EXCEL COURAGE HOLDINGS LTD AND ANOTHER v. WONG SIN LAI AND OTHERS

HCCL 34/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 34 OF 2013

(Transferred from High Court Action No 1827 of 2013)

____________

_____________

D E C I S I O N

_____________

1.  I have a number of summonses before me at this CMC. The summonses relating to supplementalwitness statements, other than the summons of the 1^st defendant, are not contentious and I have already granted leave accordingly.

2.  What is contentious before me this morning is the plaintiffs’ application by summons for specific discovery against the 4^th defendant. 

3.  In broad terms, in this action the plaintiffs allege there was an agreed arrangement whereby the 1^st defendant would be appointed a director of the 1^st plaintiff, and hold the one issued shared in the 1^st plaintiff for the 2^nd plaintiff, and the 1st plaintiff would be used as the 2^nd plaintiff’s vehicle for investment in Hong Kong stocks. 

4.  The 1^st plaintiff acquired 974,180,000 shares in Luxey on that basis.  In breach of trust, it is said that the 1^st defendant wrongly caused the 1^st plaintiff to transfer all of those shares to four accounts held by the 2^nd to 5^th defendants respectively.  In particular, 243 million shares were transferred to the 4^th defendant’s account with CLC Securities on 25 September 2013, whereupon they were transferred to the 4^th defendant’s account with another broker called KGI Securities, from which, a little later, 200 million shares were transferred to an account of yet another broker called China Rise Securities. 

5.  The 1^st defendant does not dispute that he held the share in the 1^st plaintiff on trust, but says he held it on trust for one Mr Joseph Lau, not for the 2^nd plaintiff. 

6.  The 1^st defendant’s case is that in February 2012 there was an agreement whereby he and Mr Lau would each contribute HK$30 million to form a fund which would be used by the 1^st plaintiff to acquire listed securities to be held on trust for the 1^st defendant and Lau equally.  Pursuant to that agreement, the Luxey shares were acquired and held by the 1^st plaintiff on trust for the 1^st defendant and Lau.  The 1^st defendant considered it would be in their best interest to sell the shares, and so on 25 September 2013 caused the 1^st plaintiff to sell the shares to the 2^nd defendant.  The shares transferred to the 4^th defendant’s account were done in accordance with the 2^nd defendant’s direction.

7.  The 4^th defendant’s pleaded case is consistent with the 1^st defendant’s case in that the 4^th defendant says he was a nominee acting for the 2^nd defendant in receiving the shares, and in transferring them to his account at KGI Securities and thereafter 200 million shares to China Rise Securities.

8.  In his witness statement, the 4^th defendant says he agreed with the 5th defendant to act as a nominee to deal with the shares and to act in accordance with his instructions to transfer or deal with the 243 million Luxey shares.  The agreed fee for the 4^th defendant was HK$100,000.

9.  The plaintiffs have discovered since from documents obtained from the KGI group, that the 4^th defendant sold 43 millionLuxey shares on 26 and 27 September 2013 for over HK$1.6 million, and on 30 September 2013 transferred HK$1 million from his KGI account to his account with Hang Seng Bank. 

10.  Against this background, the plaintiffs now seek discovery of the bank statements of the 4^th defendant’s account at Hang Seng Bank showing the account balance from 30 September 2013 to the present. 

11.  There is a clear issue whether the 4^th defendant is a mere nominee.  Although the plaintiffs’ reply does not expressly traverse it, there is an express joinder of issue at the beginning of the pleading and an implied joinder under the rules. 

12.  In my view, what happened to the proceeds of sale of the 43 million shares is relevant to the issue whether the 4^th defendant is a nominee as alleged. If, for example, he spent it on entertainment or acquisition of assets for his own purposes, that might suggest he was a beneficial owner of the shares and thus the proceeds of sale, rather than a mere nominee entitled only to a fee of $100,000.  The bank statements sought can show how the sum of $1 million being a substantial part of those proceeds was dealt with by the 4^th defendant.  I therefore reject Ms Lam’s submission that there is no issue to which the documents can be relevant. 

13.  I am more sympathetic, however, to the argument that the description of the documents sought is too wide.  There is no point in ascertaining the account balance up to the present. What is relevant is to see how the sum of $1 million deposited into the account was disposed of. 

14.  I appreciate there may be other money deposited into the account either before or after 30 September 2013, and that the credit balance at any one time may represent a mixed fund.  On the 4^th defendant’s own case, however, he was a nominee and there should be no difficulty for him to identify transactions in the account showing how the relevant sum was disposed of and accounted for.  Nor has the 4^th defendant complained of any such difficulty. 

15.  I therefore make an order for specific discovery, confining the documents sought to the statements of the relevant account showing how the sum of HK$1 million transferred from KGI Securities on 30 September 2013 was disposed of.