[Judgment] Conflicting Judgments from Hong Kong Court on Production of Certain Mainland Documents

In the first half of 2024, the Hong Kong High Court (Hong Kong Court) handed down two judgments concerning the issuance of letters of request to courts in Mainland China to enable accounting firms to disclose documents, such as audit working papers, stored onshore in the Mainland so that they can defend themselves during negligence trials in Hong Kong brought by liquidators of relevant companies.

First case

In China Metal Recycling (Holdings) Limited (in liquidation) vs Deloitte Touche Tohmatsu (a firm) ([2024] HKCFI 877), Madame Justice Yvonne Cheng agreed to send a letter of request to the Shanghai High People’s Court on behalf of the defendant so that the latter can access documents held by Deloitte China to defend itself in a negligence case brought by the liquidators of the plaintiff. Deloitte China and the defendant are separate legal entities although they belong to the same group. The defendant needed the requested documents for its own disclosure obligations in the proceedings before the Hong Kong Court, but the expert opinion it obtained said that those documents cannot be transmitted outside of the Mainland without regulatory approval.

Madame Justice Cheng agreed to issue the letter of request, basing her March 2024 judgment on the Arrangement on Mutual Taking of Evidence in Civil and Commercial Matters between the Courts of the Mainland and Hong Kong《关于内地与香港特别行政区法院 就民商事案件相互委托提取证据的安排》(Mutual Agreement) and the inherent jurisdiction of the Court. The judge also examined and applied six principles distilled in a previous case to the present matter and was satisfied that the requirements were met. Those principles are: whether there is reason to suppose that the Mainland court would be receptive to the request; whether it is necessary and in the interests of justice to obtain the documents; whether reasonable attempts have been made to obtain the evidence in other ways; whether the application is made bona fide and with such promptness as not to cause unreasonable delay; whether the documents sought are sufficiently precisely identified (rather than being a general request for discovery) and whether the documents exist and are likely to be in the possession of the person from whom production is sought.

Second case

In Tenwow International Holdings Limited (in liquidation) and Nan Pu International Limited (in creditors’ voluntary winding up) vs PricewaterhouseCoopers (a firm) and PricewaterhouseCoopers Zhong Tian LLP ([2024] HKCFI 1146), Mr Justice Anthony Chan of the Hong Kong Court dismissed an application from the second defendant for a letter of request to be issued to the same court in Shanghai to enable it to disclose documents it has in the Mainland in a negligence suit in Hong Kong which was brought by liquidators of the plaintiffs.

Despite similar circumstances and arguments from the defendants (i.e., transmission of the requested documents outside of Mainland is prohibited without regulatory approval; otherwise the defendant would face criminal sanctions), the judge found, in his May 2024 judgment, that the Mutual Arrangement “is not working in the way it intended”, noting that “up to 31 December 2023, 9 LORs were issued to the Mainland Courts under the Mutual Arrangement since it came into force on 1 March 2017. None of them has been completed in that no requested evidence has ever been obtained.” The expert opinion adduced by the defendant was said have “obvious lacunas”. The judge also stressed that in principle, a party’s disclosure obligations are subject to the powers of the Court. It is wrong to subjugate the Hong Kong Court’s power to the criminal law of a foreign state. Hong Kong maintains a separate legal system to that of the Mainland. The judge accordingly dismissed the application.

Given the conflicting decisions and an increasing number of businesses going into liquidation under similar circumstances, it remains to be seen whether a superior court in Hong Kong may provide guidance on matters concerning the production of documents held in Mainland by professional service providers which are subject to restrictions on outbound transmission in suits brought in Hong Kong by liquidators of fallen businesses.

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