Forever Concord Ltd v. Lau Kwong & Hung (A Firm) and Others

HCMP 620/2024

[2024] HKCFI 1870

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 620 OF 2024

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BETWEEN

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DECISION

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INTRODUCTION

1.This is the plaintiff’s application for discovery against the 2^nd defendant made by virtue of its Amended Summons filed on 19 June 2024 (“Amended Summons”).  In a gist, the plaintiff seeks the following orders:

(1)  An Order for production of all documents, books and records in the 2^nd defendant’s possession, custody or power in relation to the plaintiff’s assets (“the Requested Documents”), which shall include but not limited to any such documents in her possession, custody or power through her former and/or current solicitors, and any other party (“Order for Production”);

(2)  An Order for the 2^nd defendant to make an affirmation verifying her due compliance with the Order for Production, which shall inter alia include an explanation as to what has become of the Requested Documents if any of those documents could not be produced and/or is no longer in her possession, custody or power as a result of the appointment of the Receivers (“the Ancillary Disclosure Order”).

THE PLAINTIFF’S APPLICATION TO FURTHER AMEND THE AMENDED SUMMONS

2.As a matter of caution, this Court sought to confirm with Ms Xu at the beginning of the hearing that the Ancillary Disclosure Order is not a standalone order, and that the dismissal of the application for Order for Production would necessarily mean that the application for the Ancillary Disclosure Order would also come to an end.

3.However, Ms Xu informed the Court that the Ancillary Disclosure Order should stand on its own and be treated as a separate and independent application.  This is so despite the fact that, in her skeleton submissions dated 9 July 2024, she defined this order as “ancillary” and submitted that “the Court has inherent jurisdiction to grant ancillary orders, including ancillary disclosure orders, to ensure the effectiveness of another order of the Court”[1].

4.This apparently is not what is stated in the Amended Summons.

5.As a result, Ms Xu applied to further amend the Amended Summons. 

6.Such an application has been dismissed for the following reasons:

(1)  This application was made extremely late and without prior notice to the 2^nd defendant;

(2)  No summons has been filed at all.  As a matter of fact, Ms Xu only tried to formulate the wordings of the proposed amendment while she was on her feet;

(3)  The plaintiff has in fact been given one chance already to amend its application when the matter was first heard on 31 May 2024, during which the Court allowed the plaintiff to amend its Summons filed on 15 April 2024, and adjourned the hearing to today.  There is simply no reason why the plaintiff should be granted another indulgence particularly in the above circumstances;

(4)  It is thus grossly unfair to the 2^nd defendant if the application to amend is allowed.

BACKGROUND

7.The background of the present case has been set out in this Court’s Decision dated 11 July 2024 [2024] HKCFI 1838. Unless otherwise stated, I shall adopt the definitions and nomenclatures used therein.

8.For the purpose of this application, the following matters are also relevant.

9.On 26 March 2024, the 2^nd defendant’s solicitors, Messrs. K. T. Chan & Co., wrote to the plaintiff’s former solicitors, Messrs. Allen & Overy, and stated that:

“[…] we are instructed by [the 2^nd defendant] that since, and as a result of, the purported appointment of receivers and managers to Forever Concord Limited, the alleged receivers and managers have taken control over its operation and management, and [the 2^nd defendant] no longer has any direct access to its documents or records. As such, [the 2^nd defendant] is unable to provide to you the Alleged New Framework Agreement […]”

10.On 27 May 2024, the 2^nd defendant’s solicitors sent a letter to the plaintiff’s current solicitors, Messrs. Gall, and set out her stance as follows:

“[…] As the 2^nd Defendant has already indicated, in our prior letter dated 26 March 2024 to Messrs. Allen & Overy, your predecessor herein, she has no access to the Plaintiff’s books and records since the purported appointment of receivers and managers to the Plaintiff and her purported cessation as director of the Plaintiff. As such, the 2^nd Defendant was and is unable to provide to you the Alleged New Framework Agreement or any other documents or records as requested in paragraph 4 of the HCMP 620 Summons.

It means that the 2^nd Respondent (sic)  no longer has possession, custody or power of the documents set out in paragraph 4 of the HCMP 620 Summons.  Our client is prepared to swear an Affirmation to that effect. […]”

11.On 28 May 2024, the 2^nd defendant indeed made an Affirmation in which, having referred to the two letters dated 26 March 2024 and 27 May 2024 respectively, she confirmed that she “[does] not now have in [her] possession, custody or power, and [she is] unable to provide” the 6 categories of documents set out in the Amended Summons.

12.On 11 June 2024, the Receivers sent a letter to Messrs. Hau, Lau, Li & Yeung, and requested for the provision of, inter alia, the Alleged New Framework Agreement, all supporting and underlying documents in respect of all releases of funds from their client’s accounts to the 1^st defendant, and all correspondences and written advice in respect of the Intended Mortgagee Sale.

13.Messrs. Hau, Lau, Li & Yeung has so far not replied to the aforesaid requests.

14.On 24 June 2024, the 2^nd defendant’s solicitors wrote to Messrs. Hau, Lau, Li & Yeung, and asked:

(1)  Whether Messrs. Hau, Lau, Li & Yeung held and holds any documents for and on behalf of the 2^nd defendant in her personal capacity;

(2)  If so, for a list of such documents.

15.On 25 June 2024, Messrs. Hau, Lau, Li & Yeung replied to the 2^nd defendant’s solicitors as follows:

“Without prejudice to any documents that we may subsequently discover when reviewing the file, for the time being we can recall that the documents that we are holding for and on behalf of [the 2^nd defendant] in her personal capacity are documents relating to her personal particulars and those incidental to conducting the [Know Your Client] exercise.”

16.On 27 June 2024, the 2^nd defendant’s solicitors wrote further to the plaintiff’s solicitors, and reiterated that the 2^nd defendant no longer has possession, custody or power of the documents requested pursuant to the Amended Summons.  In particular, it was stated that:

“[…] Insofar as such allegations that our firm holds any of the Documents referred to in the Amended Summons for and on behalf of the 2^nd Defendant is concerned, we confirm that this is not the case and our firm does not hold such Documents (apart from those disclosed and adduced by the parties in the Matter and in HCA 645/2024, which the Plaintiff already has […]” (emphasis added)

17.On 3 July 2024, the Receivers chased Messrs. Hau, Lau, Li & Yeung for a reply but to no avail.

AN OVERVIEW OF THE APPLICATION

18.Ms Xu for the plaintiff contended that it is entitled to require the 2^nd defendant, as former director of the plaintiff, to produce documents relating to the affairs of the plaintiff, and that this duty survives the termination of her directorship. 

19.The 2^nd defendant does not, as a matter of principle, dispute the plaintiff’s entitlement to such production of documents.  However, it is her case that since she has filed an affirmation confirming that she does not have possession, custody or power of the documents sought, that is the end of the whole matter because her affirmation is conclusive.  It is also the 2^nd defendant’s submission that her stance is supported by the letters issued by Messrs. Hau, Lau, Li & Yeung and Messrs. K. T. Chan & Co. dated 25 June 2024 and 27 June 2024 respectively.

20.The plaintiff is not satisfied with the 2^nd defendant’s affirmation.  It is submitted by Ms Xu that while such an affirmation is generally regarded as conclusive, it is not so regarded if the court is satisfied, not on a conflict of affidavits, but either from the documents produced or from anything in the affidavit made by that party, or by any admission in the pleadings, or necessarily from the circumstances of the case, that the affirmation does not truly state that which it ought to state.[2] 

21.In the present case, the plaintiff submitted that the 2^nd defendant’s affirmation should not be regarded as conclusive because:

(1)  The evidence shows that the 2^nd defendant has power over various company documents through her former solicitors, Messrs. Hau, Lau, Li & Yeung, and her current solicitors: Messrs. K. T. Chan & Co.

(2)  Her affirmation is highly unsatisfactory given its complete omission on what has become of the company documents.

DISCUSSION

Order for Production

22.Ms Xu accepted that the plaintiff has the burden to satisfy the Court that the plaintiff has a prima facie case that the Requested Documents are in the 2^nd defendant’s possession, custody or power.

23.When answering the Court’s enquiry on where in the plaintiff’s supporting affidavits did the plaintiff deposed to its belief that the 2^nd defendant still has such documents within her possession, custody or power, Ms Xu drew my attention to the following parts of Mr Cosimo Borrelli’s Affidavit:

“50. On 26 March 2024, [Allen & Overy] received a further letter from K. T. Chan & Co., acting on behalf of the 2^nd Defendant, stating […] that she no longer has any direct access to the Plaintiff’s documents or records and cannot provide [Allen & Overy] with a copy of the Alleged New Framework Agreement as ‘the alleged receivers and managers [of the Plaintiff] have taken control over its [the Plaintiff’s] operation and management’. […]

51. This statement is clearly not true. Since their appointment, the Receivers have not for all practical purposes taken control of the Plaintiff’s operation and management and have not been able to secure access to any of the books and records of the Plaintiff so as to be able to discharge their legal responsibilities as Receivers and directors of the Plaintiff.

52. The Receivers were notified in HLLY’s letter of 30 January 2024 that they should approach K. T. Chan & Co and/or the 1^st Defendant for a copy of the Alleged Preliminary Framework Agreement […] but on the other hand, they were informed by the 2^nd Defendant that she is unable to provide a copy of the same.

53. It is highly improbable that neither HLLY, being the former solicitors of the Plaintiff, who would have acted on the instructions of the 2^nd Defendant as director of the Plaintiff at the time when such an agreement was purportedly entered into, nor K. T. Chan & Co, being the current solicitors of the 2^nd Defendant, have access to a copy of the Alleged New Framework Agreement.”

24.While Ms Xu accepted that there is indeed nothing in the supporting affidavits which explicitly stated that the plaintiff had such a belief, she argued that the grounds in support of the Receivers’ belief that the 2^nd defendant has the Requested Documents can be found in the aforesaid paragraphs of Mr Borrelli’s Affidavit.

25.With greatest respect, I disagree.  In my view, the above paragraphs are inadequate for the purpose of supporting the alleged belief, not to mention that the plaintiff simply failed to state such a belief in the first place.

26.The plaintiff’s application for an Order for Production is therefore a non-starter.

27.Be that as it may, given the submission of the plaintiff as set out in [20] and [21] above, the matter may be further analysed from 3 different angles which I will do below.

Messrs. Hau, Lau, Li & Yeung

28.The plaintiff submitted that the Court should not accept the 2^nd defendant’s bare assertion that she does not have in her power the documents requested because, it is said, it has been amply demonstrated that Messrs. Hau, Lau, Li & Yeung must still have possession of some of the documents.[3]

29.Even if the plaintiff is right that Messrs. Hau, Lau, Li & Yeung still have possession of some of the Requested Documents, it must be borne in mind that Messrs. Hau, Lau, Li & Yeung have previously been instructed by the plaintiff in relation to the Intended Mortgagee Sale.  Hence, insofar as Messrs. Hau, Lau, Li & Yeung are still holding onto any Requested Documents, those documents must have been possessed by the said firm as former solicitors of the plaintiff (see paragraph 53 of Mr Borrelli’s Affidavit quoted in [23] above).  Even though at the material time Messrs. Hau, Lau, Li & Yeung was acting for the plaintiff upon the instruction of the 2^nd defendant, she must have given such instruction in her capacity as the plaintiff’s director rather than in her personal capacity.  Now that the 2^nd defendant has been removed from her office as the plaintiff’s director, she would no longer have any power to instruct Messrs. Hau, Lau, Li & Yeung to hand over or disclose any of the plaintiff’s documents. 

30.For the sake of completeness, I should also mention that Ms Xu has drawn this Court’s attention to various correspondences between the parties, and submitted that they are “wholly unsatisfactory”, because Messrs. Hau, Lau, Li & Yeung:

(1)  was only asked by the 2^nd defendant’s solicitors to confirm whether the firm was holding any documents for the 2^nd defendant in her personal capacity;

(2)  only sought to “recall” what the firm might be holding for the 2^nd defendant, without reviewing the files;

(3)  chose not to reply to the Receivers’ enquiries but made a reply to Messrs. K. T. Chan & Co. quickly.

31.I do not intend to deal with these matters one by one.  It suffices for me to say that these are irrelevant matters, particularly in the light of the view expressed above.

Messrs. K. T. Chan & Co.

32.Insofar as it is alleged that Messrs. K. T. Chan & Co. is still in possession of any relevant documents, the plaintiff submitted that:

“25(2)  Moreover, [the 2^nd defendant]’s bare denial is contradicted and disproven by the letters from [Messrs. Hau, Lau, Li & Yeung], [Messrs. K. T. Chan & Co.] and [the 1^st defendant].

(a)  […]

(b)  […]

(c)  […]

(d)  […]

(e)  […]

(f)  Further, in [Messrs. Hau, Lau, Li & Yeung’s letter dated 30 January 2024], [Messrs. Hau, Lau, Li & Yeung] asked the Receivers to approach [Messrs. K. T. Chan & Co.] and/or [the 1^st defendant] if they wanted a copy of the Alleged New Framework Agreement. This suggests that [Messrs. K. T. Chan & Co.] ([the 2^nd defendant]’s current solicitors)  has a copy of the agreement […]”[4]

33.It can be seen that, putting the plaintiff’s case to the highest, it can only be said that Messrs. Hau, Lau, Li & Yeung had asked the Receivers to approach Messrs. K. T. Chan & Co. and/or the 1^st defendant if they wanted a copy of the Alleged New Framework Agreement.  However, that does not necessarily mean that Messrs. K. T. Chan & Co. has the said agreement in its possession. 

34.In any event, as pointed out by Mr Chen for the 2^nd defendant, Messrs. K. T. Chan & Co. has already stated in its letter dated 27 June 2024 that it does not hold any documents set out in the Amended Summons (see [16] above).

The 2^nd defendant

35.Lastly, as far as the 2^nd defendant herself is concerned, the plaintiff submitted that:

“According to [the 1^st defendant’s letter dated 16 April 2024], the Further Payments and Purported Releases were made ‘with the express approval of [the plaintiff]’ and ‘under explicit instructions and with full approval and indemnities of [the plaintiff]’. At the material times, the only directors of [the plaintiff] were [the 2^nd defendant] and Mr Mintz. Mr Mintz, who was appointed by the Lenders, was never notified let alone approved of the Further Payments and Purported Releases, and so the only person who could have purportedly given ‘instruction’, ‘approval’ and ‘indemnities’ on purported behalf of the plaintiff was [the 2^nd defendant]. Given the significant amounts involved, it is extremely unlikely and wholly unbelievable that no written records were made of such ‘instruction’, ‘approval’ and ‘indemnities’. Indeed, [the 1^st defendant’s letter dated 16 April 2024] made reference to written letters of authorisation and indemnity dated 7.5.2022 and 13.2.2023. Where such records exist, [the 2^nd defendant] and/or her then solicitors (HLLY)  are likely to have kept a copy.”[5] (Ms Xu’s emphasis)

36.This assertion has been negated by the 2^nd defendant’s affirmation.  In my view, nothing from the documents produced or from anything in the said affirmation or from the circumstances of the case shows that the said affirmation does not truly state that which it ought to state.

37.Hence, the 2^nd defendant’s affirmation is conclusive in this regard.

38.The plaintiff emphaisized that the 2^nd defendant’s denial of still keeping any of the Requested Documents is just her bare assertion.  I disagree, because this is supported by the letters issued by Messrs. Hau, Lau, Li & Yeung and Messrs. K. T. Chan & Co.  The plaintiff has not explained why these solicitors firm would knowingly issue letters setting out facts which are not true.

Conclusion on Order for Production

39.I therefore dismiss the plaintiff’s application for Order for Production.

The Ancillary Disclosure Order

40.It follows that the application for this ancillary order should also be dismissed.

ORDER

41.By reasons of the aforesaid, the Amended Summons is hereby dismissed.

COSTS

42.Ms Xu accepted that the plaintiff should bear the costs of the 2^nd defendant from 28 May 2024 (i.e. the time when the plaintiff had sight of the 2^nd defendant’s affirmation which deposed that she no longer had access to the Requested Documents)  onwards. However, she submitted that the plaintiff should not be liable for the 2^nd defendant’s costs incurred before that date because it was not unreasonable for the plaintiff to proceed with the application until then.  She proposed that the Court should make no order in relation thereto.

43.I disagree.

44.As explained above, in my view, the plaintiff’s application for the Order for Production was a non-starter.  The supporting affidavits simply failed to set out sufficient grounds in support of the application. 

45.I therefore hold that the plaintiff should bear the 2^nd defendant’s costs of the Amended Summons (including the costs of the 2^nd defendant’s summons filed on 28 May 2024).

46.On the other hand, Mr Chen submitted that the plaintiff should be liable for indemnity costs because it has been warned by the 2^nd defendant’s solicitors on 27 June 2024 about the conclusiveness of the 2^nd defendant’s affirmation.   However, the plaintiff proceeded with the application nevertheless.  

47.In my view, that is not enough to justify an indemnity costs order, because that is just another normal occasion when parties do not accept the contention of the other side.

48.The 2^nd defendant’s costs are summarily assessed pursuant to Order 62 rule 9A(1)(a)  of the Rules of the High Court (Cap.4A, Laws of Hong Kong)  at $252,180, payable by 9 August 2024, subject to any application made by the 1^st and/or 3^rd defendant(s)  to vary the costs order nisi dated 11 July 2024[6].

Ms Cherry Xu, instructed by Gall, for the plaintiff

Mr Vincent Chen, instructed by K. T. Chan & Co, for the 2^nd defendant