China Construction Realty Ltd v. Lucky Dragon Ltd and Others
Read the full judgment text of HCA 1237/2012 on BabelCite. This High Court CFI judgment was delivered on 8 July 2014.
1. There are two applications before the Court:
Cited by 1 case · Cites 10 cases
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HCA 1237/2012 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 1237 OF 2012 _________________________ BETWEEN
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_____________ D E C I S I O N _____________ THE APPLICATIONS 1.There are two applications before the Court:
2.These applications are contested. 3.Ms. S. Tong, counsel acts for the plaintiff. Mr. Ling, counsel acts for the 4th defendant. THE HADKINSON ORDER 4.Ms. Tong has raised a preliminary issue that the 4th defendant should not be heard because it is in contempt of the Court in that it is in breach of the Injunction Orders granted by the court. The 4th defendant has not purged its breaches. It is a matter of the court’s discretion. The 4th defendant opposes this application. 5.Mr. Ling submits that since the 4th defendant is in a defensive role, this rule or discretion is not applicable and has never been applied. In this case, the 4th defendant is defending the plaintiff’s application. According to the modern approach, the starting point for the court’s exercising of discretion is that refusing to hear a party, even a contemnor, is a strong thing only to be justified by grave considerations of public policy. It is a step which a court will only take when the contempt itself impedes the course of justice and there is no other effective means of securing his compliance.[1] 6.Ms. Tong relies upon X Ltd v Morgan-Grampion (Publishers) Ltd [1991] 1 AC 1 (HL) at p.46 per Lord Bridge to found her argument that the court has the discretion not to hear a party who is in contempt of court, for his own benefit, unless and until the contempt has been purged. At 46E-F, Lord Bridge of Harwich cited Denning LJ in Hadkinson v Hadkinson p.258 as follows:
7.It can be seen at once that the court is concerned with its course of justice being or to be impeded. It is on this basis that the court should exercise its discretion to refuse to hear the party in order to remove this impediment. 8.In the case of Arrow Nominees Inc and Another v Blackledge and Others [2000] 2 BCLC 167, the Court of Appeal held that the object of the rules as to discovery was to secure the fair trial of the action in accordance with the due process of the court and accordingly a party was not to be deprived of his right to a proper trial as a penalty for disobedience of those rules, even if such disobedience amounted to contempt for or defiance of the court, if that object was ultimately secured. But where a litigant’s conduct amounted to such an abuse of the process of the court as to render further proceedings unsatisfactory and to prevent the court from doing justice, the court was entitled and bound to refuse to allow that litigant to take further part in the proceedings and, where appropriate, to determine the proceedings against him.[2] 9.The nature of the order sought by the plaintiff is restrictive of the 4th defendant’s constitutional right of access to court under Article 35 of the Basic Law and Article 10 of Bill of Rights. The Court of Final Appeal in Ng Yat Chi v Max Share Limited & Others (2005) 8 HKCFAR 1 had extensive discussion on this issue. This is a guaranteed right under the Basic Law. However, it is not an absolute right and can be taken away if it is an abuse of the court proceedings, subject to the tests as provided in the judgment.[3] PJ Ribeiro in the judgment at paragraph 73 said:
10.The Court of Appeal in TCWF v LKK [2012] HKFLR 500 had dealt with the petitioner taking out the application asking for leave to disclose the documents for enforcement proceedings outside the jurisdiction and at the same time seeking a Hadkinson order against the respondent regarding the proceeding. The Court of Appeal held that it was a matter of discretion and it said: “Bearing in mind the constitutional right to a fair hearing, in the present circumstances, we regard it as disproportionate to bar the respondent from making any submissions notwithstanding his partial non-compliance with the order of Saunders J..” 502F. 11.In CWG v MH & Others (unreported, CACV80/2013, CACV83/2013 & HCMP264/2014, 3 March 2014) the Court of Appeal heard an application for a Hadkinson order against the husband’s and the mother’s appeals on the grounds that the husband had failed to comply with an Interim Order of payments in full and the mother had failed to comply with the order for discovery. In exercising its discretion having considering all the relevant factors, the Court of Appeal upheld the Hadkinson order granted by the Deputy Judge. This is a case where the applicants were the contemnors. 12.Similar to TCWF case, the plaintiff is now seeking an order from this Court to compel the 4th defendant to disclose the documents as set out in the summons and to answer its questions, the purpose of which must be to advance the plaintiff’s case on the one hand, and on the other asks the Court to deny the 4th defendant’s right to be heard in this hearing. Mr. Ling is quite right to point out that the 4th defendant is now responding to the plaintiff’s summons to attend this hearing. There is no evidence that the 4th defendant’s alleged contempt would impede the course of the orders that the plaintiff asks this Court to make against it. Quite the contrary, if the 4th defendant is debarred from being heard, the Court will not be assisted by its counsel to make submissions on its behalf for the Court to come to a fair conclusion. 13.The Court of Final Appeal in Poon Hau Kei v Hsin Chong Construction Company Limited & Another (2004)HKCFAR 148 at §21 referred to “Bank of America v Chai Yen [1980] 1 WLR 350 at p.353 D, Lord Lane, delivering the advice of the Privy Council, said “the essence of any rule of procedure must be fairness”. The same is true of any rule of practice.” CJ. Li in Secretary of Security v Sakthevel Prabakar (2004) 7 HKCFAR 187 at §43, said: “One is concerned with procedural fairness and there is of course no universal set of standards which are applicable to all situations. What are the appropriate standards of fairness depends on an examination of all aspects relating to the decision in question, including its context and its nature and subject matter: R v Home Secretary, ex p Doody [1994] 1 AC 531 at p.560D-G.” 14.In the discussion of procedural fairness, the Court of Appeal in ST v Betty Kwan & Others (unreported,CACV115/2013, 26 June 2014 where the Chief Judge at paragraph 25 of the Judgment highlighted “effective representations” being the important requirement of fairness and he cited R (West) v Parole Board [2005] 1 WLR 350 “… (5) Fairness will very often require that a person who may be adversely affected by the decision will have an opportunity to make representations on his own behalf either before the decision is taken with a view to producing a favourable result…” 15.It is one thing for the court to exercise its power to prevent abuse of its process where the contemnor makes an application to court to advance its interest in the proceedings, but quite another where it is summoned before the court but is disallowed to defend itself. We should never lose sight of 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 under O.1A, r. 2(2) of RHC. 16.In the circumstances, I consider that the plaintiff is unable to pass the proportionality test as laid down in Ng Yat Chi and I exercise my discretion to hear the 4th defendant on the plaintiff’s application for specific discovery and on interrogatories. THE FACTUAL BACKGROUND 17.I have had the benefit of reading Poon J’s judgment in the previous hearing on the discharge of the injunction delivered on 12 April 2013. For the purpose of this Decision, I shall state the facts of this matter as brief as the applications require. 18.As the preamble to the background, this is the plaintiff’s exercise to catch the defendants in a hide and seek game in order to obtain the fruit of its judgment granted by the Australian court in 2005 against the buyer defendant in a sale and purchase of a piece of land in Dalian in China, together with the development of the project whereby the defendant as the purchaser had failed to pay to the plaintiff the installment payments and was therefore in breach of the contract. Having obtained the judgment, the plaintiff then discovered that the interests in the land and the project were transferred to Lucky Dragon, the 1st defendant. The plaintiff took out an action against Lucky Dragon, only to find subsequently that it had, by two agreements, assigned the assets of its subsidiaries to Empire Star, the 4th defendant in this action. 19.The plaintiff was the dominating owner (60%) of a valuable piece of land in Dalian and the land development project thereon (the “Dalian Land”) through a number of its subsidiaries, the 2nd defendant and the 3rd defendant being two of them. The other subsidiaries are Golden Pebble Beach Development Ltd (“GPB”), Dalian Jinshitan Baotong Real Estate Development Co Ltd (“Dalian JV Company”), Dalian International Foreigners’ Entertainment Club Co Ltd (“DIFEC”) and Dalian International Entertainment Co Ltd (“DIEC”). DIFEC and DIEC are the holders of the Dalian Land. 20.By an agreement dated 26 June 1997 (“the SBS Agreement”), the plaintiff agreed to sell the shares of its subsidiaries to Sino Business Services Proprietary Limited (“SBS”) for AUS$46,500,760.00, payable in tranches as stipulated therein. SBS had nominated its subsidiaries to take over the plaintiff’s shares. However, SBS had failed to pay the tranches as agreed. The plaintiff instituted legal proceedings in Victoria, Australia to seek damages for breach of contract or alternatively the return of the shares and they obtained judgment against SBS. 21.However, before the judgment was granted by the Australian Court, without the knowledge of the plaintiff, SBS had procured GPB, its subsidiary to enter into an agreement with the 1st defendant (“the Lucky Dragon Agreement”) under which all the equity interests held by GPB, the Dalian JV Company, the 2nd defendant and the 3rd defendant were all transferred to the 1st defendant. The plaintiff might then obtain an empty judgment. 22.The plaintiff then commenced another action (HCA1294/2005) against SBS and its subsidiaries and the 1st defendant for defraud and to set aside the Lucky Dragon Agreement. It succeeded to obtain a judgment from the court after trial. However, in the course of enforcing the judgment, the plaintiff discovered that sometime in 2010, the 2nd and 3rd defendants had, by two agreements, already transferred their equity interest in DIFEC and DIEC to the 4th defendant for the consideration of HK$48 million and HK$36 million respectively (“the Empire Star Agreements”). 23.The plaintiff complained that the Empire Star Agreements effectively stripped the 2nd and 3rd defendants of all its valuable assets. The plaintiff is again left with an empty judgment. Hence, the plaintiff took out this action for injunction against the defendants. THE PARTIES’ PLEADED CASE 24.The plaintiff’s case relies upon:
25.The 4th defendant’s defences to the plaintiff’s pleaded case above are:
THE PLAINTIFF’S SUMMONS FOR SPECIFIC DISCOVERY 26.The plaintiff has altogether 11 items of documents to be discovered from the 4th defendant. They are long descriptions as set out in the schedule attached to the plaintiff’s summons. I do not intend to set them out in full in this Decision. I propose simply to make reference to the items here. As pointed out by Mr. Ling, although the margin of the summons stated that the application is made under Order 24 rule 7, some of the documents requested are referred to in the pleadings and the witness statements, which should be covered under Order 24 rule 10 instead. This is, however, a technical defect, which Mr. Ling has not taken, rightly in my view, seriously as it will not prejudice the 4th defendant’s position in its opposition to the application. I shall deal with the summons accordingly. 27.Reference has been made to the 5th affidavit of Mr. Li Kit Wai, the solicitor acting for the plaintiff, in support of the plaintiff’s application and the 4th affirmation of Mr. Zhang Xi for the 4th defendant in opposition. 28.On the first day of the hearing on 24 June 2014, the 4th defendant submitted the 5th affirmation of Zhang Xi, in which he affirmed that he did not have or ever had the documents under other categories not covered by his 4th affirmation. Ms. Tong raised no objection to it being adduced and considered by this Court in this hearing and the 4th defendant agreed to give costs of and occasioned by its late applications and the 5th affirmation. With Zhang Xi’s 4th and 5th affirmations, the 4th defendant now says that it does not have or ever had the possession, custody or power over the documents sought by the plaintiff. 29.Ms. Tong has summarized the contents of the items in her written submission as follows:
Discussion on the relevant legal authorities 30.Respective counsel have made submissions on the relevant legal principles for my consideration. 31.The 4th defendant now says that in the 4thand 5th affirmations of Zhang Xi, the 4th defendant does not have and has never been given possession, custody or power over the documents. The 4th defendant relies upon In the matter of Prudential Enterprise, Ltd. (unreported, HCCW594/1999, 24 October 2003)that the applicant has to prove by affidavit evidence that the documents are relevant; that the other party has or had in its possession, custody or power of the documents; that the other party may oppose that the discovery is unnecessary;[12] that the court may grant the order upon a prima facie case as to relevance and possession and being satisfied that discovery is necessary[13]; that the affidavit in answer is conclusive at the interlocutory stage unless it is shown to be insufficient by its contents or by admissions made in the proceedings, in which event, a further affidavit may be ordered.[14] 32.Miss Tong has referred me to the case of Lee Sai Nam v Li Shu Chung & Ors (unreported, HCA 1711/2009, 10 January 2014), and submits that an affidavit is not regarded as conclusive where it can be shown that there has been insufficiency of discovery, demonstrated by (i) the pleadings, the list and affidavit of documents themselves, or documents referred to therein; (ii) any other source that constitutes an admission of the existence of a discoverable document not so far discovered; (iii) an apparent exclusion of documents from discovery by a party under a misconception of the case (see Lee Sai Nam supra at §§55-57). See also §24/7/1 of HKCP2014, Vol.1. 33.Ms. Tong has also referred me to various documents in the bundle of documents, which show that of the four directors of DIEC and DIFEC, three were nominated by the 4th defendant.[15] Recently, two of the nominated directors of DIEC and DIFEC had been replaced by Zhang Xi and his sister, both too, are the 4th defendant’s nominees. Also, from the lists of documents filed by the 4th defendant, it can be seen that many of the documents belonging to the business of DIEC and DIFEC were produced by the 4th defendant, which demonstrates, as submitted by Ms. Tong, either the 4th defendant has the power to all the documents of DIEC and DIFEC or alternatively DIEC and DIFEC must have given general consent to the 4th defendant to inspect their documents. By virtue of the decision in Schlumberger Holdings Limited (a company incorporated in the British Virgin Islands) v Electromagnetic Geoservices as (a company incorporated in Norway) [2008] EWHC 56 where Mr. Justice Floyd at paragraph 21 stated:
Mr. Ling is challenging whether the plaintiff has the evidence that DIEC and DIFEC had given general consent to the 4th defendant in respect of all their documents. However, given the nature of the documents belonging to DIEC and DIFEC disclosed by the 4th defendant in its explanation on the breach of the Injunction, it can be shown that the corporate documents such as the accounts of the companies, the security documents and guarantees were disclosed by the 4th defendant. On the issue of whether the 4th defendant has “power” over the corporate documents of DIEC and DIFEC on the basis that the 4th defendant has nominated directors in the board of those companies and under Hong Kong law, the directors would, by virtue of their office, have an unfettered right to inspect the companies’ documents so long as it is not exercised for an improper purpose, Mr. Ling has submitted his 4th written submissions with his 5th list of authorities on this issue. He refers to B v B (Matrimonial Proceedings: Discovery) [1978] Fam 181 at 188F where Dunn J. held that a director owes fiduciary duties to the company and to the shareholders. He is not allowed to abuse his position as a director to inspect the company’s documents or to take copies of them “for his own purposes unconnected with the business of the company.” 188 F. It is in this context that the company’s documents are not within his power and the learned Judge said: “It is a question of fact in each case whether or not a director has such an enforceable right; much will depend upon the structure of the company.” 188G. It cannot be argued that a director must not abuse his position as a director of the company. The significant issue for discussion for this application is that the directors nominated by the 4th defendant are not required to abuse their position as directors of the companies. They are to obtain the companies’ documents to show that the sale of the companies’ shares to the 4th defendant were, as alleged by the 4th defendant in its defence, genuine transactions at an arm’s length for valuable consideration under section 60 (3) of the Conveyancing and Properties Ordinance, Cap. 219. DIEC and DIFEC have the right to oppose the directors’ right of inspection of their corporate documents if they have the reasons to suspect that the directors are abusing their positions as directors. But this is a matter for the court to determine; such issue will not, in my view, affect the directors’ statutory rights under section 375 of the Companies Ordinance, Cap. 622. 34.Mr. Ling has also referred to Re Neath Rugby Ltd (No.2) [2009] BCLC 427 and at 436, Stanley Burnton LJ held at paragraph 42 of his judgment: “In my judgment, the fact that a director of a company has been nominated to that office by a shareholder does not, by itself, impose any duty on the director owed to his nominator. The director may owe duties to his nominator if he is an employee or officer of the nominator, or by reason of a formal or informal agreement with his nominator, but such duties do not arise out of his nomination, but out of a separate agreement or office.” This is in support of his proposition that the nominator, whilst subject to the usual discovery obligations, can have no power (in the discovery sense) over the company’s documents.[16] It should be noted that in this authority, the plaintiff was claiming against the defendant, its nominee, as a director of one of the local rugby clubs for breaching his duties as the nominee under an agreement with the plaintiff in that the defendant had put his personal interest before the plaintiff’s interest. It should also be borne in mind that the defendant had interest in the local rugby club in question. Here, the Court of Appeal was referring to the general principle that the nomination itself does not create any duty between the nominee to his nominator. Such duty is to be determined by their agreement. In the present case, it is obvious that the nominees of the 4th defendant as directors of DIEC and DIFEC have no interest whatsoever in the companies themselves. They appear to be mere agents for the 4th defendant, acting in accordance with the instructions of the 4th defendant in the operation of the companies. It will be for the nominees, ie Mr. Zhang and his sister as directors of the companies to tell the court the agreement between themselves and the 4th defendant. For the present application, there is no such evidence before the court. 35.Ms. Tong also relies upon another Australian case Linfa PTY Ltd v Citibank Ltd [1995] V.R.643, in which the court held that the court may order a company to give discovery of documents in the possession of its subsidiary either because of the company’s commercial-corporate power over its subsidiary or in the exercise by the court of general power under the rules. Whether a court would order a company to discover documents of its subsidiary under such circumstances would depend upon the facts of the particular case. The facts of this case were that the subsidiaries were not operating at separate legal entities. They were both staffed by the defendant’s staff and were not operating on their own behalf but on behalf of the defendant. The court therefore held that the defendant had possession, power and control over the relevant documents physically within the possession of the subsidiaries. However, Mr. Ling points out that the Australian case may have peculiar features like commercial-corporate power, under the Australian law, which distinguishes it from this case. I agree that the legal principle as set out in this case should be treated with caution. However, he is unable to assist me by pointing out the relevant difference between the Australian law and the Hong Kong law. Suffice it to say for the present purpose, there is no evidence that this case bears similarity of facts as Linfa. 36.Mr. Ling relies upon the authority of Innovations Ltd. v Chan Sing-chuk & Others [1992] 2 HKLRD 306 where the Court adopted the decision of Lord Diplock in Lonrho Ltd v Shall Petroleum [1980] 1 WLR 627 that “the expression of power means a presently enforceable legal right to obtain from whoever actually holds the documents inspection of it without the need to obtain the consent of anyone else.” at 311(35) (emphasis added). 37.A presently enforceable right means the legal entitlement, which can be enforced by legal proceedings, if necessary, against the holder or the controller of the documents. An example of this will be a shareholder’s statutory right under section 152FA of the Companies Ordinance, Cap.32 to inspect the company’s documents provided that the application is made in good faith and the inspection applied for is for a proper purpose.[17] Mr. Ling agrees that the legal principles apply to the new Companies Ordinance with the same statutory provision. Another example is a director’s right under section 375 of the Companies Ordinance, Cap. 622. 38.With the above authorities in mind, I shall now deal with each of the items as set out in the plaintiff’s summons. Item 1 39.The request is directed at documents showing debts owed by DIEC and DIFEC at the time of the signing of the Framework Agreement. The 4th defendant disputes that there is no evidence that it has the unfettered control over the documents (“the issue of power”). However, the 4th defendant admits that it had nominated three directors to the board of DIEC and DIFEC, it is obvious that the 4th defendant has power over the documents through its nominee directors in DIFEC and DIEC, bearing in mind that the nominated directors have no interest in the companies. Alternatively, the 4th defendant must have the legal enforceable right as a shareholder of DIEC and DIFEC to inspect those documents under section 152FA of Companies Ordinance, Cap. 32 (section 740 under the new Companies Ordinance, Cap. 622 with the same provision). See discussions on B & B and Re Neath Rugby Ltd (No 2). 40.Although the 4th defendant has on affirmation stating that it does not have and has never had possession, custody or power over the documents, on the face of the evidence available, his affirmation is simply not true. They are the documents in support of the 4th defendant’s pleaded case as shown above. The documents are clearly relevant to the issues in dispute and it is necessary to have the documents in order to have a fair trial. 41.The 4th defendant then submits that disclosure of the underlying documents is unnecessary and oppressive, given their likely volume, and the utter absence of any evidence to counter the relevant findings in the Deloitte Report, which is annexed to the Defence[18]. It is uncertain of the status of this annexure as parties agree that no leave has been obtained for it as an expert report. However, on the cover of the report, the Accountants’ firm has stated it expressly that it was compiled for its client and should not be used by any third party, for which it has no responsibility. It has also warned the user of the report that due to the constraints of time and scope of work, they were not given audited materials and for this reason, the accountants were unable to verify the truthfulness of such materials and they do not guarantee the reliability of the materials and for which the Accountants’ firm does not take the responsibility. The same reservations appear in the 工作範圍和基礎- 財務盡職調查 and 德勤計算的負債金額與法律顧問認定的負債金額差異説明。[19] It is unfair for the 4th defendant to ask this Court to order the plaintiff to rely upon this report whereas its accountants have stated that the materials may not be reliable for its own use. It cannot be denied that the scope of the documents is wide and large, though they should be confined to the stated purpose. However, given the circumstances of this matter and its historical background, it is understandable that the plaintiff has no faith in the transactions as genuine and made in good faith as alleged by the 4th defendant, the 1st defendant having been found by the court as dishonest and fraudulent, harming the plaintiff. It cannot be said to be oppressive. The 4th defendant, in the circumstances and for the fair trial, has to make a further affidavit to disclose those documents. Item 2 42.It requests discovery of documents regarding the repayment of debts owed by DIFEC and DIEC. The issue of power over the documents as the objection raised by the 4th defendant must fail on the analysis under item 1. Mr. Ling also submits that “sources of funds used for such repayment” are too wide for practicable purpose. However, Mr. Ling agrees that it is the 4th defendant’s pleaded case that the 4th defendant had, through Xiamen Company, Chongqing Company and Guanxi Company paid off the debts of DIEC and DIFEC. Upon enquiry by this Court, Mr. Ling also accepts that the documents recording the repayments of the debts did not contain the information as to who paid the money to those companies. As this issue is in dispute and must be relevant for the trial, they should be disclosed at this stage or the plaintiff will be taken by surprise. For the same reasons as above, I attach no weight to the 4th defendant’s 4th affirmation. These documents are necessary for a fair trial between the parties. The 4th defendant should make an affidavit disclosing the documents under this item. Item 3 43.They are the documents regarding the alleged payment of RMB430 million from the account of Liaoning East Asia Law Offices. The 4th defendant’s objection on the ground of no power fails. As submitted by Mr. Ling, this figure emanates from Exhibit 5 to the Witness Statement of Ma Roupeng where he sets out in a table the state of a separate client account for Jinan Company, it must be relevant. In the supporting affidavit of Mr. Li, lawyer Ma was acting for DIEC and DIFEC[20], the 4th defendant, being the nominator of their directors, it should be in a position to direct its nominated directors in DIEC and DIFEC to obtain those documents from the lawyer. There is no evidence that lawyer Ma will raise objection to the request. As the payments are mentioned in the witness statement of lawyer Ma, it follows that there should be documents evidencing such payments through the lawyer. I discard Zhang Xi’s 4th and 5th affirmations. The 4th defendant should make an affidavit to disclose those documents for the fair trial. Item 4 44.It refers to the documents regarding the alleged potential legal actions against DIEC/DIFEC as at November 2009. The 4th defendant’s arguments that the documents belong to DIEC and DIFEC, not the 4th defendant’s. For the reasons stated in item 1 relating to power, fail. The 4th defendant’s 4th affirmation cannot assist the 4th defendant as the documents are specifically pleaded in the Defence. The Deloitte Report bears serious defects as admitted by the accountants. It cannot be relied upon. If there had not been any lawsuit, the 4th defendant can simply make an affirmation to confirm the fact. The 4th defendant should file and serve an affidavit for the disclosure of the documents under this item. Item 5 45.They are the documents regarding the alleged application for cancellation/revocation of the Jinan Company’s registration of its interests in DIEC/DIFEC. The 4th defendant now in the 5th affirmation of Zhang Xi says that he had inquired with Dalian Economic Bureau, which said that the documents had been destroyed. He had not kept any copy of the documents, nor the 4th defendant. His lawyer Ma also had not kept any copy. The plaintiff in Mr. Li’s 5th affidavit, is unable to show that the 4th defendant has or had had the documents requested. Absent any other evidence to show the contrary, this Court has to accept the evidence in accordance with Prudential case. No order will be made for this item. Item 6 46.In this category the plaintiff seeks disclosure of all bank, financial and accounting records of the Xiamen Company, Chongqing Company and Guangxi Company in respect of the RMB530 million laid out for the purchase of the DIEC and DIFEC Shares. The 4th defendant admits that Xiamen Company, Chongqing Company and Guangxi Company are the companies through which the 4th defendant paid the RMB530 million for the shares of DIEC and DIFEC.[21] Mr. Ling submits, however, that there had been bank transfer slips accounting for RMB 530 million. But he agrees that the bank transfer slips do not show where the money had come from. Since the plaintiff disputes the good faith of the transactions, it is legitimate for it to require the 4th defendant to prove who had paid the money to Xiamen Company, Chongqing Company and Guangxi Company. They are clearly relevant to the issues in dispute. If the disclosed documents show that the money came from Lucky Dragon, then, as Mr. Ling said, the plaintiff will succeed to prove its case. The 4th defendant should have power over the documents relating to the RMB530 million. For a fair trial, the 4th defendant has to make an affidavit to disclose those documents. Item 7 47.They are the receipts and/or written acknowledgement in respect of RMB530 million allegedly paid to Liaoning East Asia Law Offices. The 4th defendant’s argument is that there had been no receipt or written acknowledgment issued to the 4th defendant and in the 5th affirmation of Zhang Xi for the 4th defendant, the 4th defendant says that the East Asia Law Offices had given the particulars of the receipt of the RMB530 million. The 4th defendant does not have the documents. However, in Zhang Xi’s 5th affirmation, paragraphs 11 and 12, he said that the 4th defendant did not have the power to produce the documents which might be in the power of Xiamen Company, Chongqing Company and Guangxi Company, which is not correct since it has been shown that they were the companies used by the 4th defendant to pay the RMB530 million for the shares. Since the 4th defendant admitted that it had used the three companies as its vehicles to pay RMB530 million to pay off the debts of DIEC and DIFEC, it must have the power over the documents relating to the money it had paid the three companies. As such, the 4th defendant should make an affidavit to produce those documents. Item 8 48.They are documents showing Mr. Zhang Xi’s purported 100% beneficial ownership of the Xiamen Company and the Chongqing Company. Zhang Xi’s 5thaffirmation has confirmed that the 4th defendant does not or ever had the documents because those documents has never existed. There is no evidence from the plaintiff to show that the contents of Zhang Xi’s 4th affirmation are not true or insufficient other than Mr. Li’ 5th affidavit at paragraph 37, which is only a bare assertion that the 4th defendant should have the documents, unsupported by evidence. I shall accept Mr. Zhang’s affirmation evidence. No order will be made for this item. Item 9 49.They are the documents evidencing the shareholding and directorships of Onwin Enterprises Holdings Limited, Guangxi Company, 深圳市華強 興業投資有限公司and 深圳市中廣城實業發展有限公司. In paragraph 43 of the plaintiff’s supporting affirmation, there is no evidence to support that the documents sought are or were in the possession, custody and power of the 4th defendant. I agree with Mr. Ling that the plaintiff has failed to show that the documents sought are within the possession, custody or control of the 4th defendant. This item should be dismissed. Item 10 50.They are the documents in relation to the 4th defendant’s breach of the Injunction Order. The plaintiff submits that these documents are relevant as they will show the ill-intent of the defendants in the scheme to defraud the plaintiff and the court should allow counsel at the trial to ask questions on this issue. They are also relevant because the plaintiff would make use of the documents to make another application for a Hadkinson order at the trial. 51.The 4th defendant disputes that the plaintiff’s discovery for the documents are solely for the purpose of impeaching the credit of the 4th defendant, which is prohibited under the law as decided by the Court of Appeal in Bekhor v Bilton [1981] 1 QB 923, at 939G and the documents are irrelevant and unnecessary. In this case, the defendant was found to be in breach of a Mareva Injunction. The plaintiff applied to the court for an order that the defendant should make an affidavit setting out, among other things, the value of the assets and the whereabouts of them within the jurisdiction, all of which amounted to establishing breach by the defendant of his undertaking of the court order. The Judge made the order. On appeal, the Court of Appeal (by majority) allowed the appeal for the reason that the documents “did not relate to one or more of the matters in question in the cause or matter.” 939E The court should “refuse to make such an order if and so far as it is of opinion that discovery is not necessary either for disposing fairly of the cause or matter or for saving costs.” (rule 8 of Order 24) 939G. Here the breach of DHCJ Sakhrani’s Injunction Order is not pleaded in the Statement of Claim and as such not an issue in the trial. Mr. Ling also submits that to allow the documents to be discovered and the interrogatories to be administered simply means the plaintiff can raise another conspiracy among the defendants without a proper pleading, which should be prohibited under the law. 52.For the reasons that I shall give for the summons on interrogatories, I hold that the documents are irrelevant to the issues in dispute and as such, they should be disallowed. Item 11 53.They are the original of documents disclosed in 4th defendant’s List of Documents. The 4th defendant has in Zhang Xi’s 4th affirmation said that the Empire Star Agreements had been kept in the Trade Department. The 4th defendant does not have the original documents. The plaintiff cannot show by evidence that the 4th defendant has the original documents, its application relating to those documents be dismissed. THE INTERROGATORIES 54.I now come to discuss the 4th defendant’s summons requesting this Court to order the plaintiff’s interrogatories be withdrawn pursuant to Order 26 r.3(2) RHC. 55.This application is in relation to the plaintiff’s application under Order 26 r.3, in which the plaintiff set out 14 interrogatories, all relating to four loans obtained by DIEC and DIFEC from Sheng Jing Bank. For the present purposes, I do not propose to set them out here. I will simply make reference to them if necessary. 56.The 4th defendant is late to take out the application. It has failed to take out the application within 14 days after service of the plaintiff’s interrogatories, the delay being 9 days. The 4th defendant asks for leave to file and serve its summons out of time, which the plaintiff opposes. 57.The Court has to consider the factors under Order 2 r. 5 RHC:
58.Taking the circumstances together and for the administration of justice, there being no obvious prejudice to the plaintiff, I grant leave to the 4th defendant to file and serve the summons out of time and the hearing should accordingly proceed as respective counsel are well-prepared for argument. 59.The jurisdiction for interrogatories is provided under Order 26 r.1 RHC:
Discussion on the relevant authorities 60.Counsel have cited the relevant authorities in support of their arguments, which may require some discussion to resolve their differences. I shall set out the relevant authorities as follows:
61.The above set out clearly the relevant legal principles for interrogatory applicable to this application. 62.The interrogatories relate to the four loans between the period of May 2011 and February 2013 mentioned in Zhang Xi’s supplemental witness statements.[25] The plaintiff submits that they are necessary for the purpose of fairly disposing of various issues in this action, in particular, the issues of the four loans, which the 4th defendant was unable to explain.[26] It is difficult to envisage what relevance they have in relation to the issues of dispute in the action as set out in paragraphs 24 and 25 supra. The plaintiff is asking the court to set aside the Empire Star Agreements on the basis that the 4th defendant had notice or constructive notice that those agreements were procured by Lucky Dragon in its fraudulent scheme. See paragraph 54 of the Statement of Claim. The interrogatories are obviously issues after the action. They are the interlocutory injunctive reliefs granted by the court. The trial judge does not have to determine those issues at the trial. As the plaintiff has repeatedly said in the submissions, the 4th defendant had admitted breach of the injunction. It will be for the plaintiff to enforce the order against the 4th defendant. The fact that the plaintiff’s counsel can cross-examine Mr. Zhang at trial is not a reason to allow the interrogatories unless they are relevant to the issues in dispute. See 26/4/6 of the White Book 2014 Vol. 1. 63.Obviously, the plaintiff is minded to make use of the 4th defendant’s breach of the court’s injunction to demonstrate the misconduct, ill-intent or even dishonesty of the 4th defendant. But this has been established as, according to the plaintiff, the 4th defendant has admitted the breach. According to the plaintiff,there is simply no defence to the 4th defendant in relation to the breach of the interlocutory injunction. 64.The plaintiff may be interested in how the loans were made use of and whether they had been misappropriated. However, these are not the issues pleaded in the Statement of Claim. To bring the four loans into the trial of the matter seems to be unnecessary and will escalate the costs and waste time for the trial. 65.The importance of pleadings has been brought to our attention by the Court of Final Appeal in Sinoearn International Ltd. v Hyundai – CCECC Joint Venture (a firm) FACV 22/2012 delivered on 30 September 2013. The Court of Final Appeal had criticized the court below allowing the plaintiff to run the argument of parallel issues without proper pleadings, which caused confusion to the trial, the appeal and finally the Court of Final Appeal and procedural unfairness. The parties must clearly plead all their issues in the pleadings so that each party knows what the issues are and prepare for their cases accordingly.[27] The Court of Final Appeal held that without proper pleadings, there would be confusion, not only at the trial, but also in the appeals, all the way going to the Court of Final Appeal. Pleadings are not mere formalities, but are disciplines ensuring procedural fairness in the adversarial system. [28] 66.For those reasons, I am not satisfied that the plaintiff has established that the interrogatories are relevant to the issues for the trial, still less that they are necessary for the purpose of a fair trial or saving costs. The 4th defendant succeeds in its application and the plaintiff should withdraw the interrogatories. 67.I shall make an order of the plaintiff’s application for specific discovery in terms as follows:
68.I shall also make an order of the 4th defendant’s summons on interrogatories in terms as follows:
69.As to the issue of costs of the applications, as suggested by respective counsel, it will be adjourned to next Monday at 10 am for counsel’s submission and this Court’s decision.
Ms. S. Tong, instructed by Winston Chu & Co., for the plaintiff Mr. C.W. Ling, instructed by Edwards Wildman Palmer, for the 4th defendant [1] McDonald, sup cit, at [26], per Kwan J, citing Motorola, sup cit, at [47] [2] 168e-g [3] §5 [4] §41, in particular 41(5) & (7) of the Statement of Claim [5] §44 of the Statement of Claim [6] §19 of Amended Defence of the 4th defendant [7] §25 ditto [8] §§5 & 24 of Defence [9] §13 ditto [10] §14 of Defence [11] §§28A & 28B ditto [12] §5 of the Decision [13] §6 ditto [14] §§6 & 16 ditto [15] [CIII - 520 [16] §9 of the 4th written submissions [17] §§8&9 of Wong Kar Gee Mimi v Hung Kin San Raymond & Another [2011] 5 HKLRD 241 [18] Page 68 of Bundle C(1) [19] Page 94 & 99 ditto [20] Paragraph 20 of Mr. Li’s affiadvit [21] Paragraph 20 of Amended Defence of 4th defendant [C1-53] [22] §11 of written submissions [23] Head-note [24] See 395D and 396G [25] See §§20, 22,& 25 of written submission of Ms Tong. [26] §31 [27] Paragraph 30 of the judgment [28] Paragraph 33 & 34 ditto |
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