The Estate of Wan Hung, Deceased As Represented By Its Administratrix, Wan Tin Chung and Another v. Kwan Yick Securities (International) Ltd

HCA 1421/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1421 OF 2006

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BETWEEN

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Before: Deputy High Court Judge Muttrie in Chambers

Dates of Hearing: 19-20 March 2007

Date of Ruling: 18 April 2007

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R U L I N G

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1.By a summons dated 11 December 2006 the defendant seeks specific discovery of certain documents and further and better particulars of the Amended Statement of Claim in accordance with a request served on the plaintiffs on 18 October 2006.

2.There is also a time summons; the plaintiff having obtained leave to file a Re-re-Amended Writ and a Re-Amended Statement of Claim by order dated 10 January 2007, the defendant seeks leave to file its Amended Defence within 28 days after the hearing of the above summonses.  Time will, of course, run from the date of handing down of this ruling, rather than from the date of its hearing.

Background

3.Wan Hung (“WH”) died on 14 March 2001 aged 85.  The 2^nd plaintiff (“WYN”) and the 3^rd plaintiffs are his daughters, and the 3^rd plaintiff (who was originally a party to the action in her own right, as intending personal representative) is now the administratrix of WH’s estate.  The 3^rd plaintiff has no personal cause of action against the defendant (“Kwan Yick”).

4.Kwan Yick is a stockbroking company.  WH and WYN had security accounts with it from September 1991 and August 1997 respectively.  At the relevant times one Lam Yuen Ching (“Ms Lam”) was Kwan Yick’s account executive who handled the two accounts.

5.Ms Lam was a fraudster.  It was discovered in 2002 that she had been responsible for irregular dealings with shares and funds belonging to, inter alia, WH and WYN.  She was prosecuted and convicted for fraudulent misrepresentation, and she went to prison. 

6.WYN in 2003 sued Kwan Yick for damages for conversion of shares and funds misappropriated by Ms Lam.  The action was settled.  Its subject matter was different from the subject matter of this action.  The claim in this action was only intimated in 2006.

7.The plaintiffs’ claim in the present case is for an account in respect of certain receipts, and the accounts of WH and WYN, and for tracing of certain shares (“Claim Shares”) which may have been held by Kwan Yick on their behalf, and for delivery or payment, damages and ancillary orders.

8.Put simply, the plaintiffs’ case is as follows.  In about February 2001, Ms Lam visited WH at his shop where, in the presence of WYN, WH handed over to her “certain share certificates of publicly traded stocks” and instructed Ms Lam to transfer the share holdings to WYN.  Some days later, on two occasions, Ms Lam brought back a total of six receipts bearing to show receipt by Kwan Yick from WYN of a number of different shares.  Later still another receipt was issued, in substitution for one of the earlier receipts but taking into account one of the undisputed transfers listed below.

9.The receipts are for 53,000 and 19,900 shares of the Hang Seng Bank; 150,000 and 35,000 shares of the Bank of East Asia; 20,000 shares of HSBC; and 35,000 shares of the Dao Heng Bank.

10.However the account shows the credit to WYN’s account from WH’s account of only 22,400 shares of the Hang Seng Bank, 81,440 shares of the bank of East Asia; 16,400 shares of the HSBC; and 20,000 shares of the Dao Heng Bank.

11.The plaintiffs accordingly say that Kwan Yick, having received the shares for which it issued receipts, must account to them for the shortfall of missing shares.

12.Kwan Yick, for its part, denies that it received the shares described in the receipts, which were fraudulently issued and of no provenance.  In fact the signatory says that he just signed what Ms Lam asked him to sign, although one of the signatures might have been forged.  Kwan Yick agrees that it credited to WYN’s account from WH’s account the shares listed in paragraph 10 above at the direction of WYN, but says that it will put her to strict proof of her authorisation for the transfers. 

13.Kwan Yick says that the plaintiffs have failed to provide evidence that any of them had legal title to or beneficial interest in the shares listed in the receipts, or to provide to it any material evidential particulars of the shares.  The applications before me follow on from this part of the pleaded Defence.

Specific Discovery

14.Kwan Yick seeks specific discovery of “documentary proof of the acquisition of and legal and/or beneficial ownership by the first plaintiff and/or second plaintiff” of the shares listed in the receipts.  It also seeks documents prepared for the obtaining of the grant of letters of administration of WH’s estate, but I am advised that discovery of these has now been given to Kwan Yick’s satisfaction, so I need not deal with this part of the application.

15.The application is supported by the affidavit of the plaintiffs’ solicitor, Mr West.  He refers to the fact that the defendant had investigated all its clients’ records stored in its internal clients’ stock accounts and transaction records as well as those it maintained with the Central Clearing System dating back to January 2001.  This investigation allowed the defendant to confirm that none of the allegedly missing shares had ever been deposited with it or with any of its other client or securities account holders.  At the same time, he said, some highly suspicious circumstances were found, including the second plaintiff’s failure to provide any evidence of her legal and beneficial ownership of the missing shares.  There was also the purported execution by Wan Hung of a stock transfer form in favour of WYN on 28 March 2001, two weeks after his death.

16.It was for this reason that Kwan Yick’s solicitors had sought the original manuscripts for the missing shares together with evidence of WH his having purchased them.  However, the plaintiffs had, through solicitors, failed or refused to produce the same.

17.Mr West says that based on the receipts and the plaintiffs’ case, the missing shares were purportedly registered in the name of WH who would have held the physical share manuscripts or copies thereof.  There would be a record of the ownership of the shares maintained with the appropriate share registries.  It would be possible for the administratrix to obtain the necessary evidence from the registries confirming the legal and beneficial title to the shares.  Therefore, Mr West believes that the plaintiffs have or have had in their possession, custody or power documentary records of the ownership of the missing shares.

18.I also note that Mr West asks that the order for discovery be made “in order not to prejudice the defendant further in what could prove to be vexatious litigation, and in order to resolve this matter quickly and fairly, and for the benefit in terms of the costs of all the parties”.

19.This is answered by the 3^rd plaintiff in an affirmation dated 10 January 2007.  Much of the early part of this is solicitor-drafted argument and I am not going to reproduce that here.  On the point of specific discovery, the 3^rd plaintiff says that Mr West has not fully mentioned the various possible ways of ownership or holding of shares.  It is possible for a person to hold shares and share certificates in “street names”.  Merely checking with company registries would not conclusively prove anything and the most important checking would have to be done with the stockbroker who handled the transaction and who must keep proper records and documentation.

20.The 3^rd plaintiff also says that all the particulars and material facts concerning the receipts and their delivery to WYN have been pleaded.  The plaintiffs know that they must make discovery at the proper stage.  (In fact their List of Documents was filed on 3 January 2007).  They have always indicated that all material documents will be discovered when that stage is reached.  The application for specific discovery is unnecessary.

21.The affirmation then returns to solicitor-drafted argument, and again I am not going to reproduce this.  It would be more helpful if lay witnesses would condescend to facts and leave argument for the hearing.

22.In fact this affirmation makes the position less clear.  I did not know, and nor did Mr Sheppard, counsel for Kwan Hing, what was meant by “street names”.  Mr Chow, counsel for the plaintiffs, advised us that this meant that a person may hold shares and share certificates registered in the name of another, from whom he has bought them, without actually procuring the registration of his own name in the company’s registry.  If that is right, then of course one might expect the holder of such shares to have procured signed bought and sold notes and an instrument of transfer from the seller.

23.The waters are further muddied by the answer to one of the plaintiffs’ requests for Further and Better Particulars.  I will deal with it further below, but it says in effect that WYN saw a pile of documents handed over to Ms Lam consisting of deposit receipts and bought notes, but could no longer remember whether there was any actual share certificate among them (although what is pleaded is “share certificates”).  She made a record on a piece of paper at the time, which is why, when Ms Lam produced four receipts, WYN knew that there should be more, and this in turn resulted in Ms Lam producing two more receipts.  However this piece of paper has now been lost.

24.Further unclarity creeps in with a letter from the plaintiffs’ solicitors to the Estate Duty Office dated 8 February 2006.  Here, it is said that the shares in WH’s account with Kwan Yick had been bought using the proceeds of rental income on a property purchased by WH for the benefit of his wife and six children.  This was a family arrangement which the whole family accepted.  WH did not maintain any beneficial interest in the property and therefore, it is said, any shares bought with the rental income must belong to the beneficiaries jointly or at least to the registered owners of the property, i.e. WH’s male descendants.

25.In fact, however, it is difficult to know whether the shares referred to in this letter, i.e. shares held in the Kwan Yick account, could be along the missing shares.  If they were held in WH’s account, they should have included those which Kwan Yick accepts as having been transferred between the two accounts.  Such shares would have been readily identifiable.

Principles

26.I do not think there is any dispute on the law.  It is governed by Order 24, rule 7 of the Rules of the High Court.  The Order imposes on the parties a duty to make discovery of documents which are or have been in their possession, custody or power relating to an matter in question between them in the action.  If something appears to be missing – Kempster JA in Daiwa Bank Ltd v Hing Yip Fat Co. Ltd [1990] 2 HKC 82 at 84G referred to a “lacuna in the list already served” - Rule 7 gives the court the power to order specific discovery.  The party seeking discovery must state his belief that the other party has or has had the document or class of documents specified, and that it relates to one or more of the matters in question.

27.The party seeking discovery must demonstrate a prima facie case for possession, custody and power, and also the relevance of the documents sought.  See Wong Wai Chun v Au Yeung Fung Sim & Ors [2001] 2 HKLRD G2, CFI. 

28.Rule 7 is subject to Rule 8 which provides that the court, if it is satisfied that discovery is not necessary, may dismiss the application and must refuse to order discovery insofar as it is of the opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs.  If the party seeking discovery demonstrates a prima facie case, the burden is on the opposing party to show that the order is not necessary.  See Innovisions Ltd v Chan Sing–Chuk Charles & Ors [1992] 2 HKLRD 348.

29.The test for relevancy was of course was propounded by Brett LJ inCompagnie Financiere du Pacifique v Peruvian Guano Co. (1882) 11 QBD 55 and is wide.  I need not repeat it here because I do not think there is any doubt that the documents sought are relevant.  However the scope of discovery sought under Rule 7 must not be unduly wide or lack precision.  If discovery of a class of documents is sought it must not be too widely defined and must be confined to relevant documents.  See The Estate of Ng Chan Wah, HCAP 5 of 2003.

Discussion

30.Mr Sheppard says that so far as the application for discovery is concerned, its purpose is to assist Kwan Hing in dealing with the plaintiffs’ claims, and arguably to assist the plaintiffs in focusing upon the underlying facts, the plaintiffs’ locus standi, and establishing the legal/or beneficial ownership of the missing shares.  He also points to the fact that the receipt is an informal document, which may be contradicted by oral evidence, and is not a document of title.

31.I suggested that the parties seek to come to some agreement on seeking to obtain records from the registries of the companies named in the receipts.  It appears that the parties may do this – I was told that the plaintiffs’ solicitors had prepared letters to send to the registries – and may indeed join the registries concerned.  However this is a matter for the parties.  The companies’ records are not in the possession, custody or power of the plaintiffs and the plaintiffs cannot be compelled under Order 24 to carry out this kind of research so the point may be left out of consideration here.

32.I accept that there must be at prima facie case that, if the shares listed in the missing receipts ever existed, there would have been share certificates for them at some stage, registered in the name of a shareholder or shareholders.  If the shares were registered to WH, there should somewhere be certificates in his name, and records in the registries of the various companies.  If he bought shares but did not register them, there should somewhere be other documents, showing how he came by them and his beneficial interest.  These might be documents indicative of a sale to him by a registered shareholder, or some kind of document showing that a registered shareholder was a nominee holding the shares for him.  There are various possibilities.

33.However, given that WH died in 2001, and WYN says in effect that all documents were handed over to Ms Lam, it takes a considerable leap of inference to say that because documents, of whatever type, must have existed at some time in respect of the missing shares, prima facie there must be more of them now in the possession, custody or power of the plaintiffs.  It is difficult to see what interest the plaintiffs could have in concealing documents.  Further, even the Administratrix may not know or be able to swear an affidavit as to what became of documents which WH might have had in his possession before he died.

34.While I accept that there is a case for the existence of the documents sought, I do not think that sufficient case has been made out for their being in that the possession, custody or power of the plaintiffs at this time.

35.In case I am wrong in this, and in any event, I still have to consider whether the order sought is necessary.  I do not think it is.  The scope of discovery sought is very wide.  I doubt that such an order would assist the plaintiffs to investigate whether there are any records in the registries of shares in the name of WH other than those which the defendant admits.  In any event, if that were done, it would only cover shares in the name of WH and not those in “street names “, if indeed there were any.

36.At the end of the day the plaintiffs’ case seems to be that a bundle of documents relating to shares was given to Ms Lam and that is the end of it.  The case, as it appears now, stands or falls on the receipts.  Either the court will accept that because the defendant issued receipts, it must have received what it signed for, or it will not. If Kwan Yick considers that that does not make a case against it, it may apply to strike out.  I do not see how affirmation evidence that the plaintiffs cannot find any more documents is going to assist this case.  All it will do is to put the plaintiffs to further trouble and expense.

37.For these reasons I refuse the application for specific discovery.

Further and better particulars

38.The Answer filed by the plaintiffs run to 34 pages.  Some of the requests have been answered, and most have been refused.  The application is worded as if no answers had been given at all.  I have been taken through all of them, in a tedious and no doubt costly exercise in nitpicking.

39.The principles are not in dispute.  A list of the functions of properly particularised pleadings appears in the judgment of Bokhary JA in Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co. Ltd [1994] 2 HKC 264 at 270 but I need not reproduce that here.

40.Much of the difficulty here arises because of vagueness and prolixity in the plaintiffs’ pleadings.  However, the defendant has then jumped on the bandwagon, and sought to chase down every little point, whether ultimately that point is really going to matter or not, when and if the case comes to trial.  In many of the requests, what is sought is evidence rather than facts.  The question “why” is often asked, a question which seems more appropriate to interrogatories or cross-examination but is certainly not appropriate in seeking particulars of fact.  There is a sense that the defendant’s side is taking every possible point it can and seeking to blame the plaintiffs for forcing it to do so.  Protestations that this is done to help the plaintiffs in some way seem disingenuous.

41.It is particularly noted that by Order 18 Rule 7, facts must be stated and not evidence by which those facts are to be proved.  The effect of any document or the purport of any conversation must, if material, be briefly stated, but the precise words are not to be stated, unless they are themselves material.

42.I proceed to deal with the requests and answers in turn.

A:      Under Paragraph 3

Insofar as this needs to be answered, I think it has been answered in the Re-Amended Statement of Claim.

B:      Under Paragraph 5

See A.

C:      Under Paragraph 7

The question why no one told Kwan Yick that WH had died is a matter of evidence, not fact.  Who ordered WH’s account to be closed should be a matter within Kwan Yick’s knowledge, and the same applies to the question of who operated the account after WH’s death.

In fact the plaintiffs say that while they object to answering, they supply voluntary particulars that Ms Lam was told of the death; the account was dormant until closed; and they do not know who operated it.

No doubt this relates to the transfers on 31 March pleaded by Kwan Yick.  The latter should know who gave it authority to make them.

D:     Under Paragraph 11

I do not think I need to address each request in turn.  The plaintiffs, if they wanted to plead that someone told WYN of irregularities, should plead facts, such as who told her what, and when.  “Certain purported irregularities” is unnecessarily vague.  Having said that, it is not for Kwan Yick to ask for particulars of what its own officers meant.  They should know. 

As to “full and frank disclosure”, the import of what appears in the voluntary particulars is “they told me something but I do not think they told me enough”.  It is vague.  But having said that, I think it is a pointless exercise to try to obtain the particulars sought.  What is sought is evidence, and what it said in seeking it is either cross-examination or argument.

As to Request (3), again this asks the question “why”.  Again it seems to me that this sort of question is for cross-examination and not for pleading. 

E:      Under Paragraph 12

Again the pleading is vague, but I do not think there is any need for this kind of request.  Inquiries were made through solicitors, by letter.  The letters show what inquiries were made and by whom.

Again, while the pleadings would have been better without  words like “overall regularity” and “wrongfully refused”, to go into this kind of inquiry is simply unnecessary.  The words mean what they say.  Whether something is wrongful or not is a matter for argument.  In any event the pleading itself does not go to the real issue of this case and to pursue inquiries about it is a waste of time and costs.

F:      Under Paragraph 13

The members of the family are now pleaded.  The question “why” is not a question for particulars.  It may be a question for interrogatories, although counsel says it is not, but that does not concern me here.

The purport of the pleading is clear enough.  Kwan Yick’s solicitors sent to the plaintiffs’ solicitors five pages of photocopied accounts which said on the first page that they were statements of the WH account for the named period.  It is patent from this and paragraph 14 that the plaintiffs do not necessarily admit what is in them, and indeed claim to have found discrepancies.  The request is simply unnecessary.  The same applies to request no. 3.

G:     Under Paragraph 14

Again, the family is particularised.  Probably the plaintiffs, if they meant that the plaintiffs did something, or did it after discussion with their relatives, should not have pleaded the matter in this way, but this provides no excuse for nitpicking.  As to why they did not do something, again this is not a matter for particulars; it is either for interrogatories, or it is cross-examination.

The request for the “known transactions” is perhaps not unreasonable.  However, I accept Mr Chow’s argument that it would be oppressive to make the plaintiffs go through and identify all the transactions.  No doubt if they did, questions would then be asked as to how they came by the knowledge.  But the point is that this is background matter and it does not relate directly to the meat of this case which is the receipts. 

As to the 5,000 shares not accounted for, this has now been explained.  Counsel added up the columns and found 5,000 shares short.  That is something for the author of the account to explain.

H:     Under Paragraph 14(ii)

A withdrawal made from a dead man’s account is itself suspicious against someone; that could be someone within Kwan Yick, or it could be one of the living plaintiffs.  However the defendant has itself answered this point paragraph 12(2) of the Amended Defence.  It relates details of the payment and that it was made on the authority of WYN.  For Kwan Yick to pursue this further, when it has itself provided a better answer is pointless,  especially since these averments are peripheral and do not go to the root of the case. 

I:       Under Paragraph 14 (iii)

The same applies here.  See Paragraph 12(3) of the Amended Defence.

J:       Under Paragraph 15

Here the plaintiffs plead that the family of the deceased has reasonable grounds to refuse to accept the accuracy and truthfulness of the statements of account and to call for a proper account to be rendered by the defendant with full and frank disclosure.

Arguably, this paragraph and much of what precedes it should not be there.  What the plaintiffs want is an account of the shares which, according to Kwan Yick’s receipts, it has received.  What comes before that seems to be a matter of generalised complaint that does not add very much to the real matter in issue.  The real point is the receipts; what comes before is makeweight.

However, Kwan Yick then asks what the plaintiffs intend to invoke when pleading “to call” for an account.  Then they ask what is meant by a “proper” account.  I cannot see the point of this.

An account is an account.  Either the court will order it or it will not.  It must be a proper account.  That goes without saying.  Of course it is arguable that counsel should not have pleaded this in the way he did; extra words are put in to no particular purpose.  But then, I ask rhetorically, why take up the cudgels over this sort of thing? It is simply not going to add anything to the trial of the action.  It just generates more paper.

As to the requests about “full and frank disclosure” it seems to me that these are simply argumentative.

K:     Under Paragraph 16

Here the plaintiff has pleaded, quite simply, that Ms Lam visited WH’s shop on the occasion when she was given the bundle of documents.  The defendant asks, was the visit pre-arranged; and what was the purpose? Then, if it was not pre-arranged, whether Ms Lam was in the habit of visiting; and if so, how often, how long she stayed, why she visited, who would be there, and so on.  This is simply not going to take the case any further, quite apart from the fact that what is sought is evidence rather than the facts on which the plaintiffs base their case.

Then Kwan Yick asks who, apart from WYN, was there when WH handed over the bundle.  There is nothing in the pleading to suggest that anyone else was there; so why ask it? If it is suggested that some witness might be produced at trial, witness statements have not yet been exchanged; and once they are, all will become clear.

Then we have the request for specification of the documents handed over; I have already adverted to the answer. Unsatisfactory though it may be, if that is the plaintiffs’ case I do not see how ordering them to give further particulars will assist.

As to “what exactly was said by each of the parties present”, again that is evidence and is not to be pleaded.  Only the substance is required.

As to why WH instructed Ms Lam to transfer shareholdings to WYN, this is impossible to know.  WH is dead.  What was said between them is a matter of evidence.

Whether other family members were aware of the transfer, and what they thought of it, is surely a matter for cross-examination, if it is relevant at all, which I doubt.  How it was anticipated that Ms Lam would transfer the shares is a massively pointless question in my view.  How is a stockbroker’s customer supposed to know its internal dealings?

L:      Under Paragraph 17

Much the same questions are asked here, about who was present, whether the visit was pre-arranged, and what was said.  Again, this is evidence, not fact and in my view the requests are inappropriate.

M, N, O,

P and Q:    Under Paragraphs 17 to 21

Here we have further requests regarding the later visit when Ms Lam handed over four receipts.  Again, was the meeting pre-arranged and if so by whom; how long did it last; who was present; and the plaintiffs are asked for “a full narrative of that which was discussed during the visit by all relevant parties”.  Again, what is sought is evidence.

Then Kwan Yick asks why, if WH delivered the share certificates, the receipts were made out to WYN, and who allegedly delivered the shares to Ms Lam.  No doubt this is matter for cross-examination but it is not a matter for particulars.

As to requests for the details of the share certificate numbers and so forth, it appears that the plaintiffs have given the best particulars they can, i.e. that they do not know; and that is an end of the matter.

Q:     Under Paragraph 22

This relates to the second visit when Ms Lam is said to have delivered two more receipts.  Again we have similar questions of evidence and cross-examination as to why this was done.  This is all a matter for trial.

R and S:  Under Paragraphs 23 and 24

Here we have the same or similar requests in respect of the second delivery of two receipts, as were made in respect of the first delivery of four receipts.  Again the defendant is seeking evidence, and to cross-examine.

T:      Under Paragraph 28

This deals with the new fourth receipt, allegedly delivered in October 2001, in substitution for the original fourth receipt and taking into account a transfer on 9 April 2001.  The defendant asks why a new receipt was issued for this and not the other stock; and if WYN does not know, why she was not put on inquiry for the need for replacement receipts to be issued for other stock allegedly held by her.

Again this is a matter of evidence; and the question “why” is surely cross-examination.

U:     Under Paragraph 29

Here the defendant seeks to find out whether WYN’s knowledge of the number of shares underlying her claim derives solely from the receipts, and if not, how she knows how many shares there were; and again specification of the documents is sought.  Again, this is all a matter of evidence and cross-examination. 

V:     Under Paragraphs 30 and 32

Here the defendant harks back to the meaning of “a proper account” and the plaintiffs’ averments of failure to give full and frank disclosure; and I think this has been adequately dealt with in the plaintiffs’ answers and above.

Conclusion

43.I find that the plaintiffs have adequately answered the defendant’s request for further and better particulars and I refuse the application.

Result

44.The defendant’s summons dated 11 December 2006 is dismissed with costs (nisi) to be taxed if not agreed.  The defendant will have leave to file its Amended Defence within 28 days from the date of handing down of this ruling, and is awarded the costs of its time summons in any event.

Mr Kenneth Chow and Mr Timothy Wong, instructed by Messrs Zeke Mok & Co., for the 1^st and 2^nd Plaintiffs

Mr Andrew Sheppard, instructed by Messrs Kennedys, for the Defendant