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Court permits and encourages banks to comply with disclosure orders by uploading documents to online data room 

Published: July, 2020

Submission: July, 2020

 



In Hwang Joon Sang & Anor v. Golden Electronics Inc. & Ors (HCA 1529/2019; [2020] HKCFI 1233), the Court made an order requiring various banks to supply documents by way of disclosure to the Plaintiffs and permitting (indeed, encouraging) the banks to do so by use of electronic or digital versions of those documents being uploaded to a data room. The Plaintiffs were to create an online data room for each of the banks, so that only the particular bank would have access to the materials in, or be able to upload materials to, that data room.


Brief facts


The Plaintiffs, purportedly defrauded of significant sums, asserted proprietary claims over the funds in bank accounts held by the Defendants. The Plaintiffs obtained disclosure orders against the various banks where the accounts were held. The issue was how the banks may and should comply with the disclosure orders.


Disclosure by access to a data room was suggested in particular, because of the heavy costs, including photocopying charges, levied by some banks in producing documents as ordered. Those orders, necessary for the intended tracing exercises, had already put a significant financial burden on the Plaintiffs. For instance, one bank had quoted HK$157,100 as photocopying charges for 1,571 pages of documents, i.e. HK$100 per page.


Court’s reasoning


In light of the underlying objectives of the Rules of High Court, in particular, the objectives of increasing the cost-effectiveness of any practice and procedure, promoting a sense of proportion and procedural economy in the conduct of proceedings and ensuring fairness between the parties, the Court agreed with the Plaintiffs’ submissions that the Court should actively approve and adopt a practice and procedure which may help reduce costs, so long as it was possible, fair, just and reasonable to do so.


The Court remarked that the banks probably held the relevant materials in electronic or digital form and unnecessary time and costs would therefore be involved if the banks had to print out hard copies of documents so as to provide them to the Plaintiffs. This was particularly so, where the Plaintiffs would likely have to scan those documents to create their own electronic or digital versions to pass on to (for example) forensic accountants or others involved in the tracing exercise. Turning paper documents back into electronic documents would also incur unnecessary time and costs. The use of paper, at least much more paper than was likely to be required for any focused exercise, was also environmentally unattractive.


The Court said that with the use of a data room for document disclosure banks’ photocopying charges could be lowered, if not eliminated altogether (presumably also lowering administrative charges generally), which meant savings not only in costs, time and paper, but also that information could be provided faster, which was a significant benefit in cases such as this, where earlier attempts to trace assets may lead to greater recovery, without further dissipation and greater difficulty in tracing and recovery.


It would also go some way, the Court said, to ensure that disclosure orders obtained against banks in cases like this do not become impracticable to all but the most well off victims of fraud.


The Court added that where the purposes of ordering disclosure from the banks are (a) to facilitate the provision of information which may lead to the location and preservation of assets to which a party makes a proprietary claim, and (b) where the order is intended to reap substantial and worthwhile benefits for the plaintiff, then the form of the order should permit and encourage compliance using a method which actually furthers those purposes, rather than risk frustrating them.


Comment


We anticipate that more and more cases will follow this method of disclosure. When it comes to prevention of dissipation of assets in suspected fraud cases, how fast the victims can trace the assets will have a huge bearing on recovery. By permitting and encouraging banks to provide disclosure by uploading the requested documents to an online data room, administrative and photocopying time and costs can be saved and victims would be able to receive information helpful to asset tracing more quickly. It would also save the time and costs of delivery/post/courier.


To cater for the possibility of banks not wishing to upload documents to an online data room, perhaps as a fall-back mechanism, the Court could allow banks to provide softcopies of the requested documents. Either way, the banks would not need to print out hardcopies of the requested documents which they already have in electronic or digital form.


 



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