Esquire (Electronics) Ltd v. The Hong Kong and Shanghai Banking Corporation Ltd and Another

HCA011077A/1994

HCA11077/1994

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.11077 OF 1994

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(by original writ and order to carry on)

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Coram: Hon Waung J in Chambers

Dates of Hearing: 14 March and 7 April 2003

Date of Judgment: 2 September 2003

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J U D G M E N T

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1.In this protracted litigation between Esquire (Electronics) Limited ("Esquire") and The Hong Kong and Shanghai Banking Corporation Limited ("the Bank") (with trial date commencing 25 February 2004 before me) I have yet to resolve a further interlocutory dispute between the parties. This present dispute is over one set of interrogatories of Esquire against the Bank, totally eight in number.

2.This action is the claim by Esquire against the Bank that the Bank improperly in 1987 caused Esquire's headquarter building and crown jewel, the Li Fung House ("the Building"), mortgaged to the Bank, to be sold to a buyer closely associated to the Bank by the exercise of undue influence, duress and breach of fiduciary duty. In particular the central allegation of Esquire is that the Bank improperly used the $30 Million Overcharge (being an inflated debt figure alleged to be owing to the Bank) as a lever of improper pressure to force the sale of the Building thereby benefiting the Bank's close associate and causing harm to Esquire.

3.For the purpose of the present application, it is sufficient to say that some of the central issues of this action are :

(a) Was there in 1986-7 an overcharge of $30 million by the Bank (para.11(2) and 12(2) of Statement of Claim ("SOC") and para.6(2) of Defence and para.16 of Reply);

(b) If yes, at the material time did the Bank know or had reason to know the $30 Million Overcharge (para.12(2A) and (3) and 16D of SOC and para.16 and 17 of Reply);

(c) What were the circumstances leading to the Bank to sell the Building in 1986-7 (para.3N to 3O of Defence and para.10 of Reply);

(d) What pressure (including if any, using the $30 Million Overcharge leverage) was brought by the Bank against Esquire to sell the Building (para.11(4) and 12(4) of SOC and para.12, 18 of Reply);

(e) Was Bethlehem Management Ltd, the buyer of the Building closely connected to the Bank and its senior management (para.16(3) of SOC and para.11 of Defence);

(f) Was there an improper sale in the circumstances, specially having regard to the application of pressure by the Bank and the private sale of the Building to Bethlehem (para.11 to 16D of SOC and Defence generally and para.18 and 22B of Reply).

4.Before discussing and analyzing the 8 Interrogatories, it is necessary to have a brief understanding of the persons involved on the Bank side. The Bank's organization structure ("Chart") as of 3rd to 4th Quarter 1986 was produced to the Court on 4 April 2003 at the request of the Court. It shows on the right hand side Colin Bamford, the District Manager, Mongkok Branch where the Esquire Account was maintained. At the hearing, I was also told that under Colin Bamford, the District Manager there was J.B. Wheeler, the Deputy Manger Mongkok Branch.

5.On the left hand side of the Chart, there is the Credit Control Department ("CCD") which is the department in the Bank dealing with bad debt problems requiring intensive care by the Bank. At the bottom of that CCD structure is Sean Wallis succeeded by Tom Summerfield as the Account Manager, CCD. October 1986 appears to be the date of transfer. The Account Manger CCD reports to the Assistant Manager CCD. David Budd was the Assistant Manager CCD succeeded by Brian Robertson and again October 1986 was given as the date of transfer. The Account Manager CCD reports to the Manager CCD in the person of Diccon Pullen. The Assistant Manager CCD reports to Paul Selway-Swift, the Assistant General Manager, Corporate Banking. The District Manager Mongkok apparently according to the Chart also reports to the Assistant General Manager Corporate Banking, namely Selway-Swift. The Chart shows the Assistant General Manager Corporate Banking reporting to Peter Wrangham the General Manager of the Bank sitting at the top middle of the Chart who in turn reports to the person at the top of the Chart, the Chairman of the Bank who was Michael Sandberg at the relevant time.

6.It can be seen from the above account that there were many officers of the Bank involved with this structure and with this Esquire case. The Bank's disclosed documents and the Bank's documents put before the Court at the hearing also indicate the involvement of all these officers. For the trial, the Bank will be calling only two bank officers namely Paul Selway-Swift (Witness Statement at pages 137-144) and Thomas Sommerfield (Witness Statement at pages 99-136).

7.For the Esquire side, three witnesses will be called at the trial, namely S.C. Arjan (Witness Statement pages 145-149), S.C. Gurdas (Witness Statement pages 150-198) and R.N. Ratnam (Witness Statement pages 199-246).

8.The dispute between the parties in relation to the eight Interrogatories goes to both relevance and necessity and exercise of discretion and more fundamentally to the guiding legal principle in relation to interrogatories.

9.The substantial dispute as to the guiding principle governing interrogatories raises fundamental question requiring a detailed examination of the history of interrogatories and the changes brought about by a combination of rule changes, the introduction of other rules such as witness statements and the practice of case management directions. Openness in modern litigation is now accepted to be the norm in Hong Kong and elsewhere. For the limited purpose of the present interlocutory dispute, it seems to me that without deciding the correctness of the revolutionary approach advanced by Mr Lee for Esquire, it is possible to decide the present dispute based on existing principle on interrogatories but taking all the time into account the reality of this trial having regard to the witnesses to be called at the trial, the present state of the Witness Statements of the parties and that in many respects this is very much a case management decision exercise by the trial judge as to what is the best way forward.

10.Interrogatory is governed by the Rules. Order 26 rule 1(1) provides that "a party ... may ... serve interrogatories relating to any matter in question .... which are necessary either (a) for disposing fairly of the cause or matter; or (b) for saving costs." Order 26 rule 4(2) provides that "in deciding whether to give leave to serve interrogatories, the Court shall take into account any offer made by the party to be interrogated to give particulars, make admissions or produce documents relating to any mater in question and whether or not interrogatories without order have been administered."

11.The essential requirements for permitting interrogatories are therefore, firstly that they be relevant, secondly they are necessary for fairly disposing of the cause/matter and/or thirdly they are necessary for saving costs. Relevance is not difficult but necessity (under either limb) and its application is what gives rise to different contentions. I accept the principle that it must be demonstrated to the Court upon the interrogatory being contested that the interrogatory if answered will serve a clear litigious purpose by saving costs or promoting the fair and efficient conduct of the action. Objections to interrogatories based on lack of necessity take various forms such as (1) the question can be put to the witness in cross-examination, (2) the question is a dry-run of the cross-examination, (3) the answer to the question is obvious or can be found in the document or various documents, (4) the question will not result in any admission. The validity of the objection however must be judged in the context of the particular interrogatory and all the surrounding circumstances. It is necessary therefore to examine each Interrogatory disputed.

12.Interrogatory 1 relates to the question of what reply did Pullen receive from his Memo dated 26 May 1986 [247] to Selway-Swift asking for instructions (para.5) on whether to amortise the bad debt of Esquire over 18 months or to place Esquire into liquidation. It is said the answer to the request by Pullen for policy decision on whether to amortise the provision is irrelevant. I disagree. It seems to me that there is simply no escape in this case from the examination of the Bank's attitude to dealing with the Esquire problem, in respect of liquidation, sale of the Building and its timing and at what value, writing off and the $30 Million Overcharge and having regard to many factors, including the resistance of Esquire and the possible reaction of other banks who were partners of the Bank in the restructuring. The fluid situation prevailing from 1984 onwards call for constantly adjusting positions. A policy decision if made will illuminate the landscape and the policy decision might have been made by those higher than Selway-Swift who seemed to have produced no memo answering the query. If no policy decision was made then a clear answer to the Interrogatory will again save costs and reduce unnecessary preparation before trial or unnecessary probing at the trial. I am satisfied that although this matter is in time some one year before the actual sale, Interrogatory 1 should be answered.

13.Interrogatory 2 relates to what reply did Wallis receive from his Memo dated 23 October 1986 [253] to Wheeler and copied to Pullen and Bamford wherein Wallis said that the Bank had to refund Esquire the interest charged from September to December 1983 and asked to be advised of the calculated amount of such interest charged and such calculated interest to be refunded to Esquire. The Bank was also asked to answer if there was such refund with details and if no refund as to the particulars of the decision not to make the refund. The Bank concedes relevance since it is very much on the issue of $30 Million Overcharge but contends that Esquire already knows the answers to all the questions and therefore Interrogatory 2 is not necessary. It is first to be noted that neither Wallis nor Wheeler nor Pullen nor Bamford will be witnesses at the trial. Sommerfield did not touch on this in his Witness Statement and in any event this took place before he took over from Wallis and even if he could give an answer, it will be unsatisfactory as being more on hearsay rather than first hand and will be subject to much further probing at the trial. So the necessity for the Interrogatory is obvious unless it can be clearly demonstrated that there are documents in the possession and knowledge of Esquire which makes the seeking of answers to this Interrogatory a frivolous exercise as tending to add costs and not saving costs and not for fairing disposing of the matter. No document had been produced to me by the Bank which can lead to such conclusion. In my view, Interrogatory 2 should be answered.

14.Interrogatory 3 relates to one of the handwritten notes in the aforesaid 23 October 1986 Memo [255] and the answer required is the identity of the writer of that note and what are meant by the various expressions in that handwritten note. The use of the words "many issues", "special negotiating giveaway" and "press Gurdas further" in the note clearly indicate relevance of the questions because they relate to the heart of the problem of $30 Million Overcharge and using it as pressure on Esquire. The objection to this Interrogatory that Esquire is seeking to extract more evidence from the Bank ignores the very purpose of Interrogatory, namely the obtaining of relevant evidence or admission which will advance the case of Esquire. The identity of the writer is of key importance and must not await to be pursued at the trial. It is possible that Pullen whose similar handwriting appears in other internal memos may be the author of the note and if so Sommerfield will not be able to speak as to what Pullen was referring to. I do not therefore regard this Interrogatory as a dry run in cross-examination. I regard the question as being seriously requiring an answer long before the trial so that the trial can be prepared properly and therefore will result in saving of costs and also more importantly promote greater efficiency at the trial.

15.Interrogatory 4 relates to the Memo dated 20 March 1997 [257] from Sommerfield to Pullen where he discussed the $30 Million Overcharge and the questions asked are whether actions were taken by Purves, Selway-Swift or the Bank to cancel the Overcharge before the sale of the Building and if so with particulars of action and if not whether there were decision made not to cancel the Overcharge and if so with particulars of the decision. The relevance of this Interrogatory 4 is not contested but it is contended that the Interrogatory is not necessary because Sommerfield can be cross-examined. The Memo dated 1 April 1997 [page 480-1] from Selway-Swift to the Chairman through the General Manager of course throws further light on the matter but makes the answering of the question even more compelling. It is to be noticed that using the $30 Million Overcharge as a weapon to force the agreement to sell the Building was pretty much admitted and therefore the question is whether before the sale in mid May 1997 there was any action to cancel the Overcharge or a decision (probably at the top) not to cancel but to support the Sommerfield's "negotiating give-away". Sommerfield cannot help and is not likely to be the source of reliable evidence on this. I see no merit whatsoever in the objection to Interrogatory 4.

16.Interrogatory 5 is in respect of Sommerfield's letter to Esquire dated 27 March 1987 [260] where he asked Esquire not to mention to the other bankers in the restructuring, the recent "negotiations" and where he told Esquire what to say if asked about the coming sale of the Building. As Mr Sommerfield will be giving extensive evidence no doubt at the trial, I agree that no useful purpose will be served with this Interrogatory and that no saving of costs will be achieved by asking him these questions now. I therefore disallow this Interrogatory 5.

17.Interrogatory 6 is in respect of the letter dated 6 May 1987 [263] from solicitors of Bethlehem the buyer to JSM, solicitors for the seller which letter was copied to Peter Wrangham and Q.W. Lee and the questions asked all relate to the knowledge of Lee and his inquiry of the connection between Bethlehem and the Bank. It is common ground that the Hon Q.W. Lee was at the relevant time on the board of both the Bank and its subsidiary Hang Seng Bank and is also very close to the Ho family of Bethlehem. This letter was written before the draft Agreement for sale had even been sent and therefore long before the actual assignment. What is significant about this letter is that the solicitor for the purchaser is sending a copy of the letter to Peter Wrangham of the Bank and to Q.W. Lee, a director of the Bank and of Hang Seng Bank. If Q.W. Lee is an officer of Bethlehem or has a controlling interest in Bethlehem then of course it makes sense for Bethlehem's solicitor to copy such letter to his own client but this is not what it says. Prima facie the copying of the letter to Wrangham and Lee does therefore suggest that C.Y. Kwan knew of the involvement of these two men of the Hong Kong Bank in this transaction and that they have an interest in receiving a copy of this letter. Mr Lee is of course very distinguished but he was at the time a director of the Bank and that carries with it certain implication of propriety. But he was also close to Bethlehem and the sale was a private sale really by the Bank to close associate of the Bank. There will be no one from the Bank at the trial (as matters stand now) who will be able to give an answer to these questions. Trial will not progress smoothly if Esquire has to issue subpoena against Lee or C.Y. Kwan for the answer. Furthermore steps may well have to be taken as result of the answers given to this interlocutory. The Interrogatory is therefore very much necessary. In my judgment, this Interrogatory 6 should be answered.

18.Interrogatory 7 relates to the Memo dated 6 August 1992 [264-6] from Mr Eldon, the General Manager of the Bank requesting answers to questions on the $30 Million Overcharge. I disagree that the subject matter of the Interrogatory is irrelevant although it was some five years after the controversial sale. The answers to the Interrogatory may well be inconvenient to the Bank or to present or past officers of the Bank but that is no reason why the Interrogatory should be refused. In fact admissions made as answers to this Interrogatory may well cause substantial saving in time and in costs as well as in expediting the progress of the case and/or the trial. I therefore see every merit in ordering this Interrogatory arising from what I regard as a refreshingly honest Memo from a banker gentleman with principle.

19.Interrogatory 8 relates to the complaint letter dated 8 August 1994 [267-272] from Gurdas to Miss Emily Lau, the Legislative Councilor who then took the matter up with the Bank. The questions asked relate to investigations if any undertaken by the Bank as result of Miss Emily Lau's intervention arising from this letter and the findings of the investigations and the communications with Gurdas relating to these investigations. The subject matter of the complaint letter and the investigations which need to be carried out all concern the subject matter of this action and I have therefore no difficulty in accepting the submission of Esquire that the Interrogatory is relevant and in the absence of the answers to the Interrogatory a great deal of time and effort will be spent at the trial on this aspect and therefore this Interrogatory 8 is necessary and will be beneficial to the trial.

20.My conclusion is that except for Interrogatory 5, all Interrogatories of the plaintiffs must be answered. I allow 28 days for the Bank to answer the Interrogatories ordered. In the circumstances, I make a costs order nisi that the plaintiffs be given 90% of the costs relating to the Interrogatories application with certificate for two counsel.

Representation:

Mr Martin Lee SC, Mr Erik Shum and Mr Jeremy Chan, instructed by Messrs Ho Tse Wai & Partners, for the Plaintiffs

Mr Eugene Fung, instructed by Messrs Johnson Stokes & Master, for the 1st and 2nd Defendants