the requests can be dismissed on this ground alone.

135.  Further, substantial discovery has been made by the Wynn and Venetian Defendants, and K&L Gates has simply failed to prove the existence of other documents not disclosed.  After the Wynn and Venetian Defendants have given detailed accounts of their operations relating to Aggarwal’s gambling activities, K&L Gates always moves the goal posts and tries to salvage the applications by pointing to other possible documents. This would not be fair to the Wynn and Venetian Defendants considering the excessive width of the original requests.  The submission of the Revised Schedule in the course of the argument only reinforces the fact that the original requests were formulated too wide.

136.  ROVE and RTS Reports are always sensitive documents.  With a view to find some materials to substantiate its claims, K&L Gates is trespassing into an area which will jealously be guarded by regulatory and law enforcement agencies about the confidential reports provided by informants.  For the reasons given above, I do not consider it appropriate to order discovery of these reports.

137.  I also make a costs order nisi that the costs of these 2 summonses be paid by K&L Gates to the Wynn and Venetian Defendants with certificate for two counsel, which shall be made absolute 21 days after the date of the handing down of this Decision.

HCA 1061/2011 & HCA 349/2012

(Consolidated)

[2019] HKCFI 200

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1061 OF 2011

_____________

_____________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 349 OF 2011

_____________

_____________

(Consolidated by the order of
Deputy High Court Judge B Chu dated 10 July 2013)

_________________________

REASONS FOR DECISIONS
AND DECISION ON COSTS

_________________________

1.  This is the Plaintiff’s application for leave to appeal against the order I made on 27 November 2017 on discovery and stay of execution of the said order pending appeal.  In the hearing on 12 December 2018, I refused the Plaintiff’s application and I now give my reasons.

2.  I will also give my decision on the applications to vary the costs order nisi I made on 27 November 2017 (“the Costs Variation Applications”).

3.  I adopt the same monoculture and abbreviations that I have used in the Decision dated 27 November 2017 (“the Decision”).

The new approach to deal with leave to appeal and stay of execution applications

4.  I gave the decision on the discovery application on 27 November 2017.  Due to the state of the court diary, both the leave to appeal application (“the Leave Application”) and the stay of execution application (“the Stay Application”) could only be heard by me about one year after the making of the Decision.  This is not satisfactory at all.

5.  The same has also happened in the recent cases of ZJ v XWN[1] and Tsang Wing Kwai v Tsang Wing Fai[2], in which the Court of Appeal has set out the suggested procedures for dealing with similar applications at the first instance level.  The Court of Appeal’s judgments were handed down recently and so this court was not able to apply the suggested procedures in the present case.  However, the suggested case management techniques should be applied in similar applications in the future.

6.  As I have already set out the detailed reasons for allowing the discovery application in the Decision itself, I will only give brief reasons for refusing the Leave and Stay Applications.

The relevant legal principles for the Leave Application

7.  Ms Sit, counsel for the Venetian Defendants, has correctly summarised the relevant legal principles for the purpose of the Leave Application:

(i) Leave to appeal may only be granted if the applicant can demonstrate reasonable prospects of success, meaning that the prospects of succeeding must be reasonable and therefore more than fanciful, without having to be probable.  Merely showing that the appeal is arguable and not fanciful is not sufficient.[3]

(ii) In specific discovery applications, the scope of the order often requires a judgment call to be made, having regard to all the circumstances.  The fact that some irrelevant materials may be caught, of itself, is no basis to say the judge has erred, or that the Court of Appeal should intervene.[4]

(iii) It is a misuse of the appellate process to give the litigant (or his counsel) a platform for regurgitating his arguments again in the hope that the appellate judges may come to a different view.  The relevant question for the Court of Appeal is whether the judge has fallen into palpable errors which can give rise to grounds for intervention by the appellate court.[5]  Lodging an appeal with ill-considered and unsatisfactory grounds of appeal, particularly those that provide no more than a lengthy critique of the judgment rather than identify a justifiable basis for the Court of Appeal interfering in the decision of the judge below, is not acceptable.[6]

(iv) Even if the threshold test of reasonable prospect is satisfied, the court still retains a discretion whether to grant leave, and may refuse leave in the interests of procedural economy and proportionality.[7]

(v) Case management decisions made in the exercise of discretion (which include orders for specific discovery) are only subject to appeal in rare circumstances, and the hurdle faced by the appellant is very high.[8]

(vi) In the context of specific discovery, one consideration relevant to the exercise of discretion is the progress (or lack thereof) in the prosecution of the action and whether further arguments over discovery would impede, as opposed to progress, the determination of the real disputes between the parties.[9]

Merits of the Leave Application

8.  After perusing the draft Notice of Appeal, I agree with the various Defendants that the purported grounds are either a bare assertion that this court has erred, or a rehash of the arguments already advanced and rejected by me with reasons in the Decision.  As the Court of Appeal has made clear in the various authorities mentioned above, merely regurgitating the appellant’s own argument without any attempt to engage the judge’s reasoning and demonstrate how it has gone palpably wrong as a matter of law is simply not a viable way of mounting an appeal, in particular in the context of an interlocutory specific discovery application.

9.  Ms Sit has also highlighted one of the peculiar features in this case. I myself have been assigned as the judge handling the various litigations involving the fraud of Aggarwal.  After handling these cases for some time, I am familiar with the facts and the issues involved in the various litigations. Coupled with the fact that I will be the trial judge of these cases, I should be given a certain degree of flexibility as to how the cases should be conducted at trials.  Whether to order discovery is very much a case-management decision.  Unless the various defences put forward by the Defendants are wholly unarguable, which I do not find it to be the case, the court should give the Defendants some allowance in obtaining the relevant documents with a view to substantiate their defences.

10.  I appreciate that the scale of the discovery ordered is by no means a small one, in particular those requests relating to the fund flow analysis.  However, no particulars have been supplied by K&L Gates as to any difficulties faced by them in producing the relevant documents.  In fact, K&L Gates confirms that it has already conducted its own fund flow analysis, and so it lies ill in its mouth to say that the Defendants are not entitled to conduct similar analysis.  Even if K&L Gates were to put to some expense in having to collate the materials, such expense would have been negligible in the overall scheme of things, taking into account both the very substantial amounts K&L Gates is seeking to claim from the Defendants, as well as the very substantial amount of costs that it has hitherto incurred given the number of defendants it chose to sue and the grand-scale manner in which it has conducted its litigations to date.  As stated in §37 of the Decision:

“ … … this litigation is, by any measure, “big ticket” litigation being conducted by well-funded and resourced parties.  While proportionality is always a legitimate consideration, the additional strain on the parties to obtain, list and copy further documents that are undoubtedly in K&L Gates’ possession is, realistically, de minimis in the scheme of these proceedings.  Hence, the probative value of these documents and the substantial quantum of the claims clearly outweigh any alleged prejudice to K&L Gates.”

11.  There is some complaint about the application of the blue pencil test.  However, the width of the order involves a judgment call by the court having regard to the circumstances of this case. K&L Gates has not even begun to identify any basis to show that this court has made any palpable error of principle as to warrant intervention by the appellate court.

12.  Taking into account the aforesaid considerations and all the matters referred by me in the Decision, I consider that there is very little chance that the appellate court will interfere with the exercise of my discretion in ordering certain specific discovery which is very much a case-management decision.  As K&L Gates has failed to demonstrate reasonable prospects of success in the intended appeal, I refused the Leave Application.

Merits of the Stay Application

13.  As no reasonable prospects of success has been established, it follows that the Stay Application should also be dismissed.  I therefore so ordered.

The Costs Variation Applications

14.  In the Decision, I made the costs order nisi that:

(i) K&L Gates should pay to the Casino Defendants 80% of the costs of the various discovery summonses to be taxed if not agreed with certificate for 2 counsel if applicable; and

(ii) the costs of two summonses for further and better particulars of the Statement of Claim taken out by the Melco and Wynn Defendants be paid by K&L Gates.

15.  K&L Gates seeks to vary such order nisi in the following manner:

(i) it should only pay 26%, and no more than 67%, of the costs of the discovery summons by the Wynn Defendants;

(ii) it should only pay 17% of the costs of the discovery summons by the Venetian Defendants, save that the costs of and occasioned by the compilation of the separate set of hearing bundles by the Venetian Defendants be disallowed;

(iii) there should be no order as to costs in respect of: (a) the discovery summons by the Melco Defendants; (b) the 2 summonses taken out by the Wynn and Melco Defendants for further and better particulars; and

(iv) such costs ordered to be paid by K&L Gates should be taxed summarily.

16.  On the other hand, the Melco and Wynn Defendants apply to vary the costs order nisi to the effect that the costs awarded in their favour should be summarily assessed and paid forthwith.

17.  After the hearing, I am given to understand that the relevant parties have agreed for the dismissal of the claim against the Melco Defendants.  The relevant parties have also confirmed that they do not require the court to give the decision on costs vis-à-vis K&L Gates and the Melco Defendants. 

18.  K&L Gates has adopted a mechanical approach in arriving at the proposed percentages, mainly by reference to the number of requests finally ordered by the court.  This is not the right approach as the time and costs incurred in relation to the different classes of documents requested are not the same.  Furthermore, I did not order some specific discovery because K&L Gates had dealt with such requests in the affirmation evidence.  It was not the case that the Defendants had no basis to make these discovery requests in the first place.  The same applies to the various requests that the Defendants did not pursue at the hearing as they were adequately dealt with in the subsequent affirmations. 

19.  As demonstrated by the arguments advanced at the hearing, the main disputes between the parties relate to the following issues: (i) whether the relevant Defendants are entitled to the clients account documents; (ii) whether the relevant Defendants are entitled to conduct a fund flow analysis to trace the funds transferred to the different Defendants and their casinos; (iii) whether the relevant Defendants are entitled to the information in the different escrow actions; and (iv) whether the relevant Defendants are entitled to some of the documents involved in the related criminal investigation against Aggarwal.

20.  It is fair to say that the Defendants, in substance, succeeded on all these major issues.  Considering the extent of the discovery finally ordered by the court, the relevant Defendants should be regarded as the winner in the discovery applications.   In my judgment, ordering K&L Gates to pay 80% of the costs of the Casino Defendants is appropriate in the circumstances.

21.  K&L Gates also complains of duplication of costs by the Defendants.  The Wynn and Melco Defendants were represented by the same firm of solicitors, i.e. Mayer Brown, and yet they instructed two teams of counsel to argue their case.  K&L Gates submits that the court should not allow the additional costs arising from such duplication of legal representation.  The Venetian Defendants were represented by another firm of solicitors, i.e, Deacons.  However, their application is in substance the same as those of the other Defendants, and so the court should only allow one set of costs for their counsel. 

22.  I disagree.  The Defendants are fierce rivals in the same line of business.  Their relationship extends much wider than in this litigation.  It is unreal to suggest that there is some unknown principle of law requiring them to instruct the same legal team, and potentially share confidential information of their ways of operation with each other.   Given the manner in which K&L Gates chose to advance its claims, which involves a claim for breach of duty with respect to what it alleges the Casino Defendants should have done with respect to the regulatory authorities in Macau, that necessarily involves highly confidential information relating to the operations of the respective casinos and their regulatory compliance.  It is inconceivable that the Casino Defendants could possibly engage the same set of lawyers to advise them.

23.  It is clear that the cases that have to be met by the different groups of casinos at the trial are very different.  The facts of the respective cases against them are not the same.  There will be different set of witnesses for these claims and there would be different practices for different groups of casino.  Under such circumstances, the Casino Defendants should have different legal teams to take care of their different, and yet may not be completely conflicting, interests.  On the basis that there should be different teams of counsel at the trial, it is reasonable for them to have their own counsel to take care of the interlocutory applications.  Though their applications may involve similar arguments, the specific documents requested may be different depending on the facts of the claim against individual group of casinos.  Hence, no discount should be made relating to the separate engagement of counsel.

24.  However, I agree to vary the costs order in respect of the summons for further and better particulars taken out by the Wynn Defendants.  K&L Gates provided the answers long after the Wynn Defendants issued the further and better particulars summons.  They then indicated to K&L Gates in the letter dated 25 August 2017 that they would not pursue the summons.  Under such circumstances, the appropriate order in respect of such summons would be no order as to costs.  This would have been the position if the Wynn Defendants had accepted the answers shortly afterwards, and plainly, no further costs would be generated under this summons after the answers.  Subject to such variation, I order that the costs order nisi made on 27 November 2017 be made absolute so far as it relates to costs vis-à-vis K&L Gates on the one part and the Wynn and Venetian Defendants on the other.

25.  I refuse to order any summary taxation of costs.  The taxation of the said costs may not be a straightforward matter, and there are different sets of costs involving different Defendants.  As a lot of time has already been spent on the substantive applications, this court should not take up the additional workload in doing the summary taxation.  Instead the court and the parties should now focus on the progress of the case, and that is why I also refuse to order the costs to be paid forthwith.

26.  I make a costs order nisi that the costs of K&L Gates’ Costs Variation Application be paid by K&L Gates to the relevant Defendants and there be no order as to costs of the Costs Variation Application by the Wynn Defendants, which shall be made absolute 14 days after the date of the handing down of this Decision on Costs.

Mr Russell Coleman, SC and Ms Frances Lok, instructed by Robertsons, for the Plaintiffs in both actions

Ms Carrie Chow, instructed by Mayer Brown, for the 8^th Defendant in HCA 1061/2011 and the Defendant in HCA 349/2012

Ms Eva Sit, instructed by Deacons, for the 9^th and 11^th Defendants in HCA 1061/2011

Mr Bernard Man, SC and Mr Keith Lam, instructed by Mayer Brown, for the 10^th and 14^th Defendants in HCA 1061/2011

HCA 1061/2011 & HCA 349/2012

(Consolidated)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1061 OF 2011

_____________

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 349 OF 2012

_____________

(Consolidated by the order of
Deputy High Court Judge B Chu dated 10 July 2013)

_____________

_____________

DECISION

_____________

1.   These are discovery applications by the various Defendants.

BACKGROUND

2.  The 1^st Defendant, Navin Kumar Aggarwal (“Aggarwal”), is a former solicitor practising in Hong Kong and the senior partner of the Plaintiff which is a solicitors’ firm known as “K&L Gates”.  Aggarwal is alleged to have misappropriated large sums of moneys from K&L Gates’s client account (“the Client Account”)[1] and used the same to gamble at various casinos in Macau.  K&L Gates is now suing for recovery of these sums from Aggarwal and the various casinos who received the sums allegedly misappropriated by Aggarwal.  K&L Gates is also claiming for damages caused by breach of duty on the part of the casinos.

3.   By reason of the criminal conduct on the part of Aggarwal, K&L Gates is facing numerous claims by third parties.  According to K&L Gates, there were two types of misconduct by Aggarwal giving rise to these claims:

(i) Aggarwal misappropriated moneys and shares belonging to 4 clients of K&L Gates (“the Clients”).   K&L Gates has since made full restitution to the Clients, the sum of which amounts to HK$137 million.[2]

(ii) There were other entities who entered into purported escrow agreements with K&L Gates whereby their funds were paid into the Client Account for one RIM China Co Ltd (“RIM China”), a bona fide client whose file was non-active.  It is said that the payers of these moneys (“Non-Clients”) were never K&L Gates’ clients.

4.   These Non-Clients have issued proceedings (“Escrow Actions”) against K&L Gates claiming return of the moneys deposited into the Client Account under the purported escrow arrangements, as it is alleged that Aggarwal had misappropriated those sums.  The Escrow Actions are being contested by K&L Gates and are ongoing, and I am also the judge assigned to case-manage and adjudicate the Escrow Actions.

5.  There had been criminal prosecution brought against Aggarwal and he was sentenced to a long term of imprisonment.  K&L Gates has obtained default judgment against him in this action.

6.  The remaining active Defendants are casinos, junket operators or their purported agents who received the moneys misappropriated by Aggarwal, and they are related to 4 casino groups in Macau:

(i) the 4^th, 7^th and 13^th Defendants in HCA 1061/2011 are related to “Crown Casino” (“the Crown Defendants”);

(ii) the 8^th Defendant in HCA 1061/2011 and the Defendant in HCA 349/2012 are related to “Melco Casino” (“the Melco Defendants”);

(iii) the 9^th and 11^th Defendants in HCA 1061/2011 are related to “Venetian Casino” (“the Venetian Defendants”); and

(iv) the 10^th and 14^th Defendants in HCA 1061/2011 are related to “Wynn Casino” (“the Wynn Casino”).

7.  These Defendants (“the Casino Defendants”) are now applying for discovery against K&L Gates.

8.  There is a common feature for the fraud committed by Aggarwal. The Non-Clients deposited the funds in the Client Account pursuant to certain escrow agreements, under which K&L Gates or Aggarwal agreed to hold the sums in escrow in return for payment of “interests” to these Non-Clients.  These funds were held in the Client Account under the name of a dormant company RIM China.  Eventually, Aggarwal falsified payment instructions and he managed to transfer these funds in the Client Account to other entities, and through this modus operandi, Aggarwal was able to misappropriate the funds of various Non-Clients.

9.  Substantial funds were eventually transferred to various casinos in Macau and Aggarwal lost all such moneys through gambling.  In this action, K&L Gates seeks to recover these funds from the Casino Defendants.

10.  The basis of the claims against the Casino Defendants can be summaried as follows:

(i) K&L Gates seeks recovery of the amounts transferred to the various casinos on the basis of knowing receipt or money had and received, on the ground that the Casino Defendants are alleged to have knowledge of Aggarwal’s fraud such as to make it unconscionable for them to retain the benefit of the receipt.

(ii) K&L Gates alleges that the Casino Defendants acted in breach of a duty of care for failing to make certain anti-money laundering reports to the relevant Hong Kong and Macau authorities in relation to the transfers.  It is alleged that if timely reports had been made, police investigation would have commenced, and Aggarwal’s fraud would have been “intercepted, prevented, or curtailed”.  K&L Gates claims to have suffered “loss and damage to be assessed”, the quantum of which will be higher than the sums transferred to the particular Casino Defendant.

11.  Broadly speaking, the defences of the Casino Defendants against the knowing receipt and money had and received claims are as follows:

(i)   The Casino Defendants deny having received the sums with the requisite knowledge, whether actual or imputed, that the sums belonged to K&L Gates and were not Aggarwal’s funds, or of other circumstances putting them on inquiry.  They reasonably believed that the transfers were legitimate transfers for various reasons, including that: K&L Gates, as an international law firm, would have a proper internal system to prevent unauthorised withdrawals, the K&L Gates’ banks were satisfied that the withdrawals were properly authorised, and the fact that the Hong Kong authorities did not raise any issue with the transfers upon their reports[3].

(ii) The sums were received by the Casino Defendants for valuable consideration, i.e. for Aggarwal’s gambling activities or settlement of outstanding credit.  They also rely on the defence of change of position.

12.  For the breach of duty claims, the Casino Defendants deny the existence of any duty of care or breach of any alleged duty of care.

13.  The Casino Defendants also aver that:

(i) The partners or accounting staff of K&L Gates who co-signed or prepared payment instructions with Aggarwal knew or ought to have known of the alleged misappropriation of funds from the Client Account, and such knowledge would be imputed to K&L Gates.

(ii) Alternatively, if such signatures by the co-signing partners were forged, then K&L Gates’ banks had no authority to make the payments and are liable to reverse the entries, so that K&L Gates has suffered no loss.

(iii) If Aggarwal had no authority from K&L Gates to enter into the purported escrow agreements, the moneys deposited by the Non-Clients would be treated as moneys paid to Aggarwal but not K&L Gates, so that K&L Gates was not liable to the Non-Clients (and would have suffered no loss for which K&L Gates can claim), and also had no title to sue for such moneys from the Casino Defendants.  It is also denied that the moneys apparently credited to RIM China were client moneys held by K&L Gates on trust for RIM China or any client.

(iv) K&L Gates ought to have discovered Aggarwal’s fraud by reason of its system of internal control and risk management and that Aggarwal’s fraud would not have gone unnoticed for such long periods of time.

14.  By reason of the matters pleaded, I agree with Mr Man, SC, counsel for the Wynn Defendants, that the court needs to deal with the following issues at the trial:

(i) Whether, in terms of the bank mandates, the individual transfers were made with proper authority from K&L Gates.

(ii) The circumstances under which the payment instructions for the transfers were made and identity of persons (in addition to Aggarwal) who gave them on behalf of K&L Gates, and whether they had actual or constructive knowledge of Aggarwal’s misconduct in relation to the transfers.

(iii) The true nature and terms of the escrow arrangements, whether they were valid or whether Aggarwal had authority from K&L Gates to enter into such arrangements (so that they were binding on K&L Gates), and thus whether K&L Gates had title to the moneys received from the Non-Clients. These further raise the issue of whether the transfers to the Casino Defendants came from such moneys from the Non-Clients.  This is because if the source of funds for the transfers were moneys that came from the Non-Clients, then K&L Gates has suffered no loss and cannot maintain the claim against the Casino Defendants in respect of the transfers.  Those funds were simply the funds of the Non-Clients or Aggarwal.

(iv) Further, if K&L Gates successfully resisted the claims by the Non-Clients in the Escrow Actions, K&L Gates cannot then recover the same sums from the Casino Defendants.  Thus, the progress and merits of the Escrow Actions, including K&L Gates’ stance in resisting the claims by the Non-Clients are also relevant.

(v) The status of RIM China and its client account with K&L Gates, including whether it was a genuine client of K&L Gates, how its account was operated by Aggarwal and how money was moved in and out of its client account. This also relates to whether the other partners of K&L Gates knew or ought to have known of the fraud.

(vi) What, if any, internal system of control or governance or risk management were in place. This also relates to the knowledge (actual or constructive) of the other partners of K&L Gates of the fraud.

(vii) Given that K&L Gates is now claiming against the Casino Defendants loss and damage arising from Aggarwal’s fraud not being discovered earlier, i.e. the loss from Aggarwal’s fraud after it could have been discovered, K&L Gates’ claims against the Casino Defendants are not limited to the losses it suffered from the transfers received by the Casino Defendants.  This means that the reasonableness of any settlement K&L Gates has reached for claims made against it (by its clients or the Non-Clients) and the restitutions made, and thus the merits of such claims, are relevant.

RELEVANT LEGAL PRINCIPLES

15.  The following legal principles for specific discovery applications are trite:[4]

(i) There is no jurisdiction to make an order under RHC O.24 r.7, unless (1) a document exists which the other party has not disclosed, (2) it is in or has been in the respondent’s possession, custody, or power, and (3) the document is relevant.

(ii) The discovery must be necessary either for disposing fairly of the cause or for saving costs.[5] The court should have regard to third party interests, including confidentiality, in deciding whether to order discovery.

(iii) Jurisdiction aside, the court has a discretion not to order disclosure.

(iv) The order must identify with precision the documents or categories of documents which are required to be disclosed, for otherwise the person making the list may find himself in serious trouble for swearing to a false affidavit, even though doing his best to give an honest disclosure.

(v) Where discovery is sought in relation to a class of documents, it is important that the class should not be defined or described too widely, and should not be defined so as to include documents which are not relevant.

(vi) Statements in a party’s affidavit of documents are conclusive. The respondent may answer an application for specific discovery by an affidavit stating that he does not have the documents, and this will be conclusive at the interlocutory stage.

16.  In respect of relevance, the test remains that of Peruvian Guano relevance, i.e. the document is relevant if: (1) it is reasonable to suppose that it contains information which may, not must, either directly or indirectly enable the party requiring the same either to advance his own case or to damage the case of his adversary; or (2) it is a document which may fairly lead the party to a train of inquiry which may have either of those two consequences.[6] However, the courts have also cautioned the excessively wide application of the Peruvian Guano test.  Ultimately, the question is whether the discovery is necessary for disposing fairly of the proceedings.[7]

17.  Despite the Peruvian Guano test for relevance, "fishing" is not allowed, and discovery should not be oppressive. If oppression is suggested, the court will weigh any such potential oppression against the possible injustice that would be caused if the materials were not available at trial.[8]

18.  In terms of necessity of order discovery, it is up to the party objecting to discovery to show that it is not necessary for disposing fairly of the cause or for saving costs.[9]

19.  Further, the court should take into account the objectives of the CJR, which are to promote proportionality, cost effectiveness and fairness between the parties[10], in considering any discovery application.

20.  If the court is of the view that a request is oppressive, too wide or imprecise, where such request contains within it a proper request which can be revealed without prejudice to the other side, the “blue pencil” test can be applied to limit the scope of the order.[11]

21.  There is also an issue here as to whether K&L Gates is entitled to redact the contents of some of the disclosed documents on the ground of irrelevance and legal privilege.  Mr Coleman, SC, counsel for K&L Gates, submits that a party is entitled to redact parts of a document which he claims to be irrelevant or privileged.  Generally, the oath of the party giving discovery is conclusive.

22.  But there is qualification to such broad principle.  Whilst redaction for irrelevance is permissible, it can only be done if it does not destroy the sense of the document or makes it misleading.[12] Further, the oath of the party giving discovery on irrelevance is not conclusive if it can be shown from the documents produced, or the respondent’s own affidavits, or necessarily from the circumstances of the case that the assertion on oath does not truly state that which it ought to state.[13]

23.  The burden is on the applicant to show that a redaction has been done wrongly.[14]

24.  The relevant principles as to claiming privilege and challenging such claims are restated by Beatson J in West London Pipeline & Storage Ltd v Total UK Ltd[15]as follows:

(i) The burden of proof is on the party claiming privilege to establish it.  A claim for privilege is an unusual claim in the sense that the party claiming privilege and that party's legal advisers are, subject to the power of the court to inspect the documents, the judges in their or their own client's cause. Because of this, the court must be particularly careful to consider how the claim for privilege is made out and affidavits should be as specific as possible without making disclosure of the very matters that the claim for privilege is designed to protect.

(ii) The claim for privilege should be specific enough to show something of the deponent’s analysis of the documents or, in the case of a claim to litigation privilege, the purpose for which they were created.

(iii) Although generally an affidavit of document is conclusive, this may not be so if, inter alia, it is reasonably clear that the affidavit is incorrect or incomplete on material points.

SUBJECT DOCUMENTS FOR THE DISCOVERY APPLICATIONS

25.  There are numerous requests made by the various Casino Defendants.  Broadly speaking, the requests can be grouped under the following 5 types of documents:

(i) bank authorisation documents, bank statements and internal audit documents relating to the Client Account;

(ii) documents relating to the criminal proceedings against Aggarwal;

(iii) documents relating to the Escrow Actions and the claims by the other clients;

(iv) documents relating to the operation of the Rim China’s ledger account; and

(v) internal correspondence within K&L Gates and with its bankers.

26.  For easy reference, I would use “C”, “M”, “V” and “W” as referring to the requests made by the Crown Defendants, the Melco Defendants, the Venetian Defendants and the Wynn Defendants respectively.  For example, “M1” would mean the 1^st request by the Melco Defendants and “W6” would mean the 6^th request by the Wynn Defendants.

(i)   Bank authorisation documents, bank statements and internal audit documents

27.  The Casino Defendants are not pursuing some of the requests.  The outstanding requests are: C(i)&(ii), M1-5, M7-12, M27, V4, V6, V8, W1-6, W8-9 and W24.

28.  I have no hesitation in ordering discovery for the bank documents under M1-2, V4 and W1-3.  These are account opening documents and mandates for the Client Account which are clearly relevant and material for the court in determining the issues mentioned in §§14(i), (ii) and (v) above.  In order to understand and assess K&L Gates’ assertion of lack of authority, one relevant aspect is to consider whether what happened in respect of the authorization of the transfers were consistent with the mandate given to the banks or the internal signing protocol of K&L Gates.  Hence these documents should be disclosed.

29.  The requests under C(i), M4-5, V6&8 and W4-5 relate to: (i) the bank statements and transaction records of the Client Account referred to by K&L Gates in this action (presumably because they are relevant to Aggarwal’s misconduct) for the period between May 2007 and June 2011 (“the Period”), during which Aggarwal entered into escrow arrangements with the Non-Clients, and thus the period during which their moneys were paid into the Client Account; and (ii) reconciliation statements and client’s ledgers of the Client Account within the Period.

30.  There is a serious dispute between the parties as to whether the Casino Defendants are entitled to conduct a fund flow analysis of the Client Account.  As to the funds transferred to the Casino Defendants, K&L Gates at present makes no distinction between such moneys originating from the Clients and Non-Clients and does not identify which of its Clients or Non-Clients did such moneys originate from.

31.  Obviously, K&L Gates does not want the Casino Defendants to conduct such exercise because the documents are voluminous and they contain a lot of information relating to other clients which is confidential in nature.  That is why K&L Gates is only prepared to disclose some redacted bank statements and documents showing only the transfer of the funds to the Casino Defendants.  However, the heavy redactions make it impossible for the Casino Defendants to conduct any meaningful fund flow analysis of the Client Account.

32.  In my judgment, the Casino Defendants are entitled to conduct such exercise in order to trace the source of the moneys transferred to them.

33.  According to the materials revealed in the criminal proceedings against Aggarwal:

(i) Between May 2007 and June 2011, Aggarwal approached 92 potential investors and falsely represented to them that: (1) Aggarwal had business opportunities for them and that they were required to deposit moneys with K&L Gates in escrow as proof of funds; (2) K&L Gates would act as their escrow agents and would only deal with the funds at their direction; (3) interest would be paid for the deposits.

(ii) The potential investors entered into escrow arrangements with Aggarwal and deposited funds with K&L Gates.  The total sums deposited during this period was HK$8.1 billion. These sums were transferred into the ledger account of RIM China with K&L Gates at Aggarwal’s direction.

(iii) Aggarwal would submit forged payment instructions purportedly from RIM China directing K&L Gates to remit funds out of RIM China’s ledger account.

(iv) “Inter-account” transfers were identified for the moneys going into and out of RIM China’s ledger account which suggests that the funds had been mixed.  In other words, the moneys in RIM China’s ledger account would include traceable proceeds of the moneys of Non-Clients and other genuine clients.

34.  In order to ascertain the source of the funds for the transfers which were paid out from RIM China’s ledger account (and whether they came from the Non-Clients), which is obviously a relevant matter in considering the issue of causation, it is necessary for the Casino Defendants to conduct a fund flow analysis.  Such an exercise by nature requires an analysis of the other movements of funds into and out of RIM China’s ledger account up to the time of the transfers. Given that there were inter-client account transfers, the analysis must cover not only the RIM China ledger account but also K&L Gates’ other clients’ ledger accounts. The requested documents are clearly relevant for this purpose.

35.  Other than irrelevance, K&L Gates also resists discovery on the ground that the requests are “extremely oppressive” because they involve thousands of transactions of over 4 years relating to other genuine clients. It is said this would be unnecessary and disproportional.

36.  However, I do not accept that the scale of work involved is a valid objection for discovery in the present case.

37.  As explained above, given the nature of the issue of the source of funds, these documents are necessary for the carrying out of a meaningful fund flow analysis.  Indeed they are central to the issue of the title of the moneys used to pay out the transfers.  It is not suggested that K&L Gates does not have the resources or other difficulties to produce the documents, and K&L Gates has not given particulars of the alleged “extreme oppression”.  In all likelihood, these documents would be well-organised and accessible reasonably easily.  Further, it appears that K&L Gates has already conducted its own fund flow analysis in respect of the movement of funds in the Client Account, which is its own evidence in Top Point Ltd v K&L Gates[16]. Finally, I agree with the observation of Mr Brown, counsel for the Crown Defendants, that this litigation is, by any measure, “big ticket” litigation being conducted by well-funded and resourced parties.  While proportionality is always a legitimate consideration, the additional strain on the parties to obtain, list and copy further documents that are undoubtedly in K&L Gates’ possession is, realistically, de minimis in the scheme of these proceedings.  Hence, the probative value of these documents and the substantial quantum of the claims clearly outweigh any alleged prejudice to K&L Gates.

38.  Finally I have to deal with the question of confidentiality.  I agree that the bank statements, reconciliation statements and clients’ ledgers may contain a lot of confidential information about other clients which are not related to the fraud.  Hence, I agree with the suggestion made in the hearing that K&L Gates should have the liberty to redact the names of their clients so long as they are represented by client numbers.  The bottom line is that the information supplied should enable the Casino Defendants to conduct a meaningful fund flow analysis to trace the source of the funds eventually transferred out to the casinos.

39.  For the above reasons, I order discovery of these documents subject to appropriate redactions.  In order to be more specific, I would refer the documents as “reconciliation statements and client’s ledgers” in place of the description “management accounts and cash low reports/statements”.  C(i), V4, 6 & 8 contain similar requests.  For the sake of consistency and to avoid the wide description of documents in C(i), I would use the same wordings in the requests by the Wynn Defendants to describe these documents so that K&L Gates does not deal with different sets of requests.

40.  The Melco and Wynn Defendants are not pursuing the requests under M5, M49-50, M73-79 and W6, W46, W63-69 respectively because the documents would be covered by the requests under M3-4 and W4-5, which I have ruled in favour of these Defendants for disclosure.

41.  For the requests under M7-12 and W8-9 for the supply of the unredacted version of the documents, parties agree that it would not be necessary for the court to make any further order as these documents would be covered by the previous requests for bank statements.

42.  For the internal audit documents under C(ii), M27 & 68 and W24 & 58, since K&L Gates has already filed an affidavit confirming that no such documents exist[17] and such answer should be treated as conclusive, I would not make any order for discovery of these documents.  M68 and W58 contain similar requests and likewise I would not make any order for discovery.

(ii)    Documents relating to the criminal proceedings

43.  The outstanding requests are M37 & 38, V12, and W34 & 35.

44.  The requests relate to the seizure list setting out the documents and items seized by the police in respect of the criminal investigation against Aggarwal and the witness statements given by the partners and staff of K&L Gates to the police in respect of such criminal investigation.

45.  In my judgment, these documents should be disclosed.  They are related to Aggarwal’s fraud which is an important element in the present case giving rise to all the claims against the Casino Defendants.  The seizure list may reveal other items and documents unknown to the Casino Defendants.  For the witness statements, they may contain relatively contemporaneous evidence from K&L Gates’ partners and staff relating to Aggarwal’s fraud.  One can also expect that they may contain explanations of K&L Gates’ internal system, and why the fraud had not been discovered earlier, and the knowledge of the individual staff and partners.  These are certainly relevant to the issues in the present case.

46.  The mere fact that K&L Gates’ partners have now given witness statements in this action does not mean that the previous statements are not relevant or not necessary.  The Casinos Defendants must be entitled to cross-check the versions given previously for any inconsistency or additional information.  Indeed, it can reasonably be expected that the contents of the statements given to the police would be different from those given in this action, not least because in this action, K&L Gates can choose who would be witnesses (e.g. there are no accounting or other staff) and what the witnesses would say in the witness statements.

47.  The documents should not be voluminous and so oppression is not a valid consideration.

48.  I understand that the courts had ordered discovery of similar documents in one Escrow Action[18] but denied similar request in another one[19].  In any event, these decisions are not binding on this court.  Further, the issues in the Escrow Actions and those in the present action against the Casino Defendants may be slightly different, and so different considerations apply. 

(iii)   Documents relating to the Escrow Actions and the claims by other clients

49.  The outstanding requests are C(iii), M40-44, 67, V7 and W37-41, 57.

50.  These requests relate to: (i) the documents in the Escrow Actions; (ii) settlement agreements between K&L Gates and the plaintiffs in the Escrow Actions or other Non-Clients who are not plaintiffs in the Escrow Actions; and (iii) all escrow agreements whether they relate to the Escrow Actions or not.

51.  This action is clearly related to the Escrow Actions, as substantial portion of the funds transferred to the Casino Defendants originated from the plaintiffs in the Escrow Actions.  K&L Gates claims that the persons who paid the moneys into the Client Account are not their clients, and that it should not be liable to the plaintiffs in the Escrow Actions because, inter alia, receiving these payments pursuant to such escrow agreements did not fall within the ordinary business of solicitors’ firm.  Obviously, if K&L Gates succeeds in defending the Escrow Actions, the Casino Defendants may have a good case in arguing that K&L Gates is not able to recover the amounts transferred to the casinos the funds of which originated from the plaintiffs in the Escrow Actions.  Put it simply, the moneys in the RIM China’s ledger account were not K&L Gates’ moneys.  In such case, the Casino Defendants need to know the issues, the progress and the results of the Escrow Actions.  There may be a lot of documents involved, but I cannot see how K&L Gates can seriously object the disclosure of these documents.  In any event, I do not find the exercise oppressive.  After all, it is K&L Gates who seeks to recover substantial transferred funds and damages from the various Casino Defendants, and it would be grossly unfair to the latter if they are not allowed to investigate the transactions and the legal proceedings giving rise to such claims.

52.  Mr Coleman argues that the results of the Escrow Actions are not relevant.  Even if the plaintiffs in the Escrow Actions fail in their claims against K&L Gates, the Casino Defendants would not be entitled to keep the funds transferred to them.  As compared with the Casino Defendants, K&L Gates has a better title in respect of the transferred funds.

53.  This is a bold submission.  If K&L Gates succeeds in defending the Escrow Actions on the ground that the plaintiffs were not their clients and that it did not hold the funds for them, then those plaintiffs may be able to sue the Casino Defendants for the return of those funds.  Does it mean that the Casino Defendants would have to pay twice for the transfer of the funds?  This simply cannot be right.

54.  In his written submission, Mr Coleman concedes that these documents are at least relevant to the quantum of K&L Gates’ breach of duty claim, but he argues that discovery for the purpose of the assessment of damages exercise is premature.  I disagree.  There is no order for split trial and so the discovery cannot be said to be premature.  In any event, the Casino Defendants are entitled to obtain these documents to enable them to consider the issue of quantum and to make appropriate decisions for the future conduct of the case.

55.  So far as the settlement agreements are concerned, it is not necessary for me to deal with such requests because K&L Gates agrees to provide information relating to these settlement agreements.  If the Casino Defendants are still pressing for the documents, I understand that notification would be given to the counterparties of these agreements so that they can address the court on any confidentiality issue.  V7 contains similar request and so I would treat it the same way.  However, I must emphasise that the reasonableness of the settlement and thus the amount of the settlement sum are highly relevant for the court in determining the reasonableness of the quantum of the claim against the Casino Defendants.

56.  Finally, I come to the escrow agreements themselves.  It is difficult to see how K&L Gates can resist this request, as they are clearly relevant to the merits of the Escrow Actions generally and also specifically to the issue of Aggarwal’s authority to bind K&L Gates to such agreements.

57.  As can be seen from DHCJ Saunders’ decision in Hind International Investment Ltd v K&L Gates[20], K&L Gates itself obtained expert evidence as to whether such escrow arrangements are within the usual business of a solicitors’ firm.  Such evidence is equally relevant in this action and the Casino Defendants cannot begin to consider the point unless the escrow agreements had been disclosed.

58.  In this regard, the Wynn Defendants agree that the discovery should be limited to the agreements which form the “purported escrow arrangements” and the “bogus loan arrangements” referred to in §12(a) of the Re-Re-Amended Statement of Claim, which were entered into with K&L Gates by the Non-Clients who had either commenced Escrow Actions against K&L Gates or those who K&L Gates has compensated or settled with it without proceedings having been commenced.  I would therefore limit the discovery to these documents as against all other Casino Defendants.

59.  C(iii) and V7 contain similar requests.  For the sake of consistency, I would use the same wordings in the requests by the Wynn Defendants to describe these documents so that K&L Gates does not need to deal with different sets of requests.  Parties also agree that M67 and W57 are in substance the same as the previous requests and so there is no need for the court to make additional discovery order.

(iv)    Documents relating to the operation of Rim China’s ledger account

60.  The outstanding requests are M45-48 and W42-45.

61.  I do not order discovery of these documents on the ground that K&L Gates has adequately dealt with such requests in the affidavits.

62.  In these requests, the Casino Defendants ask for documents relating to the opening of Rim China’s ledger account, the correspondence between K&L Gates and Rim China, invoices issued by K&L Gates to Rim China, etc.  However, Tso Shiu Kei Vincent (“Tso”) in §§ 35-38 of his 20^th Affidavit has provided a detailed account as to how Aggarwal was able to send forged instructions to K&L Gates for moneys to be transferred to the ledger of Rim China’s ledger account.  Tso also confirms that there were no communications, correspondence or invoices involved.  Mr Coleman also submits that all the accounting vouchers (which contain the forged client instructions) in relation to the transfer to the Casino Defendants have been disclosed.[21]  All the bank records relating to Rim China’s ledger account should have been covered by the previous order for discovery.  As to the documents relating to the opening of Rim China’s ledger account, since such ledger account was opened long time before the fraud committed by Aggarwal and Aggarwal only made use of such dormant client, I agree with K&L Gates that such documents are not relevant to the issue of this case.  However, I do not rule out the possibility that these documents may be relevant after considering further materials to be disclosed from the new documents.

63.  There is one troubling issue.  K&L Gates says that there is a “company secretarial file” which is subject to legal privilege.[22] I agree with the Casino Defendants that this is not a sufficient assertion of privilege.  No particulars are given as to why such file, if it contains relevant materials, is subject to legal privilege.  K&L Gates should therefore provide further explanation in this regard.  In addition, it is not disputed that K&L Gates has to disclose all the forged instructions and related documents given by Aggarwal (presumably on behalf of Rim China) to K&L Gates for the transfer of the moneys to the Casino Defendants.  I am of the view there is still some ambiguity in the affidavits as to whether K&L Gates has disclosed all such documents.  Hence, further clarification should be made.

(v)   Internal correspondence within K&L Gates and with its bankers

64.  The outstanding requests relating to the internal correspondence within K&L Gates and its bankers are C(iv)-(v), M53-65, V5 and W49-55.

65.  The Casino Defendants seek discovery of the documents relating to a meeting between Aggarwal and Tso on 16 June 2011, the internal correspondence in respect of the making of the various transfers and the internal correspondence in respect of the enquires made by K&L Gates’ banker about the transfer of funds.

66.  I first deal with the documents relating to the meeting on 16 June 2011.  In the Re-Re-Amended Statement of Claim[23], K&L Gates avers that Aggarwal made an admission about his unlawful activities and provided a written admission.  Obviously, the matters discussed at that meeting get to Aggarwal’s own version of his fraud and are clearly relevant to the claims against the Casino Defendants.  One would expect that there would be meeting notes or attendance notes and also further internal communications in relation to this meeting, and the same should be disclosed in this action.

67.  In respect of this request, K&L Gates asserts that “there are no discoverable documents”, and that “insofar as there are documents in existence, these documents were created in conjunction with the Firm’s legal advisers and are therefore subject to legal privilege”.^[24]

68.  I cannot accept such legal privilege claim:

(i) It is not understood how Tso could swear to the content or purpose of the documents if he is also saying that the documents do not exist, or that he does not know if they exist.

(ii) It appears from Tso’s witness statement that the meeting was only between Tso and Aggarwal.^[25] There is no suggestion that there were legal representatives of K&L Gates present.  It is not understood how any attendance notes could have been created “in conjunction with the Firm’s legal advisors”.

(iii) To create a document “in conjunction with one’s legal advisors” does not explain the content or purpose of the document, and therefore is not a valid claim of legal advice or litigation privilege.  Indeed, it is difficult to see how e.g. internal correspondence between partners on the meeting could have been “created in conjunction with” K&L Gates’ legal advisors.

(iv) Given that K&L Gates has summarised and relied on the contents of the meeting in its pleadings and witness statements, any privilege over the meeting must have been waived.

69.  I then turn to the documents relating to the enquiry by K&L Gates’ banker.  On 17 August 2010, Shirley Yuen, the relationship officer in HSBC of K&L Gates’ accounts, contacted Michael Chan (partner) of K&L Gates to inquire into a number of transactions through K&L Gates’ account involving payments to (signed by Aggarwal and Stephen Lo) and from some casinos, specifically to check whether those transactions were for legitimate and proper business transactions that K&L Gates undertook for its clients.  Following that, Michael Chan emailed Aggarwal, Clifford Ng and Stephen Lo (partners of K&L Gates) to inquire about the same.

70.  The emails show that two things happened after Shirley Yuen’s call:

(i) Michael Chan and Clifford Ng followed up with Aggarwal to seek an explanation on these transactions with the casinos.  It appears that there was a conversation between Aggarwal and Michael Chan; separately Aggarwal also promised to provide more information to his partners.

(ii) Aggarwal agreed to provide documents to Shirley Yuen to substantiate the supposed legitimacy of these transactions, but the attachment to the letter is missing.

71.  Accordingly, the emails suggest that there was internal correspondence between the partners (at least between Aggarwal, Michael Chan, Clifford Ng and Stephen Lo) whereby Aggarwal provided an explanation and information about these transactions which were queried by HSBC, which would clearly be relevant to the extent of knowledge these other partners had on these payments which were made out from K&L Gates Client Account to the casinos and other related issues identified above.

72.  The same applies to the internal correspondence relating to the making of the various transfers, which is again relevant to show how Aggarwal managed to transfer substantial funds from the Client Account and the extent of knowledge of the other partners about Aggarwal’s fraud.

73.  Insofar as K&L Gates seeks to rely on any claim for legal privilege, there is simply nothing before the court to explain why such internal correspondence is privileged.  At least, the court is entitled to know the circumstances under which such internal correspondence was created, and so the absence of such particulars is fatal to the claim for legal privilege, in particular such correspondence is highly relevant as to whether the other partners of the firm were aware of Aggarwal’s fraud and the circumstances under such the transfers were made.

74.  K&L Gates has disclosed some documents but in redacted version.

75.  The Casino Defendants ask for the unredacted version of the email contained in #73 of K&L Gates’ List of Document (“LoD”).  The relevance of such email is not in issue, but the redaction is sought to be justified on legal privilege, allegedly because they were emails exchanged between K&L Gates’ partners and K&L Gates’ legal advisers subsequent upon discovery of Aggarwal’s fraud[26]. However this explanation is inconsistent with K&L Gates’ own materials.  In LoD, K&L Gates describes #73 as emails which were dated 17 to 18 August 2010. That would predate the discovery of Aggarwal’s fraud which K&L Gates claims to be on 9 June 2011[27]. No satisfactory explanation has been given by K&L Gates of such inconsistency, and the existing redactions are to such extent that one cannot even see the date of those emails and cannot begin to verify K&L Gates’ assertion (which on its face is inconsistent with its own LoD description).

76.  There is also a request relating to #78 of LoD.  Relevance is not disputed, but K&L Gates asserts that it “only has this document to disclose”[28]. Normally a party’s assertion on oath that he does not have any document within the class sought is conclusive, but in this case the justification of K&L Gates that it only has #78 is that the attachment has been deleted by Shirley Yuen.  That the attachment might have been deleted by the recipient is not the same as K&L Gates not having possession of the same.  The email and attachment were sent from K&L Gates’ server.  Regardless of whether Shirley Yuen has deleted it, K&L Gates should still have a copy on its own server. K&L Gates has not suggested that the attachment can no longer be located from its own server (and if it did assert that, it would have to provide a convincing explanation as to why it could locate the email but not the attachment).  Absent a proper explanation, I agree that the court simply cannot accept K&L Gates’ oblique assertion that it does not have other document to disclose.

77.  For the above reasons, I allow the requests under M53-65 and W49-55.  C(iv)-(v) and V5 contain similar requests.For the sake of consistency, I would use the same wordings in the requests by the Melco and Wynn Defendants to describe these documents so that K&L Gates does not deal with different sets of requests.

78.  Finally, I deal with the two requests by the Venetian Defendants about the supply of unredacted copies of the documents, namely V1 (which relates to #96 of the LoD) and V2 (which relates to #95 of LoD and other notes or instructions of Aggarwal concerning the transfers).

79.  #96 of the LoD is described as “copy handwritten notes by [Aggarwal]”.  I agree with Ms Sit, counsel for Venetian Defendants, that the document is simply incomprehensible in current redacted form.  The only things which are unredacted are a few isolated references to “pay Venetian”, “pay San Ing” and “pay Wynn”. Looking at it as a whole, it appears to be some form of record showing, inter alia, how moneys were transferred or moved around.

80.  There is no issue about the relevance of such document.  However, K&L Gates claims for entitlement to redact certain materials on the ground of (i) irrelevance and (ii) legal privilege.[29]

81.  As mentioned above, whilst redaction for irrelevance is permissible, it can only be done if it does not destroy the sense of the document or makes it misleading.  The oath of the party giving discovery on irrelevance is not conclusive if it can be shown from the documents produced, or the respondent’s own affidavits, or necessarily from the circumstances of the case that the assertion on oath does not truly state that which it ought to state.[30]

82.  At no time, not even in its affirmation in opposition, did K&L Gates attempt to explain the broad nature of the redacted materials so as to give the court a sense of the materials excluded and why they are not relevant to the issues in this case even in a Peruvian Guano sense.  This is very different from GE Capital Corporation Finance Group Ltd v. Bankers Trust Co[31], where the redaction was very limited and the court was able to work out from the rest of the document what the nature of the redaction was (the identity of the account involved in another transaction which also revealed internal management problems), and formed a view as to relevance.  I agree with Ms Sit that, in the circumstances of this case, the court should not simply accept K&L Gates’ bald assertion of irrelevance when there is nothing available to the court to assess the credibility of this assertion.

83.  I also agree with Ms Sit that the argument that redaction is permissible for legal privilege is not open to K&L Gates. First,K&L Gates has made clear twice that the redaction of #96 is done on the basis of irrelevance only, not privilege.[32]  Second, K&L Gates has also not identified #96 as a privileged document in LoD.  In any event, K&L Gates is not even able to articulate (i) what precisely is the privilege claimed or (ii) what are the circumstances as to the creation of #96 such as to attract privilege.  The allegation in Tso’s 22^nd Affidavit is only a bare assertion, and K&L Gates cannot therefore justify redaction on the ground of legal privilege.

84.  If K&L Gates seek to protect the identity of unrelated clients, I accept that the clients can be referred to by reference to their client numbers.

85.  V2 refers to #95 of the LoD and notes or instructions of Aggarwal of a similar nature concerning the 8 transfers K&L Gates made to Venetian Defendants.  The same reasoning in respect of V1 applies to #95 and so I order the disclosure of the unredacted copy.  Since K&L Gates accepts that #95 is a relevant document, there may be other payment instructions or records of a similar nature in respect of any of the 8 transfers to the Wynn Defendants, the same would likewise be relevant and should be disclosed to them.

86.  There is also a related application for a further and better particular list in respect of some categories of documents.  Since I have already ordered extensive discovery against K&L Gates as mentioned above, I do not see the need to require it to file a further and better list of documents at this stage.   However, I have to remind K&L Gates that discovery is a continuing obligation.  It should also give serious consideration as to whether there should be any other documents that need to be disclosed in light of my ruling above.

87.  The requests are numerous and I hope I have dealt with all of them.  In case of any omission, the parties are at liberty to restore the summonses for further argument.  Further, this Decision can only set out the broad principles for discovery.  There may be slight differences in the requests by the different Defendants, for example the periods for discovery may not be the same because of the timing of the different transfers, and so I expect the parties to work out the details and try to agree on the exact wording of the order in accordance with my decision above.  In case of any disagreement, the parties are at liberty to restore the applications for further argument.

88.  I also make a costs order nisi that K&L Gates should pay to the Casino Defendants 80% of the costs of the various discovery summonses to be taxed if not agreed with certificate for 2 counsel if applicable, which shall be made absolute 21 days after the date of the handing down of this Decision.

89.  There are also summonses for further and better particulars of the Statement of Claim taken out by the Melco and the Wynn Defendants.  However in view of the answers given by K&L Gates, these applications are not pursued.  I also make costs order nisi that the costs of these two summonses be paid by K&L Gates which will also be made absolute 21 days after the handing down of this Decision.

HCA 1061/2011 &
HCA 349/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1061 OF 2011

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 349 OF 2012

____________

________________________

D E C I S I O N

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INTRODUCTION

1. There are 2 applications before the court:

(1)   An application by D2 to strike-out the claim;

(2)   An application by the plaintiff for discovery against D2.

BACKGROUND

2. D1 (“Aggarwal”), was a former partner of the plaintiff (“KLG”). He committed fraudulent breach of trust against KLG by, amongst others, misappropriating monies from KLG’s client accounts.  He confessed transferring those monies to casinos and junket operators in Macau and Australia and their related entities to pay his gambling losses.  KLG has obtained judgment in default against D1 who is now serving his sentence.

3. The Defendants are casinos, junket operators in Macau (D2 being one of them) and Australia and/or their agents who have allegedly received the misappropriated monies. 

4. KLG sues D2 for, amongst others, knowing receipt as constructive trustees and breach of statutory duties.  In respect of the latter, KLG says that D2 has failed to make enquires as an honest recipient would make or to report suspicious transactions and receipt of monies in circumstances that might indicate fraud or criminal conduct to the Macau authorities and Hong Kong police, thereby causing loss to KLG.

5. Specifically against D2, KLG claims HK$128,429,426.99, under 28 transactions from 13 August 2007 to 6 October 2010 (“the 28 Payments”).

6. It is not disputed that the 28 Payments were all made to SAT IENG CO and/or SAT IENG COMPANY (either or both of which shall be referred to as “SIC” below.)  It is also not disputed that there is no evidence of payment by SIC to D2. 

KLG’s case

7. KLG says that SIC was an agent with actual or ostensible authority who received the 28 Payments on D2’s behalf.

8. The business registration records of SIC show that it was an unincorporated business formed in Hong Kong on 1 March 2005.  Man Wai Chiu (“Man”) has been the sole proprietor since then until 2 January 2009, when Ng Kim Ming (“Ng”) joined and a partnership was formed.  Man left on 31 August 2009 and Ng became the sole proprietor.  The business ceased on 30 November 2010.

9. D2 was incorporated in Macau on 14 December 2004.  It had a different place of business from that of SIC.  The initial sole shareholder and director (administrator) was Phua Wei Seng (“Phua”).  Phua transferred his shares to Tang Chien Chang (“Tang”) on 4 January 2007 and ceased to be a director on the same date.  Tang has since been the sole shareholder and director of D2.  He is also deponent for D2.

10. On the face of public documents, there was no connection between SIC and D2.  However, it is KLG’s case that Phua, Man, D2 and SIC were interconnected, that SIC and D2 were closely connected, and/or were the same entity, and/or controlled by the same entities.

D2’s defence

11. D2 accepts that it is regulated by Macau laws.  It denies receipt of the 28 Payments and the alleged agency with SIC.  It denies maintaining the Hang Seng Bank Account (into which the 28 Payments were deposited) or any bank account in Hong Kong. It denies having any business or connection with SIC, or knowledge of or any relationship or connection with Man or Ng.  It alleges that KLG sued the wrong entity. 

LEGAL PRINCIPLES ON AGENCY

12. An agent is a person authorized to act on behalf of a principal so as to affect the principal’s relations with third parties: HKSAR v Cheng Chee-Tock Theodore, FACC7/2014, 21 March 2016, at §51.

13. A principal may confer actual authority, apparent authority, or both on its agent: Bowstead & Reynolds on Agency (12^th ed, 2014), at §3‑001.

14. Actual authority results from a manifestation of assent that the agent should represent or act for the principal expressly or impliedly made by the principal to the agent himself.  It is a legal relationship between principal and agent created by a consensual agreement. It is an authority which the principal has given the agent wholly or in part by means of words or writing, or is regarded by the law as having given him because of the interpretation put by the law on the relationship and dealings of the two parties: Bowstead & Reynolds on Agency (12^th ed, 2014), §§3-001&3-003.

15. The court does not look favourably at arguments that a subsidiary company is agent for the principal company, or that companies or their directors are agents for their human shareholders.  Whether there is such agency would be required to be proved by normal criteria on the facts of each case: Bowstead & Reynolds on Agency (12^th ed, 2014), pp 19-20.

16. Apparent authority results from a manifestation of assent that the agent should represent or act for the principal expressly or impliedly made by the principal to third parties: Bowstead & Reynolds on Agency (12^th ed, 2014), §3-001.

17. The key element to apparent authority is a “holding out” or representation made by the principal to the third parties that the agent has the authority to act on its behalf.  In Yip Lai Fong & anor v Sin Tung Hng & ors [2004] 3 HKC 153 at 159, §17, Lam J (as he then was).

18. The plaintiff has to make it clear whether it is pleading a case of actual, ostensible or apparent authority, and if apparent authority is relied on, it is essential to plead facts which show a “holding out” by the principal that the agent has the authority to enter into the agreement on its behalf: Polima Toys Manufacturing Co Ltd v Super Art Toys Co Ltd, HCA 948/2012, 6 February 2014, DHCJ B Chu (as she then was), §54; Yip Lai Fong,at §17.

LEGAL PRINCIPLES ON STRIKING OUT

19. D2 seeks to strike-out the claim on the ground that it is frivolous or vexatious or is otherwise an abuse of process of the court.  It elects not to rely on the ground of no reasonable cause of action disclosed.

20. The principles have been set out in Hong Kong Civil Procedure 2016, Vol.1,at §§18/19/3, 18/19/4, 18/19/6:

(a)   The Court will strike out a pleading when the applicant has shown that it is plain and obvious that the other party’s claim is bound to fail.

(b)   There should be no trial upon affidavit.  Disputed facts are to be taken in favour of the party sought to be struck out.

(c)   Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.

(d)   If the court does not think the matter to be clear beyond doubt or if it fails to be satisfied that there is no reasonable cause of action or that the proceedings are frivolous or vexatious, there should be no striking out.

(e)   Where the legal viability of a cause of action is sensitive to the facts, an order to strike out should not be made.

(f)  Although a strike out application can be made any stage in the proceedings, it ought to be made promptly and as a rule before the pleadings are closed.

(g)   The mere fact that the case is weak, and not likely to succeed, is no ground for striking it out.

21. In exercising the discretion to strike out, the court will apply commercial and common sense. It is not sufficient just to look at each factual issue one by one and to consider whether it is possible that a party’s story in relation to that issue is credible.  The court must look at the complete account of events put forward by the plaintiff and the defendant and to look at the whole situation.  Courts have becoming increasingly vigilant to ensure wastage of costs, court time and resources does not occur and that an action is kept “on track” for resolution of the real dispute.  This is in line with the spirit of the Civil Justice Reform. The court now has wide-ranging case management powers under Order 1B including the power to exclude an issue from consideration and take any other step or make any other order for the purpose of managing the case and furthering the underlying objectives set out in Order 1A.  See Simply Power Ltd v Billy Chua & ors, HCA 2452/2013, 22 January 2015, Recorder Pow SC, §§29-33.

22. As to delay in taking out a strike-out application, Recorder Kwok SC held in Tang Woung Shiu v Tang Kun Yeung& anor [2002] 3 HKLRD 627 at 635G-639D, §§29-35 that:

(a)   O18, r19(1) provides that the Court may strike out a claim “at any stage of the proceedings”.

(b)   The duty lies fairly and squarely on a party not to put in, and persist on the basis of, a pleading (and a claim) which offends against O18, r19.

(c)   It lacks reason as well as common sense to compel a defendant to incur substantially greater costs for a trial on the ground that the application should have been made sooner.

(d)   The fact that costs may have been wasted through not taking the point earlier is a matter which the court can address when deciding on costs for the late application to strike-out.

DELAY OF D2 IN TAKING OUT THE STRIKE-OUT APPLICATION

23. The action proceeded slowly because of the number of defendants, various interlocutory applications and the plaintiff’s amendment to its pleadings.

24. D2 took out this strike out application only after discovery, as Tang wanted to see whether KLG was relying on any evidence which predated his acquisition of D2 and which might have an effect on D2’s liability.  Master M Wong, rightly, described this as a “wait and see” approach.  He declined to defer the exchange of witness statements pending resolution of the strike out application. 

25. However, delay has also to be viewed in the light of the bigger picture.  D2 has twice (on 8 December 2011 and 10 March 2015) persuaded KLG to drop its case for suing the wrong entity.  It has given opportunities to KLG to clarify its case through amendment of pleadings and the giving of further and better particulars.  The latest Supplemental List of Documents and further documents were provided in August 2015.  D2 took out the strike out application a month later.

26. Looking at matters in the round, D2 cannot be said to be too late in taking out this application.  Four years from commencement of this action, the case has not yet been set down for trial.  In any event, the real question is whether there are grounds for striking out.  I will not dismiss this application solely on the ground of delay.

THE BURDEN OF PROOF

27. Central to the claim is for KLG to establish D2’s receipt of the 28 Payments and the agency relationship between SIC and D2.  It is not for D2 to disprove the agency or alleged close connection as asserted by KLG in the letter of its solicitors dated 13 December 2011.

28. The court may rely on direct evidence or draw inference.  A distinction must be drawn between inference and suspicion.  Inference must be properly grounded in the primary facts found.  The court guards against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question.  Nina Kung v Wang Din Shin (2005) 8 HKCFAR 387, Ribeiro PJ, at §185.  The learned Permanent Judge went on to quote the High Court of Australia in Luxton v Vines (1952) 85 CLR 352, at 358,

“… if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise.”

29. Ribeiro PJ further held that it is not permissible merely to choose what may be considered to be the more likely of two guesses if neither is properly justified by the primary facts found: Nina Kung at §186.

30. In this strike out application, however, it is for D2 to show that the claim is so unarguably bad and impossible for it to succeed.  Mr Lam SC, counsel for D2, disclaims any attempt to ask the court to conduct a mini-trial on affidavits.  Instead, he invites the court to hold that, even assuming that the Court were to disbelieve or ignore entirely D2’s evidence , the rejection of D2’s evidence will not turn into positive evidence to prove KLG’s case that D2 had received the 28 Payments.

31. In Chan Ka Lim v Chow Wai Kin [2008] 5 HKLRD 881 at 891, §26, Le Pichon JA held that:

“... As Scrutton LJ succinctly observed in Hobbsv Tinling (CT) & Co Ltd [1929] 2 KB 1 at p. 21:

“... If by cross-examination to credit you prove that a man’s oath cannot be relied on, and he has sworn he did not go to Rome on May 1, you do not, therefore, prove that he did go to Rome on May 1; there is simply no evidence on the subject.” ”

MERITS OF THE STRIKE OUT APPLICATION

32. KLG has not pleaded anything to show the conferment of actual authority on SIC, whether the authority was given orally or in writing, what the representation was and what facts constituted the “holding out”, hence falling short of the requirement in Polima Toys v Super Art Toys.

33. As pointed out by Mr Lam SC,  KLG purports to rely on the following matters to establish its case (“the 5 Matters”) against D2:

(1)   Substantial payments from SIC to Phua;

(2)   Appointment of Man, one of the owners of SIC by D2 and Phua as their process agent and sharing of the same address;

(3)   Conducting the same business in the same jurisdiction, ie as a junket operator in Macau;

(4)   Same name (ie “SAT IENG” as well as its Chinese name 實盈);

(5)   An announcement of a company called “Teem Foundation”.

1^st Matter – Substantial payments from SIC to Phua

34. The essential feature of a claim in knowing receipt is that the recipient must have received the property for his own use and benefit: Agip (Africa) Ltd v Jackson & ors [1990] 1 Ch 265 at 292A, Millet J (as he then was).

35. Similarly, on KLG’s pleaded case, the duties which D2 allegedly breached arose upon receiving the 28 Payments (§§35 & 37 of the re-re-amended statement of claim).

36. It was no coincidence that from the complete set of bank records that KLG obtained from Hang Seng Bank concerning all accounts held by SIC covering the period of the 28 Payments, KLG could not find a single payment from SIC to D2.  The 28 Payments were made to other junket operators (like Dore, Wynn Resort, Melco) but never to D2.  There was no evidence of receipt by D2.

37. On each of 24 June 2008 and 31 July 2008, HK$10 million was transferred from another account of SIC in Hang Seng Bank to Phua’s account in ING Asia Private Bank Ltd.  However, Phua had ceased to be shareholder or director of D2 by then.  There was nothing to show that Phua had received the 2 Payments on behalf of D2 so as to affect D2’s relations with third parties: HKSAR v Cheng Chee-Tock Theodore.

38. The 1^st Matter does not assist KLG.

2^nd Matter – Appointment of Man by D2 and Phua as their process agent and sharing of the same address

39. KLG relies on a draft agreement dated 10 March 2006 showing that D2 was to sell certain interest in its profit generated at Sands Casino to Worth Perfect.  Under Clause 15(A):

“[D2 as Vendor] and [Phua as Guarantor] jointly hereby appoint [Man] of Avendia Praia Grande, No. 409, China Law Building 6 andar, Macau as their agent to receive and acknowledge on their behalf service of any writ, summons, order, judgment or other notice of legal process in Hong Kong … [D2 and/or Phua] agree that any such legal process shall be sufficiently served on it if delivered to such agent for service at its address for the time being in Hong Kong whether or not such agent gives notice thereof to them.”

40. The Macau address of Man (then owner of SIC) in Clause 15(A) and that of D2 and Phua in the preamble were the same.  It was also the registered address of D2 from 14 December 2004 to 23 August 2005.

41. In another draft SPA dated 10 March 2006, Rich Game (the subsidiary of D2) as vendor was to sell 100% of the shareholding in a company called Youngrich Limited to Smart Town Holdings Limited (as purchaser)[1]. Both D2 and Rich Game were “warrantors” as defined in Clause 1.1.  Under Clause 12.2, both D2 and Rich Game gave the name, fax number and address of Man (being the same address mentioned in the preceding paragraph) as their own.

42. In the light of the 2 agreements, D2’s pleaded denial of having any relationship or connection with Man might not be entirely true. 

43. Further, D2 has appointed agents and subagents, and there were apparently previous attempts by D2 and Phua to appoint Man as their agent.  D2, Phua and Man were so close that they shared the same address and contact in Macau.

44. Mr Lam SC disagrees.  He submits that the draft agreement was a draft, not purportedly signed by anyone.  It was purportedly dated before Tang acquired D2 and before the 28 Payments.  At most, it showed that in 2006, there was intended appointment of Man for a limited purpose of accepting service of legal process and nothing else.  Compare this to Clause 15B where Robertsons (current solicitors for KLG) was similarly appointed as agent of the purchaser, Worth Perfect.  It could not be said that Robertsons was an agent for the purpose of receiving monies on the purchaser’s behalf.

45. The “agency relationship” disclosed on the draft agreements may not directly establish the agency relevant to this case.  However, the common address and the common figures (Phua and Man) may have some bearing in showing connection between D2, Phua and Man and the credibility of Tang’s denial of connection.

3^rd Matter – Conducting the same business in the same jurisdiction (ie as a junket operator in Macau)

4^th Matter – Same English and Chinese names

46. KLG claims that SIC and D2 were conducting the same business in the same jurisdiction ie as a junket operator in Macau.

47. D2 has always admitted that it was and is a junket operator in Macau. However, Mr Lam SC points out that SIC had, according to the BR Records, carried on the business of “investment, trading”.  There is no evidence that it ran any business outside Hong Kong, still less as a junket operator.

48. According to KLG, a junket operator in Macau must be licensed by the Macau authority, and its name will be published. However, the names of SIC, Man or Ng, did not appear in the list of junket operators published by the Macau authorities.

49. Information available from the website of the Macau authority (DICJ) shows that from 2007 to 2011, the only junket operator with the name “Sat Ieng” and “實盈”was D2.  There was no discernable reason why SIC (formed after incorporation of D2) should adopt both the same Chinese and English names as D2 (save for the word “Ltd”).

50. Despite the description of its business as investment/trading, SIC had indisputably received the 28 Payments from Aggarwal “for his gambling debts” and made substantial and frequent payments from August 2007 to November 2010 to various casinos, junket operators and/or their agents in Macau and elsewhere.

51. Considering the matters in paragraphs 47-50, it is not impossible for the trial judge to draw an inference that SIC and D2 were related or that SIC acted as or was held out as agent for D2.

5^th Matter – An announcement of a company called “Teem Foundation”

52. An announcement made by a publicly listed company, Teem Foundation Group Ltd. (“Teem Foundation”) on 18 September 2006 showed that D2 had a wholly owned subsidiary, Rich Game Capital Inc (“Rich Game”), which in turn had a sub-subsidiary, Worth Perfect International Limited (“Worth Perfect”).  The announcement concerned the acquisition of a subsidiary of Rich Game by a subsidiary of Teem Foundation.  According to KLG, the announcement made various open representations relevant to this action:

(a)   Mr Tang’s relationship with D2 started much earlier than he admitted, as could been seen from p.11 of the announcement:

“Mr Tang has over 15 years of experience in Asian gaming, including working as an oversea promoter for various casinos’ VIP lounges in Macau and a casino on cruise liner. He has been one of the major oversea promoters of Sat Ieng since February 2005.”

(b)   D2 has agents and sub-agents who source players from all parts of the world (that might include Hong Kong) as could be seen from p 8 of the announcement:

“the junket business is not a one person show but involves promoters and agents/sub-agents. The person licensed to operate as a junket in Macau is licensed as a gaming promoter… However, in order to go and bring players to the actual casinos, the gaming promoter will have individuals, including the agents, sub-agents and overseas promoters, who source players from all parts of the World. Mr Tang has been and is still the overseas promoter of Sat Ieng and he has obtained the support from other agents and sub-agents of Sat Ieng”.

(c)   There was a reference to “Dore” as a junket licence holder in the announcement.

(d)   The practice of appointing such agents has been averred by various other defendants.

53. With regard to item (a), this may contradict Tang’s denial of connection with D2.

54. With regard to item (b), they may give rise to an inference that D2 did use agents (who received commission) at the material time. However, the fact that an agent had been given authority to do X (to bring in customers) did not mean he had authority to do Y (to receive money on behalf of D2).  Still less did the announcement show that SIC must have been D2’s agent.  The announcement was of course not conclusive of who the agents were and what their authority was, but KLG has nothing positive in proof otherwise.

55. With regard to item (c), SIC not only paid out some of the 28 Payments to Dore but also received money from Dore.

56. With regard to item (d), KLG refers to the admissions by D3, D8 and D10 that they each have appointed a company with accounts in Hong Kong to receive payment from customers as their agents or on their behalf.  In contrast, KLG says that D2 has not pleaded anything about this “common practice” in the gaming industry, nor anything about any of its agents to receive payments. 

57. I agree with Mr Lam SC that KLG must not reverse the burden of proof. It is impossible for D2 to prove the negative of its blank denial.

58. Further, in my view, it is for KLG to plead “common practice”, if that be its case.  Whilst D2, D5 and D12 are also licensed junket operators in Macau, it is not KLG’s case that they have admitted that they had appointed companies with bank accounts in Hong Kong as agents to receive payments from clients on their behalf. Further, the defendants involved in this litigation are only a small number out of the total number of junket operators in Macau.  Even so, only some of the defendants admitted using companies with bank accounts in Hong Kong as agents to receive payments.  It is misleading to describe there to be a “common practice in the gaming industry”.

59. Further, KLG claims that D2 has failed to disclose any documents in relation to bank accounts held in its own name or in the name of its agents (This forms one of the subjects of the discovery summons.)  It avers that such lack of particulars or discovery in this respect spoke against the genuineness of its defence.

60. With respect, the court determines the strike out application on the materials before it now.  It is an abuse of the court’s process to start a case without a solid foundation hoping that something will turn up in the course of the proceedings, for example at the stage of discovery or cross-examination: TheNew China Hong Kong Group Limited (in Creditors’ Voluntary Liquidation) & anor v Ng Kwai Kai, Kenneth & ors, HCA519/2010, unreported, 11 February 2011, Fok JA (as he then was, sitting as additional judge of CFI) at §70; followed in Simply Power Ltd at §47. 

SUMMARY ON THE STRIKING OUT APPLICATION

61. The evidence shows that Aggarwal had admitted paying $128m to SIC to settle his gambling debt. Applying Simply Power Ltd, the complete account of KLG and the 2^nd to 5^th Matters have to be considered together. With proper cross-examination and drawing of inference, it is impossible to say now that the trial judge will definitely reject KLG’s case.  Though KLG’s case appears to be weak, this is not a case that the court is invited to act on suspicions.  I dismiss the application.

THE DISCOVERY APPLICATION

Legal principles on discovery

62. To found jurisdiction for discovery, KLG has to show that the documents existed, are relevant to the issues and are in the possession of D2. 

63. It is not the purpose of discovery to give the parties an opportunity to hunt around the documents in the hope that they will reveal some improprieties on the opposite party’s part or will provide information for them to pursue more inquires: Re Estate of Ng Chan Wah, HCAP 5/2003, 5 March 2003, Chu J (as she then was) §16.

64. “Fishing expeditions” arise where what is sought is not evidence but information which may lead to a line of inquiry which would disclose evidence. It is the search for material in the hope of being able to raise allegations of fact, as opposed to the solicitation of evidence to support allegations of fact, which have been raised bona fide with adequate particularization: C v C, CACV 410/2005, 28 July 2006, §8.

Application of the legal principles

65. KLG seeks 3 classes of documents.  They are opposed on the ground, amongst others, of their width.

66. I agree.  A formula asking for “all documents relating to …” lacks precision.  A request for “all bank documents” in relation to D2’s bank accounts intrudes privacy without valid cause.  Issuing the discovery application after D2 has applied for striking out, and a year after D2 has filed its list of documents also points to a fishing expedition. 

67. In the course of the arguments, Ms Lok, counsel for the plaintiff, has reduced the scope of the discovery and revised the classes of documents as follows:

A.  Agreement(s), provisional or final, relating to the purported transfer of any interest in D2 from Phua to Tang, including a conditional agreement of sale and purchase of D2 dated 28 August 2006;

B.  Submissions, applications and/or filings by D2 to the Macau authorities, in particular to the Gaming Inspection and Coordination Bureau (ie Direcção de Inspecção e Coordenação de Jogos, or “DICJ”) from 1 March 2005 to 11 December 2010 (both dates inclusive); and

C.  Bank documents of D2 showing payments to or from Phua after his purported disposal of D2 to Tang on 28 August 2006 to 11 December 2010.

68. With regard to Class A, there cannot be any dispute that this Class existed.  As D2 is a licensed junket operator in Macau, this sale must be submitted to and approved by the relevant authorities.  Ms Lok submits that Class A is relevant to show D2’s relationship with Tang and Phua.

69. I am unable to see the relevance of Class A.  There was no suggestion as to what further relationship between Phua and Tang, apart from the vendor and purchaser already known, might be disclosed from this Class of documents and what train of enquiry under the Peruvian Guano test the discovery can trigger.

70. With regard to Class B, “the Macau authorities” is too vague a term.  It should be removed.  That aside, documents under this class are clearly relevant because in the applications to DICJ, D2 had to disclose who its associated and/or connected entities were.  This may help towards showing whether any of SIC, Man, Ng or Phua was D2’s agent or connected to D2.  The documents do exist and are in D2’s possession because of the need for D2 to seek approval by DICJ.  This Class is not defined too widely.  It is necessary for fair disposal of the issue of agency and will save costs. I order discovery of Class B subject to removal of the words “the Macau authorities, in particular to” from the description.

71. With regard to Class C, for 4 years since this action has commenced, KLG has been unable to produce documents to show that Phua had made payments to D2.  Nor has KLG pleaded that D2 has paid Phua at any time.  Seeking Class C is a typical fishing exercise for documents, which should not be allowed.

72. In summary, I order disclosure of the revised Class B documents only.

CONCLUSION

73. I dismiss D2’s application for striking out.  On a nisi basis, costs should follow the event and be to KLG. 

74. I order discovery of the revised Class B only (subject to deletion of the words “the Macau authorities, in particular to”).

75. D2’s contest of the discovery summons was reasonable.  KLG has almost completely revised the classes of documents.  Taking a broad view of the matter, I order, nisi, that KLG to bear 80% of D2’s costs of this summons.

76. Hearing time shall be apportioned between the strike-out summons and discovery summons, nisi, in the ratio of 70:30.  Parties shall endeavour to agree on costs and set off one against the other.  Failing agreement, all costs shall be summarily assessed on 13 June 2016 on the papers without the need for attendance.

77. I thank counsel for their assistance.  Their thorough preparation and fair attitude are much appreciated.

HCA1061/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1061 OF 2011

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REASONS FOR DECISION

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Introduction

1.  There are two summonses before this court:

(i)   Summons issued on behalf of the 8^th defendant (“Golden Future”) in HCA 1061 of 2011 (“1^st Action”);

(ii)   Summons issued by the defendant (“Melco Crown”) in HCA 349 of 2012 (“ 2^nd Action”);

2.  The summonses were issued under Order 1B rule 1(2) and Order 4, rule 9 of RHC and both summonses sought essentially the same order, namely that the 1^st Action and the 2^nd Action should be consolidated, and consequential directions.

3.  D1 was adjudged bankrupt on 13 July 2012, and proceedings against D1 have been stayed.  The Official Receiver and Trustee did not attend the hearing before this court (“Hearing”).

4.  Other than KLG, D3 and D12, no other party in the 1^st Action had filed evidence or expressed an intention to oppose the summonses.  D3 and D12 originally filed evidence to oppose the summonses, but prior to the Hearing, they decided to take a neutral stance. Apart from D3 and D12, prior to the Hearing, D2, D4, D6-D7, D9, D11, 13 in the 1^st Action also indicated through their respective solicitors of them being neutral, and their solicitors were absent at the Hearing, except solicitors for D4, D7, and D13, Minter Ellison, attended on a watching brief. D5 had not filed any defence in the 1^st Action, and was absent at the Hearing.  D10 and D14 in the 1^st Action were represented by the same solicitors as Golden Future and Melco Crown, namely Mayer Brown JSM, and both of them adopted a neutral stance.

5.  After hearing submissions from Ms Luk, Counsel for KLG, and Mr Law, for Golden Future and Melco Crown, I ordered the two actions to be consolidated and costs in the cause, with reasons to be handed down. 

6.  The reasons are set out hereinafter.

The Law

7.  Order 1 B rule 1 (2) of RHC sets out the court’s general powers of case management under which the court has power to order consolidation of proceedings.

8.  Further Order 4 rule 9 sets out that where two or more causes or matters are pending, the court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time, or one immediately after another, or may order any of them to be stayed until after the determination of any other of them, if it appears to the court –

(a)   That some common question of law or fact arises in both or all of them, or

(b)   That the rights to relief claimed therein are in respect of or arise out of the same transaction or series of transactions, or

(c)   That for some other reason it is desirable to make an order under this rule.

9.  The purpose of consolidation is to save time and costs, ensure effective and efficient case management, and avoid duplication of proceedings, and these are all underlying objectives under Order 1A[1].

Brief Background 

10.  D1 in the 1^st Action is a former partner of the plaintiff (“KLG”).  In the 1^st Action, KLG claims against D1 for, among other things, breaching his fiduciary duties owed to KLG by misappropriating or misapplying money in KLG’s client accounts for his personal use and/or otherwise defrauding KLG in respect of the transactions in its clients’ accounts (“Client Accounts”).

11.  KLG pleaded D1 had admitted setting up fraudulent schemes (“Purported Escrow Arrangements” and “Bogus Loan Arrangements”) as defined in the re-amended statement of claim, to cause monies to be transferred to the Client Accounts and paid out for D1’s personal use.

12.  It seems that most of the monies were then used, or rather lost, by D1 in gambling at various casinos, or otherwise.

13.  The 1^st Action was issued in June 2011 against D1 only as sole defendant.  Subsequently D2 to D11 were joined in September 2011 as they appeared to be direct receipts of monies from the Client Accounts.

14.  P’s claims against D2 to D11were mainly based on that they were constructive trustees for all the monies they received from the Client Accounts as a result of D1’s breaches of trust.  As the case of D3, D4, and D10 was, among other things, any monies received by them were respectively received on behalf of D12 to D14, D12 to D14 were subsequently also joined in the 1^st Action in October 2012. 

15.  Golden Future was joined in September 2011 in the 1^st Action, being a direct receipt of monies from the Client Accounts, namely a sum of HK$34,101,550 (“Sum”).

16.  Both Golden Future and Melco Crown are companies incorporated under laws of Macau, and according to Golden Future, they are both within the same group of companies, the holding company of which is Melco Crown Entertainment Limited, a company listed on NASDAQ.

17.  According to the re-amended defence of Golden Future, Golden Future is set up to provide supporting services to Melco Crown, and the monies received by Golden Future from D1 were for his gaming activities at various casinos in Macau owned by Melco Crown.  Further, after Golden Future received the monies from D1, such monies the total of which is the Sum was then transferred to Melco Crown.  Thus, to put it simply, Golden Future’s case was also, among other things, that if it received the Sum, it received the same as agent for Melco Crown.

18.  This part of the defence of Golden Future should be made known to KLG in February 2012 when the defence filed by Golden Future was amended.

19.  In March 2012, KLG decided to issue the 2^nd Action against Melco Crown as a sole defendant, instead of joining it in the 1^st Action.  Later, in October 2012, KLG then decided to join D3, D4 and D10 in the 1^st Action.  Thus, Melco Crown was the only one in a separate action.

Discussion and Reasons

20.  Golden Future had through its solicitors Mayer Brown JSM written to KLG’s solicitors Robertsons in July 2012 suggesting a consolidation of the 1^st Action and the 2^nd Action, and Robertsons had replied that they agreed in principle but suggested the consolidation should be dealt with after the amendment of KLG’s statement of claim in the 1^st Action.  Subsequently, after D12 to D14 were joined, Golden Future’s solicitors wrote again suggesting a joint application for the consolidation of the 1^st Action and 2^nd Action.  Robertsons replied again saying they agreed in general terms that a consolidation was sensible but they then said they did not find it an acceptable option at that stage.

21.  The main reason put forward on behalf of KLG by its Counsel, Ms Lok, against a consolidation at this stage was the delay in the 1^st Action, and she said if the 2^nd Action were to be consolidated with the 1^st Action, the 2^nd Action, which was at a more advanced stage, would be delayed and stayed for an unknown period.

22.  According to Ms Lok, the 2^nd Action was proceeding smoothly, but the 1^st Action has been “put to a halt” by D14’s issue of a summons to set aside service of the concurrent re-re-amended writ on D14 in Macau.  This had been set down for a hearing before a Master on 1 November 2013.  Further, up until the Hearing, the pleadings in the 1^st Action had not yet closed, and because of D14’s summons, Ms Lok submitted that the 1^st Action was unlikely to progress any further until the disposal of D14’s summons, and she had estimated this to be some time next year the earliest, taking into consideration of the likelihood of any appeal.

23.  Since D14’s summons was only in relation to service, it was not clear as to why KLG could not proceed to re-serve, without prejudice to its position in D14’ Summons.  There seemed to be no reason as to why KLG should allow the 1^st Action to be delayed to the extent Ms Lok was describing.

24.  In the 1^st Action, KLG had pleaded the various lawsuits against KLG (“Escrow Actions” by the “Non-Clients”) in its re-amended statement of claim against all the defendants, but in the 2^nd Action, KLG did not plead anything in relation to the Escrow Actions.  However, Golden Future and Melco Crown had pleaded a defence to the effect that if KLG were not held to be liable to the Non- Clients, then KLG would have no right or title to recover the Sum from Golden Future and Melco Crown.  KLG was defending the Escrow Actions, but at the same time pursuing its own claims against Melco Crown and all the other defendants in the 1^st Action, which if KLG were to succeed in the Escrow Actions, it was submitted by Mr Law on behalf of Golden Future and Melco Crown that KLG would end up with a windfall from the alleged wrongdoing of D1 through pursuing the 1^st Action and the 2^nd Action.  Thus, it was the case of Golden Future and Melco Crown that KLG’s liability to repay in the Escrow Actions must first be determined.

25.  Anyway in my view, there was clearly common question of law or fact arising in both actions and all rights to relief claimed in the two actions, whether joint, several, or alternative, arose out of the same alleged wrongdoing of D1. 

26.  So far Golden Future and Melco Crown were concerned, the issues in dispute between them and KLG had been crystallized for some time and it was apparent from the pleadings in both actions that KLG’s claims against them were based on the same factual matrix and KLG was seeking from them the Sum.  KLG is clearly not entitled to claim the Sum twice.  Golden Future and Melco Crown would be relying on the same set of facts and legal arguments, and the same evidence would be relied on in both actions.  There seemed to be no reason to this court why Golden Future and Melco Crown should be sued under two separate actions and in this court’s view, they should in the same action.

27.  Ms Lok further submitted that it was premature to consider consolidation as this stage, before discovery and exchange of witness statements.  However, according to paragraph 4/9/7 of the Hong Kong Civil Procedure 2013 Volume 1, the practice is for such an application to be made as soon as possible—by summons, or on the hearing of the case management summons if the application has not been made before.  

28.  In fact, Mayer Brown JSM wrote as early as July 2012 suggesting consolidation, and it was KLG which seemed to be putting it off.  To wait further until discovery and exchange of witness statements, as proposed by KLG, seemed to delay the matter further without any good reason.  I did not see why it was premature to issue the summonses for consolidation.

29.  The court has an unfettered discretion in deciding whether to order consolidation of actions, and there is no hard and fast rule that just because the parties are identical and some common question of fact or law is involved in both actions, it would be expedient and proper to order consolidation[2].

30.  Golden Future and Melco Crown are represented by the same legal team in both actions, and this is the same case for KLG.  Considerable costs will be saved by consolidation of the two Actions.

31.  Having considered all the circumstances of the two Actions, and the fundamental objectives of effective case management and costs saving, I came to the view that an order for consolidation should be made forthwith, and so ordered.  There were no submissions made by Ms Lok on the consequential directions set out in the two summonses and they would be incorporated in the order.

32.  So far as to costs, Mr Law sought costs of the two summonses.  As the matter was really part of case management, costs were ordered to be in the cause.

33.  Lastly, I thank all Counsel for their submissions and assistance in this matter.

HCA 1061/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1061 OF 2011

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BETWEEN

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D E C I S I O N

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1.  The Defendant applies for variation of the injunction order so as to permit payment out of money to fund his legal costs.

BACKGROUND

2.  The Defendant was a former partner of the Plaintiff.  During his tenure and over a course of years, he had stolen vast sums of the Plaintiff or from its clients’ accounts.  That, admitted by the Defendant, was because of his gambling problem.  Some of the money was transmitted to persons (including family friends) or entities for no apparent legitimate purposes.

3.  The Plaintiff applied for and obtained an injunction from Poon J on 27 June 2011, which was slightly varied by me on 8 July 2011 (“the Injunction Order”).    The Injunction Order restrains the Defendant, amongst others, from disposing of assets up to HK$621,000,000.  It also requires him to make disclosures (“the Disclosure Order”):

Para 2(1):  to list out assets of a value of HK$50,000 or more;

Para 2(2)(a):  to explain in detail each and every payment from the Plaintiff’s bank accounts which related to payments or receipts for or in furtherance of his wrongdoing in relation to a number of persons or entities;

Para 2(2)(b): to explain in detail the flow of funds, location of assets, destination and reasons for payments, value of assets, identities of legal and/or beneficial owners.

Para 3: to exhibit supporting documents.

THE DEFENDANT’S APPLICATION

4.  The Defendant criticizes the Injunction Order as having made no provision for his living expenses, let alone his legal expenses.  He asks for release of funds to meet his legal costs for various proceedings.

5.  The Plaintiff opposes the application on the grounds that the Defendant was in breach of the Injunction Order and should not be heard before he purges his contempt of Court.  The Plaintiff also says that the Defendant has failed to meet the requirements for seeking release of funds subject to an injunction.

BREACH OF THE INJUNCTION ORDER

6.  The Plaintiff asserts that the evidence at this stage reveals flagrant breaches of the Injunction and hence contempt of Court such that the Court should not hear the Defendant’s application.  In Hadkinson v. Hadkinson [1952] 2 All ER 567, Romer LJ said,

“The first is that anyone who disobeys an order of the court (and I am not now considering disobedience of orders relating merely to matters of procedure) is in contempt and may be punished by committal or attachment or otherwise. The second is that no application to the court by such a person will be entertained until he has purged himself of his contempt.”

7.  In the same case, Denning LJ (as he then was) also said,

“Applying this principle, I am of opinion that the fact that a party to a cause has disobeyed an order of the court is not of itself a bar to his being heard, but if his disobedience is such that, so long as it continues, it impedes the course of justice in the cause, by making it more difficult for the court to ascertain the truth or to enforce the orders which it may make, then the court may in its discretion refuse to hear him until the impediment is removed or good reason is shown why it should not be removed.”

8.  With regard to the disclosure order, the Defendant has purportedly made a list of his assets of over HK$50,000 (“the List of Assets”) and annotated a Trust Ledger Report (“the Report”) showing his explanation to various entries therein “based on his usual habit or pattern but not necessarily on his personal recollection”.    Mr Hon acting for the Defendant claims that given the limited access to documents and information, the Defendant has done what could practically be expected of him. 

9.  The Plaintiff regards there to have been failure to comply with the Disclosure Order.  The Defendant has also purported transferred shares in a company through a broker (“Quam”).  He has also failed to disclose his holding of shares in the Hang Ten Group.

10.  In deciding whether the Defendant has acted in breach of the Injunction Order, I have taken into account the following matters:

(i)   The Defendant has been cooperative; from the start he has  frankly admitted his theft to one of the Plaintiff’s partner.

(ii)   Although the Disclosure Order permits him not to disclose matters that might incriminate him, the Defendant has not sought to hide behind this privilege.

(iii)   He has offered to have an interview with the Plaintiff’s solicitors which was conducted last Friday.  He gave authorizations to enable the Plaintiff’s solicitors to investigate his bank accounts and other entities. 

(iv)   Although he is a lawyer, he is not familiar with litigation.

(v)   He has been in custody and would not have the convenience of access to documents to refresh his memory on matters or to provide supporting documents for his assertions.

11.  Given all these allowances, the Defendant has not even begun to explain the flow of funds pursuant to para 2(2)(a) of the Injunction Order.  The disclosure was so lacking in details that it did not meet the very purpose of the Disclosure Order – to enable tracing.   Supporting documents are lacking and there is no evidence that he is procuring documents if they are not in his possession.  It is true that he has stated in the List of Assets securities accounts and contact persons from whom the Plaintiff can make enquiries. However, that merely shifted the burden of enquiries and disclosure to the Plaintiff.   There was prima facie breach of paras 2(1), 2(2)(a), 2(2)(b) and 3 of the Order.

12.  As Mr Dawes for the Plaintiff submits, the Defendant might need more time.  He might attract the sympathy of the Court because of the fact that he is in custody.  But it is no answer for him to give such brief statements which go nowhere near full compliance with the Injunction.  It was not just a simple breach of its terms. 

13.  At this stage, on the evidence, I refrain from making a provisional view on whether there has been flagrant or inadvertent breach of the Injunction Order by transferring shares through Quam.   This matter does not alter the position of either party as far as the present application is concerned.

14.  In National Bank of Greece v. Constantinos Dimitriou, The Times, November 16, 1987, the defendant who was subject to a Mareva injunction was in contempt of Court in failing to disclose the details of his assets and their whereabouts pursuant to a disclosure order against him.  The defendant similarly applied to the Court for a variation of the injunction to enable him to use assets subject to the injunction to pay his solicitors.  In fact, the defendant had a lot of undisclosed and unfrozen assets from which he could have funded his costs.  The Court of Appeal refused to make the order that would assist a defendant who was abusing the process of the court and is in contempt of court.

15.  Therefore, before the Defendant complies with the terms of the Injunction Order, I am of the view that the Court should not hear his present application.

NATURE OF THE INJUNCTION

16.  As rightly pointed out by Mr Dawes, the present injunction was in aid of a proprietary claim by the Plaintiff.  The assets in question belonged to the Plaintiff (or its clients) and not the Defendant.  The distinction between an ordinary Mareva injunction and an injunction in aid of a proprietary claim has been stated by Millet LJ (as he then was) in Ostrich Farming Corporation Ltd v. Ketchell [1997] EWAC Civ 2953 (CA):

“The courts have always recognised a clear distinction between the ordinary Mareva jurisdiction and proprietary claims. The ordinary Mareva injunction restricts a defendant from dealing with his own assets. An injunction of the present kind, at least in part, restrains the defendants from dealing with assets to which the plaintiff asserts title. It is not designed merely to preserve the defendant’s assets so as to be available to meet a judgment; it is designed to protect the plaintiff from having its property expended for the defendant’s purposes.”

17.  Because of its nature of being an injunction in aid of a proprietary claim, no provision was thus made for living and legal expenses.  (In any case the Defendant being in custody does not require living expenses.)

THE TESTS FOR VARIATION

18.  In an application to vary an injunction in aid of a proprietary claim like the present one, a 2-stage test is involved as summarized in the judgment of Wharf Ltd & ors v. Lau Yuen How & ors [2010] 1 HKLRD 783 per Au J:

“13. The principles applicable to the release of funds to pay legal costs from an injunction involving proprietary claims are well settled. It is an exercise of discretion which involves a 2-stage process:

(a) First, the defendant applying for the release of funds has to demonstrate with full and frank evidence that there are no alternative funds or assets available to him which can be used to pay his legal expenses other than the assets in respect of which the plaintiff brings the proprietary claim. If the defendant fails in this first hurdle, the Court needs not consider the 2^ndstage and the application should be dismissed.

(b) Secondly, once the first hurdle is cleared, the Court in the exercise of its discretion will engage in a balancing exercise to weigh the potential injustice to the plaintiff if releasing the funds against the possible injustice to the defendant of depriving him of the opportunity to have legal assistance in advancing what may eventually turn out to be a successful defence. This process is a “careful and anxious judgment”, and the court is entitled to look at all relevant circumstances, and in particular, to weigh the relative strengths of the plaintiff’s proprietary claim in the funds and the defendant’s defence to that claim. In relation to this, it is not sufficient for a defendant to merely establish that he has no other funds, for even so, he must also show that there is an arguable case for his having recourse to the funds in question, failing which, he has not right to use the money. As Millet LJ (as he then was) said in Ostrich, infra, “[n]o man has a right to use somebody else’s money, for the purpose of defending himself against legal proceedings”.

See: Ostrich Farming Corporation Ltd v Ketchell, per Roch LJ at page 10; Liu Xian Feng v Liu Bo [2006] 4 HKLRD 33, 37B-H paras 10, 11, per Le Pichon JA; Lit Mav. Chen Kang Huang (unrep., HCSD 9/2007, HCA 218/2005, [2007] HKEC 1605 paras 23-28.

LACK OF ALTERNATIVE ASSETS

19.  Apart from a bare averment that all his assets have been frozen under the Injunction Order and that there is no other available asset for him to utilize for the payment of legal costs, there is no evidence in support.  The Defendant has not disclosed whether he has assets below the value of $50,000. It was just impossible to assess his current means.  It was only in the 3^rd affirmation of Ms Chan, solicitor for the Defendant, filed in reply that it was confirmed that the solicitors had not received any amount from the Defendant or his family members although the Defendant’s younger sister has repeatedly indicated that she would reimburse the legal fees.

20.  The Plaintiff has discovered an Agarwal Trust document in the Defendant’s former room in the Plaintiff’s office in which the Defendant has interest in.  The Defendant claimed that he has absolutely no interest in this Trust; that he was appointed a director and has already resigned.  There has however been no provision of any documentation in support of this resignation. During the hearing, Mr Hon acting for him pointed out that the spelling of the Agarwal Trust has only one “g” which made it different from the name of the Defendant containing 2 “g’s”.  If this was true, this should be done by way of affidavit evidence and not counsel’s submission.

21.  Further, initial investigations of the Plaintiff shows that the Defendant has transferred substantial sums of money from the firm’s clients’ accounts to people who are believed to be family friends or relatives of the Defendant for no apparent legitimate reasons.  There was no evidence from the Defendant as to whether he had tried to recover sums from these people or approached them for financial assistance.

22.  In the light of such evidence, the first hurdle is not met and the court need not even consider the second stage.

WEIGHING THE RELATIVE STRENGTH OF THE PLAINTIFF’S PROPRIETARY CLAIM AND THE DEFENDANT’S DEFENCE

23.  The Plaintiff has a very strong proprietary claim supported by the clear admission from the Defendant that he had misappropriated money from the Plaintiff and/or its clients.  The Defendant is charged with theft and forgery in connection with some of such misappropriation and is under criminal investigation. The Defendant has not begun to demonstrate that he has an arguable defence or that the frozen funds belong to him rather than the Plaintiff: Commercial Injunctions, 5^th ed, at para 20.057.  As Millet LJ (as he then was) said in Ostrich Farming Corporation Ltd v. Ketchell [1997] EWCA Civ 2953 (CA),

“If he cannot show an arguable claim in his part to the funds, he has no right to use the money. A trustee has no right to have recourse to trust money to defend himself against a claim for breach of trust unless he has an arguable case for saying that he has a beneficial interest in the funds in question. No man has a right to use somebody else’s money, for the purpose of defending himself against legal proceedings. Just as the Court’s jurisdiction to grant the injunction in the first place depended on the plaintiff’s establishing an arguable case that the money belongs to it, so its willingness to permit the defendant to have recourse to the money depends upon his establishing an arguable claim to the money.”

24.  In the premises, the Defendant fails in stage 2 as well.

THE FUNDS TO BE RELEASED

25.  For completeness, I also deal with the funds for which the Defendant seeks to be released.  The Defendant initially seeks to release funds from 3 bank accounts of his.  At the hearing he seeks amendment of the Summons so as to release funds to be deposited in court.  I can see no objection to the proposed amendment and so I give leave for the amendment.  However, in my view, whichever funds the Defendant is aiming at, the application is bound to fail.

26.  From the annotations in the Report, it can clearly be seen that, as submitted by Mr Dawes, the Defendant had mixed up the funds of the subject claim with his personal funds.  It is unrealistic to treat the bank accounts as his personal account.

27.  With regard to funds to be deposited into court, they involved an amount of HK$3.75 million which one Mr Lo received from the Defendant on escrow but intended to repay the Defendant after a sale of shares fell through.  Through his solicitors, Mr Lo has purported to deliver a cheque to the Defendant’s solicitors.  The Plaintiff’s solicitors pointed out that Mr Lo’s solicitors and the Defendant might be in breach of the Injunction Order in handling the Defendant’s assets and suggested that the cheque should be returned to Mr. Lo. There followed some correspondence among the 3 solicitors firms on whether or not the cheque should be returned to Mr Lo in exchange for a cheque written out to the Registrar of the High Court and then paid into Court for the credit of this action.  The Plaintiff’s solicitors has drafted a consent summons for the purpose of paying in the cheque yet to be received into Court but the Defendant’s solicitor has not yet endorsed it.  To date no funds have yet been deposited into court.  In this respect, the application under the Amended Summons is pre-mature.

28.  That aside, the $3.75 million from Mr Lo was said to have originated from the Defendant’s SCB account.  The Defendant claims also that the funding for the SCB account was from his winnings from the casinos in Macau and/or his other legitimate income and has nothing to do with the Plaintiff’s alleged property.  As mentioned above, the misappropriation of the subject funds was because of the Defendant’s gambling problem and he had intermingled the subject funds/gambling monies with his personal funds.  It is unrealistic to treat this HK$3.75 million as his own funds.

29.  Accordingly, I am not satisfied that an order should be made for release of any part of the $3.75 million.

OTHER APPLICATIONS UNDER THE SUMMONS

30.  The Amended Summons asks for liberty to apply to vary the amended Injunction Order.  I do not think a special order is required.  There is always liberty for the Defendant to apply for variation or discharge on good grounds being shown.

31.  The meaning of the paragraph which seeks that “the costs order is made absolute from the Plaintiff to the Defendant” is not clear.  Mr Hon says that the Defendant is really asking for costs of this application.  As the Defendant fails in this application, he should bear costs instead.

CONCLUSION

32.  I order as follows:

(i)   There be leave to the Defendant to amend the Summons;

(ii)   That the amended Summons be dismissed.

33.  This application shows a lack of foundation and was badly prepared for hearing.  The 3^rd affirmation of the solicitor for the Defendant was filed the day before the hearing but a copy was handed up to me only on the morning of the hearing.  The bundle for hearing was lodged in the afternoon before the hearing after I have already read the file.  The bundle did not contain all the pertinent documents including the Injunction Order and the Plaintiff’s affidavit supporting the application for the Injunction.  The skeleton submission was faxed in only in the morning 18 minutes before the hearing when there was no opportunity for me to read it.  The Plaintiff indicates that it may seek costs on a higher basis.  However, a weak case or one sloppily prepared is not in itself a good reason to seek costs on a higher basis and the burden remains on the Plaintiff to demonstrate that there are special or unusual circumstances to justify that higher basis.  For present purposes, I order:

(iii)   On a nisi basis, that costs should be to the Plaintiff to be summarily assessed on 12 September 2011 at 9:30 am on the papers without attendance.  A costs statement shall be filed and served by 1 September 2011. Grounds in opposition should be filed and served by 8 September 2011. 

34.  I thank counsel for their assistance.

Mr Victor Dawes instructed by Messrs Robertsons for the Plaintiff

Mr Kevin Hon instructed by Messrs Gloria Chan & Co. for the Defendant