Rejected: Hong Kong Court refuses letters of request from US Federal Court

In Re A Civil Matter Now Pending in United States District Court for the Western District of Washington [2019] HKCFI 1738 , the Hong Kong Court of First Instance rejected two letters of request (the "LORs") from the Washington Federal Court seeking to compel two distressed debt investors to give evidence.

The general principle is that the Court should strive to give effect to a request from a foreign court unless it reaches the clear conclusion that it cannot properly do so.  Recorder Yvonne Cheng SC held that there were neither ongoing nor contemplated proceedings in the Washington Federal Court, and the LORs were a fishing exercise.

Background

In 2014  and 2016, the Kyko Companies ("Kyko") obtained judgments from the Washington Federal Court of around US$18 million in relation to a fraud claim against, among others, PISL and PSI (the "Washington Judgments").  Kyko also secured 'collection orders' so it could claw back receivables owed to PSI in order to satisfy the Washington Judgments.

Kyko claimed that there were receivables owing to PSI from two distressed debt investors, SSG Capital (US$18.9 million) and Value Team Corporation ("VTC") (US$4 million) (the "Receivables"). The Receivables were deposits for a proposed financial restructuring. Kyko believed that the restructuring did not proceed, so the Receivables should be returned to PSI or PISL. Kyko, therefore, sought information from the officers of SSG Capital and VTC in relation to the Receivables.

Decision

The Hong Kong Court confirmed that, pursuant to section 75(b) of the Evidence Ordinance (Cap. 8) ("section 75(b)"), it has jurisdiction to make an order for the taking of evidence in Hong Kong pursuant to a request by a foreign court if there are "civil proceedings which either have been instituted before the requesting court or whose institution before that court is contemplated".

As the application was sought against persons who were not party to the Washington Judgments, and was for the purpose of "plotting the course of unspecified, possible, future proceedings", the application was found to be one for pre-trial discovery and did not constitute "civil proceedings" under section 75(b). Such proceedings could not encompass the very proceedings for discovery leading to a foreign court's request for evidence in Hong Kong courts, otherwise section 75(b) would be redundant.

The Court also rejected the argument that possible future proceedings on the back of the evidence obtained could constitute "contemplated" proceedings.  First, Kyko had failed to establish that the Washington Federal Court had jurisdiction over SSG Capital and VTC to enforce the Final Judgment.  Second, Kyko did not give any concrete particulars as to the nature of the future proceedings.  On this basis, the Court's jurisdiction to make the order sought was not engaged.

The Court also held that: (i) the proposed examination constituted a 'fishing exercise' which is not permissible under section 76(3) of the Evidence Ordinance; and (ii) given the ex parte nature of the application, there was material non-disclosure in the evidence put before the Court. Accordingly, the order was set aside.

Key takeaways

This case illustrates the Hong Kong Court's approach to making an order for the taking of evidence pursuant to a foreign court's request.

An applicant for such an order must show that the foreign court has jurisdiction over the respondents based in Hong Kong, and that the respondents are party to the relevant foreign proceedings or contemplated proceedings. Concrete particulars as to future or contemplated proceedings must be shown to the Court if they are not currently on foot.

As always, where an ex parte application is made to Court, the applicant must comply with its obligation to give full and frank disclosure of all material facts including identifying possible defences.