Herbert Smith Freehills (A Firm) v. Chris Au Retribution Ltd

HCA 3030/2015

[2019] HKCFI 1284

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3030 OF 2015

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JUDGMENT

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INTRODUCTION

1.By a summons issued on 29 November 2018 (“Summons”), the plaintiff (“HSF”), a law firm, seek (1) discovery of certain documents against Chris Au (“D1”) and Retribution Limited (“D2”), (collectively “Defendants”), who were HSF’s former clients; (2) cross examination of D1 and one Elsa Ho (“Ho”), the sole director andshareholder of D2, on certain of their affirmations filed in these proceedings; (3) a writ of subpoena duces tecum (“Subpoena”) to be issued to DBS Bank (Hong Kong) Limited (“DBS Bank”) to produce certain documents held in the name of and/or controlled by D2 and more particularly set out in the Schedule of the draft Subpoena.

2.HSF acted for the Defendants in HCA 183/2014 in which the Defendants were defendants, and plaintiffs by counter-claim (“Underlying Litigation”). 

3.HSF successfully sued the Defendants for unpaid legal fees for services rendered in the Underlying Litigation and obtained summary judgment against D1 for HK$7,449,363.41 on 12 August 2016, and default judgment against D2 for HK$6,213,608.26 on 30 May 2016. 

4.The judgment debt owed by D1 to HSF was reduced to HK$2,875,970.15 as at 27 November 2018.[1]

5.D2 no longer owes any judgment debt to HSF after the execution of a Garnishee Order of 27 January 2017 directing DBS Bank to pay HSF the judgment debt and interests.[2]

6.There is an extant Mareva Injunction (“Injunction”) in aid of HSF’s enforcement of the judgment against D1, restraining him from dissipating his assets up to HK$1,952,977.76.

7.HSF claim that the disclosure and cross examination sought in the Summons are necessary for the disposal of two other summonses, namely a summons dated 19 October 2018 issued by D2 to vary the Injunction by removing two of D2’s accounts held with DBS Bank from Schedule 4 of the Injunction (the "Discharge Summons"); and a summons dated 29 November 2018 issued by HSF for a charging order over D1’s interest in (a) the funds standing to the credit of D2’s bank accounts held with DBS Bank; and (b) the shares in D2 held by Ho (the “Charging Order Summons”).  It is necessary because the question of whether, and if so the extent to which, D1 still has a beneficial interest in the shares and bank accounts of D2 is relevant to the final determination of the Discharge Summons and Charging Order Summons; and D1, Ho and D2 have given inconsistent evidence in the Underlying Litigation and these proceedings on these issues.

8.On 14 January 2019, DHCJ Field ordered that the Discharge Summons and the Charging Order Summons be heard together (“Substantive Hearing”) after the determination of the Summons and the compliance with any ensuing orders.

9.D1 was not represented at and did not attend the hearing of the Summons.

10.Some of the facts and statements below are from HSF’s skeleton submissions which are adopted or cited from pleadings and evidence filed by the Defendants in the Underlying Litigation and these proceedings.  They should not, therefore, be controversial.  However, D2, through Ho in her 3^rdAffirmation, and Ms Ku appearing for D2 at the hearing, protest that HSF were cherry-picking different paragraphs of the statements out of context.[3] 

BACKGROUND

11.HSF were solicitors for the Defendants in the Underlying Litigation which concerned a dispute over the beneficial ownership of, among other things, D2 and the funds in its bank accounts.

12.Evidence was filed by the Defendants in the Underlying Litigation to the effect that all the shares in D2 were held on trust by Ho forD1, and all the funds paid into D2’s DBS Bank accounts were held on trust by D2 for D1.

13.The relief sought in the pleadings of the Defendants in the Underlying Litigation included declarations that (1) D2 held the sum of SGD 11,984,933.50 in its account with DBS Bank on trust for D1, and an order for payment of the said sum by D2 to D1; and (2) D1, through D2, was still a beneficial shareholder in another company Kudeta BVI. 

14.All the affirmations and pleadings filed by the Defendants were verified by statements of truth.

15.HSF’s case is that despite their claim in the Underlying Litigation that D1 had a beneficial interest in the shares in D2 and the funds in D2’s account in the Underlying Litigation and having filed evidence to that effect, the Defendants have changed their position.  Their evidence in these proceedings regarding D1’s beneficial interest in D2 is inconsistent with the evidence in the Underlying Litigation, and in proceedings in Singapore. 

Evidence in respect of D2’s DBS Bank accounts in the Underlying Litigation

16.In the Underlying Litigation, D1 filed an affirmation on 20 February 2014 pursuant to paragraph 2 of the order of Hon Zervos J (as he then was) dated 29 January 2014 (“Zervos J Injunction Order”) requiring him, D2 and Ho, among other things, to disclose “all their assets ‌…of an individual value of HKD50,000 or more in Hong Kong, whether in their own name or not and whether solely or jointly owned, giving value, location and details of such assets ….”.  The Defendants were also required to provide “… details of all bank accounts in their name or … have an interest or control…; in the name of all Hong Kong and/or foreign companies and/or trusts and/or vehicle over which they have an interest orcontrol….”.  D1 exhibited to his affirmation a list of his assets in Hong Kong, and bank accounts in Hong Kong with a balance of HK$50,000 or more.

17.The list of assets exhibited to D1’s affirmation included two bank accounts of D2 with DBS Bank with account number 78-3193086 and 786020573 (and a slightly different number of 788520573 which is used onthe bank statement exhibited), with a positive balance of HK$96,998.83 and SGD 11,984,782.89 respectively.  Only the two accounts of 78-3193086 and 786020573, but not 788520573, are included in Schedule 4 of the Injunction.  The latter account is a matter of contention between HSF and D2 for the purposes of the Summons.

18.By disclosing the two DBS Bank accounts, D1 specifically identified them as bank accounts in Hong Kong that “either belong to [him] or to a company, trust or vehicle which [he has] an interest or control, whether in [his] own name or not and whether solely or jointly owned.”

19.In their Amended Defence and Counterclaim dated 20 June 2014 (“Amended Defence”) in the Underlying Litigation, which was verified not only by statements of truth signed by both D1 and Ho but also byD1’s 4^th Affirmation and Ho’s 2^nd Affirmation in the Underlying Litigationverifying the contents of their pleadings, it was pleaded that all of the SGD 11,984,782.89 in the DBS Bank accounts was entirely held on trust by D2 for D1:

“ … [D2] holds the full amounts of SGD11,984,933.50 … on trust for [D1]” (Amended Defence §106A)

“ … the SGD 11,984,782.89 received by [D1], the entirety of which is due to [D1]” (Defence and Amended Defence §107) and

“ … the sum of SGD11,984,782.89 received by [D2] … the entirety of which is due to [D1]” (Defence and Amended Defence §155(a)(ii).

Relief sought by the Defendants in the Underlying Litigation in respect of the money in D2’s DBS Bank account

20.In their Amended Defence and Counterclaim, D1 counter­claimed, among other relief:

“ A declaration that [D2] holds the sum of SGD 11,984,933.50, paid to it by L Capital, on trust for [D1]” [4] and

“ An order for payment of the sum of SGD 11,984,933.50 by [D2] to [D1]”.[5]

Evidence in respect of the shares in D2 in the Underlying Litigation

21.The Defendants’ Amended Defence also pleaded that the entirety of the shares in D2 was held in trust by Ho for D1:

“ [Ho] has been and is the sole director and the sole registered shareholder of [D2], and the sole signatory of [D2’s] bank accounts” (Amended Defence §11(b));

“ at all material times [Ho] held the entire issued shares in [D2] on trust for [D1]” (Amended Defence §60E);

“ It is specifically denied that the 1st to 3rd Plaintiffs [in the Underlying Litigation] are beneficial shareholders of [D2]” (Amended Defence §7(a)); and

“ At all material times, [D1] held, and still holds, a beneficial interest in [D2]” (Amended Defence §10(a)).

Relief sought by the Defendants in the Underlying Litigation in respect of the shares in D2

22.Among other relief, D1 counterclaimed in the Amended Defence:

“ A declaration that the Declaration of Bare Trust [on which the plaintiff’s in the Underlying Litigation based their claim to own 2/3rd of the shares in [D2]] has not taken effect and is not binding” [6]

“ In the alternative …, declaration that such beneficial interests as the 1st to 3rd Plaintiffs (in the Underlying Litigation) acquired pursuant to the Declaration of Bare Trust were in turn held on trust for [D1]” [7] ; and

“ In the alternative …, a declaration that [D1], through [D2], is still a beneficial shareholder in Kudeta BVI …”.[8]

ANALYSIS

Evidence in these proceedings

23.It is against the background above that HSF contend that the evidence of the Defendants in these proceedings is inconsistent with the evidence in the Underlying Litigation.

24.To put matters in proper context, HSF sought and obtained the Injunction from Hon G Lam J on 18 November 2016 restraining D1 from dissipating his assets up to the value of HK$9,309,746.33 to secure payment of D1’s judgment debts, interest and costs orders. 

25.D1 made two attempts to discharge the Injunction and filed evidence in support of his applications.  It was in his 4^th affirmation in support of his second failed attempt to discharge the Injunction that he began to shift his position. 

26.D1 was represented by counsel in his first attempt to discharge the Injunction which was continued by DHCJ P Fung SC with minor amendment on 25 November 2016. 

27.He made a second attempt to discharge the Injunction on 3 March 2017.  He was again represented by counsel.  DHCJ A Lee (as he then was) continued the Injunction but reduced the frozen sum to HK$1,952,977.76 as a consequence of the execution of the Garnishee OrderAbsolute against D2.  DHCJ A Lee also made a disclosure order requiring D1 to disclose, among other things, “all his assets of a consolidated value of HKD100,000 or more, whether in or outside Hong Kong, whether in his own name or not and whether jointly owned …”; “all bank accounts in [D1’s] name or in or over which [D1] has an interest or control …”; “any payments of money, properties … and any benefits received or to be received by [D1], whether directly or indirectly, and any confirmation of D1’s ownership of assets, either directly or indirectly, contained in any settlement relating to [the Underlying Litigation]” (“DHCJ A Lee’s Order”).  The disclosure ordered is relevant to the Summons and D2’s objection to HSF’s application for the disclosure of, among other documents, the Settlement Agreement in the Underlying Litigation which will be discussed below.

28.In D1’s 4^thAffirmation in support of his second attempt to discharge the Injunction, he deposed to the following:

“ … I have some derivative interest in … the monies that I paid into [D2] …” [9]

“ My only interest is my beneficial interest in [D2]” [10] ;

“ … I claim a beneficial interest in [D2]” [11] ; and

“ Even though I did assert before a beneficial claim to [D2] I amnot the sole beneficial owner of [D2]. There are others who are and also claiming to have a beneficial stake in [D2].” [12]

29.HSF contend that while D1 still acknowledged his beneficial interest in D2, he suddenly became vague and evasive about the extent of his interest.  He said in paragraph 24 of his 4^thAffirmation that:

“ HSF is only entitled to enforce the Judgement by applying for a charging order against the shares in [D2] so that I cannot dispose of the same without satisfying the Judgement”

thereby accepting that in the light of his interest in the shares in D2, HSF were entitled to seek a charging order over his shares in D2.  This is of course one of the relief sought in HSF’s Charging Order Summons.

30.Further, in paragraph 25 of his 4^thAffirmation, he said:

“ the beneficial interest of Retribution is the main issue to be determined in [the Underlying Litigation]. In other words, the ownership of Retribution is in dispute. I am sure that the Plaintiffs in the [Underlying Litigation] would disagree that Retribution is liable to pay MY debt ….”

31.HSF also contend that D1 is still relying and commenting on the dispute in the Underlying Litigation claiming that the extent of his beneficial ownership in D2 is uncertain and disputed.  This is despite the fact that the Underlying Litigation appears to have been settled before D1 made his 4^thAffirmation on 15 December 2016.  This is supported by his admission that the Underlying Litigation settled ‘in or around December 2016” and that the Zervos J Injunction Order was discharged by consent on 14 December 2016, ie the day before he made his 4^thAffirmation. This was disclosed in paragraph 10 of his 7^th Affirmation of 3 October 2018, where he said:

“ The [Underlying Litigation] was settled in or around December2016, and on 14 December 2016 the [Zervos J Injunction Order] obtained by the Plaintiff in the [Underlying Litigation] against (among other things) [D2’s Accounts] was discharged by consent.”

32.The settlement was also disclosed in identical terms in paragraph 8 of the 2^ndAffirmation of Ho of 27 December 2018 where she said:

“ The [Underlying Litigation] was settled in or around December2016, and on 14 December 2016 the [Zervos J Injunction Order] obtained by the Plaintiff in the [Underlying Litigation] against (among other things) [D2’s Accounts] was discharged by consent.”

33.HSF claim that D1’s reference in his 4^thAffirmation to the dispute in the Underlying Litigation, which had already been settled, is therefore deceptive and misleading.  His claim that despite his earlier assertion of a beneficial claim to D2, he was not the sole beneficial owner of D2 [13] as at 15 December 2016 when he made his 4^thAffirmation totally contradicts his evidence in the Underlying Litigation that he was the owner of the entirely of the DBS Bank Accounts and the shares of D2.

34.In his 7^thAffirmation of 3 October 2018 in support of D2’s Discharge Summons, D1 asserted that:

“ I disclosed [D2’s two accounts covered by the Injunction] in my 2014 Affirmation as, at that time, I had partial control over [D2] since I represented the interest of various beneficial stakeholders who owned the stake legally held by Ho” [14] ;

“ Since [my resignation], I have no control over the operations of [D2]. I also do not have control over [D2’s two accounts covered by the Injunction] or the funds therein. I am not and have never been a signatory of [D2’s two accounts covered by the Injunction] and I am not and have never been in possession of the online banking passwords and security keys” [15] ;

“ None of the money that has been frozen in [D2’s two accounts covered by the Injunction] pursuant to the Injunction is my money—I have not personally paid any of the money into [D2’s two accounts covered by the Injunction], nor have I procured any third parties to do so on my behalf. None of the money frozen in [D2’s two accounts covered by the Injunction] is held by [D2] on trust for me” [16] .

35.In Ho’s 2^nd Affirmation of 27 December 2018, she deposed that:

“ [D2’s two accounts covered by the Injunction] and the assets therein legally belong to [D2]. The money in the [D2’s two accounts covered by the Injunction] is not (and has never been) specifically owned by [D1].” [17]

36.It can be seen from the above the inconsistency between the evidence in these proceedings and the Underlying Litigation. 

37.Ms Ku submitted that this is purely due to the change in D1’sposition over time given that the evidence in the Underlying Litigation was filed in 2014 and 2016, and we are now in 2019.  She also submitted that D1 and D2 are separate legal entities.  D2 is no longer indebted to HSF and the dispute is really between HSF and D1.  HSF are however linking D1 and D2 together and cherry-picking extracts of statements made by D1, Ho and D2 at different times and occasions out of context. 

38.I am unable to agree with her that the inconsistent evidence is due to the change of D1’s position over time.  Further, HSF are not pursuing D2 for anything other than cross-‌examination of Ho, and discovery of documents that are believed to be in its possession, custody or power.  It is a fact that D1 and D2 were parties to the Underlying Litigation and they were closely connected, as evidenced by the statements made in the affirmations in the Underlying Litigation in respect of D1’s beneficial interest in D2, and his relationship with Ho.

39.Two of D2’s accounts in which D1 is believed to have, or have had interest, are covered by the Injunction, which D2 is seeking to remove from the Injunction.  The documents sought by HSF are relevant to the questions to be decided by the Court at the Substantive Hearing.

40.I cannot see how the allegations of D1 having relinquished all his roles and interest in D2, which are contradicted by the inconsistent evidence referred to above, would exonerate D2 from all liability to the relief sought by HSF, if grounds for such relief are made out.

41.I have reviewed and checked the above extracts from the various affirmations filed in the Underlying Litigation.  I can find no evidence that HSF cherry-picked the statements out of context as alleged by Ho in her 3^rdAffirmation and Ms Ku’s submissions.  No reasons have been given by the Defendants or Ms Ku to support their allegations.

42.It is therefore understandable why HSF are concerned as the question of whether, and if so the extent to which, D1 still has a beneficial interest in the shares and bank accounts of D2 is directly relevant to their Charging Order Summons, and D2’s Discharge Summons.

43.HSF’s attempts to clarify with the Defendants’ solicitors the position of D1’s beneficial interest in the shares and bank accounts of D2 and whether, in the light of the evidence filed in these proceedings, D1 has breached any orders was unsuccessful.  D2’s solicitors told HSF in their letter of 25 May 2018 that:

“ [D1] has never had any legal interest in [D2]” and “there is no such legal interest for him to dispose of” (HSF’s emphasis).

“ Other information about [D2] including the number of shares held by [Ho] in [D2] is not public information and we do not consider that there is any necessity for such disclosure.”

44.HSF are concerned that by specifically referring to D1’s legal interest in D2, the question of D1’s beneficial interest in D2, if any, was not addressed.

45.D1 has also failed to comply with DHCJ A Lee’s Order whichspecifically requires D1 to disclose, among other things, “any payments of money, properties…and any benefits received or to be received by [D1], whether directly or indirectly, and any confirmation of [D1]’s ownership of assets, either directly or indirectly, contained in any settlement relating to [the Underlying Litigation]” [18]. He did not disclose anything.

46.In the light of the conflicting evidence filed in the Underlying Litigation and in proceedings in Singapore, Zervos J decided to refer the matter to the Singaporean Attorney General for possible perjury by D1.

47.It is for the above reasons that HSF are seeking the relief in the Summons.

Cross-‌examination of D1 and Ho

48.HSF seek an order for the cross-‌examination at the Substantive Hearing of D1 on his 4^th, 5^th and 7^th Affirmations, and Ho on her 2^nd Affirmation, in default of which their affirmations shall not be used as evidence without leave of the Court.

49.Order 38, rule 2 of the Rules of the High Court (“RHC”) gives the Court power to order the attendance of the deponent of an affidavit for cross-‌examination.  Where after such an order has been made and the person in question does not attend, his affidavit shall not be used as evidence without the leave of the Court.

50.The principles for the exercise of the Court’s discretion in permitting cross-‌examination on an affidavit can be summarized as follows:

“ (1) the court has an unfettered discretion to permit cross-examination but an applicant is not entitled to this right as of course;

(2) the applicant has to establish that in all the circumstances there is ‘good and sufficient’ reason for the application;

(3) where the evidence on the affidavits will result in a ‘final order’, it may not be difficult to establish ‘good and sufficient’ reason for the application; where the evidence is for use in an interlocutory matter, it may be more difficult,in view of the expense and delay involved, for the court tobe satisfied that the discretion should be exercised in favour of permitting cross-examination;

(4)   what is essential is for the applicant to establish that the proposed cross-examination might be productive of a ‘useful result’ at the stage that the application is made.”

(emphasis added)

(Waters v Malahon Credit Co Ltd [2004] 2 HKC 94, 97B–E, per Kwan J (as she then was); see also Wendy Wenta Seng Yuen v Philip Pak Yiu Yuen [1984] HKLR 431, 436E–I, per Fuad JA (as he then was).)

51.HSF submitted that the evidence on which cross-examination is sought is directly relevant to the Discharge Summon and the Charging Order Summons as it will help the Court to determine whether a charging order should be granted over the bank accounts and shares of D2, or if the Injunction should be discharged.  The Substantive Hearing is effectively final and not interlocutory.  It will determine whether HSF or the Defendants are entitled to the shares in D2 and the funds in the accounts with DBS Bank which are covered by the Injunction.  Cross-examination of D1 and Ho might therefore produce a useful result.  The Court should therefore exercise its discretion to order cross-examination.

52.D2 relied on the following passages from China Shanshui Cement Group Limited & Others v Zhang Caikui & Others (unreported, HCA 2880/2015, Au-Yeung J, 13 October 2016) at §§25 – 27:

“ 25. The court will not grant an order for cross-examination to gather information which will be used later to impugn the defendant’s credit, or to investigate possible dealings in assets that may lead to possible contempt proceedings, or to obtain material to be used in the trial itself: Yau Chiu Wah v Gold Chief Investment [2002] 2 HKLRD 832, at 838G–H, 839C–D.

26. An order made must be proportionate and just. It could not be undertaken for an ulterior purpose nor be oppressive: Jenington International Inc v Assaubayev [2010] EWHC 2351.

27. The court has to bear in mind the potential wastage of costs, court time, injustice to the defendant and invasion to his privacy in pre‑judgment cross-examination and that an order forcross-examination is an exceptional step to take: Yau Chiu Wah,at §14(2); Gee on Commercial Injunctions, 6^th ed, at §23‑026.”

and submitted that the power of the court in ordering cross-examination on an affidavit is rarely used, and HSF have to show that D1, who no longer has any relationship with D2, is still related to D2 and has proprietary interest in the funds in the DBS Bank accounts, before they could proceed with the cross-examination.

53.The learned Judge in the China Shanshui case cited above granted an order for cross-examination and held that:

“ 37. The cross-examination is to ascertain further information to enable the Plaintiff to identify and recover as many of the Listed Items as possible, to acquire information concerning the missing Listed Items, to inquire into D3’s knowledge of thePlaintiffs’ operation so as to assist the new Board to conduct theaffairs of the Plaintiffs properly, to conduct the Cayman Islands proceedings properly and if possible to recover as many of the Plaintiffs’ assets now in the hands of D3 or strangers.

38. … I am satisfied that this application is made for proper purposes.

…

62. An order for cross-examination is necessary in the interests of justice.  It would involve time and costs but no issueof privacy as the cross-examination is about the Plaintiffs’, notD3’s, records and assets.  Even if D3 is unable to state the current whereabouts of the Listed Items, cross-examination would still be useful for him to say what the Listed Items comprised, how they might be reconstituted, what became of them and who(apart from himself) was responsible for keeping them.  It would make the Orders more effective.”

54.The learned Judge also held in paragraph 24 that:

“ Leave to cross-examine will be granted where:

(a) There are significant or serious deficiencies in the disclosure given: Jenington International Inc v Assaubayev [2010] EWHC 2351, Vos J (in a Marevacontext); or

(b) There is a reasonable likelihood that the deponent has information which should have been disclosed pursuant to the order for disclosure and which would lead to the fulfillment of the purpose of such order or that assets can be located and preserved: CBS United Kingdom Ltd v Perry & ors [1985] FSR 421 at 426, Falconer J; Gee on Commercial Injunctions,6^th ed, at §23‑028.” 

55.There is divergence between the evidence in these proceedings and in the Underlying Litigation. 

56.The response from D2’s solicitors making reference to D1 having no ‘legal’ interest in D2 is evasive as what HSF want to establish is D1’s beneficial interest, if any, in D2 and the funds in its accounts.  This is directly relevant to the issues to be decided by the Court at the Substantive Hearing. 

57.HSF rely on the evidence of Kathryn Sanger, a partner of the firm, who was told at a social function on 12 November 2016 by one Jason Cohen, one of the plaintiffs and a defendant to Counterclaim in the Underlying Litigation, that the Underlying Litigation was about to settle and D1 would receive a substantial payment as a result[19].

58.There are different limbs of disclosure obligation in DHCJ A Lee’s Order.  D1’s failure to comply with DHCJ A Lee’s Order in so faras it relates to disclosure of the settlement of the Underlying Litigation is a deficiency in the disclosure given by D1 in these proceedings.  The only assets disclosed by D1 in his 5^th Affirmation of 16 March 2017 pursuant toDHCJ A Lee’s Order were a house in Singapore and a condominium under construction in Malaysia.  This is despite settlement of the Underlying Litigation in December 2016 and Jason Cohen’s representation to Kathryn Sanger referred to in the preceding paragraph. 

59.It is likely that the Defendants have information which should have been disclosed, including whether he did receive any benefit in the settlement of the Underlying Litigation. Such disclosure would lead to fulfillment of the purpose of the DHCJ A Lee’s Order.

60.Further, the paucity of the assets disclosed in D1’s 5^th Affirmation in purported compliance with DHCJ A Lee’s Order and his failure to disclose any information about the Underlying Litigation, let alone benefits he may have received, constitutes deficiencies in the disclosure given by D1 in his evidence[20].

61.Cross-examination of D1 and Ho is to ascertain further information to enable the Court to determine if the charging order sought by HSF should be granted, or if the Injunction should be discharged.

62.I agree with HSF’s submissions that the Substantive Hearing, which is for the final determination of whether D1 still has interest in D2 and the funds in its account for which a charging order can be made, is effectively final. Cross-examination of D1 and Ho will therefore be productive of a useful result.

63.If an order for cross-examination is granted, D1 and D2 will only be cross-examined on D1’s beneficial interests, if any, in D2 and the funds in its account.  There will therefore be no issue of privacy.

Order for cross-examination

64.For the reasons above, this Court is of the view that an order forcross-examination is necessary and should be made in the interest of justice.

65.I therefore order that D1 do attend before the Judge at the Substantive Hearing for cross-examination on his 4^th, 5^th and 7^th Affirmations, and the same order is made for cross-examination of Ho on her 2^ndAffirmation.

Discovery of documents

66.HSF seek disclosure of “any settlement agreement or agreement relating to the [Underlying Litigation] (‘Settlement Agreement’),and Payment Records”, as defined in the Summons, which include “any bank account statements and any instructions, confirmations, and other records of payments relating to all bank accounts held in the name of and/or controlled by [D2], including but not limited to account numbers 78-3193086, 78-6202573 and 78-8520573 with [DBS Bank] from the opening of the accounts to the date of the Order herein inclusive (‘Payment Records’)”.

67.The disclosure is sought under RHC Order 24, rules 7(1), 10(1), 11(1) and 12(1). 

Order 24, rule 10(1)

Settlement Agreement

68.Dealing first with Order 24, rule 10(1), this allows a party to require any party to the proceedings to produce any document which is referred to in that party’s pleadings, affidavits or witness statement by serving a notice on him. The Court may, on the application of the party entitled to inspection, make an order for production of the document if the party against whom the production of the document is sought objects to its production, subject to Order 24, rule 13(1) that the order is necessary either for disposing fairly of the cause of matter or for saving costs.  The principles for ordering disclosure under Order 24, rule 10(1) can be summarised as follows:

“ The court has jurisdiction under O 24, r 10(1) and 11(1) to order discovery and production of a document referred to in an affidavit, whether or not the document is in the possession, custody or power of the party in whose affidavit the reference is made.

An application is generally not allowed when the documents are not part of the evidence relied upon by the party, who makes reference to the same in his affidavit, in the claim in question.

The documents need not be identified particularly: it is sufficient that they are referred to generally.

A direct allusion to a document is sufficient, but not a reference that arises merely by inference.  (Hong Kong Civil Procedure 2019 24/10/1)”

69.Applying the above principles to the order sought by HSF, reference was made to settlement of the Underlying Litigation in D1’s 7^thAffirmation[21].  While there is no direct reference to a Settlement Agreement, the fact that the settlement led to the discharge of the Zervos J Injunction Order by consent, and there being no finding by the Court of D1’s beneficial interest, if any, in D2 [22], does allude to the existence of a Settlement Agreement.  D1’s beneficial interest in D2 was an issue in the Underlying Litigation[23].　　He is relying on the settlement in the Underlying Litigation as evidence of his interest, or the lack of it, in D2 in support of D2’s Discharge Summons.

70.Ho made similar statements in her 2^nd Affirmation of 27 December 2018[24] as evidence of D1’s interest in D2 and the funds in its accounts on which it relies for D2’s Discharge Summons.

71.Ms Ku argued that there is no reference to any Settlement Agreement in the Defendants’ affirmations.  They only refer to the Underlying Litigation having been settled.  She also submitted that the Settlement Agreement is privileged from production and is confidential. 

72.With respect, her argument on the issue of confidentiality is flawed as any confidentiality clause would normally contain a proviso allowing the parties to produce the document for fiscal and other purposes including the seeking of legal advice, and if compelled by law. 

73.Ms Ku produced at the hearing and relied on the case of Info Allied Limited v Leung Tze Ching & Others (unreported, HCA 774/2007, Hon Fok J (as he then was), 20 December 2010, at §§23 – 27) to support her argument that the Settlement Agreement is privileged, probably because she was cognizant of the fact that she could not rely on legal professional privilege.  The passages on which she relied are set out below:

“ 23. In Rush & Tomkins Ltd v Greater London Council & Anor [1989] 1 AC 1280, the issue arose as to whether without prejudice correspondence leading to a compromise agreement between the plaintiffs and one of the defendants in that case wasliable to be disclosed to the remaining defendant. Lord Griffiths, with whom the other Law Lords agreed, held (at p.1305):

‘ I have come to the conclusion that the wiser course is to protect ‘without prejudice’ communications between parties to litigation from production to other parties in the same litigation. In multi-party litigation it is not an infrequent experience that one party takes up an unreasonably intransigent attitude that makes it extremely difficult to settle with him.In such circumstances it would, I think, place a serious fetter on negotiations between other parties if they knew that everything that passed between them would ultimately have to be revealed to the one obdurate litigant. What would in fact happen would be that nothing would be put on paper but this is in itself a recipe for disaster in difficult negotiations which are far better spelt out with precision in writing.

If the party who obtains discovery of the ‘without prejudice’ correspondence can make no use of it at trialit can be of only very limited value to him. It may give some insight into his opponent’s general approach to the issues in the case but in most cases this is likely to be of marginal significance and will probably be revealed to him in direct negotiations in any event. In my view this advantage does not outweigh the damage that would be done to the conduct of settlement negotiations if solicitors thought that what was said and written between them would become common currency available to all other parties to the litigation. In my view the general public policy that applies to protect genuine negotiations from being admissible in evidence should also be extended to protect those negotiations from being discoverable to third parties.’ (Emphasis added)

24. Rush & Tomkins was cited with approval by Ribeiro J (as he then was) in Gross Fortune International Limited v Set Win International Limited, unrep., CACV192/1999, 29.10.99.

25. It was submitted on behalf of the applicants that the rulein Rush & Tomkins only made admissions in the correspondence inadmissible but did not mean the documents themselves were not discloseable. This submission cannot, in my view, stand with the passage I have cited from Lord Griffiths’ speech above.

26. No basis has been put forward to justify lifting the without prejudice privilege rule so as to make the without prejudice correspondence and communications between the plaintiff and the 5^th defendant and the plaintiff’s own internal memoranda in respect of the settlement negotiations admissible in evidence. That being so, I can see no proper basis for allowing the applicants to have sight of that inadmissible evidence by way of discovery.

27. There is no doubt that the basis of the settlement between the plaintiff and the 5^th defendant is relevant to the issue of the entitlement of the plaintiff to continue to maintain its claim against the applicants.  The substance of the settlementagreement between the plaintiff and the 5^th defendant is set out in the schedule to the consent order dated 22 December 2009.  It will be a matter of submission in due course as to whether, given the terms of the settlement, it still remains open to the plaintiff to pursue its claims against the 1^st to 4^th defendants and the 6^th defendant.”

74.The case relates to without prejudice correspondence leading to a compromise between the parties to the litigation.  That is not what HSF are seeking.

75.HSF also rely on the reference to the Settlement Agreement inHo’s 3^rd Affirmation[25] in their application for production of the same.  It seems to me that the reference to the Settlement Agreementin this affirmation was in response to the Summons and Mr Gareth Thomas’ 9^thAffidavit in support of HSF’s application for the production of the Settlement Agreement.  She is not, in this affirmation, relying on the Settlement Agreement as evidence.  Mr Long of HSF argued that Ho referred to the Settlement Agreement with capital S and A, hence it was an express reference to a defined term. 

76.I do not consider it necessary to rely on Ho’s 3^rdAffirmation for the production of the Settlement Agreement.  The reference to settlement of the Underlying Litigation and the allusion to a Settlement Agreement in D1’s 7^thAffirmation and Ho’s 2^ndAffirmation are sufficient for this Court to order its production.

77.The response from D2’s solicitors of 31 October 2018 to HSF’s request on 29 October 2018 for, among other things, production of the Settlement Agreement was that HSF’s requests “were unwarranted and irrelevant to [D2’s Discharge Summons].  Accordingly, we are instructed to object to the same”.  Not only did D2’s objection to produce the document requested give this Court jurisdiction to order production under Order 24, rule 10(1) if the requirements are satisfied, but it also suggests that its objection to the production was not on the basis that the Settlement Agreement did not exist. 

78.In her written submissions, Ms Ku said:

“ Further, as a matter of fact as well as common sense, there is nothing in the Settlement Agreement which touches upon beneficial ownership of D2.Ordering D2 to disclose such a document without any indication from the part of [HSF] as to the possible use and relevance of such document is highly oppressive.” [26]

79.It is not clear if Ms Ku was trying to give evidence in her submissions about the content of the Settlement Agreement but her reference to the Settlement Agreement suggests that it does exist.

80.The Settlement Agreement is relevant to the issue of D1’s interest in D2 and the funds in its accounts.  The disclosure and productionof this document would assist the Court in its adjudication of the DischargeSummons and Charging Order Summons.  It also satisfies the requirement of RHC Order 24, rule 13 that it is necessary for disposing fairly of the cause or matter or for saving costs.

Order for production of the Settlement Agreement

81.I am satisfied that HSF have made out sufficient grounds for production of the Settlement Agreement.  I order that D1 and D2 do produce to HSF within 7 days the Settlement Agreement.

82.Ms Ku submitted at the hearing that if a production order wasmade, D2 should be allowed to redact the parts of the Settlement Agreement which are confidential and irrelevant to the issues in question. 

83.“It is well-established and has long been the practice that a partyis entitled to cover up parts of a disclosed document which he considers to be irrelevant.” (Jade’s Realm Ltd v Director of Lands, unreported, HCA 1509/2012, Hon Ng J, 10 June 2014, at §59), a case relied upon by HSF for their discovery application.

84.I therefore further order that D2 be at liberty to cover up the parts of the Settlement Agreement which are irrelevant to D1’s beneficial interest in D2 and the funds in D2’s accounts, and “any payments of money, properties … and any benefits received or to be received by [D1], whether directly or indirectly, and any confirmation of D1’s ownership of assets, either directly or indirectly, contained in any settlement relating to HCA 183 of 2014” which D1 is ordered to disclose by DHCJ A Lee’s Order. 

Payment Records

85.As a starting point, the discovery of Payment Records as defined in the Summons sought by HSF is too wide and amounts to ‘fishing’.  The request is on the basis of the disclosure of bank statements in D1’s 1^stAffirmation in the Underlying Litigation, and Ho’s 2^ndAffirmation in these proceedings in which she made express reference to D2’s ‘latest bank accounts’ [27].

86.There is no basis for HSF’s reliance on D1’s 1^stAffirmation in the Underlying Litigation, to which HSF were not a party, which has nothing to do with these proceedings.

87.Ho did make express reference in her 2^ndAffirmation to D2’s bank accounts and exhibited bank statements dated 4 March 2017 and 5 February 2018 of account number 78-8520573.  This account is not covered by the Injunction.  Mr Long submitted that this might be a sub‑account of one of the accounts covered by the Injunction and it must have been an omission that they did not include it when they applied for the Injunction.  Ms Ku submitted that HSF had had two opportunities when D1 sought to discharge the Injunction to make good their omission but they did not.  They should not, therefore, be entitled to discovery of any records of this account.

88.I do not consider it matters that this account is not covered bythe Injunction.  Ho made express reference in her 2^nd Affirmation to D2’s Accounts and exhibitedtwo bank statements of this particular account in support of D2’s Discharge Summons.  She is relying on the evidence to support D2’s contention that the assets in D2 do not belong to D1.[28]

Order for production of the Payment Records

89.For the same reasons for production of the Settlement Agreement, I order D2, but not D1 for the reason in paragraph 86 above, to produce to HSF within 7 days the Payment Records but limited only to the three accounts at DBS Bank, namely 78-3193086 and 78-6020573 and 78-8520573 (“Payment Records Disclosure Order”).  D2 is no longer a judgment debtor of HSF and no freezing order or disclosure order have been made against it.  I can see no reason why D2 should be ordered to disclose Payment Records of more than the three accounts.

Order 24, rule 12(1)

90.Having made an order for the production of the Settlement Agreement and the Payment Records Disclosure Order under Order 24, rule 10(1), it is not necessary for me to deal with Order 24, rule 12(1) on which HSF also rely for their discovery application.  For completeness, this provision allows the Court to order production of documents generally to the Court.

Affidavit under RHC Order 24, rule 7

91.HSF also seek an order that the Defendants make affirmations stating whether the Settlement Agreement and Payment Records are, or have any time been, in their possession, custody or power, and if not, when they parted with them and what have become of them.

92.The principles under Order 24, rule 7 are trite and summarised as follows which I do not believe are disputed by D2:

“ There is no jurisdiction to make an order for specific discovery under Order 24, rule 7, RHC unless there is sufficient evidence or prima facie case that: (a) the documents or classes of documents exist which the other party has not disclosed; (b) the documents relate to a matter in issue in the action; and (c) the documents are in the possession, custody or power of the other party.

Once it is established that those three prerequisites for jurisdiction do exist, the court has discretion whether or not to order discovery.

The court will not make an order unless the discovery sought is necessary either for disposing fairly of the cause or matter or for saving costs.

The order must identify with precision the documents or categories of documents which are required to be disclosed, for otherwise the person giving discovery may find himself in serious trouble for swearing to a false affidavit, even though doing his best to give an honest disclosure.

The Peruvian Guano test remains the test of relevance. A document is relevant if: (a) it is reasonable to suppose that it contains information which may, not must, either directly or indirectly enable the party requiring the same either to advancehis own case or to damage the case of his adversary; or (b) it isa document which may fairly lead the party to a train of inquiry which may have either of those two consequences.

Notwithstanding the Peruvian Guano test, ‘fishing’ is not allowed, and discovery should not be oppressive.  The court takes account of such considerations as the value of the discovery to the person seeking it and the burden imposed on the party giving it, with a view to restricting the volume of documents and the labour and expense involved to that which is necessaryfor fairly disposing of the issues in the case.  (Hong Kong Civil Procedure 2019 24/7/2; Jade’s Realm Ltd v Director of Lands [2014] HKEC 978 at [20]).”

Order for Affidavit

93.Given my order for production of the Settlement Agreement and the Payment Records Disclosure Order, I also order that the Defendants do within 7 days make affirmations stating whether the Settlement Agreement and Payment Records relating to the three accounts in the Summons are, or have any time been, in their possession, custody or power, and if not, when they parted with them and what have become of them.

Subpoena

94.In view of my orders for production of the Settlement Agreement and the Payment Records Disclosure Order, it is not necessary for this Court to determine HSF’s application for the issue of the Subpoena.  I shall defer such determination to after the expiry of the time for D2’s compliance with the Payment Records Disclosure Order (“Due Date”).

95.I direct that HSF inform this Court as soon as practicable after the expiry of the Due Date whether D2 has complied with the Payment Records Disclosure Order.  If D2 fails to comply with the Payment Records Disclosure Order, HSF be at liberty to make a paper application to this Court for the issue of the Subpoena.  HSF’s written submissions and D2’s reply submissions should not be more than one page. 

96.At the risk of stating the obvious, court orders are made to be complied with.  The Court will take a dim view of any non-compliance with court orders.  

CONCLUSION

97.I make an order in terms of the Summons save the following:

(i)   The Payment Records in the Summons be limited to the three accounts of D2, namely 78-3193086, 78-6020573,and 78-8520573.

(ii)   Determination of HSF’s application for the issue of a writ of subpoena duces tecum be deferred.

(iii)   HSF be at liberty to make a paper application for the issue of a writ of subpoena duces tecum should D2 fail to comply with the Payment Records Disclosure Order with written submissions limited to one page from both HSF and D2.

(iv)   Costs of HSF’s application for a writ of subpoena duces tecumbe reserved.

(v)   Liberty to apply.

98.As for the costs of the rest of the Summons, HSF have not wholly succeeded in their application for the Payment Records.  I make a costs order nisi pursuant to Order 42, rule 5(B)(6) that the Defendants pay 80% of HSF’s costs, to be taxed if not agreed.

Mr Michael Long, of Herbert Smith Freehills, for the plaintiff

Ms Genevieve Ku, of Fongs, for the 2^nd defendant

The 1^st defendant was not represented and did not appear