LEUNG PIK WA v. POH PO LIAN AND ANOTHER

HCA 681/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 681 OF 2011

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REASONS FOR DECISION

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1.  This was an appeal by the defendants from an order of Master S Kwang dated 27 September 2013. At the conclusion of the hearing, the appeal was dismissed with written reasons to be handed down which I now do.

The master’s order

2.  The master dealt with two summonses.  The first was the defendants’ summons dated 30 May 2013 (“the dismissal summons”) seeking (1) dismissal of the plaintiff’s action with costs and, in the alternative, (2) an order that the plaintiff file and serve a further affirmation.

3.  Dismissal was the sanction specified for non-compliance in an unless order made by Master de Sousa (by consent) dated 5 March 2013 (“the unless order”) requiring the plaintiff to file an affirmation to disclose the documents specified in the schedule to the consent summons by   4:30 pm on 18 March 2013.  It is the defendants’ case that the plaintiff had failed to comply with the unless order.

4.  The plaintiff does not accept that there was non-compliance with the unless order.  The second summons dated 19 September 2013 (“the relief summons”) was taken out by the plaintiff for relief from sanction if, contrary to the plaintiff’s case, there had been non-compliance.

5.  The master was not satisfied that there had been a clear and obvious breach of the unless order and ordered, inter alia, that

1) Paragraph 1 of the dismissal summons be dismissed with costs;

2) The plaintiff do file and serve an affirmation within 21 days to clarify and confirm whether she has any documents in her possession, custody or power relating to “those documents for the Bank of China as provided in paragraph 2 of the Schedule to the Consent Summons dated 3 January 2013” (“the schedule”);

3) There be no order as to costs of the relief summons.

6.  Paragraph 2 of the schedule reads:

“All bank statements, advices, ledgers, vouchers, accounts, cheque books and stubs of Sino Gain Holdings Corporation (“Sino Gain”) since [the date of Sino Gain’s incorporation up to November 2012].”

7.  The relief sought in the notice of appeal is an order in terms of paragraph 2 of the dismissal summons or alternatively an order in terms of the relief summons.  The appeal is therefore largely academic and the real issue in this appeal is costs.

CHRONOLOGY

A.   Pre 18 March 2013

8.  Kok Teng Nam (“the deceased”), the plaintiff’s son, died on 22 May 2008.  Letters of administration ad colligenda bona were granted to the plaintiff on 12 April 2011.

9.  The plaintiff is 70 years old and lives in Malaysia.  It is the plaintiff’s case that the deceased who, during his lifetime, was the sole shareholder and director of Sino Gain, was its sole owner.

10.  In mid-March 2011, when the plaintiff was in Hong Kong making enquiries and searching for documents and information relating to the shares in CY Foundation Ltd (“CYF”), the ownership of which is the subject matter of this action, she had been provided with box files of documents that had been kept in storage at the office premises of CYF which had not been noticed until March 2011.  She was advised that they belonged to the deceased.  On 31 March 2011, the plaintiff retained Messrs Deacons (her former solicitors) to review the documents.

11.  On 14 April 2011, Deacons, wrote to the Bank of China (“the bank”) to the effect that documents available from the deceased’s files show that Sino Gain maintained various accounts with the bank as specified in that letter (collectively “Sino Gain’s accounts”) and that the deceased was the sole signatory.  The bank was asked to provide certified copies from the date of the opening of Sino Gain’s accounts to         31 December 2008 of no fewer than 6 detailed categories of banking documents (including monthly bank statements, transactions, banking history etc.) relating to Sino Gain’s accounts (“the banking documents”).

12.  In response to the request, the bank replied on 27 April 2011, enclosing “the histories of Time Deposit Account and Account Nos 012-611-0-001863-2, 012-611-1-008600-9 and 012-611-9-202996-5” (“the 2011 account histories”) only and acknowledged receipt of $2350 for handling charges incurred.  For convenience, the exchange of correspondence on 14 and 27 April 2011 between the plaintiff and the bank is hereinafter referred to as “the April correspondence”.

13.  As appears from the covering letter dated 18 July 2011 from the bank to Deacons, the bank also provided certified copies of 5 cashier orders and banking transaction records of Sino Gain drawn in favour of “Quickgold Investments Ltd”.  No further correspondence passed between Deacons and the bank after 18 July 2011.

14.  The plaintiff became the sole shareholder of Sino Gain on  28 July 2011 and its sole director on 16 August 2011.  Nevertheless, she was never involved in the management of Sino Gain and had no direct knowledge of its affairs.

15.  The plaintiff commenced this action on 18 April 2012.  

16.  The plaintiff’s list of documents, filed by Deacons, is dated  14 September 2012 (“the list”).  The documents disclosed in Part 1 of Schedule 1 of the list were itemised under, inter alia, the following headings:

“I. …

III. Copy documents from the 3 lever arch files and the Deceased’s files of papers (copies of all of which HW & Co have obtained on 20.12.2011 and 9.1.2012 after inspection at Deacons’ office)

[Items 46-327]

IV. Miscellaneous

A. Cheques, bank documents and documents

[Items 328-353]

B. Docs. Relating to Grant obtained in the BVI

[Items 354-356]

C. Documents in relation to Malaysia’s Proceedings…

[Items 357-363]

D. Company Searches

[Items 364-370]

E. Land Searches

[Items 371-374]

…”

HW & Co are Messrs Henry Wai & Co the defendants’ solicitors (“HWC”).

17.  The documents referred to in §§11, 12 and 13 above are respectively items 332, 350 and 333 of the list.  The enclosures referred to in item 350 are the 2011 account histories (which form part of that item) and the banking transaction records referred to in item 333 are       items 334-341.

18.  On 25 September 2012, HWC requested Deacons to provide documents from the list identified by reference to item numbers.  The documents requested included “items 331 to 364”.

19.  On 3 October 2012, Deacons provided “copies of documents as requested in your letter with the document numbers marked thereon, totalling 539 pages”.

20.  When Deacons provided those documents on 3 October 2012, they were about to cease acting for the plaintiff.  For shortly thereafter, on 15 October 2012, the plaintiff’s present solicitors, Messrs Ho & Tam (“H&T”) replaced Deacons.

21.  The initial request for specific discovery was made in a letter dated 8 December 2012 from HWC to H&T.

22.  Within 10 days of the initial request, not having received a response, HWC took out a summons for specific discovery of, inter alia, the banking documents.  The upshot was a consent summons resulting in the order of 3 January 2013 to the effect that the plaintiff would provide specific discovery of, inter alia, the banking documents within 14 days.

23.  When the plaintiff failed to comply with the January order, the defendants issued a summons on 27 February 2013 for an unless order.

B.   Post 18 March 2013

24.  The plaintiff did not resist the application.  Rather, as earlier noted, she agreed to the unless order which was an order by consent.

25.  After the filing of the plaintiff’s 7th affirmation on        18 March 2013 as required by the unless order, HWC did not complain until their letter of 15 May 2013 that the plaintiff was in breach.  Apart from a few items identified in HWC’s letter (“the disclosed items”), it was said that “bank statements, and advices and copies of cheques” (“the outstanding banking documents”) were within her power and that she had failed to make discovery of the same.

26.  H&T replied on 20 May 2013 to the effect that the plaintiff would endeavour to write to the banks to enquire for the outstanding banking documents.  In fact the plaintiff did approach the bank on or about 22 May 2013 and not having heard by 6 June 2013 caused H&T to formally write to the bank which they did on 6 June.  Regrettably, the bank was uncooperative and unresponsive and did not provide a substantive reply until 12 September 2013 despite numerous chasers from H&T.

27.  Upon receipt of the substantive reply on 12 September 2013 that was by way of a telephone call, H&T immediately informed HWC of their understanding of the bank’s latest position.  They proposed that an affirmation be filed pursuant to paragraph 2 of the dismissal summons with costs to the defendants payable forthwith.  As there was no response to that offer, the plaintiff filed the relief summons on 19 September given the then impending hearing scheduled for 27 September.

28.  Upon receipt of the account histories provided under cover of a letter dated 16 September 2013 (“the 2013 account histories”) but not received until 23 September 2013, H&T immediately provided copies to HWC.  On the same day (four days before the hearing), H&T again proposed that the plaintiff would file an affirmation pursuant to  paragraph 2 of the dismissal summons, undertaking to disclose any further relevant bank if so provided within 21 days after receipt and that the summons has been withdrawn with no order as to costs.

29.  The defendants did not respond to the proposal.

30.  As it was not entirely clear from the telephone conversation of 12 September with the bank’s officer and the covering letter of 16 September whether the bank had any further bank documents relating to Sino Gain’s accounts, H&T wrote on 15 October 2013 seeking clarification and confirmation but as at the date of the hearing, there had been no reply.

The unless order

31.  This order required the plaintiff to file and serve by 4:30pm on Monday, 18 March 2013 an affirmation stating

“whether she has or has at any time had in her possession, custody or power the documents or classes of documents specified in the Schedule to the Consent Summons filed herein on 3rd January 2013 (“the Said Documents”), and if the said Documents or any of them have been but are not now in her possession, custody or power, stating when she has parted with the same and what has become of the same, in compliance with Paragraph 1 of the Consent Order dated 3rd January 2013 made by Master Ho”

failing which the action would be dismissed with costs to the 1st and    2nd defendants, such costs to be taxed if not agreed.

32.  On 18 March 2013, the plaintiff filed her 7th affirmation.  It is a short document.  Paragraphs 2 and 3 concern corporate documents that were produced and about which there is no issue.  Paragraphs 4 and 5 read:

“I crave leave to refer to paragraph 15 (sic) of my 5th Affirmation dated 23 November 2011 wherein I deposed that I was provided with box files of documents that belonged to Kenny. These documents were subsequently described as items 46 to 327 under the caption: III. Copy of documents from the 3 lever arch files and the Deceased’s files in the List of Documents of the Plaintiff dated 14 September 2012.

Save as the documents deposed to paragraphs 2 and 4 above, I have not had nor had at any time in possession, custody or power the documents specified in paragraphs 2, 3 and 4 of the Schedule referred to in the said Summons.”

33.  Whether the unless order had been complied with has to be assessed against the backdrop of relevant events.

The issues

34.  The appeal was brought on the basis that the master erred in principle in holding that there had been no clear and obvious breach of the unless order.  It was said that the plaintiff had made no genuine effort to comply with the unless order when she filed her 7th affirmation.  She had omitted to make any enquiries with the bank.  The defendants maintain that they had never seen the 2011 account histories until those were produced as an exhibit to the affirmation of Billy Tam, the plaintiff’s solicitor, filed on 19 September 2013.

35.  Mr Lam who appeared for the plaintiff submitted that given the deficiencies of the 7th affirmation, it was proper for the defendants to issue the dismissal summons.  Further, and in any event, it was submitted that in cases where there has been some sort of compliance, a further application should issue to determine if that compliance was illusory.  If it was not illusory but incomplete, the court could make a further order for proper compliance.  In that regard, the court was referred to the procedure applicable under the English rules (CPR Rule 3.5).  It was submitted that, in the circumstances, the defendants were entitled to issue the dismissal summons and, accordingly, they should have been awarded costs.

Was there a breach of the unless order?

36.  The 7th affirmation was filed on time.  The complaint is that it was defective and the deficiencies were such that they rendered compliance illusory.

37.  The documents listed under heading III of the list were the documents mentioned in §10 above.  While paragraph 4 of the       7th affirmation not unnaturally focused on those documents, the list itself had been served on the defendants in September 2012.

38.  Heading III documents comprising 282 items were listed over 20 pages.  Heading IV bore the description “Miscellaneous”.  Part A under heading IV bore the subheading “Cheques, bank documents and documents” and comprised items 328-356.  Clearly those documents were also responsive to the specific discovery sought.  Paragraph 4 omitted any mention of those items. The omission in overlooking the possible relevance of items under the ‘Miscellaneous’ heading appearing at the end of 20 pages under heading III is perhaps not entirely surprising although it suggests that the level of care taken was wanting.

39.  But the critical question is whether the omission was made in good faith.  The defendants have had the list since mid-September 2012.  When the relevance of the omitted items is apparent from a perusal of the list, there would have been no reason for the plaintiff not to make a reference to those items: the omission could not have been deliberate.  Hence it is very probable that this was a case of inadvertent oversight rather than wilful default.  On the facts of this case, there could be little scope for any intentional concealment or suppression.

40.  Another criticism made is that the plaintiff failed to make enquiries of the bank.  The plaintiff frankly acknowledged that she had not done so because she believed that her former solicitors who had corresponded with the bank between April and July 2011 had made all relevant enquiries.  As stated in §13 above, there had been no further correspondence passing between Deacons and the bank after 18 July 2011.

41.  In those circumstances, I do not consider that the plaintiff’s belief was unfounded although the making of a further enquiry would forestall the kind of criticism now being made against her.  But once alerted to the defendants’ complaint, the plaintiff made good the ‘omission’.

42.  The plaintiff’s case is that she had reason to believe that all banking documents shown in the list had been produced.  Of particular importance in the present case are items 332-341 and 350.  The April correspondence (comprising items 332 and 350) was accordingly made known to the defendants.  So was the further communication from the bank on 18 July 2011 (item 333) specifically stating that the documents sent therewith were “separately enumerated” (i.e. items 334-348).

43.  Pausing here, it is to be noted that by way of contrast, items 350 reads:

“ BOC (HK)’s letter to Deacons with enclosures;”

So in contradistinction to item 333, the enclosures had not been separately enumerated and, hence formed an integral part of item 350.                                              

44.  By letter dated 25 September 2011, the defendants requested Deacons to produce items 331 to 363.  Reading Deacon’s reply dated   3 October 2011 (see §19 above), it is perfectly understandable that the plaintiff believed that the items requested had been produced.

45.  The defendants sought to demonstrate through the 10th affirmation of Wai Yip Hin, their handling solicitor, that the documents produced by Deacons, being no more than 539 pages could not have included the 2011 account histories because what was produced was some 30 odd pages short of what should have been produced.  But it is unclear how the plaintiff or her present solicitors could have known that.

46.  I do not agree that it was incumbent on the plaintiff (or her present solicitors) to have done anything further and I do not accept that it was unreasonable for the plaintiff to conclude from the letters of       25 September and 3 October 2011 that all items requested had been produced.  If in fact the defendants did not receive them from Deacons, it is not a matter that should result in the plaintiff being in breach of the unless order.  Given the April correspondence, the defendants could just as easily have (but did not) follow up on the 2011 account histories.

47.  Looking at the matter overall, only the most pedantic might consider that there had been a breach since any breach would have been technical.  Clearly there had been substantial compliance.  In any event, the circumstances were not such as would have warranted an order in terms of paragraph 1 of the dismissal summons.

Costs

48.  The plaintiff’s conduct subsequent to the defendants’ complaint letter of 15 May 2013 is set out in §§25-29 above.  In summary, her attitude and conduct are beyond reproach.  She was responsive and cooperative but the same cannot be said of the bank.  It procrastinated at every turn.  The fact that letters from the bank were not received by the plaintiff’s solicitors until a week or more after the date of the relevant letters was symptomatic of its attitude.  But that was something beyond the plaintiff’s control.

49.  In my view, on the facts, the dismissal summons should not have been issued and if issued should have been withdrawn when the plaintiff made her first offer in September.

50.  As I understand it, Mr Lam’s argument is to the effect that where there has been some sort of compliance with an unless order but it is not absolutely clear that there had been a breach, the party entitled to the benefit of the unless order is entitled not only to have the matter adjudicated by the court but also to any costs incurred as a result.

51.  The unless order made the present case is a conventional unless order.  On non-compliance, the sanction specified automatically takes effect: see Practice Direction 16.5, §2; O.2, r.4; Daimler AG v Leiduck [2012] 3 HKLRD 119 at §47; and Schenker International (HK) Ltd v Natural Dairy (NZ) Ltd, unreported, HCA 1755/2011, 22 November 2013 at §19.  In such a case, no further steps need to be taken by the party who has the benefit of the unless order.  It is a matter for the party in breach to apply for relief within 14 days.

52.  Where the party who has the benefit of the unless order is unsure and wishes to have the matter determined by the court, I do not consider that any special rules apply as to the costs of the further application.  On general principles, should the applying party succeed, he would normally be entitled to costs.  But if the court were to take the view that the automatic sanction does not take effect in the circumstances of the particular case, then costs must be a matter that falls within the court’s discretion.

53.  The master was absolutely correct in dismissing paragraph 1 of the dismissal summons with costs.  While the plaintiff was ordered to file a further affirmation to clarify certain matters which is similar to the relief sought in paragraph 2 of the dismissal summons, it does not follow that the defendants should be entitled to costs.  In my view, the court is entitled to look at all the circumstances of the case in exercising its discretion.

54.  The filing of a further affirmation was what the plaintiff had offered on 14 September with costs payable forthwith to the defendants.  Yet the defendants chose to ignore that offer which had they accepted would have rendered the hearing before the master unnecessary.  I cannot see that the master erred in principle in awarding costs to the plaintiff.

55.  Taking into account that events that have occurred since the hearing before the master, there is nothing that would cause me to make any different order.  It is regrettable that this appeal was brought.  It strikes me as unnecessary satellite litigation.

Conclusion

56.  Accordingly, this appeal is dismissed. I make an order nisi of costs in favour of the plaintiff, with certificate for counsel, to be taxed if not agreed.