Dah Sing Bank Ltd v. Roger Chu
Read the full judgment text of CACV 25/1972 on BabelCite. This Court of Appeal judgment was delivered on 9 February 1973.
1. In 1963 the plaintiff and one K.Y. Chen signed a partnership agreement under the terms of which they carried on business. The name of the firm was "Dragon Transportation Company" (hereinafter referred to as "Dragon"). It appears that the parties quarrelled; and Dragon ceased to do business about June 1967.
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CACV000025/1972 IN THE SUPREME COURT OF HONG KONG APPELLATE JURISDICTION CIVIL APPEAL NO. 25 OF 1972 (On appeal from O.J. Action No. 8 of 1969) -----------------
----------------- Coram: Full Court (Blair-Kerr, S.P.J. and McMullin. J.) Date of Judgment: 9 February 1973 ----------------- JUDGMENT ----------------- Blair-Kerr, S.P.J.: 1. In 1963 the plaintiff and one K.Y. Chen signed a partnership agreement under the terms of which they carried on business. The name of the firm was "Dragon Transportation Company" (hereinafter referred to as "Dragon"). It appears that the parties quarrelled; and Dragon ceased to do business about June 1967. 2. Early in June 1967, the two partners instructed a firm of accountants, G. Ian McCabe & Co. (hereinafter referred to as "the accountants") to make an audit and investigation of the accounts and affairs of Dragon; and on 16th November 1967, the accountants reported to the plaintiff on the results of their investigations. This report reads in part:-
The report made reference to the fact that there was an account in the name of the partnership in a branch of the Chartered Bank. It also makes reference to several other bank accounts, and states:
but it is not exactly clear from the report whether all these other bank accounts (apart from A/C 2142 with the defendant bank) were in the personal name of K.Y. Chen. 3. On 26th November 1968, the plaintiff's solicitors wrote to the accountants referring to the audit carried out in 1967. The letter reads in part:-
4. On 30th December 1968, the plaintiff's solicitors wrote again to the accountants referring to the figure 1,003,212.07 in the report of the 1967 audit and said:-
5. On 2nd January 1969 the accountants replied as follows:-
6. The writ was taken out on 3rd January 1969. On 8th March 1969, on the application of K.Y. Chen (which application was opposed by the plaintiff) Mr. Justice Briggs ordered that K.Y. Chen be joined as 2nd defendant. But, upon the plaintiff subsequently filing an amended statement of claim, K.Y. Chen or the bank or both (it is not exactly clear who) then sought to have the order of 8th March 1969 rescinded. At any rate, nothing further has been done pursuant to that order; and K.Y. Chen is not a party to this action. 7. In his amended statement of claim, the plaintiff alleges that K.Y. Chen fraudulently converted to his own use 86 cheques drawn in favour of Dragon by Sentab Gammon for the aggregate amount of $1,003,212.07. As regards the bank, the plaintiff's allegation is that K.Y. Chen handed these 86 cheques to the bank for collection; and that the bank, having done so, then placed the proceeds of the cheques to the credit of K.Y. Chen's personal account (no.2142); and the plaintiff therefore alleges that the bank wrongfully converted this sum; and his claim is for the return of this sum of $1,003,212.07. In the alternative he claims $501,606.04 (being one half of the $1,003,212.07) allegedly payable to the plaintiff as a partner of Dragon as monies had and received by the defendant bank to the plaintiff's use. 8. The learned judge in the court below summarised the defence in these words:-
No application has, so far, been made by the bank under 0.18 r.19. 9. On 26th February 1972, in answer to a letter from the bank's solicitors, the accountants replied as follows:-
10. In April 1972, the plaintiff took out the usual summons for directions; and the defendant bank gave notice dated 17th April 1972 that, at the hearing of that summons, they would be applying for an order that:
11. On 3rd May 1972, upon the hearing of the summons for directions and the notice, the Registrar ordered, inter alia, that:-
The orders in paragraphs (1)-(6) above were "by consent"; but the Registrar further ordered that:
which notice called not only for the "serving" on the defendant of a list of particular classes of documents within 14 days, but the filing of an affidavit verifying such list. 12. On 17th May 1972, the plaintiff filed and served a list of documents. This list was accompanied by an unsworn statement to the effect that the documents enumerated were in his possession. Paragraph 5 of that unsworn statement read:-
13. The plaintiff said that he has in his possession:
and he also said that he has in his possession photostatic copies of 86 cheques the originals of which he believed were in the possession of the drawees, namely Mercantile Bank Ltd. He particularised the dates, numbers, amounts, payee, and features of each cheque. These cheques appear to have been drawn between 12th November 1964 and 5th April 1967. 14. Therefore, when the matter came up on appeal before Mr. Justice Huggins (namely 26th May) the plaintiff had not complied with the Registrar's order. He had served a list of documents; but it had not been verified by affidavit; and he certainly had not complied with para.1(3) of the notice. 15. By 26th May the bank had not complied with para.3 of the Registrar's order. 16. The plaintiff appealed against the Registrar's order for specific discovery. The day before the hearing, the bank's solicitors filed the letter dated 26th February 1972 from the accountants; and a few minutes before the hearing of the appeal, the plaintiff's solicitors filed an affidavit exhibiting the correspondence between himself and the accountants which took place in November/December 1968 and January 1969 (referred to above); and he concluded his affidavit thus:-
17. The learned judge allowed the appeal and ordered that the order on the order on the summons for directions be varied by the deletion of the order for specific discovery. 18. On 26th May the bank also applied for extra time within which to file their list of documents; and the learned judge ordered that they be given extra time but that the parties must verify their lists of documents by affidavit. 19. The defendant bank filed their list of documents on 29th May; and on 2nd June 1972, the plaintiff filed an affidavit verifying the list of documents filed by him on 17th May. In this affidavit, he referred to para.5 of the unsworn statement accompanying that list, and said that that statement was true to the best of his knowledge information and belief, that is to say that neither he nor his solicitors, etc. has or ever had any document "relating to any matter in question in this action" other than the documents which he had disclosed. 20. As will be seen from this summary of the history of the action so far, the position we are faced with is somewhat unusual. According to the plaintiff, Dragon was "closed down" in 1967; and there is no evidence as to whether there are any assets now belonging to the partnership. In one of his affidavits, the plaintiff alleges that K.Y. Chen is virtually "penniless"; and, this allegation has not, so far, been contradicted. It is also alleged by the plaintiff that K.Y. Chen is in possession of the books and documents relating to the partnership. 21. Clearly the two former partners are "at daggers drawn"; and counsel for the defendant submitted that we should treat the bank as an innocent bystander who has, unwittingly, become involved in this partnership dispute; and that to deprive them of the opportunity of scrutinizing such books and documents belonging to the partnership as may now be in the plaintiff's possession, would be to do an injustice to the bank. 22. The bank now seek a more restricted order in the following terms:-
23. At one stage I was inclined to the view that we should make an order for discovery in those terms. It seemed to me that the plaintiff was (to use a slang expression) being extremely "cagey", and that a court of law was entitled in the circumstances to have from him (not his solicitor) a straight-forward affidavit to the effect that he had not received "all vouchers, books of record, ledger, cheque books, etc." belonging to Dragon as alleged by the accountants; or alternatively, if he did receive such books and documents as alleged, that he had examined them and that they were irrelevant to any matter in question in this action. As it seemed to me, the word "information", having regard to the context in which it was used in paragraph 3 of his affidavit of 26th February, might reasonably be said to be equivocal. 24. Another of my difficulties was this: The submission of counsel for the plaintiff appeared to be rather in the alternative. It ran something like this:-
25. In view of that, it seemed to me that if the plaintiff had been advised that all books and documents which he may have received back from the accountants were irrelevant to any matter in question in this action, if he were ever prosecuted for perjury he could say that he swore to the truth of paragraph 5 of his unsworn statement of 17th May in good faith and on legal advice. That being so, it seemed to me that the statement in his affidavit to the effect that he has no other documents "relating to any matter in question in this action" might not be worth the paper it was written on. After all, the whole question turns on relevancy. By that I mean possible relevancy. The trial judge will ultimately decide what is relevant and admissible. But, as it seemed to me, why should the plaintiff be the judge of possible relevancy at this stage? 26. However, having read the judgment of my Brother, I have come round to his view. The authorities are in the plaintiff's favour. In Compagnie Financiere du Pacifique v. Peruvian Guano Co.(1), Brett, L.J., said:-
27. The "sources" mentioned in Jones(2) were, the first affidavit, the documents therein referred to, and an admission in the pleadings. In other words, something emanating from the party against whom discovery is sought. The rule was stated by Cozens-Hardy, N.R., in somewhat similar language in British Association of Glass Bottle Manufacturers Ltd. v. Nettlefold(3). He said (pp.374/5):-
28. But there is no admission by the plaintiff in any document filed so far to the effect that he has other documents not included in his present affidavit. That being so, I am afraid that it is simply not good enough for the bank to come to court and say: "Order the plaintiff to produce all books and documents which the court should presume he has received back from the accountants in case there might be something in some of them to support our case." If the bank have evidence to support their defences, they should have no difficulty in obtaining affidavits from such witnesses as they are in a position to call. After all, at one stage they were, apparently, quite happy to have K.Y. Chen as a co-defendant. We were told that at the trial they would be calling their Chief Cashier, the person with whom the two partners allegedly came to the arrangement pleaded in para.7 of the defence. Surely, they are in a position to get an affidavit from the accountants as to the circumstances in which the books and documents were allegedly returned to the plaintiff. Surely, K.Y. Chen is in a position to give the bank particulars of, say, one or more partnership debts which were paid in the manner alleged by the bank from which the Registrar might be in a position to infer that, if the accountants did return all the books and documents as alleged, entries relating to such transactions might in the ordinary course of events, be expected to appear in the partnership ledger or in some vouchers or other commercial documents. But, at the moment, the court has no admission from the plaintiff that he has any other documents (much less that they are relevant to any issue); and there are no affidavits of any kind emanating from the defendant bank challenging the plaintiff's assertions. 29. For these reasons, I now agree that the appeal must be dismissed with costs. I should also add that I agree with my Brother that in view of the fact that a more restricted order for discovery was sought, there was no need to appeal to this court at all. Mr. Justice Huggins "left the door open". The bank could have gone back to the Registrar. 30. That being so, even if we had made the order now sought by the defendant bank, we should certainly have deprived them of their costs.
Representation: B. Bernacchi, O.C., and K. Wei (Peter Wark & Co.) for appellant. R. Mills-Owens (John Ip & Co.) for respondent. (1) [1882] 11 Q.B.D. 55 at 62/63. (2) [1880] 5 Q.B.D. 556. (3) [1912] 1 K.B. 369 IN THE SUPREME COURT OF HONG KONG (APPELLATE JURISDICTION) CIVIL APPEAL NO. 25 OF 1972 (ON APPEAL FROM O.J. 8/69) -----------------
----------------- Coram: Full Court (Blair-Kerr, S.P.J. and McMullin J.) Date of Judgment: 9 February 1973 ----------------- JUDGMENT ----------------- McMullin J. : 31. Counsel on both sides have taken us through the general scheme of Order 24 with a view to showing the precise relationship between the individual rules therein. Some nice distinctions have been drawn, for example that drawn by Mr. Mills-Owens who endeavoured to persuade us of the impropriety of seeking a better list of documents at a point in the proceedings prior to the filing of any list of documents by the person against whom discovery has been sought. I think we will avoid unnecessary complications if we deal with the matter on the same common sense basis as did the learned judge in chambers and assume that what is before us, and what was before him, is an application for discovery of specific documents under Order 24 rule 7. The rules are so compendiously planned and so variously articulated that, with the best will in the world, there is sometimes the danger that a court may find itself drawn into what might be described as a game of "hunt the slipper" concerning the question of what precise rule applies to the given circumstances, to the detriment of the true substance of the application then before it. Before the Registrar in the first instance there was no list of plaintiff's documents at all. Before the judge in chambers on appeal from the Registrar there was such a list though not yet verified by affidavit as had been ordered. Before this court that list appears, now duly verified. Effectively, the opposed positions of the parties in respect of this application for discovery of specific documents are plain enough. The plaintiff's list includes a large number of items which, however, do not include those which the defendant believes to exist and wishes to have discovered. In paragraph 5 of his list of documents the plaintiff, in accordance with the common form, states that neither he nor his solicitors nor any other person on his behalf, has now, or ever had, in his possession, custody or power any document of any description whatever relating to any matter in question in the action other than the documents disclosed or of which disclosure is refused on stated grounds. When the matter came on for hearing before the judge in chambers he was considering the matter in the light of two last-minute affidavits one of which had been sworn and filed by the solicitor for the plaintiff and the other sworn and filed by the solicitor for the plaintiff and the other sworn and filed by the solicitor for the defendant bank. In effect the plaintiff says that he has already disclosed all documents relevant to the issues before the court in this action while the defendant alleges that upon the information contained in the letter from Messrs. Ian McCabe & Co. dated 26th February 1972 and annexed to the affidavit of Mr. Oliver Hay Mark of the 25th of May, reference is made to vouchers, books of record, ledger, cheque books etc. none of which are disclosed in the plaintiff's list of documents. The documents to which that letter refers are documents which were submitted to Messrs. McCabe for the purpose of auditing the partnership accounts in November 1967 and it is common ground that the documents thus admitted were not in fact complete. Mr. Bernacchi, for the defendant bank, however, contends that if his client is permitted free access to those records he may be able to establish one of the specific answers to the plaintiff's claim viz : that set forth at paragraph 11 of the defence. If he is not permitted to search these documents, he contends that the defendant bank will thereby be unfairly shut out from pursuing this line of defence altogether. That ground of defence, as I see it, is wholly distinct from what I would term the principal ground of defence which is that the defendant bank, in paying into the private account of CHEN Ka-yeung, the plaintiff's partner, cheques received by him on behalf of partnership affairs and in permitting him to draw upon that account were justified in so doing, despite the apparent irregularity of such a procedure, by virtue of a special arrangement whereby both partners agreed with the bank that CHEN Ka-yeung should be permitted to do so. If that ground of defence is made out of course that is the end of the plaintiff's claim. An important secondary line of defence is that contained in paragraph 11 which states that in any event the proceeds of these cheques were paid to or applied for the benefit of the said partnership firm. Mr. Bernacchi contends that if he is permitted to examine in detail the many partnership documents which passed between the partnership and various other business concerns over the 4 years' life of the partnership, he may be able to establish that some or all of the cheques so paid into the private account of CHEN Ka-yeung were eventually employed by him for the use of the firm. What he asks for now, therefore, in the modified form of draft order presented to this court, is an order compelling the defendant to serve a further list of two classes of documents the first comprising all books of account, vouchers and cheque counterfoils and other documents of the Dragon Transportation Company which were at one time in the possession of Messrs. Ian McCabe & Co., certified accountants, and which are or have been in the possession, custody or power of the plaintiff. And secondly all cheques received by the plaintiff in connection with the business of the Dragon Transportation Company. It was one of Mr. Mills-Owens's objections to this application that, if the application were to be considered as one made for specific discovery under Order 24 rule 7, there was no affidavit such as is required by that rule stating (a) what specific documents or classes of documents are said to be in the possession of the other party and (b) what the relevance to the matter in issue is of the stated documents. The essential material before the judge consisted of, (a) a list (admittedly unverified at that date) of the documents said to be in the plaintiff's possession and relevant to the issues; and (b), the affidavit of the defendant's solicitor exhibiting the letter from Messrs. Ian McCabe of the 26th of February 1972 in which reference is made to documents allegedly returned to the plaintiff but which are not covered by the plaintiff's list of documents. In effect, therefore, the situation, there as here, was that the defendant bank, confronted with a list which it regarded as incomplete, was applying, and is now applying, for discovery of a specified class of documents on the basis of that affidavit with its exhibited letter. 32. Although Mr. Bernacchi argued that his present application might be regarded as coming under the provisions of Order 24 rule 3 I think the judge in chambers was correct in regarding it as in effect an application under Order 24 rule 7 i.e. an application for disclosure of specific documents. Both under rule 3 and rule 7 the applicant's claim to be treated as though he were applying for a "further and better list" of documents is met with the conclusive objection that there is nothing on the face of the plaintiff's list as it stands or in his verifying affidavit, nor is there any admission in his pleadings, to show that he has any other documents in his possession relevant to the matters in issue. The suggestion that he has relevant and undisclosed documents emanates from the other side and so by virtue of the general rule laid down by Jones v. Monte Video Gas Co.(1) the plaintiff's affidavit is conclusive against his adversary both as to possession and as to relevance. The defendant's only recourse therefore can be for specific disclosure under Order 24 rule 7. Therefore, even if Mr. Mark's affidavit, together with the exhibited letter, be regarded as put forward in support of such an application (and it would seem the judge did not so regard it) it would still need to disclose both possession of the class of documents sought to be discovered and their relevance with such particularity as is indicated by the note on that rule, and the cases cited therein, which appears at pages 381 and 382 of the Annual Practice for 1970. The rule that the list given by a party of the documents in his possession is normally conclusive both as possession and to relevance is said to be subject to two qualifications. The first of these, which would apply equally to applications under rule 3 and rule 7 need not concern us. The second and, it is said, (page 381) more important qualification relates to an application which may be made for an affidavit as to specific documents or classes of documents. The remainder of the text of that note, together with the authorities cited therein, makes it clear that to succeed upon such an application the applicant must make out a prima facie case as to (a) possession of the documents etc., and (b) the relevance of the documents so specified. Counsel on both sides in this matter are indeed in agreement on the proposition that the basic matter at issue is the relevance of the documents the discovery of which is now sought by the defendant bank. Yet on both these matters it would be very difficult to say that a prima facie case had in fact been made out. Although the manner in which the case has been presented for the plaintiff (notwithstanding the contents of paragraph 5 of his list of documents) raises at least a strong suspicion that there are books of account, ledgers etc. which were once held by Messrs. Ian McCabe & Co. on behalf of the plaintiff and his partner and which were thereafter returned to the plaintiff, as is stated in the letter from Messrs. McCabe, yet there is, in these proceedings, an affidavit by the plaintiff himself in which he alleges that the partnership books are now in the possession of the dissident partner and not in his possession. The matter is a severely practical one : if that averment be true that, taken in conjunction with what is said by him in the preamble to his list of documents, would make any order on discovery which is sought from this court wholly nugatory. So also on the question of relevance. It is not a case in which named, specific documents (the relevance of which to the issues between the parties is apparent upon their face) have been shown in the affidavit. What is said is, rather, that there is in existence a class of documents (admittedly not complete in itself) thorough perusal of which may reveal matter which will assist the defendant's case or destroy the plaintiff's. On this latter question the judgment of Tomlin J. in Astra-National Productions, Ltd. v. Neo-Art Productions, Ltd. & Others reported in 1928 Weekly Notes, at page 218 (a case not actually cited to us by counsel) is of considerable interest. In that case an application had been made under Order 31 (the Order which, in England, before 1962 dealt with the whole question of discovery) for discovery of a class of documents on the basis that the original affidavit of documents of the party against whom the application was made was insufficient. The case was one involving issues of passing off and copyright, and the plaintiffs applied for an order under rule 19 of Order 31 that the defendant should file within 4 days a further and better affidavit of documents disclosing all documents made with the exhibitors and agents in relation to the exhibition hire and sale of a certain motion picture and also all correspondence and contracts made with artists, producers and other concerned in the production of that film. At page 219 in the judgment the following appears :
I pause there to observe that what that would mean in the context of the present application would be something in the nature of an averment that in a specific instance or in specific instances funds paid into the partner's private account had actually been employed to discharge a specified partnership liability, or specified liabilities. At a later point in the same judgment the judge goes on to say :
It appears to me that if the defendant bank is in a position at all to state what is stated in paragraph 11 of the defence there must be some simpler and more direct way of showing the relevance of documents to that defence than by compelling the plaintiff to produce the documents of the very general classes referred to in the amended draft order. The obvious person to give such evidence is the plaintiff's partner but even if he is not prepared to do so it is difficult to imagine that through him or through Messrs. McCabe or in some other way the defendant bank will be unable to uncover facts, if such exist, showing that a particular business concern having business relations with the partnership was actually paid out of funds drawn from the partner's private account with the defendant bank. The alternative, which will almost certainly result in delaying the hearing considerably and which may involve displaying a great portion of the entire partnership accounts covering 4 years to the court at the trial does indeed seem over-burdensome in view of the fact that this particular defence is far from being the primary and most substantial line of defence in the action. All that the defendant bank so far has succeeded in showing is that there is a possibility that documents exist which if disclosed might negative the plaintiff's claim in whole or in part. 33. Finally, it must be observed that there is nothing in the ruling of the judge in chambers which would have precluded the defendant bank, once it had achieved some more specific information relating to such documents as it suspects the existence of, from returning to the Registrar with a further application under Order 24 rule 7 nor is there anything to prevent the defendant from taking that course hereafter. It is a pity that some such course was not adopted as a practical and far less costly alternative to the present proceedings on appeal. For my part I am prepared to hold that the order sought for is too wide and would be burdensome in relation to the issues to be tried as a whole and that satisfactory proof both of possession and the relevance has not been offered to this court. I would therefore dismiss the appeal with costs. Representation: (1) 1880 5 Q.B.D. 556. |