Melvin Waxman v. Li Fei Yu and Others

HCA 1973/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1973 OF 2012

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BETWEEN

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J U D G M E N T

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I. INTRODUCTION

1.The plaintiff (“P”) is a United States national.  He had been in the plumbing business for over 50 years and was assisted by his son Larry Waxman (“LW”).  The 1^st defendant (“D1”) is a PRC national who resides in Xiamen, PRC.  According to P’s witness statement filed on 24 July 2014 (“P’s WS”), P and D1 became business partners in 1995 when they established a sino-foreign joint venture company to run a plumbing related business in Xiamen, PRC.  P claimed that as their business grew over the years they set up other companies, including the 9^th defendant (“WDI Intl”) and Xiamen WDI Technology Co Ltd (“WDI Tech”), which formed a group commonly known between P and D1 as the “WDI Group”.  According to P’s WS, P began to take a much less active role in the WDI Group by 1999 because the joint venture business had begun to thrive and P wanted to spend more time with his family in the USA.

II.  WDI INTL

2.WDI Intl was incorporated in Hong Kong on 22 November 2000.  Since 18 March 2003, D1, P and LW respectively were/are its 60%, 30% and 10% shareholders.  Since 28 March 2002, P, D1, LW and WDI Intl’s manager Ngai Kam-man Keith (“KN”) were/are its directors.  Since WDI Intl’s incorporation, D1 was/is its president with powers conferred on him as such under WDI Intl’s articles of association (“Articles”).  Since January 2001, Bright Way Accounting & Secretarial Services Ltd (“Bright Way”) had been the company secretary of WDI Intl and also the 2^nd to 8^th defendants (“D2-D8”).  WDI Intl’s registered office was at certain premises at Prince Edward Road, Kowloon (“Reg Office”).

3.According to P’s WS, WDI Intl was principally a holding company with two PRC subsidiaries established in 2004-2005 in the business of trading/manufacturing water tank fittings, cover board, watering tools, shower/bathroom facilities, kitchen utensils and tooling making equipment.  On the other hand, D2 and D4-D7 (“Subject Ds”) claimed WDI Intl did not have any business operations other than (a) to serve as a holding company for its subsidiaries and (b) to provide administrative support and customer services for WDI Tech being one of several companies owned or partly-owned by D1 and recognised inter alia by P and D1 as a group (“D1 Group”) that were engaged in the manufacture of water tank fittings, cover boards, watering tools and shower facilities in the PRC. 

4.The Subject Ds claimed that all along (a) WDI Intl’s expenses including its office in Hong Kong, and the rent, management fees, staff salaries (including the remuneration paid to KN) had been funded by WDI Tech, (b) the orders placed by WDI Intl’s customers were orders it handled on behalf of WDI Tech and all sums it received from such customers (necessitated by PRC foreign exchange control/restriction) were received on behalf of WDI Tech, and (c) the funds WDI Tech paid into WDI Intl and the sums WDI Intl received on behalf of WDI Tech were held by WDI Intl upon trust for WDI Tech to be used/applied for such purposes as WDI Tech directed from time to time.  The Subject Ds further claimed P and LW were well aware of and agreed to such arrangements between WDI Tech and WDI Intl (“WDI Arrangements”) as evidenced by WDI Intl’s audited financial statements from the date of its incorporation to 31 March 2010 (i) which were signed by D1 and P on behalf of WDI Intl and approved by WDI Intl’s board of directors (“WDI Board”), and (ii) which recorded WDI Intl’s turnover/revenue throughout such financial years to be zero even though it had from time to time acquired orders from WDI Tech’s customers and received purchase price for products sold on behalf of WDI Tech. 

III.  D1

5.The Subject Ds claimed articles 16-17 of the Articles conferred wide powers on D1 as WDI Intl’s president to deal with its affairs/matters.  It was said that (a) P and LW agreed with D1 as to (i) D1’s appointment as WDI Intl’s president to confer such wide powers on him and (ii) the WDI Arrangements (collectively, “WDI Agreement”), which agreement was unanimous amongst all WDI Intl’s shareholders and binding on them, and (b) D1 used his powers as WDI Intl’s president to implement the WDI Arrangements and/or otherwise handle WDI Intl’s affairs.  The Subject Ds claimed they would rely on the Duomatic principle if necessary. 

IV.  Overview of D2-D8

6.D2-D8 were/are Hong Kong companies controlled and/or directly/indirectly owned by D1, and D1 was/is the directing mind and will of D2-D8.  D3 was deregistered/dissolved on 14 November 2008.  The Subject Ds claimed D6 was a shareholder of D5, and as of 15 June 2001 D7’s shares were transferred to Li Fei Young.  P claimed Li Sui Tao (30% shareholder of D6) and Li Fei Young (100% shareholder of D7) are D1’s sons, and Kevin Joseph Oak (100% shareholder of D8) was/is an employee of WDI Intl and a close associate of D1. The registered offices of the Subject Ds were/are the Reg Office, and their corporate secretary was/is Bright Way.

V.  D2

7.P claimed D2 was to facilitate setting up WDI Tech to acquire a factory plant in Xiamen, PRC and to hold other investments belonging to D1.  The Subject Ds claimed D2’s main business was to sell bathroom products and to act as a holding company for WDI Tech, D4 and Xiamen Yike Bathroom Technology Company Limited.

VI.  D4

8.P claimed D4 was to facilitate investing in Shanghai Clean Stream Toilet Facilities Company Limited, but D4 did not carry on any operational business in its own right.  However, the Subject Ds claimed D4 previously acted as a Hong Kong company for its Shanghai subsidiaries that manufactured high-technology e-bidet toilets, but these subsidiaries were deregistered in June 2013.

VII.  D7

9.D7 did not carry on any operational business in its own right.  P alleged D7 was to facilitate investing in Hebei Tswoshen Toilet Facilities Company Limited, but the Subject Ds claimed D7 at one time held shares in Hebei Axent Toilet Facilities Company Limited (“Hebei Axent”) and not Heibei Tswoshen Toilet Facilities Company Limited.

VIII.  PROCEEDINGS

10.Since August 2012, dispute arose over the distribution of shares in WDI Tech.  P claimed the companies in the WDI Group, including WDI Tech, were beneficially held by D1, his brother-in-law Yu Yuebin Ben, P and LW in agreed proportion of 42%, 18%, 30% and 10% respectively.  P denied WDI Intl formed part of the D1 Group, and averred that D1 directly/indirectly held the entire beneficial interest in D2-D8. 

11.In P’s WS and P’s 2^nd affirmation filed on 19 August 2014 (“P 2^nd Aff”), P claimed he experienced difficulties in exercising his right as WDI Intl’s director to inspect WDI Intl’s documents due to obstacles by WDI Intl and its solicitors. 

12.On 21 August 2012, P’s solicitors wrote to WDI Intl for inspection of inter alia WDI Intl’s books of accounts.  According to P’s WS, P and his solicitor attended the Reg Office for inspection on 27 August 2012, but WDI Intl’s staff refused to make available the requested documents, made self-contradictory excuses, and eventually admitted the “headquarters” in Xiamen, PRC (“PRC Headquarters”) had instructed Bright Way and WDI Intl not to produce any documents to P for inspection.

13.On 28 August 2014, P’s solicitors wrote to WDI Intl inter alia to demand inspection of the requested documents by 4 September 2014.  On the same day, D1’s and WDI Intl’s then solicitors informed P’s solicitors that inspection of certain documents could be conducted on the same day.  On 5 September 2012, P’s solicitors as P’s attorneys conducted inspection at the Reg Office.  P claimed they were allowed to inspect various official registers for the financial years of 2007-2009 but not, say, books of accounts for the financial years of 2002-2006 and 2010-2012, which WDI Intl’s staff explained could be inspected upon retrieval from the warehouse but they did not say when that would be.

14.On 4-5 September 2012, P’s solicitors wrote to D1’s and WDI Intl’s then solicitors to say it was likely D1 had committed a series of breaches and commercial fraud at the expense of “the Group company” and/or had taken company assets and used them to the detriment of “the Group” and to the prejudice of “the Group’s” best interests.  On 13 September 2012, P’s solicitors wrote to D1’s and WDI Intl’s then solicitors asking for inspection of the further documents they had requested, and again alleging D1 had (without prior authorisation by board or general meeting) misused/misappropriated WDI Intl’s funds to finance certain activities of other companies owned by D1. 

15.On 21 September 2012, P’s solicitors requested inspection of the rest of the requested documents, but D1’s and WDI Intl’s then solicitors declined further inspection on the ground that P’s inspection proposal was designed to cause hardship to WDI Intl and P was abusing his inspection rights, but nevertheless WDI Intl would continue to search for further responsive documents and endeavour to provide a substantive response.  On 26 September 2012, D1’s and WDI Intl’s then solicitors replied to admit that WDI Intl had customarily settled miscellaneous invoices on behalf of a number of companies related to D1 that did not have any bank account, which payments had been properly recorded as receivables in WDI Intl’s management accounts and would be settled in due course. 

16.Meanwhile on 22 October 2012, P commenced the present action against D1 for an order that (a) D1 and D2-D8 do compensate WDI Intl in the respective sums of $7,1125,823.40 and $4,883,474.80, (b) an account of all sums misappropriated from WDI Intl by D1 (and paid away by him or at his direction) and by D2-D8, and (c) an order for payment to WDI Intl of all sums found due on taking of such account.  Such legal process was served on the Subject Ds but not on D1.

17.After further correspondence, P eventually inspected further company documents of WDI Intl on 26 October 2012.  During such inspection, P allegedly discovered that from 31 July 2002 to 1 April 2012 D1 had, without prior disclosure to and authorisation by board or general meeting, used WDI Intl’s funds to settle various operating expenses for D2-D8 which were not members of the WDI Group.

18.On 6 November 2012, P filed his Statement of Claim (“SoC”).

19.On 8 November 2012, D5 remitted a total sum of $1,112,234.00 into WDI Intl’s account in settlement of payments for operating expenses made by WDI Intl on behalf of D2‑D8 (“8/11/12 Payment”).  On 13 November 2012, D1’s and WDI Intl’s then solicitors wrote to inform P’s solicitors of the 8/11/12 Payment and invited P to discontinue the present action (“13/11/12 Letter”):

“As we have previously explained, the various amounts identified transparently as receivables in the management accounts of [WDI Intl] are in respect of certain miscellaneous expenses of certain companies and [D1]. These expenses concern mainly the auditing fee, company secretarial fee and business registration fee of various companies. As you know, all of these companies have the same registered address as [WDI Intl], and due to the fact that none of them holds a bank account in Hong Kong, it is out of expediency and efficiency that [WDI Intl] has customarily settled these amounts on behalf of these companies, such payments having always been clearly recorded as receivables in the management accounts of [WDI Intl].

As we have indicated, all amounts payable would be settled in the ordinary course and payments have now been arranged to credit the outstanding sums, which include the amounts referred to in [P’s] claim. We enclose a table prepared by the company secretary of [WDI Intl] indicating the amounts to be paid by [D1-D8] as of 31 August 2012 and the various bank transfer confirmations in respect of the repayment of these amounts. The company secretary of [WDI Intl] has confirmed that [WDI Intl] has not settled any additional expenditures on behalf of any of these companies or [D1] since 31 August 2012.

Having now paid to [WDI Intl] the total amount of HK$1,112,234.00, [D1-D8] no longer have any liabilities to [WDI Intl]. In the circumstances, we invite [P] to discontinue the derivative action, failing which this letter will be drawn to the attention of the Court in respect of any application for wasted legal costs.

[WDI Intl]

Amount due from related companies

From the date of incorporation of the related companies to 31 August 2012

Company Name	Currency	Amount
[D5]	HK$	256,405.00
[D8]	HK$	84,927.00
[D4]	HK$	74,640.00
[D2]	HK$	153,862.00
[D6]	HK$	405,189.00
[D7]	HK$	97,016.00
[D1]	HK$	40,195.00*
Total:	HK$	1,112,234.00

Note:

[WDI Intl] paid for the audit fee, company secretarial fee, and business registration fee on behalf of the above related companies.

*  Comprising HK$3,500 owed personally by [D1], HK$24,670 by the dissolved [D3] and HK$12,025 by the dissolved HK Da Chen Trade Ltd.”

In short, D1, the Subject Ds and WDI Intl by the 13/11/12 Letter intimated that the 8/11/12 Payment was to cover sums allegedly used for D2-D8’s operating expenses and for D1’s own personal use.  For convenience, the table and explanatory notes in the 13/11/12 Letter are collectively referred to herein as the “13/11/12 Table”.

20.On 7 December 2012, D2 and D4-D8 filed a summons to strike out P’s Writ of Summons and SoC (“1^st Strike Out Summons”).  On the same day, D2 and D4-D8 filed the 1^st supporting affirmation of Bai Ping, WDI Tech’s in-house counsel and D1’s personal assistant.  On 14 February 2013, P filed his Amended Statement of Claim (“ASoC”) and his 1^st affirmation to oppose the 1^st Strike Out Summons (“P 1^st Aff”).  On 28 March 2013, D2 and D4-D8 filed Bai Ping’s 2^nd affirmation in reply (“Bai 2nd Aff”). On 23 May 2013, D2 and D4‑D8 filed a summons to inter alia strike out P’s Amended Writ of Summons and ASoC (“2nd Strike Out Summons”).  The 1^st and 2^nd Strike Out Summonses are collectively referred to herein as the “Strike Out Application”.  On 23 August 2013, To J dismissed the Strike Out Application (“To Order”) and handed down a reasoned decision (“To Decision”).  On 19 October 2013, D2 and D4-D8 filed their Defence (“Defence”). 

21.P and his solicitors allegedly discovered there were some outstanding documents not provided to him, so on 23 October 2013 his solicitors wrote to inform WDI Intl they would conduct a physical inspection.  P claimed that during the inspection on 25 October 2013 WDI Intl refused to provide his solicitors with WDI Intl’s human resources related documents, but after further correspondence WDI Intl agreed to produce the requested documents for inspection on 14 November 2013.  On 5-6 December 2013, WDI Intl’s then solicitors sent P’s solicitors copies of the documents from the inspections on 25 October and 14 November 2013 that P requested.

22.On 13 December 2013, P filed his Reply (“Reply”).  On 16 February, 18 March and 18 March 2014 respectively, P, WDI Intl and the Subject Ds filed their respective List of Documents.  WDI Intl’s discovered documents included its accounting documents, eg audited financial statements, monthly income and expenses lists (“Monthly Lists”), trial balances, management accounts, monthly accounting files, etc.

23.On 21 March 2014, P’s solicitors wrote to the Subject Ds’ then solicitors for discovery of the Subject Ds’ audited financial statements and internal accounting documents including but not limited to the management accounts and general ledgers not disclosed in their List of Documents, and urged the Subject Ds to file a supplemental List of Documents.  On 27 March 2014, the Subject Ds’ then solicitors replied to say they were obtaining instructions and requested P to refrain from issuing any specific discovery application pending their further response.

24.P claimed that pursuant to his solicitors’ previous request for inspection of all bank statements of WDI Intl’s accounts WDI Intl disclosed bank statements of an account with Standard Chartered Bank, so he thought WDI Intl did not hold other bank accounts.  But in/about June 2014, P discovered WDI Intl had a bank account with the Industrial and Commercial Bank of China (“ICBC Account”) when (a) WDI Intl distributed certain dividends to LW via such remitting bank account and (b) LW showed P a copy of the banker’s record he obtained from his own bank.  So P’s solicitors wrote to WDI Intl on 7 July 2014 to request inspection of all accounting documents and bank account statements of all banks accounts maintained by WDI Intl whether in Hong Kong or elsewhere. 

25.P claimed that at the inspection on 9-10 July 2014 (a) his solicitors were refused access to the requested documents, (b) instead P’s solicitors inspected documents placed inter alia on the guest table and in the cabinet beside the guest table as a result of WDI Intl’s uncooperative attitude, (c) in the afternoon on 10 July 2014 WDI Intl’s then solicitors asked P’s solicitors to leave the Reg Office on the basis that a director could not inspect company documents without invitation by WDI Intl or search warrant from the court, (d) WDI Intl’s staff called the police so P’s solicitors had to stop their inspection, (e) the police officers who arrived acknowledged P’s rights as director to inspect and agreed that P’s solicitors could stay as long as they wished, and (f) P’s solicitors nevertheless decided to leave in view of the hostile attitude of WDI Intl’s staff towards them.  P’s solicitors recorded such complaints in their letters to WDI Intl’s solicitors dated 21 and 28 July 2014. 

26.On the other hand, WDI Intl’s solicitors complained there was no proper appointment for inspection of documents, and P’s solicitors forcibly carried out search/inspection on 10 July 2014 without consent, which led to report being made to the police and P’s solicitors being requested to leave and to make appointment for inspection through them.  WDI Intl’s solicitors wrote to P’s solicitors on 14 and 24 July 2014 on such complaints and on the requirements for further inspection of documents.

27.P claimed that during inspection at the Reg Office on 9‑10 July 2014 his solicitors discovered that documents belonging and/or relating to D2-D8’s affairs had been stored at the Reg Office (“D2-D8 Documents”), and that D2-D8 had made use of WDI Intl’s administrative resources and WDI Intl’s employees had assisted D2-D8 in pitching for business, handled D5’s business transactions, and generally handled D2-D8’s affairs.

28.On 23 July 2014, the Subject Ds filed the witness statement of Chau Wing Yan (also known as Suka Chau) (WDI Intl’s account clerk, “Chau”) (“Chau’s WS”).  Chau’s WS confirmed Chau would record all items of WDI Intl’s income/expenditure in the Monthly Lists, and such lists from May 2002 to April 2012 would record payments for D2-D8’s audit fees, company secretarial fees and business registration fees by WDI Intl on their behalf.  A table annexed to Chau’s WS listed each such payment by WDI Intl on D2-D8’s behalf, which payments totalled $1,063,092.00.

29.On 24 July 2014, P filed P’s WS.  On 21 October 2014, ie shortly after Master S Kwang granted the Order referred to in paragraph 33 below, the Subject Ds filed their Amended Defence (“Amended Defence”).

30.On 12 December 2014 (ie after the Hearing), P filed Notice of Discontinuance against D3.  On 31 December 2014, P filed his Amended Reply (“Amended Reply”).

IX.  SUMMONSES AND APPEAL

31.On 15 April 2014, P filed a summons (“Summons”) for an order that the Subject Ds do within 14 days thereof file/serve on P (a) a further and better list of documents and an affidavit verifying such list (collectively, “F&B List”), and (b) an affidavit giving specific discovery of documents, ie all audited financial statements and all internal accounting documents (including but not limited to management accounts and general ledgers) of the Subject Ds since the date of their respective incorporation (“Documents”), and the Subject Ds shall within seven days produce those documents which were in their possession, custody or power for P’s inspection.

32.On 7 May and 19 August 2014, P filed the 2^nd affidavit of his solicitor Gordon David Michael George Oldham (“Oldham 2^nd Aff”) and the P 2^nd Aff that referred to inter alia his pleadings, the P 1^st Aff and P’s WS in support of the Summons.  On 9 and 11 July 2014, the Subject Ds filed the 1^st and 2^nd affirmations of their solicitor Wai Yip Hin in opposition (“Wai 1^st and 2^nd Affs”). 

33.On 3 September 2014 (“Master Hearing”), Master S Kwang ordered that (“Order”):

(a) the Subject Ds do on or before 15 October 2014 make, file and serve an affidavit stating whether any of the documents or classes of the documents specified in the paragraph 34 below (“Ordered Documents”) is/are or has/have at any time been in their possession or custody or power; and if the same or any of them having at any time been in their possession or custody or power; and if the same or any of them were not then in their possession, custody or power, when they parted therewith and what had become thereof;

(b) the Subject Ds do produce those documents disclosed and listed in the affidavit filed in compliance with (a) above within seven days upon filing/serving of such affidavit;

(c) costs of the Summons, including costs of the Master Hearing and all costs reserved thereunder, be paid forthwith by the Subject Ds to P to be taxed if not agreed with certificate for counsel. 

34.The Ordered Documents comprised the following:

(a) all audited financial statements and internal management accounts (balance sheets, profit and loss statements and cash flow statements) of the Subject Ds since the year 2002 or the date of their respective incorporation, whichever is later (collectively, “Ordered Accounts”); and

(b) all quotations, invoices, receipts and vouchers of the Subject Ds during the financial years 2010 to 2012 (collectively, “Ordered Records”).

35.On 12 September 2014, the Subject Ds filed Notice of Appeal against the Order for the following reliefs (“Appeal”):

(a) the Order be rescinded and the Summons be dismissed;

(b) as an alternative to (a), the Order be varied, ie the Subject Ds do on or before 15 October 2014 make, file and serve an affidavit stating whether any of the quotations, invoices, receipts and vouchers of the Subject Ds during the financial years 2010 to 2012 handled by any of the employees of WDI Intl (if any) (“Alternative Records”) was/were or had at any time been in their possession or custody or power; and if the same or any of them having at any time been in their possession or custody or power; and if the same or any of them were not then in their possession, custody or power, when they parted therewith and what had become thereof;

(c)     costs of the Appeal and of the Summons be paid by P to the Subject Ds forthwith to be taxed if not agreed.

36.Notwithstanding the reliefs sought in the Summons, Mr Kam, counsel for P, confirmed at the hearing of the Appeal on 21 October 2014 (“Hearing”) that P would only seek to uphold the Order and not seek any order in respect of the F&B List and/or discovery/production of the Documents (other than the Ordered Documents).  In the circumstances, it is unnecessary for me to consider such reliefs which are not pursued by either P or the Subject Ds in the Appeal.

37.On 15 October 2014, the Subject Ds filed a summons for extension of time for 56 days from the date of the decision of the Appeal for the Subject Ds to file/serve their affidavit pursuant to the Order (“Time Summons”).  On 16 October 2014, Mr Lam, counsel for the Subject Ds, lodged his written submissions for the Appeal and the Time Summons.  On 17 October 2014, Mr Kam lodged his written submissions.  On the same day, the Subject Ds filed a summons for stay of execution of the Order pending determination of the Appeal (“Stay Summons”), and also the 4^th affirmation of their solicitor Wai Yip Hin said to be in support of the Stay and Time Summonses (“Wai 4^th Aff”).

38.The hearing of the Appeal, Time Summons and Stay Summons came before me at the Hearing on 21 October 2014.  Mr Kam sought leave to rely on WDI Intl’s latest audited financial statement in response to the Wai 4^th Aff, but later dropped such application when Mr Lam confirmed the Subject Ds would not rely on the Wai 4^th Aff for the purpose of the Appeal.  Mr Kam also sought leave to rely on the Hong Kong Standard on “Auditing 500 on Audit Evidence” published by the Hong Kong Institute of Certified Public Accountants (effective for audits of financial statements for periods beginning on or after 15 December 2009) (“Accounting Standard”).  Mr Lam had no objection, and leave was granted accordingly.

X.  TIME AND STAY SUMMONSES

39.When P issued the Time Summons on 15 October 2014, such summons did not pray for any alternative relief for stay of execution of the Order.  Mr Lam’s written submissions lodged on the following day gave no hint that P would take out the Stay Summons and/or a substantial supporting affirmation would be filed for inter alia the Time Summons on the very next day.  Indeed, Mr Lam’s written submissions simply contended that the Time Summons “is, of course, necessary, or otherwise [the Appeal] would be rendered nugatory”. 

40.There is no evidence/material before me that notwithstanding (a) the expiry of the deadline imposed under the Order and (b) the Subject Ds’ continued non-compliance of the Order even up to the Hearing P has taken any steps to enforce the Order pending the Appeal.  There is also no suggestion that (i) P disagrees with the relief sought in the Time Summons, which plainly must have been issued to formally regularise the position pending the outcome of the Appeal, and/or (ii) the Subject Ds expect any lively resistance at all. 

41.It therefore came as a surprise that P chose to file/serve the Stay Summons and the Wai 4^th Aff on the very day following Mr Lam’s written submissions.  The Wai 4^th Aff is a substantial affirmation of some 22 pages (with 10 exhibits) that essentially sets out the views of P’s solicitor on how Master S Kwang has erred in granting the Order.  But given that (a) the hearing bundle for the Appeal has been lodged with the court, (b) the Wai 1^st and 2^nd Affs (that set out the Subject Ds’ factual affirmation evidence) have been filed, and (c) Mr Lam’s written submissions for the Appeal and Time Summons have been lodged with the court, there is, in my view, no place in any further factual affirmation put forward in support of the Time and Stay Summonses for any argumentative assertions on how Master S Kwang has erred (which have already been canvassed in Mr Lam’s written submissions).  There is no point for the Wai 4^th Aff to either repeat matters contained in (a)-(c) above and/or to introduce new evidence under the guise of discussing the merits of the Appeal for the purpose of the Time and Stay Summonses when the Subject Ds do not seek leave to adduce any new evidence for the Appeal proper.[1] Indeed, out of the 10 exhibits to the Wai 4^th Aff, two are completely redundant, ie Mr Lam’s written submissions for the Appeal that have already been lodged, and the transcript of the Master Hearing (“Master Transcript”) that has already been included in the hearing bundle for the Appeal as lodged.  The other exhibits are documents not found in the hearing bundle for the Appeal, and I am unable to see how they will be pertinent to the merits of the Appeal.  As explained in paragraph 38 above, Mr Lam, quite rightly in my view, has disclaimed any intention to rely on the Wai 4^th Aff for the purpose of the Appeal.

42.In my view, the Wai 4^th Aff is an unnecessary exercise in costs; it is argumentative, prolix, repetitive and unnecessary.  Indeed, its argumentative content on the merits of the Appeal is even more abundant than that found in Mr Lam’s written submissions for the substantive Appeal.  If any support is required for the Time Summons (which I doubt given the fullness of Mr Lam’s written submissions and the hearing bundle for the Appeal that have already been lodged with the court), all that is required is a short letter to P’s solicitors indicating intended reliance on the Wai 1^st and 2^nd Affs and Mr Lam’s written submissions that speak to the merits of the Appeal and, according to the Subject Ds, the merits of the Appeal themselves sufficiently justify the reliefs sought in the Time Summons.

43.At the Hearing, Mr Lam confirmed that the Subject Ds would not rely on the Stay Summons and/or the Wai 4^th Aff at all, and would only pursue the Time Summons.  This volte-face on the part of the Subject Ds on the very day immediately following the filing of the Stay Summons and the Wai 4^th Aff immediately raises doubt as to whether there is any real necessity for such application and evidence, and lends support to the conclusion in the above paragraph.  After the CJR, the court shuts its face against any obviously unnecessary application that burdens the litigation with unjustified costs.  Mr Kam very sensibly confirmed at the Hearing that P had no objection to the Time Summons. 

44.At the Hearing, for all of the above reasons, I granted an order in terms of paragraph 1 of the Time Summons with costs in the cause of the Appeal, dismissed the Stay Summons, and ordered the Subject Ds to forthwith pay costs of and occasioned by the Stay Summons including the costs of the Wai 4^th Aff to P on indemnity basis to be taxed if not agreed.

XI.  LEGAL PRINCIPLES: APPEAL FROM MASTER

45.It is trite that an appeal from the master to judge in chambers is dealt with by an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him for the first time.  The judge will give the weight it deserves to the previous decision of the master; but he is in no way bound by it.[2]

XII.  LEGAL PRINCIPLES: SPECIFIC DISCOVERY

46.Under Order 24 rule 7 of the Rules of the High Court (“RHC”), a party may apply for an order requiring any other party to make an affidavit stating whether any document or class of document specified or described in the application is or has at any time been in his possession, custody or power, when he parted with it and what has become of it. But if the court is satisfied that discovery is not necessary, or not necessary at that stage of the cause or matter, it may dismiss or adjourn the application, and shall in any case 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.[3]

47.Court’s approach Hong Kong Civil Procedure 2015 states inter alia as follows:[4]

“…… But this is not sufficient unless a prima facie case is made out of (a) possession, custody, or power, and (b) relevance of the specified documents …… This prima facie case may be based merely on the probability arising from the surrounding circumstances or in part on specific facts deposed to. …… See too Berkeley Administration v. McClelland [1990] F.S.R. 381 where at 382 the court restated the principles as follows: (1) There is no jurisdiction to make an order under RSC, O.24 r.7, for the production of documents unless (a) there is sufficient evidence that documents exist which the other party has not disclosed; (b) the document or documents relate to matters in issue in the action; (c) there is sufficient evidence that the document is in the possession, custody or power of the other party. (2) When it is established that those three prerequisites for jurisdiction do exist, the court has a discretion whether or not to order disclosure. (3) The order must identify with precision the document or documents or categories of document which are required to be disclosed, for otherwise the person making the list may find himself in serious trouble for swearing to a false affidavit, even though doing his best to give an honest disclosure ……”[5]

48.Existence of the documents  In Ngan In Leng v Chu Yuet Wah (No 1), DHCJ Queeny Au-Yeung (as she then was) said as follows:[6]

“42. A prima facie case on existence may be established on merely showing the probability arising from the surrounding circumstances or on specific facts deposed to: Hong Kong Civil Procedure 2012, Vol 1, p.553 para.24/7/1. For example, a prima facie case on existence may be established simply by assessing whether it is business practice for a certain type of document to exist: Union Bank of India v General Nice Resources (Hong Kong) Ltd (unrep., HCA 299/2007, [2010] HKEC 704), 10 May 2010, Bharwaney J, [10].”

49.Relevance  It is for the party seeking specific discovery to demonstrate a prima facie case for inter alia the relevance of the documents sought to the “matters in question”.  The well-known test for determining “relevance” is set out in The Compagnie Financiere et Commerciale du Pacifique v The Peruvian Guano Company as follows:[7]

“…… It seems to me that every document relates to the matters in question in the action, which not only would be evidence on any issue, but also which, it is reasonable to suppose, contains information which may – not which must – either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. I have put in the words ‘either directly or indirectly’ because, as it seems to me, a document can properly be said to contain information which may enable a party requiring the affidavit either to advance his own case or to damage the case of his adversary, if it is a document which may fairly lead him to a train of enquiry, which may have either of these two consequences: the question upon a summons for a further affidavit is whether the party issuing it can shew, ……, that the party swearing the first affidavit has not set out all the documents falling within the definition which I have mentioned and being in his possession or control ……”[8]

50.Mr Lam advocated the approach adopted by Colman J in O Company v M Company:[9]

“…… The ‘case’ of the plaintiffs or the defendants respectively can be defined only by looking at the pleadings. It must be defined by reference to the plaintiffs’ pleaded claim in its general sense, as distinct from its detailed exposition and by the defendants’ pleaded defence in the sense of its general refutation of the plaintiffs’ claim. What matters for discovery purposes is the claim and defence to it in the broadest sense and not to the detailed particulars of either claim or defence. A document in a defendant’s possession, custody or power which provides information as to a ground not hitherto pleaded in a cargo claim upon which it can be said that they failed to exercise due care of the cargo is just as relevant for discovery purposes as one which contains information as to a ground of want of due care which has already been pleaded. ……

…… The principle was never intended to justify demands for disclosure of documents at the far end of the spectrum of materiality which on the face of it were unrelated to the pleaded case of the plaintiff or defendant and which were required for purely speculative investigation …… On the contrary, the document or class of documents must be shown by the applicant to offer a real probability of evidential materiality in the sense that it must be a document or class of documents which in the ordinary way can be expected to yield information of substantial evidential materiality to the pleaded claim and the defence to it in the broad sense which I have explained. If the document or class cannot be demonstrated to be clearly connected to issues which have already been raised on the pleadings or which would in the ordinary way be expected to be raised in the course of the proceedings, if sufficient information were available, the application should be dismissed.”

51.The approach in O Company was applied by Findlay J in A v B[10] and Fung J in Chan Kwok Hong v AXA China Region Insurance Company (Bermuda) Limited & anor,[11] and the parties before Barma J (as he then was) in Moulin Global Eyecare Holdings Limited (in liquidation) (formerly known as Moulin International Holdings Limited) & ors v KPMG (a firm)[12] accepted this was the correct approach.

52.But DHCJ Horace Wong SC in Chan Hung v Yung Kwong Chung[13] acknowledged the observation by the editors of Hong Kong Civil Procedure 2009 that such approach represented “a marked departure from the very wide Peruvian Guano test that Hong Kong courts have accepted as the appropriate test to determine relevance”, and he doubted whether it was open to the Court of First Instance to follow the gloss Colman J put on the Peruvian Guano approach in O Company in view of the Court of Appeal’s adoption of the Peruvian Guano test in Deak & Co (Far East Ltd) v NM Rothschild & Sons Ltd & ors.[14]  DHCJ Horace Wong SC confessed he could not reconcile the difference between the test advocated by Colman J and the much wider formulation in Peruvian Guano.  On appeal,[15] the Court of Appeal did not disturb DHCJ Horace Wong SC’s discussion of the relevant legal principles.

53.I also prefer the Peruvian Guano test of relevance.[16]   In coming to this view, I am comforted by Man Cheung International Traders Limited & anor v CLSA Limited formerly trading as Credit Lyonnais Securities (Asia) Limited[17] in which the Court of Appeal allowed certain specific discovery on Peruvian Guano terms, ie “that such discovery may promote a relevant line(s) of inquiry and have the effect of buttressing the defendant’s case or of undermining that of the plaintiff”, and Paul’s Models Art GmbH & Co KG v UT Limited & ors in which DHCJ Coleman SC said as follows:[18]

“One area of dispute at the hearing was whether or not the test of relevance in Hong Kong is still that in the Peruvian Guano case, [counsel for the 4^th and 5^th defendants] suggesting that the excesses of that type of discovery are to be deplored. But, whatever one might personally think of the application of that test to many cases, I accept …… submission [by counsel for the plaintiff] that the Peruvian Guano test is still the applicable test even after the Civil Justice Reforms of 2009 (when the possibility of removing that test was rejected).”

54.On the Peruvian Guano test of “relevance”, the real question is whether the documents sought to be discovered are relevant to the issues between the parties to the litigation or, putting it in another way, to the “questions in the action”.[19] There has been suggestion that the issues or questions must be those identified in the pleadings[20] and that “it is the case of the party seeking discovery that must be assumed to be true, and not that of the party from whom the discovery is sought”,[21] but in Thorpe v Chief Constable of Greater Manchester Police[22] it was held that matters can be “in question” even though not expressly raised on the pleadings.  At p 833, Neill LJ said as follows:

“…… It is clearly established, however, that ‘the matters in question’ cover wider ground than the issues as disclosed in the pleadings. Thus a party is obliged to disclose any document which it is reasonable to suppose contains information which may enable the party applying for discovery either to advance his own case or to damage that of his adversary or which may fairly lead to a train of inquiry which may have either of these two consequences. It follows that discovery is not necessarily limited to documents which would be admissible in evidence.”

But even if an issue is raised in the pleadings, it is not necessarily determinative as to whether it relates to a “matter in question”.[23]  In Wu Ching Sau v New World First Bus Services Limited,[24] I also said that:

“…… although the pleadings and particulars will usually determine relevance to a matter in question, the obligation to provide discovery in respect of a matter in question does not necessarily mean a matter on which issue has joined in the pleadings, but the documents must be matters as to which an inference can properly be drawn that they are the subject of controversy between the parties ……”

55.Necessity According to Hong Kong Civil Procedure 2015,[25] if the party seeking discovery establishes a prima facie case, it is for the party objecting to the order for discovery to satisfy the court that the discovery is not necessary either for disposing fairly of the cause or matter or for saving costs under Order 24 rule 8 of the RHC.[26]

56.Mr Kam suggested that (a) admissions made in relation to a particular issue would not per se render documents pertaining to that issue irrelevant, and (b) documents that related to an issue which the applicant inherently was expected to know little about or had little information on would provide an additional reason for the discovery of such documents.  He referred to Horst Joachim Franz Geike v I-Onasia Limited & ors[27] in support of such propositions. 

57.In that case, the defendants admitted that (a) the plaintiff’s wife engaged the 1^st defendant to provide inter alia a campaign of general surveillance and investigation services relating to the plaintiff for use in the divorce proceedings, and (b) their legal fees in respect of the plaintiff’s proceedings against them were paid for entirely by the plaintiff’s wife, but they denied they had committed any unlawful act.  The plaintiff pressed for discovery of the invoices/receipts issued by the defendants to his wife as such documents might well contain descriptions of services rendered, work done and/or equipment purchased, which DHCJ Judge Lok found to be directly relevant to the disputed issues notwithstanding the defendants’ admissions:

“21. Further, the relevance of a document should not be tested solely against the detailed particulars pleaded by the parties. In this regard, Deputy High Court Judge H Wong, SC said the following in Chan Hung v Yung Kwong Chung, HCA 216 & 217 of 2004, unreported (decision on 15 January 2009):

   “27. … … … For the purpose of discovery, the relevance of a document should not be solely tested against the detailed particulars pleaded by the parties.  It is the pleaded case of the parties in the broad sense that one should be concerned with.  A document may be generally relevant to a party’s case as pleaded (many so‑called ‘background documents’ are of this nature) although its relevance cannot be specifically pinned to some pleaded particulars.  For discovery purposes, the pleadings have to be looked at broadly.”

……

23.  I would add one more observation.  Since it was supposed to be a covert surveillance operation, the Plaintiff would not be able to know the full extent of the alleged unlawful activities relating to the surveillance on the Plaintiff and the Children until the Defendants make full discovery of the relevant documents including the Invoices.  This is also an additional reason why discovery should be ordered in the instant case.”

58.Necessity – evidential materiality  Order 24 rule 8 of the RHC brings in the question of evidential materiality of the discovery sought to a particular issue.  DHCJ Horace Wong SC in Chan Hung said as follows:

“32. In any given case, there is likely to be a spectrum of evidential materiality within which documents may fall. There may be documents which are central to the pleaded issues; but there may also be documents which fall at the other end of the spectrum in that though they may ‘fall within the letter of Lord Justice Brett’s formulation of relevance for discovery purposes’, they are documents which are unlikely to contain or yield information of such evidential materiality to the pleaded case (in the broad sense mentioned above) of the parties as to make their disclosure necessary for the fair disposal of the proceedings or to save costs. The Court is entitled to take the view that although relevance in the Peruvian Guano sense has been established, it is not necessary for them to be disclosed. The power to refuse unnecessary discovery of documents is expressly conferred by the rules of court.

33. Indeed in the O Company v M Company case mentioned above, after dealing with the question of relevance, Colman J further held at p.352:

‘… I would only add that if I had held that the applicable analysis of relevance derived from Compagnie Financiere du Pacifique v Peruvian Guano Co., sup., was wide enough to include as relevant those documents in respect of which I have refused to make an order for discovery, I should in each case have held that discovery was not necessary either for disposing fairly of the matters in issue or for saving costs under O.24. r.8. Documents of which discovery is necessary for the fair disposal of a matter in issue must at least have a demonstrable evidential materiality. For the reasons which I have given in relation to relevance I am not satisfied that all those documents covered by items 9,10 and 20 do so.’

Hence Colman J would have arrived at the same conclusion by applying O.24 r.8 if he had simply followed the ‘letter’ of Brett L.J.’s formulation in the Peruvian Guano case on the question of relevance.”

59.This is echoed in Hong Kong Civil Procedure 2015 which states that “[an] application for discovery of a specific class of documents was refused in Kahn (David) Inc v Conway Stewart & Co Ltd [1972] F S R 69 upon the grounds that the probative value of the documents, if they existed, would be so slight as not to justify the inconvenience of giving discovery; and upon grounds that such discovery was not in the circumstances necessary for determining the issue to which it was said to relate ……”[28]

60.Width of discovery sought  Where the applicant seeks to see a class of documents, the class must not be defined or described so widely as to include documents which are not relevant to the issue.[29]  In other words, the prerequisites for invoking Order 24 rule 7 of the RHC must be established in respect of the class described as a class and not as regards some in the class only.[30] Even though an excessively wide class remains a valid class, the fact that the party will be compelled to discover much irrelevant material in addition to relevant material is something which goes to the issue of whether a discovery order is necessary “either for disposing fairly of the cause or matter or for saving costs”.[31] Put in other words, if the class of documents sought covers a large number of documents, and “disclosure is resisted on the grounds that it would be oppressive ……, the Court will weigh against any such potential oppression the possible injustice that would be caused if the material were not available at trial ……”[32] But where an oppressive, too wide or imprecise request contains within it a proper request which can be revealed without prejudice to the other side, the blue pencil test can be applied to limit the scope of the order.[33]

61.Fishing request Discovery will not be ordered for the purpose of “fishing” or to enable a party to turn a non-issue into an issue.[34] In Re the Estate of Ng Chan Wah, Chu J (as she then was) stated that:[35]

“It is not sufficient for the plaintiffs to say that because there is on the pleading allegation of improper conduct against the defendants as executors, they are entitled to test the basis of the estate accounts generally or to check the accuracy of the items presented in the estate accounts, irrespective of whether they are in issue. It is not the purpose of discovery to give the plaintiffs an opportunity to hunt around the documents in the hope that they will reveal some improprieties on the defendants’ part or will provide information for them to pursue more enquiries.”

62.Credit  “As in the case of interrogatories, discovery solely for the purpose of impeaching the credit of the opposite party and giving him a bad name will not be ordered; it probably does not “relate to a matter in question” ……”[36]

XIII.  PARTIES’ RESPECTIVE CASE

63.P claimed that D1 was in breach of (i) his fiduciary duties which he as WDI Intl’s director/president owed/owes to WDI Intl or (ii) the duties which he as trustee of WDI Intl’s assets/property owed/owes to WDI Intl by misusing or misapplying such assets as follows:

(a) by a series of transfers between 31 July 2002 and 1 April 2012, D1 caused funds in the sum of $1,102,322.40 belonging to WDI Intl to be paid to meet D2-D8’s operating expenses;

(b) by a series of transfers between 1 October 2002 and 1 April 2012, D1 misappropriated from WDI Intl an aggregate sum of $235,528.00;

(c) D1 caused/permitted D2-D8 to carry on their business at the Reg Office since their respective incorporation date but without making any payment to WDI Intl;

(d) D1 caused/permitted D2-D8 to use and benefit from the “administrative”/“supporting” services provided by WDI Intl’s employees from about 2002 without payment to WDI Intl, and in view of the extent of D2-D8’s business/affairs during the financial years ended 31 December 2002 to 31 December 2010, at least 40% of WDI Intl’s total administrative expenses (excluding those that related solely to WDI Intl) of $11,666,371.00, ie $4,666,548.00, were deployed or used for D2-D8’s purposes.

64.P claimed such use of WDI Intl’s assets was unlawful in that (a) D1 never disclosed to P or the WDI Board his interests in D2-D8 or the fact he had caused WDI Intl’s assets to be used for D2-D8’s purposes, (b) there was no board or general meeting authorising such use of WDI Intl’s assets for D2-D8’s purposes, and (c) by reason of D1’s interests in D2-D8 such transactions were in breach of section 162 and regulation 86(1) of Table A in the First Schedule of the Companies (Winding Up and Miscellaneous Provisions) Ordinance Cap 32 (“Old CO”), which P claimed applied to WDI Intl by virtue of article 1 of the Articles. 

65.P claimed that in so misusing or misappropriating WDI Intl’s assets, D1 was benefitting himself and D2-D8 at the expense and to the detriment of WDI Intl, so D1 was in breach of his duties owed to WDI Intl, and notwithstanding the 8/11/12 Payment, WDI Intl suffered loss and damage as follows:

	Amount ($)
1. Payments for D2-D8’s operating expenses	1,102,322.40
2. Amounts misappropriated by D1	235,528.00
3. 40% of WDI Intl’s administrative expenses	4,666,548.40
LESS the 8/11/12 Payment	(1,112,234.00)
Total:	4,892,164.80

66.P also claimed that in further breach of his duties owed to WDI Intl and those under section 121 of the Old CO, and without the knowledge/consent of WDI Intl, WDI Board and/or P, D1 failed to record such transactions in WDI Intl’s books of accounts and audited financial statements so as to conceal his misuse or misappropriation of WDI Intl’s assets, and despite repeated requests made between 21 August and 22 October 2012, D1 (in breach of his duties under section 121(3) of the Old CO) refused to permit P to have access to WDI Intl’s books of accounts.

67.P claimed that since D1 was/is the directing mind and will of each of D2-D8, his knowledge would be imputed into D2-D8’s knowledge, and D2-D8 were therefore liable to account to WDI Intl as constructive trustees in respect of the assets received or misused by them.  Further or alternatively, P claimed D2-D8 were liable to compensate WDI Intl for all loss and/or damages suffered as a result of the misapplication of assets.

68.The Subject Ds denied such claim.  They contended that any duty D1 owed as WDI Intl’s director/president was subject to, and modified and/or restricted by the WDI Arrangements/Agreement, and the funds WDI Tech paid into WDI Intl and the sums WDI Intl received on behalf of WDI Tech were all held by WDI Intl upon trust for WDI Tech to be used/applied for such purposes as directed by WDI Tech from time to time.  The Subject Ds claimed that since WDI Intl did not operate a business with a revenue stream, any cash held by WDI Intl and any monies it deployed were sourced mainly from WDI Tech, and WDI Tech’s cash injections that were used to discharge WDI Intl’s liabilities were reflected as “administrative expenses” in WDI Intl’s audited accounts.  The Subject Ds averred that likewise all sums paid by WDI Intl to meet D2-D8’s various expenses (including the sum of $1,102,322.40) were funded by WDI Tech and held by WDI Intl upon trust for WDI Tech from time to time.  WDI Intl (being the only entity in the D1 Group with an office and bank account in Hong Kong) was a convenient intermediary for transmission of payments for D2-D8’s operating expenses, which payments were recorded as receivables in WDI Intl’s management accounts prepared by Bright Way as company secretary of WDI Intl and D2-D8.  The Subject Ds claimed that since the funds for such payments did not belong to WDI Intl, the use of such funds to meet D2-D8’s operating expenses did not constitute misuse or misappropriation of WDI’s assets.  In the circumsatnces, even if any part of WDI Intl’s administrative expenses in the total sum of $11,666,731.00 for the financial years ended 31 December 2002 to 31 December 2010 were deployed/used for D2-D8’s purposes, by reason of the WDI Arrangements they did/do not constitute misuse or misappropriation of WDI Intl’s assets. 

69.The Subject Ds pointed out these transactions had been recorded in WDI Intl’s management accounts and/or in the accounts audited by Kevin Law & Co in accordance with applicable accounting standards.  WDI Intl’s audited accounts had been duly approved/signed by P and D1, who as WDI Intl’s directors were responsible for preparing and making true/fair presentation of the financial statements in the audited accounts free from material misstatement, and selecting/applying appropriate accounting policies and making accounting estimates that were reasonable in the circumstances.

70.The Subject Ds averred that in any event WDI Intl had not suffered any loss or damage (and D2-D8 had no further liability) as a result of any payment made by WDI Intl in respect of D2-D8’s operating expenses because (a) in/about early November 2012 Bright Way calculated that D2-D8 owed $1,112,234 to WDI Intl for its discharge of D2-D8’s operating expenses, (b) the 8/11/12 Payment was paid to WDI Intl for reimbursement of such operating expenses and P was notified of such payment on 13 November 2012, (c) no further sum was due to WDI Intl by D2-D8. 

71.The Subject Ds further claimed that although they had used the Reg Office as their own respective registered office, (a) they had not at any time (or in any sense) occupied the Reg Office, (b) they only used the Reg Office as an address for company registration and formal filings without carrying on any business thereat, and (c) no loss had been occasioned to WDI Intl by such use.  Further, by reason of the WDI Arrangements, D2-D8’s use of the Reg Office did/does not constitute misuse or misappropriation of WDI Intl’s assets. 

72.The Subject Ds claimed the aforesaid use of WDI Intl’s assets (which WDI Intl held upon trust for WDI Tech) was not unlawful, and whether D1 disclosed his interest was an internal management issue.  The WDI Board conferred extensive powers on D1, and article 17 of the Articles conferred powers upon D1 qua president, so even though the WDI Board did not formally consider the aforesaid use of WDI Intl’s alleged assets, WDI Intl’s other directors were content to acquiesce in D1 running WDI Intl according to the powers granted under article 17 of the Articles.

73.The Subject Ds (a) did not admit the level of “administrative expenses” WDI Intl incurred during the years ended 31 December 2002 to 31 December 2012, (b) denied any element of such “administrative expenses” was properly attributable to them, and (c) even if WDI Intl’s employees had provided any “administrative”/“supporting” services to D2-D8, claimed the nature/extent of those services had been de minimis.  It was alleged that the main business of D2, D5 and D6 concerned bathroom and sanitary related products, and their principal place of business was at the PRC Headquarters in Xiamen, PRC with staff there assisting in their business operations.  They merely used the Reg Office as their respective registered office and not for any other purpose, and they did not have any operating office or bank account in Hong Kong.  Their products were generally shipped by their PRC suppliers (except for one supplier in Taiwan in 2005) directly to addresses in, say, the United States, Europe and Indonesia stipulated by their overseas purchasers, so business communications were mainly among the customers, suppliers and staff at the PRC Headquarters.  It was also alleged that the prior principal activity of D4 and D7 was to act as holding companies for their subsidiaries.  D4 had no business operations or bank account in Hong Kong, and its subsidiaries were deregistered in June 2013.  On 15 November 2010, D7 transferred the shares in its subsidiary Heibei Axent to D5, and since then did not have any operations.  Hence, the Subject Ds as non-residents were granted exemption from Hong Kong profits tax by the Inland Revenue Department since their incorporation.

74.In summary, the Subject Ds denied any misuse or misapplication of WDI Intl’s assets and further denied they received/ misused any WDI Intl’s assets or they were liable to account to WDI Intl as constructive trustee or otherwise.  Even if D1 were the directing mind and will of the Subject Ds and/or D8, it was denied that any knowledge of D1 would have been imputed to any of D2-D8, or any of D2-D8 was liable to account to WDI Intl.  By reason of the above matters, the Subject Ds also denied WDI Intl suffered any loss or damage or D2-D8 were liable to compensate WDI Intl.

75.But P claimed the WDI Arrangements were recent fabrications by D2-D8 for the purpose of avoiding liability to WDI Intl: (a) there had never been any declaration of trust by WDI Intl in favour of WDI Tech in respect of funds used to pay for WDI Intl’s expenses, (b) WDI Intl audited financial statements up to 31 March 2010 refer to monies received from WDI Tech as being “due to a related company”, (c) WDI Intl’s accounts never contained segregation of monies belonging to WDI Intl and those belonging to WDI Tech (as would be standard accounting practice had WDI Intl held monies on trust for WDI Tech), (d) D1-D8 made the 8/11/12 Payment purportedly in full and final settlement of liabilities due from D1-D8, which was inconsistent with the WDI Arrangements. 

76.P claimed the Subject Ds had never disclosed the WDI Arrangements to P or LW.  Such practice was of no convenience to WDI Intl (who received no consideration/payment in return, had less capital to expend for its own purposes, and had to go to the trouble of settling D2-D8’s operating expenses), D2-D8 (since it would require little effort for D2-D8 being Hong Kong companies to open local bank accounts) and/or WDI Tech.  P further claimed the convenience of the WDI Arrangements (which he denied) did not in any way render it lawful or absolve D1-D8 from liability in relation thereto.  Further, P denied the “administrative”/“supporting” services provided by WDI Intl’s employees had been de minimis since they inter alia (a) processed payments to settle D2‑D8’s operating expenses, (b) received, filed and/or stored the invoices/receipts in relation to those payments, correspondence sent to D2-D8, and operational documents of D2-D8 and their subsidiaries. 

77.P claimed that none of WDI Intl’s audited financial statements (which in any event were untrue, inaccurate and unreliable in view of their failure to comply with requisite accounting standards and in view of the untruthfulness, inaccuracy and unreliability of WDI Intl’s internal accounts) evidenced the existence of the WDI Arrangements.  P averred that WDI Intl was responsible for preparing its accounts, but even if such accounts were prepared by Bright Way, all information including raw data of the accounting documents for the preparation of the internal management accounts and audited financial statements were provided by WDI Intl.  P doubted the veracity/accuracy of WDI Intl’s management accounts, and there were indications that the receivables being payments of D2-D8’s operating expenses had not been properly recorded at the time when each audited financial statement was prepared: (a) WDI Intl’s audited financial statements for the financial years 2002 to 2010 did not mention these payments, (b) given D1’s and D2-D8’s relationship with WDI Intl, applicable accounting practice suggested these payments should have been booked as payments “due from a director or a shareholder or related parties” or “loan(s) to a director or a shareholder or related parties” in WDI Intl’s audited financial statements, and they should have been noted as “related parties’ transactions” in the footnotes thereto, (c) since WDI Intl’s audited accounts were not prepared in accordance with applicable accounting standards, and without the disclosure and/or authorisation required by law and the Articles, P by signing/approving such audited accounts could not be taken to have approved of the acts and/or omissions allegedly recorded in the management or audited accounts, and (d) WDI Intl’s reluctance to provide its management accounts to P was reflective of a party seeking to conceal misappropriation of assets.

78.P averred that insofar as the Subject Ds sought to rely on a rule of internal management they in fact had knowledge of each of the matters in paragraph 64 above and/or they were put on inquiry as to those matters by virtue of inter alia the following suspicious/unusual circumstances and/or they did not make proper enquiry to ascertain the payment of their operating expenses by WDI Intl on their behalf, their use of the Reg Office and their use of the “administrative”/“supporting” services of WDI Intl’s employees were properly authorised.  P claimed it was suspicious/unusual that the payments/uses continued for over 10 years (and the payments made and costs incurred by such uses were substantial) without there ever having been a request to provide any consideration or payment in return even though (a) D2-D8 belonged to a different group of companies to WDI Intl, (b) there were no business dealings between D2-D8 and WDI Intl, and (c) D1 was a registered shareholder, direct/indirect beneficial owner and/or director of WDI Intl and D2-D8 whereas P and LW were WDI Intl’s (and not D2‑D8’s) registered shareholders, beneficial owners and directors.

79.P claimed that in using the Reg Office since 2002 as the registered offices of D2-D8 (in which P, LW, WDI Intl and WDI Tech had no legal or beneficial interest but D1 directly or indirectly held the entire beneficial interest) and a storage facility for their documents, including operational documents and receipts for operating expenses settled by WDI Intl, WDI Intl did not receive any consideration or payment in return and had less storage space for its own materials.  P also claimed that WDI Intl’s employees processed payments to settle D2-D8’s operating expenses, received/filed/stored documents of D2-D8,[37] handled D2-D8’s business affairs,[38] and liaised with employees of D2-D8 and their subsidiaries in relation to the affairs of D2-D8 and their subsidiaries.  WDI Intl did not receive any consideration or payment in return for these services of value and had a reduced use of its employees as a result.  The Subject Ds had never disclosed to P or LW such use of the “administrative”/“supporting” services of WDI Intl or the reasons for it.  Such use of WDI Intl’s “administrative”/“supporting” services amount to misuse or misappropriation of WDI Intl’s assets, and they caused WDI Intl to suffer inconvenience, loss and damage.

80.P claimed that as a result of the above matters, a portion of WDI Intl’s administrative expenses not attributable solely to WDI Intl was properly attributable to D2-D8, and attributing 40% of such expenses to D2-D8 were in all the circumstances reasonable.  If the commonly used costs management accounting methodology apportionment based on turnover were used, D2-D8 should be liable for a much larger apportionment percentage.  After all, since the 2003 financial year WDI Intl’s turnover had been $0 whereas since the 2002-2006 financial years D6’s turnover alone ranged from US$1,434,000,000.00 to US$3,499,000,000.00. 

81.P denied that the sum of $1,112,234 represented the correct figure of D2-D8’s operating expenses paid for by and/or owed to WDI Intl.  P claimed the correct sum should be $1,102,322.40 but the sum D1 misappropriated from WDI Intl for his own personal use was $235,528, thus giving a total sum of $1,337,850.40.  Since D1-D8 made clear the 8/11/12 Payment was to cover both misappropriated sums, and they never stated such payment also covered the cost of (a) use of the Reg Office and (b) “administrative”/“supporting” services provided by WDI Intl’s employees, D1-D8 still owed WDI Intl $225,616.40 and accrued interest notwithstanding the 8/11/12 Payment, and D2-D8 were still liable to WDI Intl for a portion of WDI Intl’s administrative expenses not attributable solely to WDI Intl, such portion being 40% of such expenses.

XIV.  SUBJECT Ds’ AFFIRMATION EVIDENCE

82.The Wai 1^st Aff summarised the Subject Ds’ opposition to the Summons as follows:

(a) P was simply fishing for evidence in the hope that he might find some evidence to substantiate his only outstanding claim against the Subject Ds in paragraph 63(c)-(d) above and paragraph 83(b) below that was based on speculation and conjecture, and not supported by facts or evidence.

(b) Both shortly before/after commencement of the present action (from late August 2012 to late 2013), P and his representatives had on numerous occasions conducted very comprehensive inspection/copying of WDI Intl’s documents and records, including accounting documents and records.

(c) WDI Intl had already made very comprehensive discovery of its accounts and accounting records in the present action.

(d) Notwithstanding (b)-(c) above, P was still unable to find anything to support P’s outstanding claim against the Subject Ds, so the Documents were simply not relevant and the Summons a fishing exercise in the hope P might find some evidence to support his outstanding claim.

(e) Since D2 and D6 were incorporated over 14 years ago, D5 was incorporated over 11 years ago, and D4 and D7 were incorporated 8 years ago,[39] the scale of the discovery and production sought would be massive, and highly oppressive against the Subject Ds. 

(f) P failed to show discovery and/or production of the Documents were necessary either for disposing fairly of the cause or matter or for saving costs. 

83.According to the Wai 1^st Aff, P’s claims against the Subject Ds under the ASoC were essentially for (a) the sum of $1,102,322.40 being alleged payments by WDI Intl for D2-D8’s operating expenses, and (b) the sum of $4,666,548.40 being 40% of WDI Intl’s administrative expenses allegedly deployed or used by D2-D8 for their purposes.  The other claims for $235,528.00 being alleged misappropriations by D1 and $2,242,349.00 being alleged wrongful payments of director’s remuneration did not concern D2-D8.

84.In respect of P’s claim in paragraphs 63(a) and 83(a) above, the Wai 1^st Aff claimed the 13/11/12 Letter/Table (with breakdown of sums due from D2-D8, bank transfer confirmations for repayment and detailed calculation of such sums) recorded repayment to WDI Intl in full and final settlement of all audit fees, company secretarial fees and business registration fees paid by WDI Intl on behalf of D2-D8 (including a small sum owing from D1 personally) by way of the 8/11/12 Payment in the total sum of $1,112,234.00.  Since WDI Intl had not settled any additional expenditure on behalf of D2-D8 and/or D1, and the 8/11/12 Payment had been paid to WDI Intl, D1-D8 no longer owed any liabilities to WDI Intl in respect of the claim in paragraphs 63(a) and 83(a) above.

85.In respect of P’s only outstanding claim in paragraph 63(c)-(d) and 83(b) above, the Wai 1^st Aff claimed paragraph 13 of the ASoC showed such claim was not based on facts and evidence, but was purely based on speculation and conjecture, and was totally arbitrary. 

86.The Wai 1^st Aff claimed that from late August to October 2012 and from late October to early December 2013 P (presumably as WDI Intl’s director) and/or his representatives inspected and obtained copies of a comprehensive range of WDI Intl’s documents/records, including accounting documents/records,[40] and further claimed that WDI Intl made extensive discovery of its accounting documents in its List of Documents, which P would have inspected and which included the Monthly Lists that recorded monthly payments from May 2002 to April 2012 by WDI Intl on behalf of D2-D8 for, say, audit fees, company secretarial fees and business registration fees totalling around $1.1 million.  Apart from such fees which had been repaid by way of the 8/11/12 Payment, there was no other payment made by WDI Intl on behalf of any of D2-D8 recorded in the Monthly Lists or evidenced in WDI Intl’s discovered documents and/or WDI Intl’s documents provided to P for inspection.  So there was nothing to support P’s theory, which was no more than speculation and conjecture, that “at least 40% of such expenses were deployed to or used by [D2-D8] for their purposes, that is, HK$4,666,548” as pleaded in paragraph 13 of the ASoC.  P’s application for specific discovery of the Documents was therefore a classic case of fishing for evidence in the hope of finding evidence to substantiate such claim. 

87.The Subject Ds claimed P had not shown the Documents related to one or more of the matters in question in the cause or matter such that they would offer a real probability of evidential materiality since (a) sufficient information/documents had been made available to P by inspection of WDI Intl’s documents and by WDI Intl’s discovery, which demonstrated that the claim in paragraphs 63(c)-(d) and 83(b) above did not have any basis, and (b) specific discovery of the Documents would be a futile exercise and not necessary for disposing fairly of the cause or matter. The Subject Ds also claimed that discovery of 8-14 years of D2-D8’s accounting documents/records would be very draconian and oppressive to them, and not necessary, justifiable or relevant. 

88.Further, the Subject Ds claimed that discovery of the Documents was not necessary for saving costs. First, preparation of the affirmation in respect of the Documents and production/inspection of the same would be very costly for both P and the Subject Ds, and there was nothing to indicate such massive exercise would produce documents that would or might add anything to the documents already inspected by P and the documents already discovered by WDI Intl.  Secondly, since D2-D8 were incorporated 8-14 years ago, the discovery sought would involve them searching for and going through a huge volume of documents (which included not only the Subject Ds’ audited financial statements but also all their internal accounting documents “including but not limited to management accounts and general ledgers, since its date of incorporation”) thereby incurring substantial time and costs.  In any event, there was no basis for the Oldham 2^nd Aff to state that the Documents were in existence since sections 377 and 379 of the Companies Ordinance Cap 622 (“New CO”) (or section 121(3A) of the Old CO) only required Hong Kong companies to preserve accounting records for seven years after the end of the financial year to which such records related, so the Subject Ds had no obligation to keep their accounting records for more than seven years. 

89.As regards P’s application for production of the Documents for inspection, the Subject Ds argued that since P was not entitled to specific discovery of the Documents, he would not be entitled to production of the Documents for inspection.  The Subject Ds contended that P’s application for specific discovery and production of the Documents ought to be dismissed with costs.

XV.  DISCUSSION

90.Mr Lam submitted the Order was wrong in principle and could not stand in that (a) the court had no jurisdiction to order the discovery as sought in the Summons or as ordered by Master S Kwang since P was unable to demonstrate they related to a class of documents relevant to matters in the action, and (b) even if the court had jurisdiction it should refuse to exercise its discretion to do so since (i) such discovery was unnecessary either for disposing fairly of the cause or matter or for saving costs, and (ii) the categories of documents were impermissibly wide-ranging and ill-defined, and amounted to a roving examination or fishing exercise for additional evidence.

91.The Wai 1^st and 2^nd Affs do not deny that the Documents did/do exist or that they were/are in the possession, custody or power of the Subject Ds.  Rather, the Subject Ds suggest the New/Old CO only require Hong Kong companies to preserve accounting records for seven years after the end of the financial year to which such records relate, and argue there is no basis to suggest the Subject Ds have accounting records going back beyond seven years when they have no obligation to keep the same. 

92.I am not persuaded by such argument.  There can be no doubt that companies are expected to have or have had in their possession, custody or power their audited reports, internal accounts and other financial documents (eg invoices, receipts, bank statements and other necessary business records).  Indeed, the Subject Ds have admitted as much by saying Hong Kong companies are required to preserve accounting records for seven years. But this is only the minimum requirement, and there is nothing to prevent Hong Kong companies from keeping their accounting, financial and/or business documents/records for longer periods.  But apart from pointing to the statutory provisions that set the minimum requirements, the Wai 1^st and 2^nd Affs do not say the Documents are no longer in the Subject Ds’ possession, custody or power. 

93.More importantly, the Oldham 2^nd Aff and P 2^nd Aff explain that when P’s solicitors inspected documents at the Reg Office on 10 July 2014 they came to discover that the D2-D8 Documents were stored there, including (a) several box files of D5-D6’s quotations, purchase orders and invoices stored in a cabinet, and (b) piles of marketing materials such as D2-D8’s (in particular D5’s) leaflets, brochures and product specifications on a guest table and on the rack of another cabinet.  P claims that some of the D2-D8 Documents go back more than 13 years ago to May 2001.  Further, D2-D8’s invoices, receipts and other supporting documents that form the basis of P’s claim for misuse or misappropriation of funds in paragraphs 63(a) and 83(a) above date back to July 2002.[41] Plainly, P has sufficiently demonstrate a prima facie case that documents going back more than seven years have been kept by the Subject Ds and that they have the Ordered Documents in their possession, custody or power.

94.Mr Lam submits the Documents or Ordered Documents are unnecessary either for disposing fairly of the cause or matter or for saving costs.  He argues that even taking into account WDI Intl’s discovery and P’s inspection of WDI Intl’s documents at the Reg Office, P cannot demonstrate how the Documents or Ordered Documents will provide any greater evidential materiality in relation to the disputed issues in the present action, and it is insufficient for P to simply allege they may assist on some peripheral issues.  Mr Lam particularly reminds that allegations in the original SoC for dishonest assistance, knowing receipt and conspiracy against inter alia the Subject Ds have been completely abandoned. 

95.The Oldham 2^nd Aff claims that specific discovery is sought in respect of P’s claim against the Subject Ds on the premise they have received/used WDI Intl’s assets without approval by the WDI Board or WDI Intl’s shareholders and/or without provision of consideration in return.  Such assets include (a) WDI Intl’s funds ($1,102,322.40) that have been used to pay for D2-D8’s operating expenses, (b) the Reg Office from where D2-D8 have run their business, and (c) WDI Intl’s human resources being administrative support by WDI Intl’s employees for D2-D8. 

96.As regards the claim against the Subject Ds in paragraphs 63(a), 83(a) and 95(a) above, Mr Lam contends that since the Subject Ds do not dispute that WDI Intl should be reimbursed for payments it has made for D2-D8’s operating expenses, whether or not such operating expenses are intended to be repaid is irrelevant to the pleaded issues, and indeed D1-D8 by the 8/1/12 Payment have repaid a total sum of $1,112,234.00 to WDI Intl in relation to such operating expenses.  As regards P’s allegation that the total sum WDI Intl has paid on behalf of D2-D8 is $1,102,322.40 rather than the sum reflected in the 13/11/12 Letter, Mr Lam submits the Subject Ds do not contend otherwise.  Mr Lam argues that on such basis there is no live issue that necessitates further discovery by the Subject Ds.  In this respect, Mr Lam reminds that P’s calculation of D2-D8’s operating expenses paid by WDI Intl in total sum of $1,102,322.40 is based on individual invoice for each separate sum, so there is no need for further discovery to prove P’s calculation is precisely correct.  Mr Lam argues the probative value of such information is extremely limited and does not justify the massive exercise of disclosing all the Documents or the Ordered Documents.[42]

97.Briefly put, the Subject Ds’ beguiling assertion is that as a result of the 8/11/12 Payment P’s claim is hopeless so there is no outstanding issue that justifies any specific discovery.  Indeed, the 13/11/12 Letter claims D2-D8’s operating expenses paid by WDI Intl have been recorded as amounts receivable in WDI Intl’s management accounts because WDI Intl customarily settles such expenses for D2-D8 who do not have any bank account in Hong Kong, and “all amounts payable would be settled in the ordinary course”, which transpires to be the payment arranged/effected by way of the 8/11/12 Payment.

98.I start my discussion with Mr Lam’s fundamental assertion that this head of claim originally for $525,034.40 in the SoC has been resolved by repayment being the 8/11/12 Payment made after commencement of the present action.  But as seen in paragraphs 28-29 and 52 of the To Decision, To J was unimpressed by such argument which he said ignores P’s amendment of the SoC that increased the quantum for this head of claim.  Such amendment takes effect not from the date of the amendment but from the date of the original SoC, so what stood before the amendment is no longer material before the court and no longer defines the issues to be tried.  Simply put, the issues are defined by the increased sum in the ASoC rather than the lesser sum claimed in the SoC.  I am not persuaded anything turns on Mr Lam’s submissions in relation to the quantum of this head of claim as originally pleaded in the SoC. 

99.Next, a quick study of the Amended Defence reveals that the Subject Ds’ defence to P’s claim in paragraphs 63(a), 83(a) and 95(a) above is much wider in scope than what Mr Lam would have us believe.  In fact, the primary defence pleaded in the Amended Defence (which pleading was not yet available at the Master Hearing) is premised on the WDI Arrangements that irrespective whether WDI Intl has made payment in respect of D2-D8’s operating expenses or not, D2-D8 are not liable to repay WDI Intl because the funds WDI Intl has used to pay D2-D8’s operating expenses are not WDI Intl’s own monies and are held by WDI Intl on trust for WDI Tech to be used/applied for such purposes as WDI Tech directs, and WDI Intl is merely a convenient intermediary for transmission of payments for D2-D8’s operating expenses.  The Subject Ds claim all sums paid by WDI Intl to meet D2-D8’s operating expenses (including the sum of $1,102,322.40 that P alleges) do not belong to WDI Intl but are funded by WDI Tech and held by WDI Intl upon trust for WDI Tech, and on such basis there is no misuse or misappropriation in respect of WDI Intl’s assets. 

100.In my view, such denial of liability to repay premised squarely on non-involvement of any monies/assets of WDI Intl must be the Subject Ds’ primary line of defence.  The Subject Ds’ other assertion that WDI Tech has provided monies to WDI Intl on unsecured and interest-free basis to enable WDI Intl (and not WDI Tech) to customarily settle D2-D8’s operating expenses on the basis that D2-D8 (who treats these as “amounts payable”) are liable to repay (and by the 8/11/12 Payment has repaid) these “amounts receivable” by WDI Intl is necessarily a further/alternative line of defence.  Since such further/ alternative line of defence acknowledges liability to repay WDI Intl for use of WDI Intl’s monies/assets (albeit sourced from WDI Tech on unsecured and interest-free basis),[43] the Amended Reply avers that P regards these two lines of defence to be inconsistent.

101.The matters raised by the Subject Ds and Mr Lam in paragraphs 96-97 above are focused on the further/alternative (but not the primary) line of defence.  Mr Kam complains that although counsel for the Subject Ds (not Mr Lam) has confirmed at the Master Hearing that the Subject Ds will not rely on the WDI Arrangements to dispute liability to make repayment of their operating expenses paid by WDI Intl,[44] and that they will merely contend there has been full repayment to WDI Intl (without disputing liability to repay) by the 8/11/12 Payment, the primary line of defence has been slipped back into the Subject Ds’ pleadings by the amendments in the Amended Defence filed on 21 October 2014[45] shortly after the Order was granted.[46] Mr Kam therefore says the Subject Ds’ arguments set out in paragraphs 96-97 above are misleading.

102.In my view, the Appeal is by way of re-hearing, and it is not without significance that P is now faced with the Amended Defence (rather than the Defence) being the Subject Ds’ current pleadings.  I cannot ignore (as Mr Lam suggests I should) the pleaded primary line of defence premised on the WDI Arrangements that deny any misuse/ misappropriation of WDI’s Assets on the basis that there is no liability to repay WDI Intl, especially when the Subject Ds have particularly chosen to include such averments in their pleadings by amendments made after the granting of the Order.

103.The primary line of defence takes on significance because it is clear from the P 2^nd Aff and the Reply (now the Amended Reply) that P disputes both lines of defence: he denies the existence of the WDI Arrangements, and he disagrees D2-D8 have made full repayment of the operating expenses WDI Intl has paid on their behalf.  Mr Kam reminds that the WDI Arrangements have not been explicitly documented anywhere, and paragraphs 32-34 and 38-39 of the To Decision have expressed doubts as to its existence.  This clearly suggests that the Subject Ds’ primary line of defence does raise disputed issues that are relevant to the Summons.

104.Although it will be logical to first consider the primary line of defence to elicit the relevance of the Ordered Accounts to the disputed issues arising thereunder, I defer to Mr Lam’s emphasis on the further/ alternative line of defence and deal with it first.

105.On the premise that the Subject Ds are required to repay WDI Intl for their “amounts payable” (ie “amounts receivable” by WDI Intl) being operating expenses that WDI Intl has paid on their behalf, Mr Lam places heavy reliance on the 8/11/12 Payment (which he says has fully settled the Subject Ds’ liability to repay) to suggest there is no remaining issue that justifies discovery of the Documents or Ordered Documents.  But P’s case[47] shows there are unexplained differences between P’s and the Subject Ds’ calculations that raise fundamental questions as to whether there has been “full” repayment, which at the very least demonstrates that P’s claim is not as hopeless as the Subject Ds would have us believe:

(a) P claims that D2-D8’s operating expenses paid by WDI Intl are $1,102,322.40, but the 13/11/12 Letter puts such expenses at a lesser sum of $1,096,709.00.[48] The difference is $5,613.40, but it cannot be lightly brushed aside merely on the basis that the Subject Ds in face of the quantum of P’s claim and in defence thereto the Subject Ds simply do not contend otherwise[49] (especially when the different sums put forward by P and the Subject Ds are not round-off ballpark figures but precise sums that must surely correlate to underlying individual payments and calculations).

(b) This immediately calls into question whether the grouped sums allegedly owed by each of D2-D8 (which again are precise amounts rather than round-off ballpark figures) set out in the 13/11/12 Table are accurate, and whether the 8/11/12 Payment is truly paid in full settlement of D2-D8’s operating expenses paid by WDI Intl.  This is of particular concern because P claims the cumulation of individual payments that result in the total sum of $1,102,322.40 are supported by documents,[50] but in the absence of contemporaneous supporting documents and any breakdown of the grouped sums in the 13/11/12 Letter/Table one is left to wonder how the Subject Ds have arrived at the total sum of $1,096,709.00 and whether it is correct/accurate. 

(c) Although the difference between P’s calculations and the amounts put forward by the Subject Ds is not large, such difference arguably reflects a more fundamental dissension between P and the Subject Ds as to what underlying items of payment in respect of D2-D8’s operating expenses by WDI Intl comprise the alleged repayment, which further brings into question whether all of the individual items of payment that comprise P’s claim of $1,102,322.40 in Schedule 1 of the ASoC have actually been repaid.

(d) It is interesting to note that Chau’s WS reveals three payments not included amongst the individual items of payment that comprise P’s claim of $1,102,322.40 in Schedule 1 of the ASoC,[51] so even on presently known information, D2-D8’s operating expenses paid by WDI Intl arguably should be $1,102,322.40 + $2,600.00 + $3,212.00 + $716.00 = $1,108,850.40, which is again different from the sum of $1,096,709.00 allegedly repaid by D2-D8 by way of the 8/11/12 Payment.

(e) In the ASoC, P claims D1 has misappropriated WDTL’s Intl funds in the sum of $235,528.00[52] which ought to be repaid, so on P’s case the total repayment due from D1-D8 is $1,102,322.40 + $235,528.00 = $1,337,850.40, and on presently known information in (d) above it is $1,108,850.40 + $235,528.00 = $1,344,378.40.  The pertinence of P’s claim against D1 arises from the explanation given in the 13/11/12 Letter/Table that the 8/11/12 Payment is meant to cover sums owing to WDI Intl by D2-D8 as well as by D1.[53] But no matter whether P’s claim against D1-D8 is $1,337,850.40 or $1,344,378.40, it is significantly more than the sum of $1,100,209.00 out of the 8/11/12 Payment that the Subject Ds allege in the 13/11/12 Letter/Table as being repayment attributable to D1-D8.[54]

(f) P also claims WDI Intl is entitled to interest on the sums paid for D2-D8’s operating expenses, which may be substantial given that some payments have been made 12 years ago and compound interest may possibly be ordered.  The Subject Ds have not addressed this in the Wai 1^st and 2^nd Affs and neither has Mr Lam in his written submissions.  But even if one puts aside the possibility of compound interest, it is plainly arguable for P to claim interest as recognised in paragraphs 40, 47 and 52 of the To Decision.

(g) The above demonstrates that even if D2-D8 do not dispute any liability to repay their operating expenses which WDI Intl has paid on their behalf, there is still a real dispute as to whether there has been full and final repayment of all sums owed by D1-D8 (as the Subject Ds allege) or whether there is still a shortfall (as P claims), which is not a mere contest of arithmetics but a genuine dispute of real substance that goes to whether and which of the underlying individual items of payment in Schedule 1 of the ASoC has been repaid.  To J in dealing with the Strike Out Application has questioned the existence of the alleged long standing back-to-back reimbursement arrangement, and in paragraph 34 of the To Decision he has said “[it] is also significant to note that settlement “in due course” meant the only reimbursement in ten years [ie the 8/11/12 Payment].  The assertion of long standing arrangement of payment and reimbursement is just a bald assertion unsupported by any evidence.  As [P] put it, the reimbursement [by the 8/11/12 Payment after the commencement of the present action] is no difference from restitution by a thief after having been caught”.  In short, there is arguable basis for P to call into question the alleged repayment by way of the 8/11/2 Payment as purported answer to his claim in paragraphs 63(a), 83(a) and 95(a) above.

(h) Mr Kam complains that previously D2-D8 have already put forward the argument that WDI Intl’s claim for reimbursement of payment for their operating expenses has been extinguished by the 8/11/12 Payment,[55] and even though P has already responded with the above explanations[56] and even though paragraphs 40, 47 and 52 of the To Decision have rejected the Subject Ds’ reliance on the contention that there has been full repayment for the purpose of the Strike Out Application, the Subject Ds still fail to address P’s explanations in resisting the Summons and prosecuting the Appeal. 

(i) I agree with To J that P’s claim in paragraphs 63(a), 83(a) and 95(a) above is arguable and viable, and it is certainly not clear and obvious that such claim is hopeless, extinguished and/or concluded merely by the 8/11/12 Payment.  In face of the To Decision, Mr Lam at the Hearing has conceded as much and he has restricted his reliance on 8/11/12 Payment merely for criticism against the wide and disproportionate scope of the discovery ordered, especially in relation to the Ordered Accounts rather than to suggest that this head of claim by P has been extinguished.

106.In my view, review of the Ordered Accounts is necessary for they clearly go towards resolving the dispute as to whether the 8/11/12 Payment amounts to repayment made on the basis calculated by the Subject Ds or on the basis as P alleges.  The fact that the Subject Ds are able to refer to particular payments in paragraph 105(d) above that are not known to P from the documents he or his representatives have inspected at the Reg Office and/or from WDI Intl’s discovery also goes to show that (a) WDI Intl’s disclosure whether for inspection or by discovery is not as comprehensive as the Subject Ds suggest, and (b) (as evident from Chau’s WS) the Subject Ds hold documents relevant to the present action that have not been discovered and/or disclosed.  The matters in paragraph 105(e) above also raise question over the accuracy/reliability of (i) the contents of the 13/11/12 Letter/Table, (ii) the amounts allegedly repaid by D2-D8, and (iii) the underlying individual operating expense payments that comprise the alleged repayment.

107.Mr Kam has drawn my attention to paragraph 68(3) of P’s WS which raise questions as to the reliability of WDI Intl’s management accounts, eg the “ending balances” of balance sheet items for a year in which the debtor account of one of the Subject Ds do not correspond with the “opening balances” of the same items in the following accounting year, and suggests that prima facie there at least seems to be debts (other than those set out in the ASoC) owed to WDI Intl by the Subject Ds.  On the other hand, Mr Lam says this is irrelevant because the issues are defined by the pleadings, and not by matters raised in witness statements but not specifically pleaded in the ASoC and Amended Reply.  He says P may (if he can) apply for further discovery if and when obtains leave to include such assertions in his pleadings.

108.In my view, the Ordered Accounts are relevant even without specifically adding new heads of claim for other alleged unauthorised misappropriations by the Subject Ds canvassed in P’s WS.  What is significant is that P’s WS lends colour to the suggestion that WDI Intl’s management accounts may well be unreliable and inaccurate,[57] and gives further weight to the prima facie case that P has demonstrated for disputing the Subject Ds’ fundamental propositions that the 8/11/12 Payment represents their full and final repayment to WDI Intl and that such repayment covers the individual items of payment of operating expenses in Schedule 1 of the ASoC. If there is some evidence to show that WDI Intl made payments for items of D2-D8’s operating expenses other than those set out in Schedule 1 of the ASoC,[58] then irrespective whether they have been the subject of claim in the ASoC, it becomes immediately questionable whether the 8/11/12 Payment amounts to “full” repayment by D2-D8 to WDI Intl. In my view, there is clear and cogent basis for ordering specific discovery of the Ordered Accounts to verify entries of “amounts payable” by the Subject Ds against “amounts receivable” due to WDI Intl.

109.Turning to the Subject Ds’ primary line of defence as discussed above, ie there is no liability to repay WDI Intl at all given the existence of the WDI Arrangements, Mr Kam says the Ordered Accounts are relevant and necessary for disposing fairly of the cause or matter and/or for saving costs.  He says that if the WDI Arrangements exist, there should be entries in WDI Intl’s accounts for sums “due from” D2-D8 under the “assets” section and matching entries in the Subject Ds’ accounts for sums “due to” (or accounts payable to) WDI Tech (or loans from related companies) under the “liabilities” section.  P contends that failure to record the latter (or the existence of mismatched entries) may go to support P’s assertion that the WDI Arrangements do not exist and there has been misuse or misappropriation of WDI Intl’s own funds for paying D2-D8’s operating expenses.  Further, as P fairly recognises, matching corresponding entries in the Subject Ds’ accounts as being sums due to WDI Tech (or loans from related companies) can arguably bolster their case that there is such a scheme.  On such basis, I agree with Master S Kwang[59] that the Ordered Accounts are relevant towards establishing whether or not the WDI Arrangements have ever existed.

110.I further note that D2-D8 also allege P has approved use of funds to pay for D2-D8’s operating expenses by reason of their having been recorded in WDI Intl’s management accounts and P having approved WDI Intl’s audited accounts.  Quite apart from the concerns discussed above, paragraph 36 of the To Decision has also expressed scepticism in respect of such allegation.  Indeed, all along P has queried the veracity/accuracy of WDI Intl’s management accounts and has made clear his approval of WDI Intl’s audited accounts does not equate to approval of payments by virtue of D1’s failure to make necessary disclosures,[60] which concerns are also reflected in paragraphs 35-36 and 38-39 of the To Decision. 

111.Plainly, there is a live issue as to the accuracy and effect of WDI Intl’s management/audited accounts.  Since it has been alleged that various payments have been paid by or through WDI Intl on behalf of D2-D8, the existence or otherwise of corresponding entries in the Ordered Accounts clearly goes towards supporting or undermining the reliability of WDI Intl’s accounts upon which the Subject Ds place strong reliance and upon which P seeks to challenge.  Mr Kam says the Ordered Accounts will also enable P to come to a view to elect between remedies for account/inquiry or for repayment.  In my view, the Ordered Accounts are plainly relevant to the issues in the present action.

112.Mr Lam submits it is wholly unacceptable to make specific discovery application for the sole purpose of “shedding light on credibility” of the Subject Ds.  However, the above analysis shows that far from just going solely towards “impeaching the credit of the opposite party and giving him a bad name”, the Ordered Accounts do “relate to a matter in question” for they are likely to provide information that may support or undermine the P’s and the Subject Ds’ respective contentions on the aforesaid disputed issues.

113.As regards P’s claim against the Subject Ds in paragraphs 63(c)-(d), 83(b) and 95(b) above, the Subject Ds claim that D2-D8’s use of the Reg Office and WDI Intl’s human resources is not based on facts and evidence, but is purely based on speculation and conjecture and is totally arbitrary.  Mr Lam submits that:

(a) the use of the Reg Office as D2-D8’s registered offices has been recorded in the Companies Registry and the annual market value of such use as alleged by P is $2,000-$3,000, hence the Documents or Ordered Documents are irrelevant to the resolution of such issue;

(b) it is misconceived and plainly unjustified to seek discovery of the Subject Ds’ internal accounting documents purportedly to ascertain the precise percentage of WDI Intl’s resources used for the purpose of D2-D8 (arbitrarily alleged by P to be 40% of the administrative expenses WDI Intl have incurred that are not related solely to WDI Intl) because (i) all (or even a significant proportion of) such documents as a class cannot be relevant to the issues in the present action, which is the threshold for the court’s jurisdiction to order specific discovery, and (ii) such wholesale examination of all the Subject Ds’ internal accounting documents, whether or not these include the Ordered Records, amounts to a roving examination of the Subject Ds’ internal and confidential business documents, and is therefore an unjustified fishing exercise. 

Mr Lam says that at the highest, any discovery of quotations, invoices and receipts and vouchers (without prejudice to the Subject Ds’ argument that no such documents have been sought in the Summons) should be limited to the swearing of an affidavit as to whether there are such documents of the Subject Ds for the financial years 2010-2012 which have been handled by any of WDI Intl’s employees (if any) (ie the Alternative Records).

114.Mr Kam submits there is no basis to suggest that such claims are hopeless and that the charges against the Subject Ds are misconceived.  The P 2^nd Aff says that as regards D2-D8’s use of the Reg Office and WDI Intl’s administrative resources, D2-D8’s annual returns as well as various invoices sent by third parties to D2-D8 and/or payment vouchers for operating expenses give the Reg Office as their addresses, so as a matter of logic D2-D8 have used the Reg Office for their addresses and for its physical storage space to store the invoices/vouchers, and D2-D8 have also used the services of WDI Intl’s employees to receive/store these documents and to process payments to third parties, all of which uses have monetary value. 

115.Moreover, P claims that inspection at the Reg Office on 10 July 2014 reveals that the D2-D8 Documents have been stored at the Reg Office, including the documents described in paragraph 93(a)-(b) above, which show that D2-D8 have made substantial use of the Reg Office and WDI Intl’s administrative resources.[61]  P argues that such evidence shows D2-D8, without appropriate consent and without payment of any consideration and for their own benefit and/or for purposes unconnected with the business of WDI Intl, have made use of the Reg Office and WDI Intl’s administrative/human resources on a widespread scale, which casts doubt on the truthfulness/accuracy of D2-D8’s assertions otherwise in the Bai 2^nd Aff,[62] the Defence (now the Amended Defence)[63] and the Wai 1^st Aff.[64]

116.Mr Kam submits the Ordered Records are critical for determining to what extent the business of the Subject Ds has been conducted through WDI Intl and thus to what extent the administrative expenses of WDI Intl are caused by the Subject Ds and in turn what percentage of such expenses should be paid by the Subject Ds.  Mr Kam further argues the Ordered Records will also be important for determining whether any further payments have been made on behalf of the Subject Ds, especially when the payment vouchers/documents made available by WDI Intl for inspection and/or by discovery are not comprehensive.[65]

117.P says it is ironic that he is criticised for putting forward an arbitrary percentage of WDI’s administrative expenses attributable to D2‑D8 when the reason why he cannot assess more accurately what percentage of WDI Intl’s resources have been used for D2-D8 rather than for WDI Intl itself is because he does not have access to D2-D8’s internal documents.  P claims that under the principles of cost accounting a more accurate assessment requires the parties’ “cost drivers” (ie the factors that cause costs to be incurred within an organisation), and that the Ordered Documents (in particular D2-D8’s audited accounts) will allow for determination of the “cost drivers” and thus the percentage of the administrative expenses attributable to D2-D8.

118.I start with Mr Lam’s complaint that it is misconceived for P to contend the Ordered Documents (and in particular the Ordered Records) somehow fall within the class of documents described as “all internal accounting documents” being part of the Documents.  Mr Lam points out that the Summons seeks to define “internal accounting documents” as “including but not limited to the management accounts and general ledgers” (my emphasis) without mention of quotations, invoices, receipts or vouchers, and that even the Oldham 2^nd Aff makes no mention of these documents.  Mr Lam submits the Documents as a class is ill-defined and hopelessly wide (and there has been no attempt to amend the schedule in the Summons), and the mutation into quotations, invoices, receipts and vouchers cannot fall within any reasonable interpretation of “internal accounting documents”.

119.Mr Kam submits it is provided in the Accounting Standard that for the purpose of the Hong Kong Standard on Auditing (which explains inter alia what constitutes audit evidence in an audit of financial statements), “accounting records” means “[the] records of initial accounting entries and supporting records, such as checks and records of electronic fund transfers; invoices, contracts; the general and subsidiary ledgers, journal entries and other adjustments to the financial statements that are not reflected in journal entries; and records such as work sheets and spreadsheets supporting cost allocations, computations, reconciliations and disclosures”.  In short, internal accounting records are the underlying documents that provide information for preparation/verification of the financial statements.  Mr Kam therefore argues that the Ordered Records plainly come within the class of “internal accounting documents” even though they are not mentioned in the Summons as specific examples of such class.  On the other hand, Mr Lam submits that the Accounting Standard offers no assistance because unless P can identify with precision the class of documents sought and demonstrate how all documents in such class (as opposed to potentially some documents in the class) are relevant to the pleaded issues in the present action, the court has no jurisdiction to order discovery, and P’s application is nothing but a roving examination or fishing exercise which must be dismissed.

120.I am not persuaded the Documents are ill-defined or hopelessly wide.  Apart from management accounts and general ledgers, “internal accounting documents” as a class of documents necessarily refers to the raw data or primary documents internal to the company that enable preparation and verification of the financial statements, and the Ordered Records plainly fall within such a class.  But even if the request in the Summons for specific discovery is too wide or imprecise, since I accept the Ordered Records are properly within such a class, the blue pencil test can be applied to limit the scope of the discovery if such limited specific discovery “is a proper request which can be revealed without prejudice to the other side”.  Mr Kam contends there is no prejudice because even if, as the Subject Ds contend, the Ordered Records are not within the “internal accounting records” as a class of documents and the Summons is dismissed on such basis, P remains entitled to apply for specific discovery of the Ordered Records as being documents relevant to and necessary for resolving the disputed issues and the Subject Ds will face the same application as they do now.

121.It is therefore useful to turn to the question whether or not it is proper to grant specific discovery of the Ordered Documents (and in particular the Ordered Records) as being relevant to a matter in question.  As seen in paragraph 115 above, the revelations from the D2-D8 Documents from inspections at the Reg Office demonstrate that P has shown a prima facie case that D2-D8’s use of the Reg Office and WDI Intl’s administrative resources has been more than de minimus, and that WDI Intl’s employees have rendered service/assistance in relation to pitching for and handling business transactions on behalf of the Subject Ds.  Plainly, there is dispute between the parties as to the scope and extent of “administrative”/“supporting” assistance rendered to D2-D8 by WDI Intl by their use of the Reg Office and/or services by WDI Intl’s employees. In such context, Mr Kam submits that access to the raw accounting records (being the Ordered Records) is necessary to give a full picture for working out the appropriate apportionment of WDI Intl’s administrative expenses that are attributable to the Subject Ds, and for determining whether the broad-brush apportionment percentage of 40% presently adopted by P is correct or not. 

122.But Mr Lam submits that even if some primary documents ought to be discovered (which he disagrees), it should be limited to the Alternative Records, ie quotations, invoices, receipts and vouchers of the Subject Ds during the financial years 2010 to 2012 “handled by any of the employees of WDI Intl (if any)” otherwise discovery of the Ordered Records will be impermissibly wide and wholly disproportionate.  He argues that any quotations, invoices, receipts and vouchers not handled by WDI Intl’s employees are irrelevant, and there is no need to compare the proportion of business transactions of each of the Subject Ds handled by WDI Intl’s employees against those that were not so handled.  He also expresses concern over wholesale disclosure of D2‑D8’s confidential business transactions.   Mr Lam says that if any specific discovery is required (which he disagrees), at the highest it suffices for the Subject Ds to file/serve a disclosure affidavit limited to the Alternative Records, and leaving it to P (if he can) to challenge the veracity of such affidavit at trial.

123.As discussed above, I am persuaded the plaintiff has demonstrated he has arguable basis to suggest the Subject Ds have used the Reg Office and WDI Intl’s “administrative”/ “supporting” services that is significantly more than de minimus, so there is justifiable basis to seek specific discovery of the Ordered Records which, in my view, are necessary and evidentially material to aid resolution of the dispute. The Subject Ds have all along been shy about the nature of information their internal accounting documents or their quotations, invoices, receipts and vouchers may reveal. Whilst it is commercially logical for P to expect the Ordered Records may reveal some direct information (eg the P 2^nd Aff claims D2-D8’s quotations may ask potential customers to liaise with WDI Intl employees, and D2‑D8’s invoices may ask for payments to be sent to the Reg Office for WDI Intl’s employees to acknowledge receipt), they may not necessarily be so directly helpful.  But it does not mean there is therefore no evidential materiality to the disputed issues.  In those circumstances, P may well have to carry out a forensic cross-match exercise between the Subject Ds’ internal accounting records and the documents from discovery by WDI Intl (eg entries in WDI’s accounts/ledgers and its bank statements) and from P’s inspection of the documents at the Reg Office (eg documents from the D2-D8 Documents), and on such basis ask the court to draw inference as to the scope of the Subject Ds’ use of the Reg Office and the “administrative”/“supporting” services rendered by WDI Intl’s employees. In this respect, I am mindful that the learned master has blue-pencilled the discovery request so that the Ordered Records are limited as to the nature of documents to be disclosed and the relevant time period.

124.This nicely brings in Mr Kam’s concern over informational asymmetry between P on the one hand and the camp comprising Subject Ds, D1 and WDI Intl on the other hand.  Mr Kam submits that (a) P in good faith placed WDI Intl in D1’s hands and was not involved in WDI Intl’s affairs for the past 14 years, (b) D1 all along has complete control of WDI Intl and its day to day operations, so he knows (in a way P never can without discovery), say, the details of how and how much WDI Intl’s employees were working for D2-D8 or details of the amounts of funds paid for the benefit of D2-D8, (c) P has legitimate and substantial doubts as to whether WDI Intl has provided all the relevant documents in his possession, custody or power, and (d) the Subject Ds has informational advantage over P by virtue of being in the same camp as D1 and WDI Intl, thus, in the interest of fairness and justice and taking into account concerns over information asymmetry as expressed by DHCJ Lok in Horst Joachim Franz Geicke, this court should uphold the Order. Mr Kam says that to allow the Appeal will cause serious prejudice to P.

125.In my view, the disputed issues in the present action on their own justify the need for the Ordered Records, and the undoubted informational asymmetry between P and the Subject Ds merely reinforces such conclusion.  The reality is that P is placed between a rock and a hard place. He has an arguable claim and has demonstrated prima facie basis that the Ordered Documents are essential and relevant for proving or disproving his claim, but such documents are all with WDI Intl and D2-D8. On the other hand, the Subject Ds criticise the vagueness in P’s apportionment of the “administrative”/“supporting” services by WDI Intl attributable to them, but at the same time they keep the Ordered Documents close to their chest. This is clearly a case in which specific discovery of the Ordered Documents will create a level playing field for disposing fairly of the cause or matter between the parties.  In all the circumstances, I am not persuaded that the proposed variation of the Order alternatively suggested by the defendant is appropriate or adequate for disposing fairly of the cause or matter.

126.In my view, in light of the Subject Ds’ denial of P’s claim and given the matters in paragraphs 77, 108 and 110-111 above which have raised an arguable case that the accuracy and/or reliability of WDI Intl’s audited and management accounts are questionable, the source or raw accounting records being quotations, invoices, vouchers and receipts of the Subject Ds must be relevant and necessary for resolving the disputed issues, ie to enable P to assess the extent to which the Subject Ds used the Reg Office and WDI Intl’s administrative resources, and to elect between the remedies of an account/inquiry or a claim for repayment/damages.  This is especially so when Master S Kwang has carefully limited the scope of discovery of the Ordered Records to the financial years of 2010 to 2012, leaving open the option for future application for further discovery if necessary after review of the Ordered Documents. 

127.Turning to another aspect of the question of necessity which has been touched upon in the above discussion (and I have borne in mind that the burden of challenging necessity falls on the Subject Ds), it has been suggested that the Ordered Documents are unnecessary given WDI Intl’s extensive discovery and P’s inspection of WDI Intl’s documents.  But, as explained above, P has shown a prima facie case for doubting the comprehensiveness of the documents provided under such discovery/ inspection.  Further, it is difficult to see how WDI Intl’s provision of its documents to P absolves D2-D8 as separate defendants in the present action from their own discovery obligations if the Ordered Documents are relevant and necessary.

128.P claims that (a) WDI Intl is in D1’s complete control and its employees act in accordance with D1’s instructions, (b) there is much hostility between P and D1 (and with WDI Intl’s employees personally),[66] (c) there is a general history of concealment by WDI Intl[67] and specific concealment of documents relevant to the present action,[68] and (d) WDI Intl cannot be believed because D1 being its controlling mind has (i) dishonestly applied WDI Intl’s funds, the Reg Office and WDI Intl’s administrative resources, (ii) produced false minutes, and (iii) repeatedly caused false statements to be filed on oath.  Indeed, the P 2^nd Aff claims the inspection on 10 July 2014 was cut short by WDI Intl so that P’s representatives were only able to photograph a small portion of the D2‑D8 Documents seen, and there may well be further documents belonging/relating to D2-D8’s affairs that P’s representatives have not been able to see/discover at the Reg Office, which fuels P’s concern that there may have been selective disclosure on D1’s ultimate instructions.  However, for the present purpose, it is not necessary for me to come to any definitive view on these assertions, but at the very least the matters highlighted in paragraphs 77, 108 and 110-111 above show an arguable case that the WDI Intl’s documents discovered/inspected may well not be complete, and it is an insufficient answer for the Subject Ds to point to WDI Intl’s discovery and P’s inspection of WDI Intl’s documents at the Reg Office to challenge the Order.

129.As regards the suggestion that specific discovery of the Ordered Documents will be oppressive and/or a colossal waste of substantial time and costs bearing in mind the scale of the discovery, Mr Kam reminds that the Ordered Documents comprise the Ordered Accounts and Ordered Records.  As regards the former, since Hong Kong companies are required to file one audited report each year, so even if any of D2-D8 has been established as early as 2002 (but D4 and D7 came into existence only in 2006), there can only be 13 audited financial statements which can hardly be described as voluminous.  The same observations can be made for the corresponding management accounts.  The Subject Ds have not condescended upon how they will have to spend very much time to search for or go through the Ordered Accounts or why such exercise is oppressive to them.  There is no evidence that the Ordered Accounts (or indeed the Ordered Records too) are kept anywhere other than in the Reg Office or that extensive searching will be required.  Further, there is no evidence of the rough volume/number of documents that form the Ordered Records or that needs to be gone through for complying with the Order.  Mr Lam submits that D6 is a sizable trading company with an annual turnover that ranges from US$1,434,000,000.00 to US$3,499,000,000.00.  But there is no evidence at all as to whether D6 has engaged in high volume of small sales or low volume of large sales in the financial years from 2010 to 2012 to support the suggestion that the Order entails a colossal exercise. 

130.Further, even if the Order does involve many documents and hence time and costs, this court is mindful of the necessity of the Ordered Documents for disposing fairly of the cause or matter.  As explained in paragraph 60 above, the court will weigh the potential oppression against the possible injustice if the documents were not available. In light of the aforesaid analysis, I have no hesitation in coming to the conclusion that justice requires that the Ordered Documents be discovered and disclosed. Mr Lam alludes to concerns over confidentiality over the Subject Ds’ business documents, but discovered documents are protected by usual undertakings as to their use. In weighing the relevant factors, I am persuaded that justice and necessity come down in favour of the Order.

131.There is even no need for me to go so far as P asserts, ie that (a) D2-D8 in colluding in the misapplication of WDI Intl’s funds, the Reg Office and WDI Intl’s administrative resources for such a lengthy period only had themselves to blame for this allegedly “massive” discovery exercise, and (b) had the Subject Ds’ controlling mind not insisted on blocking inspection by P’s representatives at the Reg Office on 10 July 2014 pursuant to the rights given to him under the New CO they might well not be facing a specific discovery application. At this interlocutory stage, there is no need for me to form any definitive view on these matters.

132.I am unconvinced by Mr Lam’s submissions that the Summons is a fishing exercise to reveal some further alleged improprieties on the part of the Subject Ds.  Whether or not further improprieties will be revealed upon review of the Ordered Documents is beside the point.  I am satisfied that the Ordered Documents are necessary for disposing fairly of the cause or matter and is likely to provide information of evidential materiality to the disputed issues that justify their disclosure.

XVI.  CONCLUSION

133.For all of the above reasons, I dismiss the Appeal.  There is no reason why costs should not follow event, and I grant a costs order nisi that the Subject Ds do pay P costs of and occasioned by the Appeal (including all costs reserved if any) to be taxed if not agreed.

Mr Hugh Kam, instructed by Oldham, Li & Nie, for the plaintiff

Mr Douglas Lam, instructed by Henry Wai & Co, for the 2^nd and 4^th to 7^th defendants