HELM HONG KONG LTD v. MARK OLIVER VON TORKLUS

HCA 2327/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2327 OF 2006

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REASONS   FOR   DECISION

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1.  I heard this Master’s appeal on 16 October 2008, and allowed the appeal in part, with reasons to follow.  These I now give.

2.  The appeal is by Helm HK against Master Lung’s order of 20 December disallowing, in part, Helm HK’s application for specific discovery and production.  The specific discovery is directed to Mr von Torklus’ bank accounts and was expressed in the following terms:

“Monthly bank statements from 2000 to date in relation to all bank accounts wholly or partially beneficially owned by (Mr von Torklus) (for the avoidance of doubt, complete and unredacted).”

The Master restricted the discovery to:

“accounts relating to RMB as contained in the HSBC bank accounts, redacted by (Mr von Torklus) as pleaded in paragraph 15.8.3 of the Amended Statement of Claim”.

3.  Mr Man, for Helm HK, seek discovery in the terms originally pleaded in the summons.

4.  In order to protect Mr von Torklus’s privacy the Master ordered that unredacted copies of the bank statements should be produced to be inspected by the solicitors and directed that agreement should be reached on the relevant entries, with the balance redacted.  Although the appeal was directed to this order as well, Mr Man accepts that, in the circumstances, he need not pursue that part of the appeal. 

5.  Consequently any discovery will initially be between solicitors, with agreement to be reached as to redaction.  Any  knowledge of the contents of the bank statements acquired by Helm HK’s solicitors, of matters not relevant to the proceedings, and accordingly redacted, is to be kept confidential by them and may not be conveyed to Helm HK.  In the event that the parties are unable to agree upon redaction, liberty to apply is reserved.

6.  Mr von Torklus was a company director, and the Managing Director of Helm HK from February 1998 to June 2006.  Helm HK is a wholly owned subsidiary of Helm AG, a company incorporated under the laws of Germany.

7.  Mr Man was content to adopt my formulation of Helm HK’s claim in the following terms. 

8.  It can hardly be argued by Mr von Torklus that there was not a fraud perpetrated by some other people on Helm HK in two ways, one, called in the amended statement of claim the Secret PRC Business, and the other, called in the amended statement of claim the Prejudicial Transactions.  And Mr von Torklus cannot deny that he was involved in the fraud to the extent, at least, that he received approximately RMB1.1 million, from Mr Decky Au, one of the alleged fraudsters.  Mr von Torklus acknowledges that that sum was monies to which Helm HK were entitled, but which he paid into a bank account jointly held by him and his wife.  He has subsequently refunded that sum to Helm HK.

9.  Mr Man says that action, of placing Helm HK’s funds in his own account, demonstrates that Mr von Torklus was a party to the fraud.  Mr von Torklus says that he kept the money in a separate account, and held the funds on trust for Helm HK.  Mr Man replies, that demonstrates his involvement in the fraud, for if he knew that the money was Helm HK’s money he should have placed it immediately in a Helm HK account.  Mr von Torklus says he can explain why the funds were not placed in Helm HK’s own account.  

10.  Mr Man says that it is unarguable that the fraud, in both its forms, extended beyond the RMB1.1 million, and that the suspicion arising from the undeniable steps taken by Mr von Torklus in placing a sum belonging to Helm HK in his own account, is such that Helm HK should be able to look at all of Mr von Torklus’ bank accounts to determine which of the funds passing through the accounts resulted from the fraud.

11.  Having accepted that series of propositions as reflecting his case, Mr Man usefully posed the following question to be answered in this appeal: 

Where there are sufficient particulars as to how the fraud is perpetrated, but the innocent party does not know exactly how much benefit has been received by the alleged fraudsters, should discovery be given for documents which will prove (or disprove) that the defendant had received proceeds of the fraud?

12.  There is no significant dispute between the parties as to the law, the issue is to the application of the known principles.  Three matters must be established for the court to order specific discovery:

(1)  the court must be satisfied that there is sufficient evidence that the documents exist which the other party has not disclosed;

(2)  the document or documents related matters in issuing the action;

(3)  there is sufficient evidence of the document is in possession, custody or power of that other party.

Those matters being established, the court has a discretion as to whether to grant discovery, and the order must identify with precision the documents required to be displaced.

13.  The principal authority is the well-known decision in Compagnie Financiere du Pacifique v Peruvian Guano Co (1883) 11 QBD 55.  Peruvian Guano has been adopted as the test for relevance in Hong Kong: see Deak & Co (Far East) Ltd v N M Rothschild & Sons Ltd [1981] HKC 78 at 81A-D.

14.  Mr Man derives the following fundamental propositions from a passage from Peruvian Guano cited in the latter decision:

(1)  the definition of the concept of “relevant” is wide.

(2)  It covers documents which may prove or disprove any matter in question, though it is not confined to that.

(3)  It also covers documents which, it is reasonable to suppose, contains information which may - not must- either directly or indirectly enable the party seeking discovery to advance his own case or to damage the case of his adversary.

(4)  It also covers documents which may fairly lead the party seeking discovery to a train of enquiry which may (again may, not must) lead to either of the above consequences.

15.  Mr Man also relies upon two propositions from Matthews & Malek: Discovery, 1992:

1. Every document which will throw light on the case is prima facie subject to inspection and must be disclosed; (§4.10)

2. For the purpose of testing materiality of the discovery to a particular issue…. 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; (§4.12).

16.  Mr Chan, for Mr von Torklus, opposes the discovery, not, he says, because there is anything to hide, but upon the principle that Mr von Torklus is entitled to his privacy, and he should not be required to discover any thing more than that which is strictly required by the proceedings.  The application for specific discovery was, said Mr Chan, a plain case of a fishing expedition, in which the discovery sought was oppressive in the light of the fact that Helm HK mounted a particulars-wanting case of fraud.

17.  Mr Chan emphasised the often cited proposition of Coleman J. in O Company v M Company [1996] 2 Lloyd’s Rep 347, that parties to civil litigation should not be required to turn out the contents of their filing systems as if under criminal investigation, merely on the off chance that something might show up from which some relatively weak inference, prejudicial to the case of the disclosing party, might be drawn. 

18.  Mr Chan reminded me of the statement from Nazareth VP in Deak Perera Far East Ltd v R Leslie Deak [1995]  2 HKC 28, but the principle is that it is not just to permit a party to raise a vague un-particularised case on the pleadings in the hope of making it good after discovery.

19.  Those statements are undoubtedly sound law.

20.  But it is necessary to remember that in Deak Perera, at 38C, Mortimer JA goes on to say, in clear terms, that if a party had evidence of fraud and he gives sufficient particulars, justice requires that he be allowed to proceed even if his case is augmented after discovery.

21.  Mr Chan contended that the case of fraud was not sufficiently particular. 

22.  I disagree.  There is more than enough in the amended statement of claim to set out the nature of fraud pleaded. 

23.  In relation to the Secret PRC Business the pleading is set out over 11 pages and comprises a clear statement of the method by which the fraud is said to have taken place, the mainland companies and persons involved in the allegedly fraudulent business, the Helm HK persons allegedly involved in the fraudulent business, and specific bank accounts used in the fraud.  Although the matter has not been specifically argued before me, it appears plain to me that any demand for further particulars would be justifiably met by a contention on the part of Helm HK that what was sought was not particulars, but evidence.

24.  In respect of the Prejudicial Transactions the allegations run for 23 pages.  In those pages, 3 sets of prejudicial transactions are set out.  The companies and parties involved are identified, and specific documents in relation to the impugned transactions are identified.  The precise method adopted to allegedly defraud Helm HK is clearly identified. 

25.  In respect of both the Secret PRC Business and the Prejudicial Transactions, it cannot for one moment be said, to adopt the words of Penlington JA at 36C, in Deak Perera, that this is a case of a party saying “we think you have defrauded us and now wish to look at your records to see it we can prove it”.

26.  I am satisfied that this is neither a fishing expedition nor is the discovery sought in any way oppressive.  There is nothing speculative about the allegations of Helm HK.  Mr von Torklus, by banking moneys, admittedly due to Helm HK to his own personal account, has, irrespective of his intention in respect of that money, involved himself in the transactions and thereby necessarily opened the whole of his bank accounts to discovery in the circumstances where the alleged frauds have been sufficiently particularised.

27.  For those reasons I allowed the appeal and made an order in terms of the summons as originally sought by a Helm HK, subject only to the restriction already outlined to protect Mr von Torklus’s privacy in respect of the relevant matters.

28.  Helm HK is entitled to its costs both before me and the Master. This is an appropriate case for gross sum costs in order to save the expense of taxation.  In case the parties are unable to agree on costs, which are to be paid forthwith, liberty is reserved to set the matter of costs down for argument before me at 9:30 a.m. or 2:30 p.m., on seven days notice.