ONC Lawyers
Hong Kong
Introduction
In June 2020, ONC Lawyers pushed the bounds of existing civil procedures to by obtaining an order from the Court that data rooms could be used for service of legal documents (as opposed to flying crates of papers around the world).
Disclosure orders, or Norwich Pharmacal orders, are often sought against 3rd parties such as banks or internet service providers in order to understand the money transactions or identities of wrongdoers and ultimately to trace the money defrauded or identify the wrongdoers.
Traditionally, when making the application to court for disclosure of documents, solicitors willundertake to reimburse the respondents for their reasonable costs of complying with the disclosure order (such as photocopying or administrative costs), but occasionally the client may need to bear hefty photocopying and administrative charges of those respondents.
The decision of Hwang Joon Sang and another v Golden Electronics Inc. and others [2020] HKCFI 1233 made by the court on 15 June 2020 (the “15 June Decision”) changed the dynamics of employing information technologies in the legal industry, with particular application in complying with disclosure orders.
Background
The case concerns cross-border and multi-tiered fraud and money laundering through various individuals and corporate vehicles. One of the defendants (the “Defendant”) was formerly an assistant to the 1st Plaintiff who is a foreign businessman that cannot speak Chinese. The Defendant was entrusted with the liaison with Chinese-speaking counterparties and the managing of the financial and administrative aspects of the 1st Plaintiff’s business. However, the Defendant later absconded and the Plaintiffs discovered that the Defendanthas transferred funds belonging to the Plaintiffs out to the other Defendants without consent.
The Plaintiffs being defrauded of a substantial amount of money have claimed proprietary rights over the funds in the bank accounts held by the Defendants, and have sought declarations as to the Defendants holding the funds on constructive trust and as to liability to account, and orders for payment of sums due on taking of the account. The Plaintiffs haveobtained various injunction orders against the Defendants in this regard, and thanks to the information unveiled in the documents provided by banks under numerous disclosure orders, the Plaintiffs have been identifying more and more new Defendants.
Before the 15 June Decision, upon receiving the disclosure orders made by the court, banks would arrange all relevant documents, which included bank statements and credit and debit advices of the Defendants’ accounts, to be printed out and sent to the solicitors for the Plaintiffs. The amount of papers and labour involved and thus the charge levied was huge. In light of this undesirable situation, the suggestion of providing documents through a virtual data room instead of in their physical forms was made to the court. This was also a logical continuation of the ground-breaking decision handed down by the court on 9 June 2020 concerning the same case allowing service on the Defendants through a virtual data room (more information can be found here).
The 15 June Decision
The 15 June 2020 Decision handed down by the court on 18 June 2020 discussed a lot of practical considerations to modernize of the way for banks to comply with disclosure orders.
As mentioned above, it is often the case that the Plaintiffs in fraud or money laundering cases, being the victims, have to first chip in significant costs on investigating and tracing the stolen funds before they can successfully recover any amount of money.
In light of such, suggestions were made to the court to make good use of modern technology in improving procedural fairness and efficiency.
Likewise to the novel mode of service by granting access to data room to the Defendants which was permitted by the court in an earlier decision in this case, the court granted permission for the Plaintiffs’ solicitors to obtain documents from the banks under the disclosure orders by electronic means in the 15 June 2020 Decision.
For the ease of managing large amount of documents
As there are numerous Defendants (with even more expected to be discovered) in this case, multiple disclosure orders have to be obtained against various banks for information of the Defendants’ bank accounts. It would be much easier for the Plaintiffs’ solicitors and accounting advisors to sort, categorise and analyse the massive amount of records obtained from respective banks and hence, a more efficient tracing / investigation process.
For saving time, costs and resources
Although the Plaintiffs have undertaken to reimburse the banks for their reasonable costs of complying with the disclosure orders, the court agreed that it should be actively approving and adopting a practice procedure which may help reduce unnecessary costs so long as such changes are fair, just and reasonable to the relevant parties pursuant to the underlying objectives under Rules of High Court Order 1A, rule 1.
Practically speaking, banks nowadays probably hold the relevant materials as required under the disclosure orders (e.g. bank statements, credit advice etc.) in digital data form and would not involve or incur much costs for retrieving and providing the materials in digital form. The expenditure of time and costs to print those materials out in hard copy and deliver the same to the Plaintiffs would seem unnecessary given that the Plaintiffs would very likely have to scan them back into digital versions for handling and passing on to forensic accountants or others who are involved in conducting the money tracing exercise. As such, further unnecessary time and resources would be wasted by both the banks and the Plaintiffs. It is also very environmentally unfriendly.
Accordingly, in the 15 June 2020 Decision, respective banks are given a choice to provide the necessary documents to the Plaintiffs’ solicitors in soft copies if such way is preferred or is deemed more economical and environmentally friendly by them. If the new method of compliance is adopted, photocopying charges and administrative costs would be significantly reduced. After all, it is the court’s opinion that charges for compliance with disclosure orders should not be a profit-making part of a bank’s business.
How does the operation of the data room work?
In terms of execution of the new method, it would be much similar to that of service by way of access to data room on the Defendants. First, a fresh online data room would be set up in the event that a bank opts to adopt the new method. Then, a letter with a link to the particular data room would be sent to the bank with clear instructions as to how to operate and upload documents onto the data room. Each data room is protected by a separate access code which will be sent to the designated bank in a separate letter.
Note that there should be a separate data room for each individual bank, such that the bank account(s) information of different banks will not be accessible by other banks, ensuring proper protection of their clients’ confidentiality.
Conclusion
With better use of the modern-day technology, the new method for banks to comply with disclosure orders by uploading documents to designated data rooms can significantly reduce unnecessary administrative costs and save resources. Also, the tracing of defrauded funds can be more efficient, thus effectively prevent and minimize the chance of further dissipation of funds by the defendants.
The court actively encourages parties to consider and adopt this newly permitted way of provision of documents through a virtual data room, ensuring that disclosure orders would be executed in a cost-effective manner commensurate with the state of modern technology. This in no small part is attributable to the handling lawyers’ IT knowledge and capability.