Introduction
Background
Decision
Comment


Introduction

In Schutz v Hai Cloud Exchange (HK) Ltd,(1) the Court of First Instance of the High Court refused the plaintiff's application for permission to use payment transaction records for the collateral purpose of commencing proceedings in France against the defendant money service operator or its employees. The documents had been obtained by the plaintiff pursuant to Norwich Pharmacal (third-party discovery) relief against the defendant for the primary purpose of tracing and recovery of monies paid into the defendant's bank account as a result of an alleged fraud against the plaintiff. The Court was not persuaded that the plaintiff had discharged the burden of demonstrating good reasons why he should be released from a specific provision in the court order not to use the documents to bring a claim against the defendant or its employees without permission of the Court. The Court's decision is a useful review of the applicable principles and demonstrates the relatively high threshold that an applicant will have to overcome in such circumstances.

Background

It appears that between March and April 2020 the plaintiff and his company were deceived by a fraudster into making four payments into a bank account of the defendant held with a bank in Hong Kong. The plaintiff appears to have thought that he was making payments for the purpose of an investment through a company recommended by the fraudster. The defendant is a money service operator in Hong Kong that received the money in what it thought was the ordinary course of its business.

Between January and March 2021 the plaintiff obtained two Norwich Pharmacal court orders against the defendant, the purpose of which was to facilitate (as regards the fraudster) the tracing and recovery of the four payments or their proceeds. The orders contained an express provision that prohibited the plaintiff from using documents received from the defendant to bring an action against it or its employees without permission of the Court.

It appears that the plaintiff did not have a viable claim in Hong Kong against the defendant but that he may have had a claim under French law in France, which he did not know when making the application against the defendant. The plaintiff appears to have taken no action against the fraudster, the person on whose behalf the funds were received or against any onward recipients of the four payments.

The defendant had adopted a neutral position as regards the grant of Norwich Pharmacal relief. It opposed the plaintiff's application for permission to use the documents obtained pursuant to the Norwich Pharmacal order for the collateral purpose of commencing court proceedings against it or its employees overseas – in particular, in France.

The main issue for the Court to decide was whether the plaintiff had discharged the burden of demonstrating cogent and persuasive reasons why he should be released from the provision in the court order not to use the documents obtained for a collateral purpose.

Decision

The Court dismissed the plaintiff's application.

Legal principles
A passage in the Court's decision summarises the relevant legal principles. In short, the outcome of the plaintiff's application depended on the Court's exercise of discretion and there was no hard and fast rule that the Court would not release an applicant from such a provision save in exceptional circumstances – rather, each case turned on its facts.(2)

Where permission was sought to use disclosed documents for the collateral purpose of commencing new proceedings, the Court's decision depended on the nature of the original action, the circumstances in which the documents had been obtained pursuant to a court order and the nature of the proposed new action.(3)

Discretion
The Court was not persuaded that the plaintiff's identification of a claim in the French court – not previously known to him – was a good and persuasive reason to release him from the provision not to use the documents for a collateral purpose.

The Court noted that the original application to obtain the documents from the defendant had been made on the basis that it would enable the plaintiff to trace and recover the four payments. The Norwich Pharmacal order had been made on that basis. However, it appeared that the plaintiff had not used the documents in order to trace or recover the four payments from the fraudster or, apparently, taken any other steps against the fraudster or alleged recipients of the four payments and neither had he provided an adequate explanation for not doing so.(4) While it was true that the plaintiff had at the Norwich Pharmacal hearing reserved his right to commence proceedings against the defendant, this did not alter the fact that the primary basis on which the defendant had been ordered to disclose the documents had been to allow the plaintiff to trace the funds and pursue the fraudster.

The Court's reasoning is summed up in the following passage:

In my view, if an applicant seeks to use the information obtained on a Norwich Pharmacal application for a purpose different from the one originally represented to the court as being the primary purpose for which it was sought (and which purpose formed the basis of the court's order for disclosure) it behoves him to give a proper explanation as why he no longer seeks to pursue that purpose and to use the information for another purpose instead. It is not sufficient to say that the details are the subject of legal professional privilege and that in any event they are not relevant.(5)

Given the Court's finding on the main issue, it did not need to determine the defendant's argument that the plaintiff's application amounted to an abuse of process or the intended claim in the French courts was bound to fail.(6) The Court noted:

However, it does not necessarily follow that the Plaintiff's proposed French law action amounts to a cogent and persuasive reason for giving leave to the Plaintiff to use the documents in the action, which is a separate (and prior) requirement which the Plaintiff needs to establish. Successfully meeting the Defendant's argument that the action is hopeless does not in itself establish a cogent and persuasive reason for the grant of leave to use documents for the action.(7)

Comment

An application for permission to use documents obtained pursuant to a court-ordered disclosure process for a collateral process turns on its facts. However, this case demonstrates the relatively high threshold that an applicant will have to overcome in Hong Kong. Without intending any criticism of the Court's decision, one may have some sympathy for the position that the plaintiff found himself in – for example, apparently, having no viable claim against the defendant under Hong Kong law and having difficulty locating the fraudster or the recipients of the proceeds of his money.

That said, on an application for permission to use documents for a collateral purpose, it is necessary to give a court full information on which to consider the facts. Reliance on (for example) legal professional privilege is unlikely to be a sufficient reason for a court to accept a less than full explanation as to why the disclosed documents are no longer sought to be used for the original purpose for which they were obtained and are sought to be used for another purpose.

The case also serves as a reminder of the importance of seeking the court's prior permission to use documents obtained pursuant to a disclosure process (including a Norwich Pharmacal order) for a collateral purpose. This is an important point of practice – the consequences of getting it wrong can be serious for litigants and their legal representatives.

For further information on this topic, please contact Samuel Hung or Antony Sassi at RPC by telephone (+852 2216 7000) or email ([email protected] or [email protected]). The RPC website can be accessed at www.rpc.co.uk.

Endnotes

(1) [2023] HKCFI 387, 15 February 2023.

(2) Supra note 1, at para 33.

(3) Supra note 1, at paras 34 and 51.

(4) Supra note 1, at paras 37.1–37.3

(5) Supra note 1, at para 38.

(6) Supra note 1, at paras 41–43. The allegation of abuse of process was to the effect the plaintiff had all along intended to pursue the defendant and had allegedly "dressed up" what was an application for pre-action discovery as a Norwich Pharmacal application – therefore, so the argument went, depriving the defendant of a proper opportunity to oppose the application.

(7) Supra note 1, at para 51.