Using US Discovery in Hong Kong Cases

Hong Kong lawyers have a powerful tool they may not be aware of: the (in)famous US discovery system. Under a little-known US law, parties to proceedings in Hong Kong can take discovery in the US for use in a Hong Kong case.

Taking discovery in the US can often have a decisive impact in Hong Kong matrimonial, commercial and criminal matters. This article explains how using US discovery can help you win your case, what information you can obtain and what you need to show to get discovery.

Using US Discovery to Collect Critical Evidence

In many cases, the discovery that a party really needs is found in the US, not where the litigation is being held. US dollar denominated wire transfers clear through correspondent banks in New York. Twitter-posts and Google data is stored on servers in California. Trade creditors hold accounts receivable in Texas. There is a way for Hong Kong litigants to obtain documents and testimony from each of these sources.

Under Section 1782 of Title 28 of the United States Code (entitled “Assistance to foreign and international tribunals and to litigants before such tribunals”), US courts are empowered to assist foreign litigants to obtain evidence in the US for use in foreign legal proceedings.

Take the example of Mirana Kwong and her estranged husband Joshua Kwan. According to papers filed by Mirana, the couple filed for divorce in Hong Kong after 24 years of marriage after she caught him cheating with another woman. When he declared only a relatively modest income, even though he came from a “wealthy family” and was a “successful businessman”, she knew he must be hiding something.

She filed a Section 1782 application in California to take discovery from 10 companies for which he served as a director. She was right: the discovery showed that he owned the companies and that they were extremely valuable (see Kwong Mei Lan Mirana v Battery Tai-Shing Corp., No. 08-mc-80142 JF(RS), 2009 WL 290459 (N.D. Cal. Feb. 5, 2009)).

The statute was also recently used against billionaire American casino magnate and influential Republican political donor Sheldon Adelson. He sued a Hong Kong-based Wall Street Journal reporter in the High Court of Hong Kong for libel for describing him in an article as “a scrappy, foul-mouthed billionaire from working class Dorchester, [Massachusetts.]”

To defend the suit, the reporter took US discovery from Adelson’s friends, colleagues, bodyguard, driver and even his rabbi to prove that the description was true. The case settled in January this year with no payment by either side. The original article remains on the Wall Street Journal webpage (see In re O’Keeffe, 650 Fed. App’x 83 (2d Cir. 2016); Adelson v O’Keeffe [2014] HKCFI 1464).

What Information Can I Obtain as a Hong Kong Litigant?

In Hong Kong, only limited pretrial discovery is available. There are no third-party pretrial depositions. Leave of court is often required.

US litigants, meanwhile, have many discovery tools to choose from. These powers are available to Hong Kong litigants, too.

Any Relevant, Non-Privileged Document

You can use Section 1782 to force third parties to hand over any non-privileged document relevant to your case in their “possession, custody, or control.” Properly subpoenaed, a party must produce any document it has the “legal right to obtain on demand.”

A witness can be compelled to bring documents into the jurisdiction from anywhere in the world. Thus, a German medical company can subpoena the consulting firm McKinsey in New York to produce documents kept in Germany (see In re Gemeinshcaftspraxis Dr. Med Schottdorf, No. Civ. M19–88 (BSJ), 2006 WL 3844464 (S.D.N.Y. 2006)).

Up to Seven Hours of Sworn Testimony

Section 1782 can also be used to compel testimony – up to seven hours, videotaped and under oath. Making a false statement knowingly is perjury. The witness can also be held in contempt of court for refusing to answer valid questions.

What Do I Need to Show to Get Discovery?

US courts have wide-ranging discretion to grant or deny Section 1782 applications. Applicants must show three things in the first instance:

The target is a “person” who “resides” or “is found” where the court sits

The “person” must be a human being or a legal entity. It cannot be a government agency. Thus, a court will deny an application to obtain information from the US Central Intelligence Agency (“CIA”) about the car crash that killed Princess Diana because the CIA is not a “person” (see Al Fayed v Central Intelligence Agency, 229 F.3d 272 (D.C. Cir. 2000)).

The “person” must also “reside” or be “found” where the court sits. A target can be “tagged” with a subpoena while “passing through” even though he has no connection there. He must then comply or risk contempt of court. For instance, a French citizen who is served with a subpoena at an art gallery in Manhattan must testify in New York in spite of having no other connection with the jurisdiction (see Edelman v Taittinger, 295 F.3d 171 (2d Cir. 2002)).

The discovery is “for use” in a proceeding before a “foreign or international tribunal”

The discovery must be relevant to – although not necessarily admissible in – the Hong Kong case. The statute says “tribunal” instead of “court” for a reason: beyond conventional civil or criminal cases, the statute can be used in aid of administrative hearings, public law arbitrations and, in some instances, private commercial arbitrations.

What is more, there is no need for an ongoing proceeding. Courts can grant applications for “contemplated” lawsuits. In practice, however, courts will only do so if an application is very specific about the proposed claim, evidence and venue.

It is an “interested person” who seeks the discovery

The party bringing the Section 1782 application must qualify as an “interested person” in the foreign case. A named party in a Hong Kong proceeding is an “interested person”. Others with “participation rights” in the case (for example, to submit evidence or to appeal the ultimate decision) can also be an “interested person” with the right to bring an application.

Third parties with no standing to participate in the Hong Kong case would not qualify as an “interested person”. Consequently, a non-party who only has “financial interests” in the outcome is not an “interested person” (see Certain Funds, Accounts and/or Investment Vehicles v KPMG, LLP, 798 F.2d 113 (2d Cir. 2015) (in dictum)).

How the Court Exercises Its Discretion

If you meet those requirements, the court can (but does not have to) grant the application.

It will consider four factors to make a decision:

The discovery target should not also be a named party in the Hong Kong case

US courts are reluctant to order discovery against named parties in the foreign proceeding even if the US court has jurisdiction over them. This is because the Hong Kong court can just as easily order those parties to produce evidence.

There is no “authoritative proof” that the foreign court does not want the US discovery

The US court can refuse the application if the Hong Kong court or government says that it does not want the discovery. Thus, the US court may not allow the discovery when a foreign prosecutor writes to the court that it would compromise an ongoing criminal investigation (see Schmitz v Bemstein Liebhard & Lifshitz, LLP, 376 F.3d 79, 84 (2d Cir. 2004)).

There is little risk of this in Hong Kong, however, where courts regularly welcome Section 1782 assistance.

The application does not circumvent foreign evidence rules

The question is whether the applicant asking for discovery is abusing Section 1782 to end run around Hong Kong court rules. Typically, this requires evidence that the applicant is taking the discovery in “bad faith.” In a rare example, a court denied a discovery application for “bad faith” where an application was pending before the foreign tribunal to take the exact same discovery (see In re Microsoft Corp., 428 F. Supp. 2d 188 (S.D.N.Y. 2006)).

There would be no “undue burden” on the target

US courts often deny applications that request nebulous categories of documents or documents covering vast spans of time. Thus, one US court rejected as unduly burdensome a request for documents that dated back nearly 30 years (see In re Apotex Inc., 2009 WL 618243 (S.D.N.Y. 2009)). In practice, requests should be laser-focused in the first instance.

Finally, judges are not robots. It is important to appeal to the court on an emotional level. Courts have wide discretion. Even if you meet the legal test, it is critical to show up front that your client is the “good guy”.

Procedure

Section 1782 applications are filed ex parte. In a typical case, the court will read the application and sign them as long as a prima facie case is made out. The true test comes later after a motion by the target to “quash” the subpoena.

Conclusion

To make this all go smoothly, your Hong Kong and US legal teams must work hand in glove. US lawyers with limited Hong Kong experience sometimes do things that alienate the Hong Kong courts. And Hong Kong lawyers run into similar pitfalls coordinating their actions with US discovery. The two cases must be planned and executed in concert so the discovery is collected at the right time and in the right way.

Jurisdictions: 

Kobre & Kim LLP (Hong Kong), Principal

Mr. Han is a lawyer at Kobre & Kim and a dual-qualified Hong Kong and US civil litigator focusing on cross-border commercial disputes involving the US, Hong Kong and China. He regularly represents multinational corporations, state-owned enterprises and ultra high-net-worth individuals in matters involving coordinated strategies in multiple jurisdictions and venues, including the High Court of Hong Kong and US federal and state courts. He has been cited on topics involving Asia-US cross-border disputes by publications including The New York Times and The Boston Globe. Mr. Han is a Beijing native and speaks Mandarin.

Kobre & Kim LLP (Washington, DC, US), Associate

Mr. Barnes is a US-qualified lawyer with Kobre & Kim’s Washington DC office who focuses on US government enforcement defense matters, internal investigations and regulatory actions.