In Zhang Shouen and another v Standard Chartered Bank (Hong Kong) Ltd HCMP 682/2015, the Court considered whether to grant the applicants' request for pre-action discovery pursuant to section 41 of the High Court Ordinance ("HCO"). This case provides a useful recap on the principles relating to pre-action discovery in Hong Kong and draws an interesting comparison between Hong Kong and English law authorities in this area. Further, it clarifies that to obtain an order for pre-action discovery, the applicant must show that the document in question is directly relevant and necessary, and also that discovery before commencement of the action is necessary.
The applicants opened a joint account at the respondent bank in March 2010 (the "Account"). Over the course of four years the applicants deposited over US$48.8million into the Account and withdrew c.US$12.6million. The applicants initially received bank statements in English but requested that these be provided in Chinese so that they would be able to read them (the "Chinese Bank Statements"). The applicants proceeded to make investment decisions on the basis of information included in the Chinese Bank Statements. The applicants alleged that the Chinese Bank Statements were inaccurate and consistently overstated the net asset value in the Account.
Solicitors for the applicants wrote to the respondent requesting documents, as well as all telephone recordings, relating to the Account between June 2010 and April 2014. The respondent provided a large number of documents but refused to provide copies of the telephone recordings, save that the respondent did offer to allow the applicants to listen to 130 telephone recordings.
The applicants made an application for pre-action discovery to obtain copies of the telephone recordings under section 41 HCO and Order 24, Rule 7A of the Rules of the High Court ("Order 24, Rule 7A RHC").
The Court has the power to grant pre-action discovery to a person who appears likely to be a party in anticipated proceedings where the documents in question are (i) likely to be or have been in the possession, custody or power of the person against whom the order is sought; and (ii) 'directly relevant' to an issue arising or likely to arise in the anticipated proceedings. A document will only be regarded as "directly relevant" to an issue arising out of the claim if the document (a) would likely be relied on in evidence by any party to the proceedings; or (b) supports or adversely affects any party's case. Once these conditions are satisfied, the court's jurisdiction is established. It will then exercise its discretionary power to order pre-action discovery of the document in question if the applicant can prove to the court's satisfaction that pre-action discovery is necessary either for disposing fairly of the matter or for saving costs.
The Court's analysis – Hong Kong law authorities
The Court considered the differences between the tests for specific discovery (i.e. discovery occurring after proceedings are commenced) and pre-action discovery in order to determine the parameters of its jurisdiction to order pre-action discovery.
- Relevance: The test for relevance for specific discovery is that the document must "relate to one or more of the matters in question in the cause or matter". In contrast, a document will only be subject to pre-action discovery where it is "directly relevant" to an issue arising or likely to arise out of the claim.
The Court held that pre-action discovery is therefore subject to a higher threshold than the general relevance test for specific discovery. Hon G Lam J noted that pre-action discovery is not intended to provide "background" documents or documents simply leading to a possible "train of inquiry" and must be restricted to documents directly relevant to the proceedings. Applicants must demonstrate direct relevance in a supporting affidavit (or if practicable, by reference to any pleading served or intended to be served in the proceedings) setting out what the intended claim is, what issues arise or are likely to arise out of it and how the document sought is directly relevant.
- Necessity: In specific discovery, no order will be made if discovery is not necessary either for disposing fairly of the cause or for saving costs. The burden to prove the lack of necessity lies on the party resisting discovery. In contrast, the position is reversed for pre-action discovery such that no order will be made unless the court is of the opinion that this is necessary for disposing fairly of the cause or for saving costs. The burden to prove necessity rests on the applicant seeking discovery.
The Court added that, for pre-action discovery, not only is it necessary for the applicant to show that discovery of the document in question is necessary, but also that discovery before commencement of the action is necessary.
The Court's analysis – English law authorities
The Court noted that English law authorities are likely to be of limited assistance in determining whether the Court has power to order pre-action discovery under the High Court Ordinance in Hong Kong.
This is for two reasons:
- Rule 31.16(3)(d) of the English Civil Procedure Rules provides that pre-action disclosure can be ordered where this is "desirable" in order to (i) dispose fairly of the anticipated proceedings, (ii) assist in the dispute being resolved without proceedings or (iii) save costs. This is different to the position under the High Court Ordinance where pre-action discovery will be ordered only when it is "necessary" to dispose fairly of a matter or save costs. There is thus a higher threshold under the High Court Ordinance.
- The English Civil Procedure Rules include practice directions relating to pre-action disclosure of key documents in the dispute. The pre-action protocols are in place to encourage parties to narrow the issues in dispute at an early stage. These protocols have not been adopted in Hong Kong and the Final Report on Civil Justice Reform expressly stated that "it is not proposed to specify as a discretionary factor, the desirability of pre-action disclosure in aid of early settlement."
Parties must therefore be wary of looking to English law authorities for guidance when facing an application for pre-action discovery.
The Court's decision
The Court held that the applicants had satisfied the Court that they were likely to make a claim against the respondent and the telephone recordings were in the respondent's possession. However, the key issue related to whether there was sufficient evidence that the telephone recordings were "directly relevant". The Court held that the applicants failed to provide meaningful details of the intended claim so that the defendant could respond to the application and the Court could consider the evidence and likely issues in the proposed proceedings.
The Court refused to grant an order for pre-action discovery on grounds that the applicants had not demonstrated in their supporting affirmation or draft pleading why the documents were directly relevant to the intended claim. As a result, the Court did not need to consider whether pre-action discovery was necessary either for disposing fairly of the cause or matter or for saving costs.
This case provides a useful recap on the principles relating to pre-action discovery, particularly in relation to the "direct relevance" test. The judgment indicates that pre-action discovery is not intended to provide "background" documents leading to a possible "train of inquiry" and any document must relate to issues that are directly relevant to the intended proceedings. Further, the case clarifies how it will apply its discretion in respect of the test for necessity. In particular, it held that for pre-action discovery, not only is it necessary for the applicant to show that discovery of the document in question is necessary, but also that discovery (of the document) before commencement of the action is necessary either for disposing fairly of the cause or matter or for saving costs.