Oldham, Li & Nie, Solicitors (A Firm) v. Melvin Waxman and Another

HCA 263/2023

[2024] HKCFI 2963

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 263 OF 2023

____________

BETWEEN

____________

___________________________

REASONS FOR DECISION

___________________________

Introduction

1.The plaintiff is a firm of solicitors practising in Hong Kong. The 1^st and 2^nd defendants were its clients who had failed to pay for legal fees for work done and services rendered by the plaintiff. The plaintiff commenced this action against the defendants in February 2023 and obtained a default judgment against the 1^st defendant on 29 June 2023 for, inter alia, a sum of HK$5,636,225.87 together with interest and costs (“Final Judgment”). To date, the 1^st defendant has failed to satisfy the judgment debt. As the 1^st defendant held 3,000 shares in a third party, namely WDI International (HK) Ltd. (hereinafter referred to as “D1’s Shares” and “WDI” respectively), the plaintiff took the following steps to enforce the Final Judgment:-

(i) Obtained a charging order over D1’s Shares in WDI, which order was made absolute on 2 January 2024;

(ii) Applied for a receivership order over D1’s Shares which was granted by Recorder Rachael Lam SC on 29 January 2024.

2.Subsequent to the grant of the receivership order, the plaintiff acting on behalf of the appointed receiver wrote two letters to WDI dated 1 February 2024 and 16 February 2024 respectively, requesting for financial statements and reports of WDI as well as information on any dividends paid or payable to the 1^st defendant. WDI did not reply to the two letters. As to the 1^st defendant, he had simply failed to take any steps to defend this action including to file a notice of intention to defend and that led to the Final Judgment being entered in default. The 1^st defendant is not in the jurisdiction and there have been difficulties for the plaintiff in contacting him to enforce the Final Judgment.

3.By a summons filed on 21 August 2024, the plaintiff now applies for orders of post-judgment discovery against the 1^st defendant pursuant to section 21L of the High Court Ordinance and Order 29, rule 1 of the Rules of the High Court; and against WDI pursuant to section 42 of the High Court Ordinance and Order 24, rule 7A. As the chargor of D1’s Shares, the plaintiff makes the present application seeking to obtain information to ascertain the financial position of WDI with a view to conducting a proper valuation of D1’s Shares for their sale, as well as ascertaining whether any dividends by WDI may have been paid or become due to the 1^st defendant. In particular, the plaintiff seeks to obtain the following documents:-

(i) Financial statements, director’s reports and auditor’s reports of WDI for the past 7 years; and

(ii) Written board and/or shareholders resolutions or board minutes of WDI relating to the dividends, profits, receivables and monies that have or will become due or payable to the 1^st defendant in respect of his interest in D1’s Shares in WDI for the past 7 years (documents described in (i) and (ii) herein to be collectively referred to as the “Documents”).

Order against the 1^st defendant

4.The Final Judgment remains wholly unpaid. The only asset of the 1^st defendant’s that could be seized upon at this stage to enforce the Final Judgment is D1’s Shares. I am satisfied on the evidence that it is just and convenient under section 21L of the High Court Ordinance for this Court to order the 1^st defendant to provide copies of such Documents that are in his possession, custody or power to the plaintiff within 21 days of the order to be made.

Legal principles applicable to third-party discovery

5.Section 42 of the High Court Ordinance provides:-

“(1) On the application, in accordance with rules of court, of a party to any proceedings in which a claim is made, the Court of First Instance shall, in such circumstances as may be specified in the rules, have power to order a person who is not a party to the proceedings and who appears to the Court of First Instance to be likely to have or to have had in his possession, custody or power any documents which are relevant to an issue arising out of that claim:-

(a) to disclose whether those documents are in his possession, custody or power; and

(b) to produce such of those documents as are in his possession, custody or power to the applicant or, on such conditions as may be specified in the order:-

(i) to the applicant’s legal advisers; …”

6.The court may order discovery against a third party under section 42(1) where the party is likely to have or to have had in his possession, custody or power any documents which are relevant to an issue arising out of a claim in an action.

7.The jurisdiction to order such discovery exists both before and after judgment, having regard to the general policy of the court to come to the assistance of judgment creditors: see Golddecade International Ltd v Huang Ziqiang, HCA 1521/2015 (unreported and dated 14 December 2015) at §§11-13.

8.The legal principles on third party discovery are uncontroversial. The applicant is required to show that the documents being sought are in existence, in the possession of the third party against whom the application is made and are relevant to the questions in the action; and that discovery is necessary for fairly disposing of the cause or matter and saving costs; and the documents have to be carefully and precisely described: see Punjab National Bank v Firestar Diamond Ltd & Anor, HCA 872/2018, [2019] HKCFI 1479 (unreported and dated 23 April 2019) at §4; and Akai Holdings Ltd v James Henry Ting, HCCL 42/2005 (unreported and dated 13 September 2016) at §§12-14.

9.In the present case, WDI is a private company. A proper valuation will need to be carried out before the sale of D1’s Shares can be duly arranged, be it by a private sale or auction. The plaintiff has already twice requested WDI to provide its financial statements/reports and dividend information but to no avail. Further, WDI’s subsidiaries had in the years between 2006 and 2012 paid substantial dividends to the 1 defendant. The Documents being sought are directly relevant and necessary to assist the plaintiff’s efforts to enforce the Final Judgment, whether by facilitating a sale of D1’s Shares or ascertaining any dividends that have been paid or become due to the 1^st defendant. The Court is satisfied that WDI is likely to have or to have had the Documents in its possession, custody or power, and that discovery is necessary for fairly disposing of the cause or matter and saving costs. The Documents to be disclosed are also carefully and precisely described.

10.According to the plaintiff’s supporting affirmation, the 1^st defendant has failed to attend any of the hearings since the entering of the Final Judgment and to respond to any of the plaintiff’s letters. It is thus very likely that the 1^st defendant will also fail to comply with the discovery order to be made. In that event, it will be necessary for WDI to disclose the Documents in its possession to the plaintiff. The Court will therefore order that upon the 1^st defendant failing to comply with the discovery order, WDI do provide the Documents to the plaintiff within 21 days thereafter.

Conclusion

11.For the reasons set out above, I make the following orders:-

(1) The 1^st Defendant do within 21 days from the date of this order provide the Plaintiff with copies of the following documents in the possession, custody or power of the 1^st Defendant:-

(a) Financial statements, director’s reports and auditor’s reports of WDI International (HK) Ltd. (“WDI”) from 17 October 2017 to the date of this order; and

(b) Written board and/or shareholders resolutions or board minutes of WDI relating to the dividends, profits, receivables and monies that have or will become due or payable to the 1^st Defendant in respect of his interest in his shares in WDI from 17 October 2017 to the date of this order (documents described in (a) and (b) herein to be collectively referred to as the "Documents");

(2) Upon the 1^st Defendant's failure to comply with the order as per paragraph (1) above, WDI do within 21 days thereafter provide the Plaintiff with copies of the Documents that are in the possession, custody or power of WDI;

(3) WDI's costs of and occasioned by this application (including reasonable costs for the provision of copies of the Documents) be paid by the Plaintiff to WDI, such costs to be taxed if not agreed ("WDI Costs Order"); and

(4) The Plaintiff’s costs of and occasioned by this application (including the Plaintiff's costs to be incurred pursuant to the WDI Costs Order) be paid by the 1^st Defendant to the Plaintiff, such costs to be taxed if not agreed.

Ms Lily Yeung, instructed by Oldham, Li & Nie, for the plaintiff

The 1^st Defendant acting in person and absent

The Third Party acting in person and absent