Angela Rita Gardner v. Grant Thornton and Another

HCA 2348/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2348 OF 2009

----------------------

----------------------

Before:  Deputy High Court Judge L. Chan in Chambers

Date of Hearing: 13 April 2010

Date of Decision:   13 April 2010

----------------------

D E C I S I O N

----------------------

1.This is an appeal against a decision of the Registrar dismissing the 2nd defendant’s application for part of a summons to be argued and disposed of as a preliminary issue before the remainder of the summons is dealt with.  The part of the summons sought to be dealt with as a preliminary issue is for discovery by the plaintiff of certain legal advice received by her from her legal representatives.

2.The plaintiff is a local resident.  The 1st defendant is a firm of accountants practising in Hong Kong.  The 2nd defendant is a company limited by guarantee and incorporated in the United Kingdom. 

3.The plaintiff claims that tens of millions of her investment money had been misappropriated by a Mr Azedo.  She further claims that the 1st and 2nd defendants are vicariously liable for the misappropriations by Mr Azedo, as he had been in the employ of the 1st defendant at all material times up to March 2008 and then in the employ of the 2nd defendant until he disappeared in about September 2009.

4.The plaintiff filed an affidavit on 21 December 2009 to apply ex parte for leave to issue a concurrent writ of summons against the 2nd defendant and to serve it on the 2nd defendant out of jurisdiction.  She said in paragraph 10 of her affidavit that she had been advised by her legal advisers and verily believed that Mr Azedo in acting as a trustee for her with respect to her investments and/or in committing acts of fraud was:

“1.  acting in the ordinary course of his employment with the 1st and/or 2nd defendant;

2.    further or alternatively, acting with ostensible/apparent authority of the 1st and/or 2nd defendant;

3.    still further or alternatively, acting in close connection to the business and/or activities of the 1st and/or 2nd defendant.”

She therefore held the 1st and/or 2nd defendant vicariously liable for the acts committed by Mr Azedo to the same extent that Mr Azedo is liable to her.

5.She further said in paragraphs 12 and 13, among other things, that she had been advised by her legal advisers and verily believed that the 2nd defendant is a necessary and proper party to this action (Order 11, rule 1(c) of the RHC) and that the claim is founded on the tort of misappropriation of funds committed in Hong Kong for which the 2nd defendant is vicariously liable and Hong Kong is the forum of convenience (Order 11, rule 1(f)).

6.Master Lung upon reading her affidavit granted her the leave on 24 December 2009. 

7.The 2nd defendant then filed a summons under Order 12, rule 8 of the RHC on 4 March 2010, applying in paragraphs 1-3 for orders to set aside the service of the concurrent writ on it; to set aside Master Lung’s Order and to set aside the writ insofar as it relates to the 2nd defendant.  The summons also seeks in paragraph 4 an order as a necessary step for determination of the above applications that the plaintiff do disclose to the 2nd defendant the legal advice as deposed to by her in paragraph 10 of her affidavit.

8.At a hearing before the Registrar on 10 March 2010, the plaintiff applied for paragraph 4 of the summons to be argued and disposed of as a preliminary issue before paragraphs 1-3 are to be dealt with.  The Registrar refused the request, gave directions for filing of affidavits and adjourned the summons as a whole to a date to be fixed for full argument.  The 2nd defendant now appeals against the Registrar’s refusal of this application.  It seeks an order that paragraph 4 of the summons be adjourned for argument as a preliminary issue before the remainder of the summons is dealt with.

The 2nd defendant’s arguments

9.The 2nd defendant submits that the disclosure of the legal advice as referred to in paragraph 10 of the plaintiff’s affidavit is necessary in order to fairly determine the 2nd defendant’s applications in paragraphs 1-3 of its summons.  It is the 2nd defendant’s stance that the only evidence adduced by the plaintiff in the service out application is in paragraph 10 of her affidavit and that is based on legal advice rather than her own knowledge.

10.It is also the 2nd defendant’s stance that the plaintiff has no meaningful case against the 2nd defendant; hence, the 2nd defendant’s application for discovery of the legal advice received by the plaintiff ahead of the argument and disposal of the main relief in paragraphs 1-3 of the summons.  The 2nd defendant wants to obtain by discovery the legal advice to show that there is no case against the 2nd defendant and no basis for service out on the 2nd defendant. 

11.The 2nd defendant anticipates that in arguing for discovery under paragraph 4, there will be difficult arguments as to whether the privilege attached to the legal advice had been waived.

12.The 2nd defendant also submits that this court has jurisdiction in Order 12, rule 8(5) to make order for discovery, though the discretion to make such order is very rarely exercised and its exercise would require a clear demonstration that discovery is necessary for the fair disposal of the application (Rome & Anor v Punjab National Bank [1989] 2 AER 136 at 141(j)).  This case also decided that an interlocutory matter can be disposed of by a two-stage process as being sought here by the 2nd defendant.

The plaintiff’s arguments

13.Counsel for the plaintiff submits that the order by the Registrar was an exercise of her discretion and it should not be interfered with unless it can be shown that it is clearly wrong.  Counsel further submits that the order was an exercise of case management in furtherance of the underlying objectives of the CJR and to save costs.  The court can therefore take a broad preliminary view of the merits of the application in question so that frivolous or clearly unmeritorious applications can be dealt with expediently and effectively.

14.Counsel then submitted on the weakness of the defendant’s application in paragraph 4 of the summons and concluded that it is a frivolous application.  Counsel also said that there is no basis for the 2nd defendant to say that the plaintiff has waived her privilege on the legal advice provided to her. 

15.The solicitor for the 2nd defendant, however, drew my attention to Order 1A of the RHC, which reiterates that the primary aim in exercising the powers of the court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.

Analysis and decision

16.The summons by the 2nd defendant is an important step in the progress of this action.  If the 2nd defendant should succeed, that may be the end of this action as against the 2nd defendant.  Though the application for discovery in paragraph 4 of the summons may not appear to be of overwhelming merits, I do not think I can say that it is so weak that it is doomed from the start.  It therefore has to be argued and disposed of, but this is not a hearing on the merits of this paragraph.

17.If all four paragraphs are to be argued together, then a favourable a decision on paragraph 4 will require the adjournment of paragraphs 1-3 pending compliance with the discovery order that will be made.  There may then be the need for further affidavits from the parties too.  When paragraphs 1-3 of the summons are to be argued at the adjourned hearing, fresh preparations will be necessary and more costs may have to be incurred.  All these mean that if all four paragraphs of the summons are to be argued together, problems of logistics may well arise.  If paragraph 4 is to be dealt with ahead of paragraphs 1-3, then there is no room for such problems.

18.In the light of the importance of this summons, I do not agree with the decision of the Registrar.  I think the 2nd defendant has demonstrated that discovery needs to be argued so as to ensure a fair disposal of paragraphs 1-3 of the summons.  I therefore allow the appeal and make the order as sought by the 2nd defendant.

19.I now deal with the question of costs and I am prepared to assess the amount of costs on a gross sum basis and the court’s order would be for the plaintiff to pay the costs of the appeal to the 2nd defendant here.

(Submissions on costs)

20.The plaintiff shall pay the 2nd defendant the costs of the appeal.  The incidence of the costs below shall be argued at a hearing at 9.30 am, to be fixed.  That hearing shall be for gross sum assessment of the costs on appeal.  The costs below are now assessed at $800.

Mr Christopher Chain, instructed by Messrs Stephen Mok & Co., for the Plaintiff

Mr Richard Tollan, of Messrs JSM, for the 2nd Defendant