31 May 2021
In the recent case of A1 & ANOR V R2 & ORS [2021] HKCFI 650, the Applicants are pursuing proceedings in the Cayman Islands and other jurisdictions in relation to an alleged fraud committed against a Cayman Islands exempted limited partnership, involving alleged misappropriation of over US$100 million. They applied to a Hong Kong court for a Norwich Pharmacal order against banks in Hong Kong, seeking disclosure relating to four bank accounts, two of which were held in Hong Kong, while the other two were held with the Macau branches of the banks. They also applied for a gagging order, confidentiality order and an anonymity order.
The Court granted the orders, but took the opportunity to lay down guidance on (i) the proper procedures for an application for a gagging order and a Norwich Pharmacal order against a bank; (ii) the appropriateness of a Norwich Pharmacal order relating to an overseas account maintained by a branch of a Hong Kong incorporated bank; and (iii) how to properly make full and frank disclosure.
Proper procedures – a two-stage approach
The Applicants made the application for a Norwich Pharmacal order by way of an ex parte application on notice, on the grounds of both urgency and secrecy. The Applicants were concerned of the risk that, by making the application inter partes, those involved in the alleged fraud may become aware of the Applicants’ actions and be prompted to take further steps to hide their wrongdoing, including dissipation of the misappropriated monies.
The Court disagreed that there was a need for urgency or secrecy. It noted that the Applicants took an unusual approach leading up to their application, by writing to the banks before any court application was made, informing the banks of the Applicants’ intention to apply for a Norwich Pharmacal order and a gagging order, whilst providing the banks with certain draft application papers (including the draft affidavit material, the draft order to be sought and the draft skeleton argument with a list of authorities). The banks were asked to treat the letter and its enclosures as strictly private and confidential, and to refrain from taking any steps which would be contrary to the gagging order to be sought.
The approach taken by the Applicants was not regarded as satisfactory by the Court. The Court took the view that it placed the banks in a difficult position vis-a-vis their own customer, to whom they owe legal obligations arising from the banker/customer relationship. It was also inappropriate to ask the banks to refrain from doing something contrary to a gagging order which had not been made, and which might not be made at the end of the day. The significant advance notice given to the banks clearly demonstrated why an inter partes application for a Norwich Pharmacal order was entirely possible.
The Court emphasised the importance that banks be heard in applications for Norwich Pharmacal orders, as the bank’s client would not be aware of the application and could not make submissions to the court to protect his own interests, and the bank was essentially asked to override the customer confidentiality. The ability of the bank to make submissions to the Court was therefore one of the important safeguards for the client. In this connection, the Court suggested adoption of the following procedures:-
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First, the applicant should seek a gagging order against the bank on an ex parte without notice basis, pending the hearing of the Norwich Pharmacal discovery application against the bank.
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Second, the Norwich Pharmacal discovery application should be made on an inter partes basis, or at the very least, on an ex parte basis but with notice. The notice period given to the bank should be sufficiently long to enable the bank to meaningfully make submissions to the Court, if any. In cases of genuine urgency, the applicant should apply on an inter partes basis with time to be abridged.
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The Court can, in an appropriate case, grant a further brief period for the gagging order to continue, to allow the applicant to make such applications as it sees fit to protect its interests.
The above approach would allow the Court to have the benefit of the bank’s submissions, if any, while the applicant will, on the other hand, be protected by the gagging order until the conclusion of the application. It represents a proper balancing of interests between the applicant and the bank’s customer.
Norwich Pharmacal order relating to bank accounts outside Hong Kong
The Court was satisfied that it could grant a Norwich Pharmacal order in relation to bank accounts in the Macau branches of banks incorporated in Hong Kong. It reasoned that the Macau branches are only overseas branches of Hong Kong entities. As the Hong Kong-incorporated banks were regulated by the HKMA and required to ensure that their respective Macau branches complied with extensive record-keeping requirements imposed by the HKMA, it was reasonable to infer that the banks could have access to, control or power over, and could obtain possession of, the documents and information held in their respective Macau branches.
Full and frank disclosure
The Court also reminded practitioners that the proper way to make full and frank disclosure in ex parte applications is to at least provide a summary of the relevant matter in the body of the affidavit or the skeleton argument.
In this case, the deponent of the supporting affirmation for the application made reference to a particular letter in the affirmation and simply provided the Court with the page reference and invited the Court to read the letter. The Court criticised this manner of disclosure, as the letter in question was 23 pages long and formed part of a 2,500-page exhibit with unsatisfactory organization. The Court commented that this may give rise to material non-disclosure if the relevant matter is overlooked by the Court. It is particularly important in urgent applications involving voluminous documents to specifically draw important matters to the Court’s attention.
Commentary
This case serves as a useful guide for parties intending to make an application for a gagging order and a Norwich Pharmacal order against a bank. Save in the most exceptional of circumstances, the Court would expect a party to adopt the two-stage approach of first applying ex parte for a gagging order without notice to the bank and then applying inter partes for a Norwich Pharmacal order with notice to the bank. It also confirmed that a Norwich Pharmacal order could be obtained in relation to an overseas branch of a Hong Kong bank. Finally, a useful reminder is given to parties and legal practitioners that the need to give proper and sufficient notice to the bank cannot be avoided in the name of convenience or to save costs, whilst urgency does not excuse parties from making full and frank disclosure of important matters in a clear manner.
For further information, please contact:
peter.so@deacons.com.hk
