Yang Foo-oi By Leung Ping Chiu, Roy Her Next Friend v. Wai Wai Chen and Another

HCA 1739/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1739 OF 2010

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BETWEEN

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D E C I S I O N

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1.There are 3 applications (embodied in 2 Summonses) before the court, following the judgment dated 29 November 2016 (Judgment).

Certificate for 3 counsel

2.Yang[1] seeks to vary the cost order nisi in the Judgment and asks for a certificate for 3 counsel as opposed to 2.  The Defendants adopt a neutral stance in respect of this application. 

3.I am satisfied that the court was too conservative with the order nisi in question.  Insufficient weight was given to the burden of the expert valuation evidence.  The number of properties involved was large and the issues extensive.  I therefore grant a certificate for 3 counsel.

Payment into court

4.Vivian applies to have the amount estimated as the equitable compensation payable by her to her mother paid into court in order to stop the running of the post judgment interest, which is about HK$1.41 million per day, pending the election by Yang of the alternative remedies of equitable compensation or account of profits. 

5.Mr Ho SC, appearing with Mr Dawes SC and Mr Man for Vivian, submitted that the application is “utterly reasonable”.  I am inclined to agree.  Indeed, the opposition by Yang is confined to: (a) whether the rules relied upon by Vivian are applicable; and (b) the concern that if she agrees with the application, she may be held to have made an election on the remedies and/or that such agreement may prejudice her cross-appeal against the Judgment. 

6.I see no technical impediment to the court doing what is plainly just.  In addition to the rules relied upon by Vivian (O. 29 and O. 80), this court has granted liberty to apply under the Judgment.  In Island Records Ltd v Tring Intl Plc, ChD, [1996] 1 WLR 1256, at 1259B-D, the lack of an established procedure did not inhibit the court from doing what was just.

7.With the encouragement of the court, the parties have agreed the terms of the order to be made by the court so as to alleviate the concern by Yang to preserve her rights in respect of both the cross-appeal and the election of remedy. 

Discovery in aid of election

8.This leave the only controversial application, namely, that by Yang for discovery of information as regards the use of the trust funds by Vivian so as to allow her to make an informed decision on the choice of remedy.

9.The first argument by Vivian over this application is that post judgment discovery is not normally allowed, and should not be allowed in this case.

10.I believe that the answer to this argument can be found in the application of a trilogy of authorities before the court: Tang Man Sit v Capacious Investments Ltd, PC, [1996] 1 AC 514; Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681; and Island Records, supra. 

11.First and foremost, an account of profits is procedural and to be carried out for the purpose of disgorgement of profits by the trustee who acted in breach of trust.  It is an entitlement of the beneficiary who has suffered as a consequence of the breach of the trust: see para 231 of the Judgment, citing Libertarian.

12.Secondly, an election of either equitable compensation or an account of profits for the purpose of disgorgement is normally made by the time the trial is concluded: see Tang Man Sit, p 521F.  Hence, the Judgment provided for the election to be made within 14 days subject to justified extension of time. 

13.Thirdly, the beneficiary is entitled to reasonable information so that he is in a position to make an informed decision on the election: see Tang Man Sit, p 521G-H.

14.Fourthly, whilst the election is normally made by the time the trial is concluded, there are exceptions.  Two exceptions had been identified in the authorities.  First, where judgment was obtained by default or summarily in which case the beneficiary may not have the requisite information to make an informed election.  Second, where there is a split trial.  See Tang Man Sit, p 512F-G and Island Records, p 1258B-F.

15.The argument in question may be boiled down to whether there is any good reason for the exercise of discretion in favour of Yang to allow the discovery exercise after the conclusion of trial. 

16.I find considerable force in the submission of Mr Yu SC, appearing for Yang with Mr Man SC and Mr Lam, that Yang would not have been able to obtain discovery of the profits made by Vivian with the trust properties before trial even if she had applied for it.  The latter had denied strongly all along that she was a fiduciary.  Any specific discovery application would have been met with the argument that the right to such discovery had not been established.  I believe that in such circumstances the likelihood would be for the court to either dismiss the application as premature or to adjourn it pending the resolution of the issue of fiduciary duty. 

17.It therefore follows that Yang should not be blamed for not being in a position to make an informed decision.

18.As regards Mr Ho’s submission that the issue was already ventilated at the trial and determined against Yang, I do not agree with it.  I have no doubt that the point was not debated.  The comments made by the court towards the end of Mr Yu’s final submissions at the trial, which were referred to by Mr Ho, was designed to encourage the parties to put an end to any further arguments in light of the unfortunate position that Yang was, and is, in.

19.Finally, in respect of Mr Ho’s argument that to allow post judgment discovery would be unfair because the court had barred Vivian from leading evidence on the expenses to be deducted from the rental and sale proceeds (see paras 255 to 265 of the Judgment).  Therefore, acceding to this application would allow Yang to blow hot and cold.  I agree with Mr Yu that there will not be any unfairness because such expenses will be recognised if an account of profits is elected. 

20.For these reasons, I am satisfied that Yang is entitled to some disclosure from Vivian as to what she did with the trust properties or their equivalent.

21.Next, I have to consider the scope of the discovery.  Mr Yu argued that Yang, as the beneficiary, is entitled to full information on what happened to the trust properties.  In effect, that would tantamount to having an account of profits for the purpose of electing an account of profits with the view to disgorgement of the profits. 

22.With respect, I disagree with the submission. Apart from the conceptual difficulty, I do not believe that it is supported by Libertarian as submitted.  Authorities have to be read in proper context, and I do not believe Libertarian was concerned with the rather specific argument which is before this court.  Indeed, according to Tang Man Sit, a beneficiary would be entitled to information “designed to give the [beneficiary] the information he needs” (emphasis added).  The Privy Council went on to referred to fairness and that “the court will take care to ensure that such [discovery] is not oppressive to [the trustee]”. 

23.I believe that Tang Man Sit is an authority against Mr Yu’s submission, and this court is of course bound by it. It should also be mentioned that the grant of equitable remedies is subject to the court’s last word: see Libertarian, §172.

24.What then is the appropriate discovery to be made?  First of all, I am satisfied that in light of Tang Man Sit and Island Records, I should only order “such information as is available and is reasonably required to enable [Yang] to make an informed election” and “there should be no over-lengthy or unnecessarily sophisticated exercise”: see Island Records, p 1259G-H.  However, this remains a very difficult question for the court, if not an possible one given what is at stake. 

25.As pointed out by Mr Ho, the properties portfolio in question is very extensive and the court will be looking at what happened to those properties over a period of 14 years.  The rental receipt over the years involved some 180,000 transactions.  The rental as well as the proceeds of sale of some of the properties were mixed with properties belonging to the Crosby Group as well as a company of Vivian called Gentfull.  The mixed funds were invested and re-vested over the years, and some of the investments took the form of property development, which may involve third party interest.

26.There is substance in Vivian’s complaint that the discovery being sought by Yang amounts to pretty much an account of profits, and that it would be an oppressive exercise where her personal affairs, and to a lesser extent those of third party or parties, would be trawled through. 

27.In short, whilst I feel unable to accept at face value the limited amount of information provided by Vivian as giving an adequate picture of the profits derived from the trusts properties in light of the criticisms made by Mr Yu, I am in no position to judge the matter without the assistance from an accountant. 

28.The court has raised with the parties the proposition of having a single joint expert to advise on the necessary discovery to enable an election to be made.  Unfortunately, it does not appear to be a viable avenue in light of the rather inflexible stance taken by the parties. 

29.However, the court has the inherent power to appoint its own expert: see Hong Kong Civil Procedure 2017, vol 1, rubric 40/0/2.  Given the intractable problem in hand, I intend to exercise such power, unless the parties can agree to instruct a single joint expert. 

30.I shall hear the parties on the terms of the order to be made and costs. 

Mr Benjamin Yu SC, Mr Bernard Man SC and Mr Keith Lam, instructed by Clifford Chance, for the Plaintiff

Mr Ambrose Ho SC, Mr Victor Dawes SC and Mr James Man, instructed by Mayer Brown JSM, for the 1^st and 2^nd Defendants