Key takeaways

• The CFA has unequivocally affirmed that Hong Kong courts can issue a letter of request to a Mainland court to assist in producing documents held by a litigant in the Mainland, even if those documents are part of general discovery.
• Obtaining documents from the Mainland through a letter of request now explicitly requires the applicant to show that there is a reason to suppose the Mainland court would be receptive to the request.
• Litigants and their advisors must proactively identify and navigate the relevant Mainland regulatory requirements (e.g., those related to data security and export of audit working papers), if any, before the Mainland court can act on a letter of request.
• The CFA adopted a flexible, purpose-driven interpretation of the "Arrangement on Mutual Taking of Evidence in Civil and Commercial Matters between the Courts of the Mainland and the Hong Kong Special Administrative Region" ("Mutual Arrangement").
• This judgment necessitates careful strategic planning for any Hong Kong litigation involving Mainland-located documents, impacting on timelines, costs, and the overall discovery process.

In more detail

The recent judgment of the Hong Kong Court of Final Appeal ("CFA Judgment") addresses critical questions regarding cross-border discovery between Hong Kong and Mainland China, particularly concerning sensitive documents like audit working papers.

Background of the dispute

Liquidators of a listed company ("Company") and its subsidiary brought a negligence claim against its former auditors ("Auditors"), including a Hong Kong and a Mainland entities. The dispute centered on the audit working papers ("D2 Documents") held by the Mainland entity in Shanghai. The Mainland entity argued that PRC laws prohibited the transfer of these documents out of the Mainland without specific regulatory approval. The PRC Ministry of Finance (MoF) had previously advised that the matter fell under the "judicial scope" and could be addressed via the Mutual Arrangement.

The Court of Appeal reversed the initial refusal, holding that a letter of request was appropriate under the Mutual Arrangement. This decision led to the CFA appeal.

Key questions before the CFA

The CFA considered two pivotal questions:

1. Jurisdiction: Does the Hong Kong court's jurisdiction extend to issuing a letter of request for a party's own documents (subject to discovery and production obligations) when those documents are prohibited from being produced without the requisite approval under the law of the location of the documents?
2. Scope of the Mutual Arrangement: Does a request for a Mainland court to facilitate regulatory approval for production of documents as part of general discovery fall within Article 6 of the Mutual Arrangement?

The CFA's reasoning and judgment

The CFA answered Question 1 in the affirmative. It reiterated that Hong Kong courts possess broad and flexible inherent jurisdiction to issue an outgoing letter of request, which is necessary for the "just resolution of disputes". The Court rejected arguments for a strict "equivalence" principle (limiting to requests for the purpose of obtaining material and admissible evidence). In this case, the CFA held that the D2 Documents were critical for the litigation and that the request would facilitate the Mainland entity's compliance with its Hong Kong discovery obligations. As such, the context of this case called unquestionably for an affirmative answer to Question 1.

The CFA's answer to Question 2 was also affirmative. It clarified that the Mutual Arrangement is an administrative scheme, but not a statute, and it should be interpreted broadly to promote judicial cooperation. The wording of Article 6 supports a flexible interpretation, and the MoF's prior advice indicated that Mainland courts would be receptive to the request.

Crucially, after the CFA hearing, the Shanghai High People's Court (SHPC) returned the letter of request without assisting with the provision of the D2 Documents. The CFA analyzed this and concluded that the SHPC's response did not mean that the request fell outside the Mutual Arrangement.

Rather, the SHPC confirmed that the request for documentary evidence falls within the Mutual Arrangement but emphasized that its implementation requires compliance with the Mainland administrative and regulatory requirements for the export of such documents (e.g., Article 19 of the Interim Measures for Data Security Management by Accounting Firms). The SHPC indicated that it could not provide assistance until these approval formalities were completed, which implied that it would act upon the letter of request once the administrative approval was obtained.

Implications for litigants and professional firms

This CFA Judgment provides crucial guidance for any litigant in Hong Kong who requires access to documents located in Mainland China:

1. Hong Kong courts can issue a letter of request to a Mainland court for discovery purposes, affirming judicial assistance.
2. The applicant for a letter of request should show that there is a reason to suppose the Mainland court would be receptive to the request, with reference to the materials at the time of the application without the benefit of hindsight.
3. Obtaining Mainland documents requires a letter of request from the Hong Kong court and in some cases, the Mainland court's assistance thereof may subject to all necessary administrative and regulatory approvals from the relevant Mainland authorities.
4. Litigants and their legal teams must proactively identify and navigate the complex Mainland laws and regulations. This administrative pre-clearance is a prerequisite for Mainland courts to act upon the letter of request.
5. This adds complexity and time to cross-border discovery. Parties must factor in both judicial and administrative processes when planning litigation timelines.
6. Auditors and other firms operating in both jurisdictions must be aware of their obligations regarding document retention, transfer and production, as well as the interplay between judicial requests and Mainland regulatory requirements.

Conclusion

The CFA's Judgment offers pragmatic guidance for cross-border litigation. It confirms the availability of a judicial mechanism for obtaining crucial documents while highlighting the indispensable need to comply with Mainland administrative and regulatory requirements for data export. Clients engaged in or contemplating litigation with a Mainland nexus must now adopt a comprehensive strategy that addresses both judicial assistance and administrative compliance.