Lky v. Ylp

FCMC 4352 & 18284/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MATRIMONIAL CAUSES NO. 4352 & 18284 OF 2013

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D E C I S I O N
(DISCOVERY)

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1.This is a hearing of the Petitioner (“the husband”)’s application for discovery against the Respondent (“the wife”).

2.The husband’s original summons for discovery was issued on 20 March 2015 asking for a wide range of information or documents.  But for the purpose of this hearing, the husband would confine his request for specific discovery to the management accounts of the wife’s following companies only:

(1)     Traditional Chinese Medical Center Limited for the financial years of 2010-2013 (“TCM”).

(2)     Yangsheng Dao Limited for the financial years of 2011-2013 (“Yangsheng Dao”).

(3)     Fortunate Crew Limited (BVI Company) for financial years of 2010-2013 (“Fortunate Crew”).

(4)     Yuen Pok International Enterprises Limited for the financial years of 2010-2013 (“Yuen Pok”).

(5)     International Association for Health and Yangsheng Co. Ltd. for the financial years of 2010-2013 (“IAH”).

Brief introduction

3.The parties went through a marriage ceremony in Las Vagas on 3 March 2009.  That marriage has now been nullified by a decree absolute granted on 19 September 2014 in the case of FCMC 18284 of 2013.

4.The parties also registered a marriage in Hong Kong on 21 April 2011.   A decree absolute of divorce was also granted on 19 September 2014 dissolving that marriage in the case of FCMC 4352 of 2013.

5.The parties have no children from this marriage.

6.As far as ancillary relief is concerned, by an order of the court dated 19 March 2014, the 2 cases are to be heard together and all documents filed under FCMC 4352 of 2013 are to be taken as if they were filed under FCMC 18284 of 2013. 

7.The parties failed to settle at the FDR hearing and the trial is now fixed to be heard for 10 days starting from 24 November 2016.

The Law on Discovery in Matrimonial Cases

8.Discovery in matrimonial proceedings is governed by Rule 77(4) of the Matrimonial Causes Rules, Cap.179A (“MCR”) which is as follow:

“(4) Any party to an application for ancillary relief may by letter require any other party to give further information concerning any matter contained in any affidavit filed by or on behalf of that other party or any relevant matter, or to furnish a list of relevant documents or to allow inspection of any such document, and may, in default of compliance by such party, apply to the court for directions.”

9.It seems that the Court has a wide discretion in giving directions on discovery but the principles on which the Court is to exercise that discretion are not spelt out in the said rule.

10.In this regard, I think much assistance can be gained by referring to O.24 of the Rules of the High Court, Cap.4A (“RHC”) which governs the issue of discovery.  However, I do not intend to go into details of O.24 because I do not think the principles as contained therein are in dispute. The principles governing discovery are relevance and necessity.  Orders for production of documents will only be made if the materials sought are relevant to the issues and they are also necessary for the fair disposal of the matter or for saving costs (O.24 r.13, RHC).

11.Parties in matrimonial cases are also under an absolute, positive and continuing duty to give full and frank disclosure of his or her means.  In L v C [2007] 3 HKLRD 819, Stock JA (as he then was) confirmed this duty by reciting the following passage in Rayden and Jackson on Divorce and Family Matters (18^th ed., 2005) at paragraph 69 at p.855:

“69. The effect of the authorities has been summarised thus:

The importance of the duty of both husband and wife to make disclosure of their assets which is full, frank and clear cannot be over emphasised. Unless a court is provided with correct, complete and up-to-date information on the matters to which…it is required to have regard, it cannot lawfully or properly exercise its discretion in the manner ordained by [the statue]. The duty of each party is absolute, and it must be discharged regardless of whether the application for ancillary relief is adjudicated upon by the court after full evidence has been heard, or settled after an exchange of financial information between the parties leading to a consent order. The duty is also a continuing one; a party must not mislead the other party and the court into assuming that his financial situation is unchanged if it [in] fact has changed…. A Party who seeks to negotiate and secure a settlement without informing the other party about a material change in his or her financial circumstances runs the risk that, if a settlement is reached and a consent order is made, the consent order will be set aside by the failure to provide full, frank and timely disclosure. Shortcomings in disclosure will be visited by orders for costs against the offending party, often on the indemnity basis. Furthermore, deviation from the standard of disclosure required may be visited by the court drawing adverse inferences against the party in default.

   Rayden and Jackson on Divorce and Family Matters (18^th ed., 2005) para.17.28.”

12.I do not think the above general principles are in serious dispute.

Main issues at trial

13.Like most trials on ancillary relief, one of this case’s main issues is the parties’ respective financial circumstances. According to the husband, his financial situation is rather straightforward.  He is a director of a listed company.  His only income is generated from his employment, including his monthly salary and dividend payment.

14.On the other hand, the financial circumstances of the wife are more controversial.  She has 3 investment accounts and is the shareholder of 6 limited companies holding various properties, with a total worth of over $65 million.   However, it is her case that she is only holding the accounts and the companies on trust for others.  Therefore, the beneficial ownership of these accounts and companies has become one of the central issues of the coming trial.

The husband’s arguments

15.As far as the companies are concerned, Mr Pang SC for the husband accepts that the wife has already produced the audited financial statements of those companies.  However, there are suspicious circumstances leading him to believe that the financial statements do not reflect the whole financial picture of the companies and therefore, he asks for the management accounts to be presented so that the actual running of the companies can be investigated upon.  He argued that such investigation would shed light on the identity of the true beneficial owner of those companies.

16.At the hearing, I was also referred to the principle that all documents which it is reasonable to suppose “contains information which may enable the party (applying for discovery) either to advance his own case or to damage that of his adversary, if it is a document which may fairly lead him to a train of enquiry which may have either of these two consequences” must be disclosed: Hong Kong Civil Procedure 2016, 24/2/10. Mr Pang argued that the husband is entitled to pursue this “train of enquiry” on the wife’s companies.

The wife’s arguments

17.On the other hand, the main tenets of Ms Yip SC (acting for the wife)’s arguments are that the husband’s request for management accounts is purely a fishing exercise which should not be acceded to by this court.  In her written submissions, Ms Yip cited the history of the case showing that the wife has been cooperative in providing various documents to the husband concerning those companies.

18.Ms Yip also cited the case of B v B (matrimonial Proceedings: Discovery) [1978] Fam 181 in which the following passage was relied upon:

“The wife normally put the husband to proof of his financial resources, and it is then for the husband to make full disclosure, including disclosure of all documents relating thereto. If his initial discovery is manifestly incomplete the wife may apply for further discovery. In many, perhaps most, cases audited accounts of companies of which the husband is a shareholder will be sufficient, together with full disclosure of all the husband’s personal financial records. But there are cases when the court will go behind company accounts and order discovery of company books and documents, if it has the power within the law and with the Rules to do so. It is not usual, however, for the court to take this course unless there is evidence before it from accountants or other experts that the published accounts of the company cannot be relied upon.”

19.As there is no such expert evidence to say that the audited financial statements are not in order, therefore, the husband should not be allowed to continue with this fishing exercise.

My views

20.There is no dispute that the wife does possess the management accounts of the 5 companies in §2 above.  The issue is whether the discovery of those documents is necessary for the fair disposal of the matter or for saving costs.

21.I note that these are connected companies in which the wife is a director and shareholder.   If I understand it correctly, TCM is the company carrying out the main medical practice of the wife whilst the others are assets holding companies.   In his written skeleton, Mr Pang  listed out some of his queries on those companies, including:

(1)     The expenses of TCM;

(2)     The expenses and the amounts due to a director in Yangsheng Dao;

(3)     The remuneration paid to directors and various sums of money due to a shareholder in Fortunate Crew;

(4)     The amount due to directors in Yuen Pok; and

(5)     The income and donations of IAH.

22.On the face of it, I accept that the wife may have to answer the husband’s queries on some items in the company accounts, but the issue is whether this justifies a full scale investigation of the companies’ management accounts.

23.In this regard, I bear in mind the comments in B v B (supra), to which I totally agree, that the audited financial statements of a limited company should in many, perhaps most, cases be sufficient to reflect the true financial positions of that company.  If the husband is saying that those audited financial statements are deficient in any way, he must produce expert opinion to justify such further discovery of the company’s management accounts.  Of course, if the husband is only asking for further discovery on certain “suspicious” items in the audited financial statements, this court may be more accommodating in considering his request.  However, the husband is now asking for all the management accounts in order to carry out a full scale investigation.   This will involve voluminous amount of documents to be copied and redacted, to be handed over to the husband for inspection, some of them may or may not be relevant to the issues in hand.  I am afraid that this request cannot be acceded to, especially when we are less than 2 months away from trial.  It is simply too late to initiate this “train of enquiry”.

24.Having said the above, I must stress that under appropriate circumstances, the husband can still raise all these issues during cross examination and proper inferences can still be drawn if the wife fails to give a satisfactory explanation thereon.  But that has to be left to the trial in November.

Conclusions and Orders

25.Based on the above reasons, I am not persuaded to order the wife to produce the management accounts of the 5 companies and that part of the husband’s summons is therefore dismissed. 

Costs

26.Costs to follow event.  The wife shall have the costs of this part of the summons, including today’s hearing and all costs previously reserved, if any, to be taxed if not agreed, with certificate for 2 counsel. This will be in the form of an order nisi to be made absolute after the expiry of 14 days from the handing down of this decision.

27.Lastly, I must thank counsel for their assistance.

Representation:

Mr Robert Pang SC and Ms Anny Chak, Counsel for the Petitioner (the husband) on instructions from Messrs. Ho & Ip

Ms Anita Yip SC and Mr Ken SH Chan, Counsel for the Respondent (the wife) on instructions from Messrs. ONC Lawyers