YUN CHOI LTD v. LAM WAI MAN

DCCJ 4893/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4893 OF 2009

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BETWEEN

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DECISION

1.  This is an application by the defendant for discovery and inspection of documents. By summons dated 8 December 2010, the defendant applies for a further and better list or specific discovery, followed by inspection, of 3 classes of documents.

Background

2.  The plaintiff was compulsorily wound up on 21 January 2009 and Messrs Lau Siu Hung (“Mr. Lau”) and Liang Yang Keung were appointed as the joint and several liquidators of the plaintiff (“the Liquidators”) on 2 July 2009.  At the hearing, I was told by Mr. Lee (appearing for the Plaintiff) that all the directors had absconded.

3.  Upon the Liquidators’ investigation of the affairs of the plaintiff, it was discovered that the plaintiff was the owner of 2 private cars bearing registration marks JU 9989 (a Porsche Cayenne) and KK 9989 (a Benz S500L).  The Liquidators also discovered that by 2 Notices of Transfer of Ownership lodged with the Transport Department on 23 September 2008 (“the Notices”), the ownership of JU 9989 and KK 9989 was transferred to the defendant.  In the Notices, the defendant declared that he had acquired the ownership of JU 9989 and KK 9989 at HK$700,000 and HK$200,000.  The declarations, if false in any material particular, would render the defendant liable to criminal prosecution under section 111(3) of the Road Traffic Ordinance, Cap. 374.

4.  The Liquidators were unable to find any documentary evidence that the plaintiff had ever received any payment from the defendant.  On 7 October 2009, the Liquidators were granted leave by the court to conduct legal proceedings against the defendant in the collection of the consideration for the transfer of JU 9989 and KK 9989 and to engage their current solicitors, Messrs Johnnie Yam, Jacky Lee & Co (“JYJL”) for such purpose.

5.  Correspondence then ensued between JYJL and the defendant.  The Liquidators were not satisfied with the explanation given by the defendant and these proceedings were commenced on 17 November 2009.

The pleaded issues

6.  The plaintiff has chosen to litigate this matter on a relatively straightforward basis.  It is alleged in the Amended Statement of Claim that the agreements for the sale and purchase of JU 9989 and KK 9989 are evidenced by the respective Notices, and that the defendant is in breach of the agreements by failing to pay for the agreed consideration (namely HK$700,000 and HK$200,000) or any part thereof after having taken possession of the 2 cars. 

7.  As can be gleaned from the chronology above, the timing of the sale of the 2 cars and the making of the winding up order would render the sale to have taken place within the “relevant time” as defined in section 51 of the Bankruptcy Ordinance Cap. 6. There is no suggestion in the plaintiff’s pleaded case that the sale of the 2 cars (or the terms upon, and the manner in, which the sale took place) was in breach of fiduciary duties of the absconded directors.  Quite to the contrary, the plaintiff’s pleaded case appears to embrace the validity of the sale of the 2 cars.  By reason of that stance, there is no, nor can there be, any suggestion at trial that the defendant had somehow assisted in any breach of fiduciary duties (or any other wrongful acts) or conspired with the absconded directors to cause harm to the plaintiff.

8.  In retort, a rather factually more convoluted case is advanced in the Amended Defence.  The following allegations are pleaded:

(1)   the sale of the JU 9989 and KK 9989 was agreed between one Mr. Mak Wing Kit (as agent of the plaintiff) and Mr. Tang Wing Chiu (“Mr. Tang”) of Superior Motors Company (“Superior”), which agreement was contained in various written sale and purchase agreements in Chinese all dated 23 September 2008 and executed by Superior and Mr. Mak;

(2)   the agreed purchase prices for JU 9989 and KK 9989 were respectively HK$400,000 and HK$150,000;

(3)   Superior then immediately on sold to the defendant JU 9989 and KK 9989 at the same prices to the defendant, namely HK$400,000 and HK$150,000;

(4)   in fact, the defendant at the same time also purchased a vehicle bearing registration mark HY 9989 at a consideration of HK$350,000 from one Honor Join Limited;

(5)   the total consideration of the 3 cars in the sum of HK$900,000 was paid by the defendant in the following manner: (a) a cheque in the sum of HK$100,000 payable to Superior who in turn cashed the same and paid the sum over to Mr. Mak as initial deposit, (b) redemption of the mortgage to which JU 9989 was subject by repayment of the then outstanding sum of HK$190,962.86 due to DBS Bank (Hong Kong) Ltd (“the Bank”) and (c) cash payment of the remaining sum HK$609,037.14 to Mr. Mak in the presence of Mr. Tang on 23 September 2008;

(6)   Mr. Mak signed a Chinese note confirming that he had received the total sum of HK$900,000 from the defendant in the above manner.

9.  I pause here to note that the Amended Defence does not plead precisely on what basis was the agency between Mr. Mak and the plaintiff created.  The plaintiff has not requested the defendant to elaborate and from the witness statements filed in these proceedings (to which both parties urge me to refer for the purpose of this application), it appears that the defendant relies on a number of bases, including express, apparent (or ostensible) and customary authority.

10.  In a very short Amended Reply, the plaintiff avers that Mr. Mak did not have authority to represent the plaintiff to accept payment allegedly made by the defendant and that the alleged payment made by the defendant (which is denied in any event) has never been received by the plaintiff.

11.  On 18 August 2010, the parties signed an Agreed Statement of Issues in Dispute pursuant to Order 18, rule 22 of the Rules of District Court.  The Court is asked to determine at trial the following issues:

(1)   whether there were agreements for the sale and purchase of JU 9989 and KK 9989;

(2)   if so, what were the terms of the agreements;

(3)   whether the defendant paid the price in accordance with the terms of the agreements.

12.  As stated above, both parties have urged me to refer to the witness statements filed in these proceedings.  It appears to me that the plaintiff is in reality putting the defendant to strict proof of the allegations pleaded in the Amended Defence.  I say this for the following reasons.  The plaintiff bases its case on the information contained in the Notices.  Since there are criminal sanctions for their inaccuracy, it is therefore inherently improbable that the information contained therein is inaccurate.  The plaintiff will adduce evidence that there is no documentary evidence that  it had ever received any payment from the defendant (or anyone else for that matter) for the sale of JU 9989 and KK 9989 and that Mr. Mak, at the material time, was not a staff nor a director of the plaintiff.

13.  That appears to me to be the extent of the plaintiff’s case.  On the material before me, the plaintiff, probably due to investigations hampered by absconded directors, does not have a positive case against the defendant’s assertions.  For example, the mere fact that Mr. Mak was not the plaintiff’s employee nor director does not necessarily mean that he had no authority to represent the plaintiff. Equally, the mere fact that the plaintiff’s bank accounts do not show any entry referable to the sale of JU 9989 and KK 9989 does not necessarily mean that the plaintiff did not receive any payment.  Indeed, it has never been the defendant’s case that any of the purchase price was paid into the plaintiff’s bank accounts.

14.  There are, of course, certain features in the defendant’s case which require explanation, which features I anticipate will be the subject of vigorous cross examination at trial.

Events leading to the hearing

15.  In a Listing Questionnaire dated 22 September 2010, the defendant’s solicitors confirmed that the defendant do not tend to take out any interlocutory applications. Leave was granted on the same day to set this action down for trial and it is to take place on 25 January 2011 with 3 days reserved.  What then is the reason for taking out the present application?

16.  In the affirmation of Mrs. Tam Ip Fong Sin (Mrs. Tam) leading the present application she explains as follows:

(1)   on 19 November 2010, she was informed by Mr. Mak and his partner, one Mr. Lee Yip Sing (literal translation), had given an authorization letter or some other authorization documentation from the plaintiff to the Bank for the redemption of the mortgage of JU 9989, which documentation was necessary for the Bank to endorse the redemption of the mortgage and return the vehicle registration documents;

(2)   Mr. Mak and his partner no longer have a copy of the documentation and Mr. Mak cannot remember whether it was he or his partner was the authorized person in the documentation;

(3)   acting on that information, on the same day the defendant’s solicitors wrote to the Bank requesting for information and documents (“the 19/11/10 Letter”);

(4)   on 23 November 2010, the Bank replied to the defendant’s solicitors, stating that the Bank would require instructions from the Liquidators authorizing it to release the said information and documents;

(5)   on 24 November 2010, the defendant’s solicitors wrote to JYJL requesting written authorization as requested by the Bank to be provided by close of business 29 November 2010;

(6)   JYJL ignored the request and in a subsequent telephone conversation on 30 November 2010, JYJL refused to give their consent without giving any reason.

17.  In the 19/11/10 Letter, the defendant’s solicitors requested the Bank to provide the following information and/or documentation:

(1)   the identity of the person who, on behalf of the plaintiff redeemed the aforesaid charge on 23 September 2008;

(2)   the identity of the person who, on behalf of the plaintiff, received the title deed of JU 9989;

(3)   whether there is any written acknowledgment of receipt of the title deed, and if so a copy of the acknowledgment;

(4)   whether there was any letter of authorization and/or related documentations produced to the Bank for the redemption of the mortgage, and if so a copy of the same.

18.  The 3 classes of documents for which specific discovery and inspection are now sought mirror those requested in the 19/11/10 Letter and comprise of the following:

(1)   the letter of authorization or any other authorization documentation in respect of the discharge and/or redemption of a mortgage of JU 9989 with the Bank which took place on or about 23 September 2008 (“Class 1”);

(2)   a copy of all documentation provided by and/or on behalf of the plaintiff to the Bank in connection with the discharge and/or redemption of the mortgage of JU 9989 (“Class 2”);

(3)   the acknowledgment of the letter of the Bank dated 23 September 2008 (‘Class 3”).

19.  I pause here to note that, in relation to the Class 3 document(s), on 23 September 2008 the Bank issued a letter to the plaintiff requesting the plaintiff to acknowledge receipt of the relevant documents listed therein including the title documents to JU 9989 and to sign and return a copy of the letter to the Bank.  As I understand it, the defendant is seeking specific discovery and inspection of the copy of the letter signed by the plaintiff and returned to the Bank.

20.  The defendant’s application was opposed on all conceivable grounds in the affirmation made by Mr. Lau and in JYJL’s written submissions.  On the case management aspect, the plaintiff complains that this is a late application.  On the formality front, the plaintiff criticizes that the affirmation leading the defendant’s application was made by Mrs. Tam and not by the defendant himself.  On the substantive issue, the plaintiff asserts that the documents for which specific discovery and inspection are sought are not relevant and the present application amounts to a fishing expedition.

Discussion

21.  During the course of the hearing, and at the Court’s invitation, both parties made a number of concessions.

22.  On the defendant’s part, Miss Chan accepted that there is insufficient basis to ground an application for a further and better list of documents.  A party is entitled to apply for a further and better list where it appears (1) on the face of the list already served, (2) from the documents referred to in the list already served or (3) on an admission that in all probability the party has or has had other relevant documents beyond those disclosed.  Miss Chan fairly accepted that none of the above conditions has been met.

23.  Further, and perhaps more substantively, Miss Chan conceded that  discovery and inspection of the Class 2 documents (those relating primarily to the fact of discharge of the mortgage of JU 9989 with the Bank) is not necessary either for disposing fairly of the cause or matter or for saving costs, there being no substantial dispute that mortgage of JU 9989 was in fact discharged.

24.  Therefore, after the defendant’s concessions, the scope of the application was curtailed to one for specific discovery and inspection of the Class 1 and Class 3 documents (“the Documents”).

25.  On the plaintiff’s part, Mr. Lee initially submitted that the Documents are not relevant but eventually conceded on their relevancy, on the basis that whether the redemption was authorized by the plaintiff is at least relevant to the issue of quantum, especially in the light of the fact that the plaintiff’s pleaded claim does not give credit for the redemption money in the sum of HK$190,962.86.  I am also of the view, and I do not believe Mr. Lee eventually seriously disputed, that the defendant has made out a prima facie case that the Documents are in the plaintiff’s possession, custody and power given the Bank’s willingness to disclose information and documents subject to the Liquidators’ consent.

26.  By reason of the above stance adopted by the plaintiff, the scope of the dispute was further reduced to whether the present application should be refused on case management considerations.

27.  This is a late, but not perilously late, application.  Miss Chan explained that the defendant decided in early November 2010 to change counsel and the current counsel has taken a slightly different view on evidence from that of the replaced counsel.  I have taken on board Mr. Lee’s submissions that change of legal counsel is unlikely to provide good excuse on its own for any late application, especially in the post Civil Justice Reform era, but at the end of the day, whether a late application should be allowed is a balancing exercise to strike a balance between efficient use of court time and proper adjudication of cases on the merits.

28.  I had asked the parties at the outset of hearing whether it was anticipated that the application, if allowed, would have effect of derailing the trial.  Mr. Lee apprehended a risk of that eventuality, on the basis that Class 2 may yield voluminous documents.  I have some doubt as to whether Mr. Lee’s apprehension was warranted, but in any event, as stated above, Miss Chan no longer pursues the Class 2 documents.

29.  The Documents are therefore likely to be very limited and I do not believe Mr. Lee eventually seriously insisted that there was any grave risk of the trial dates having to be vacated.

30.  Further, it seems to me that it is part of the Liquidators’ duties to reconstruct the affairs of the plaintiff and to understand what led to the plaintiff’s financial demise. In so far as the Documents are concerned, they appear to contain information which I thought the Liquidators would have wanted to have sight of in any event, whether in the context of the liquidation generally or this action specifically.  Mr. Lee confirmed that to be the position of the Liquidators.

31.  That being the case, I am of the clear view that some form order should be made in favour of the defendant.  It seems to me that the most sensible way of dealing with it is to simply make an order for inspection under Order 24, rule 11(2) of the District Court Rules, rather than an order for specific discovery to be followed by inspection.  In so deciding, I have taken into account the Liquidators’ professed willingness to obtain the documents and the Bank’s stance that it is willing to release information and documents upon receiving the Liquidators’ authorization.  I also take into consideration the imminence of the trial. 

32.  I envisage that the Liquidators will write to the Bank requesting for the Documents and, upon being so provided by the Bank, allow their inspection by the defendant.  It may take some time for the Bank to respond and I will make the necessary allowance.  The plaintiff will have liberty to apply should it face any difficulty in complying with the ordered timetable.

33.  As to costs, I make an order nisi that the costs of and occasioned by this application are to be costs in the cause, such costs to be taxed if not agreed.  Absent any application to vary, this order nisi will become absolute within 14 days hereof.

Order

34.  I make the following orders:

(1)   the plaintiff do within 21 days produce at the office of its solicitors the following documents, namely (a) the letter of authorization or any other authorization documentation in respect of the discharge and/or redemption of a mortgage of JU 9989 with DBS Bank (Hong Kong) Ltd which took place on or about 23 September 2008 and (b) the acknowledgment of the letter of DBS Bank (Hong Kong) Ltd dated 23 September 2008 and that the plaintiff do permit the defendant and his solicitors to inspect and peruse the documents and to take copies thereof;

(2)   costs of an occasioned by this application by costs in the cause to be taxed be not agreed;

(3)   there be liberty to apply.