In Hwang v Golden Electronics Inc,(1) the Court of First Instance ordered a bank to disclose certain records that it held relating to two of the defendants. The judgment is one of a number arising out of the same proceedings, in which the plaintiff claims the return of monies alleged to have been misappropriated through several defendant corporate vehicles and transferred to numerous other defendants (some of which appear to be based in Taiwan). In this judgment, the court noted not only that there were cost efficiencies to be had by providing electronic disclosure, but also that banks should not in effect be making a profit from complying with disclosure orders. While, in this instance, the plaintiff had agreed to pay the bank's costs, the amount of those costs (per account and per page) appears to have raised judicial eyebrows.
The background to the proceedings is set out in an earlier article ("Novel method of service using data room").(2)
In brief, the plaintiff is seeking to recover various sums alleged to be the subject of unauthorised transfers between the first five defendants and several other defendants, some of which appear to be based in Taiwan. The unauthorised transfers are alleged to have occurred on diverse dates in the few years before 2019.
The plaintiff had previously obtained Mareva (freezing of assets) and proprietary injunctions against several of the defendants, together with disclosure orders relating to various tiers of funds alleged to have been misappropriated.
It appears, based on the information obtained from the disclosure orders, that the plaintiff became aware that some monies had been allegedly misappropriated before June 2016 (which was when the plaintiff had first understood the transfers of money to have commenced). It also appears that two of the defendants had opened accounts with the Hong Kong branch of a Taiwanese bank ('the bank') in March 2013 and April 2015.
The plaintiff, therefore, sought disclosure of the two defendants' bank records with the bank, for the period from when the accounts were opened until 31 May 2016.
The plaintiff applied for disclosure pursuant to Section 21 ('bankers' books') of the Evidence Ordinance (Cap 8)(3) or, alternatively, Norwich Pharmacal relief.
As is common in such cases, after having considered its position and the circumstances of the case, the bank did not object to giving disclosure, subject to the plaintiff paying its charges for handling the request for disclosure. The bank's handling fees were, however, HK$3,000 per account, with an additional HK$200 per page of document to be provided and, while the plaintiff agreed to pay these charges, its lawyers noted that banks' charges for providing disclosure in compliance with court orders appeared to vary significantly – an issue that is often not addressed by the courts and in respect of which the judge in this case made a number of notable observations.
Disclosure
In a concise judgment, the court briefly set out the general principles for the grant of bankers' books orders or Norwich Pharmacal relief. In particular, the court stressed the need for a balance to be struck between the interests of the party seeking disclosure (and their legitimate rights) and the position of the person against whom disclosure is sought (namely, the bank and its duties of confidentiality).
While a court would not lightly exercise such powers, it would do so where (for example) the request had sufficient specificity or was not unduly wide and was otherwise justified. Further, when the court exercised its powers, it did so in the knowledge that:
- an applicant would ordinarily be required to give an undertaking that the information obtained would be used only for the purpose of the proceedings to trace funds and no other purpose; and
- an applicant would ordinarily undertake to pay a bank's costs on an indemnity basis – namely, to compensate a bank for its costs of complying with a disclosure order (but no more than its actual costs).
In the circumstances, the court granted the orders.
Bank charges for complying with disclosure
Although the bank did not object to giving disclosure, and the plaintiff agreed to pay its charges, the amount of those costs caused the judge to comment on them. The court was careful to note that it had not been addressed by the bank as regards its charges or by any association of banks (eg, the Hong Kong Association of Banks). The court was also careful to note that, without knowing more, it could not be stated that on this occasion the bank's charges could not be justified.
However, the bank's apparent lack of engagement or justification for its charges appears to have caught the court's attention. The following choice passages from the judgment make the point (under a subheading in the judgment marked "Postscript"):
Postscript
…Of course, I recognise that I do not have any information from the Bank, or indeed from any other bank, explaining the charge of HK$200 per page. But, on its face, that charge does seem to be somewhat arbitrary, and at least on the high side, if not wholly excessive.(4)
…Relevantly for today's purposes, I also expressed the view – which I maintain – that I do not think it is part of the profit making of a bank to charge for compliance with orders for disclosure on a basis greater than the actual reasonable costs of compliance. Indeed, the whole point of ordering the costs of providing disclosure to be paid on an indemnity basis, against the applicant's undertaking to do so, is to ensure full (but no more than full) compensation for the costs of complying with the order.(5)
…It therefore seems to me that banks and financial institutions who are asked to provide disclosure should give careful thought as to the real and reasonable costs of compliance, which would justify the full indemnity extracted from the applicant as part of the consideration in granting or refusing the application.(6)
The court's comments will be welcomed by litigants that seek disclosure of records from banks as regards frauds that they have suffered – especially through electronic scams (in respect of which there are many victims in Hong Kong).
As the court notes, victims of fraud are often required to spend significant time and costs in attempting to recover their money. Those costs can be reduced where disclosure is provided for electronically. Indeed, given that banks hold their customers' records in electronic or digital format, it would normally make more sense for them to produce documents (when required to do so by a court order) in an electronic or digital format, rather than charge for hard copies. The applicant's advisers (eg, lawyers and forensic accountants) will often work from electronic documents and (as the court notes) having to turn hard copy documents into electronic versions by scanning them would appear to be anachronistic. If hard copies are needed, for any particular reason, that can be the subject of further agreement and reasonable cost.
If banks and financial institutions fail to engage more with victims of fraud, and in a cost-efficient manner, the victims of crime lose out. That is clearly not a state of affairs that anyone wishes (least of all, one would hope, the banks themselves) and is also contrary to the government's objectives of combating fraud and those that deal with the proceeds of crime.
Endnotes
(1) [2021] HKCFI 544, 2 March 2021.
(2) [2020] HKCFI 1084, 9 June 2020.
(3) "Court or judge may direct copies of entries in banker's record to be taken".
