CWG v. MH AND OTHERS

HCMP 643/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 643 OF 2012

____________________________

____________________________

____________________________________

REASONS FOR DECISION
(R2’s Compliance of Discovery Order)

____________________________________

Introduction

1.  This court handed down a ruling and made a Hadkinson Order on 2 August 2013 (“Hadkinson Ruling”) against R2 for her contempt of the Order made by Poon J on 10 August 2012 (“Discovery Order”).

2.  The applicant and R1 will be referred to respectively as H and W.

3.  R2 was represented by Counsel at the hearing when the Discovery Order was made, and there was no appeal against the Discovery Order which was made against her personally.

4.  R2 applied for leave to appeal against the Hadkinson Ruling, which was refused.

5.  On 6 February 2014, W issued a summons and applied to the Court of Appeal for a Hadkinson Order against R2 in respect of the Main Appeals in relation to this court’s judgment on financial relief for W in these proceedings (“W’s Summons”).

6.  In W’s Summons, she sought an order to bar R2 from being heard in the Main Appeals unless R2 has fully complied with the Discovery Order. 

7.  In response to W’s Summons, the following affirmations were filed on behalf of R2 before the hearing before the Court of Appeal:

(i) Affirmation of Lo filed on 28 February 2014 (“Lo’s Affirmation”)

(ii) 3^rd affidavit of Seeger filed on 3 March 2014 (“Seeger’s 3^rd Affidavit”)

(iii) R2’s affirmation of 28 February 2014 (“R2’s Affirmation”)

8.  W’s position was that by the above 3 affirmations, R2 still had not purged her contempt of the Discovery Order in respect of items 6, 8, 9 and 12 of Schedule 1 of the Discovery Order.

9.  W’s Summons was heard before the Court of Appeal on 4 March 2014, and at the hearing the Court of Appeal ordered that the issue whether R2 had complied with the Discovery Order in full be remitted to be heard by this court (“CA Order”).

10.  Under the CA Order, the parties were to file lists of issues and were to attempt to agree to the issues.

11.  After W was given leave to file her amended list of issues on 12 March 2014, there were 2 further affirmations filed on behalf of R2, without leave being given, as follows:

(i) 4^th affidavit of Seeger dated 10 April 2014 but filed on 24 April 2014 (“Seeger’s 4^th Affidavit”);

(ii) 2^nd affirmation of Lo filed on 9 May 2014 (“Lo’s 2^nd Affirmation”).

12.  For some reasons, notwithstanding the direction from the Court of Appeal that there should be an early hearing of the matter, the matter was not fixed before me until yesterday, and the Main Appeals are due to commence next week.

13.  So far as the Seeger’s 4^th affidavit and Lo’s 2^nd Affirmation, these had not been confirmed by any affirmation from R2.  Mr Li, Senior Counsel appearing for R2, informed this court that R2 would undertake to file a confirmatory affirmation within 21 days, and upon this undertaking which was accepted by W’s Senior Counsel Ms Eu, I gave leave for R2 to rely on the latest affirmations at the hearing.  

14.  At the end of the hearing, I concluded that there had still not been full compliance with the Discovery Order by R2.  My reasons are set out hereinafter.

Legal Principles

15.  The power to make an order for specific discovery can be found in Order 24 rule 7 of RHC, in that the court may at any time, on the application of any party to a cause or matter, make an order requiring any other party to make an affidavit stating whether any document specified or described in the application or any class of document so specified or described is, or has at any time been, in his possession, custody or power, and if not then in his possession, custody or power when he parted with it and what has become of it.

16.  The court also has power under Order 24 rule 12 to order any party to produce any document in his possession, custody or power relating to any matter in question in the cause or matter and the court may deal with the document when produced in such manner as it thinks fit.

17.  Further, under rule 77 (4) of the Matrimonial Causes Rules, the court has power to order any other party in an application for ancillary relief to give further information concerning any matter contained in any affidavit filed by or on behalf of that other party or any other relevant matter, or to furnish a list of relevant documents or to allow inspection of any such document. 

18.  As submitted by Mr Li, in relation to an application to dismiss an action on the ground of non-compliance with an order for specific discovery, this court must give the benefit of any doubt over the construction of the order to the party whose action it is sought to have dismissed[1].

19.  Mr Li had also referred this court to passages from various authorities that the making of the order would not preclude the party against whom the order was made from deposing in an affidavit that he in fact did not have the documents in his possession, custody or power, and that the affidavit would be conclusive at the interlocutory stage[2].

20.  As has been said, as a matter of legal principle, the general rule as to the conclusiveness of an affidavit given by a party under an order for discovery is not applicable where that the affidavit can be shown to be a lie or is illusory or wilfully defective, displaying no evidence of a conscientious effort to meet the party’s discovery obligations[3].

The Discovery Order

21.  Under the Discovery order, R2 was ordered to file an affirmation within 21 days, ie by 31 August 2012, to

(a) provide answers to questions in Schedule 1;

(b) state whether she has or had any time in her possession, custody or power the documents set out in Schedule 1;

(c) if those documents were no longer in her possession, custody or power, state when she parted with them and what became of them;

(d) if the documents in Schedule 1 were in the possession, custody and power of R2, R2 was to exhibit the same in her affirmation.

22.  In my Hadkinson Ruling, I concluded with the view that R2 was clearly in contempt of not having complied with providing the information required under Items 6, 8, 9 and 12 of the Schedule 1 of the Disclosure Order.

23.  The relevant items in Schedule 1 were:-

(i) Item 6 – in relation to assets/properties charged by AC Oversea (BVI), 5 Security Agreements;

(ii) Item 8 – in relation to 31 Cars, R2 was to provide (a) present value (b) the present whereabouts (c) if sold, the sale price and documents evidencing sale and (d) if still in R2’s possession, to provide title deeds;

(iii) Item 9 – in relation to 165 Timepieces, R2 was to provide (a) (b) (c) above, and (d) if still in R2’s possession, documents evidencing her possession;

(iv) Item 12 – in relation to the 3 Offshore Companies and MVI (Panama), and 13 Hong Kong companies, to provide (a) last 3 sets of audited and/or management accounts and unless provided (b) any power of attorney and (c) all board minutes/resolutions.

Item 6- 5 Security Agreements

24.  Item 6 was in relation to 5 Security Agreements entered into between AC Oversea (BVI), 4 of them with Morici Motor Sports LLC, as agent on behalf of YM New Car Company LLC, to charge various cars as security for loans, and the 5^th one was with YMW Company LLC, to charge various Valuable Timepieces and items as security for loans.

25.  R2 had relied on Seeger’s 4^th Affirmation and Seeger’s 5^th Affirmation in saying that she had complied with Item 6 of the Discovery Order.

26.  After the Discovery Order, Mr Seeger had sent a letter dated 4 October 2012 (“Seeger’s Letter”) to R2’s solicitors.  In Seeger’s Letter, he had referred to the Discharge for the Security Agreement for the Valuable Timepieces dated 31 October 2003 being filed on 5 August 2004, with specified date of discharge 12 April 2004.  However, the Discharge for the other Security Agreements was only filed by AC Oversea (BVI) on 12 October 2011, with specified date of discharge 15 October 2004.  He had referred to his firm’s “Records Retention Policy” of 5 years, and said he did not expect such old records to be retained/located.

27.  When Mr Seeger gave evidence at the trial, he was asked specifically whether he still retained copies of the Security Agreements. His answer was “I have--- I doubt it. They’re 2003 but perhaps”.

28.  In Seeger’s 3^rd Affirmation, he then stated that by year end 2012, it was confirmed by the archive companies to which he had directed enquiries that all documents were destroyed.  Further, in Seeger’s 4^th Affirmation Mr Seeger had said I was wrong in saying that the Security Agreements could be obtainable from OIL (BVI), the registered agents for AC Oversea (BVI), as OIL (BVI) never requested nor had he ever delivered to OIL copies of the Security Agreements. 

29.  Mr Seeger had further tried to explain by stating in Seeger’s 4^th Affidavit that:

“However, we discovered the omission on the recording of the discharge during a routine check of the BVI records for AC (BVI) in 2011. On the safe side, my firm then asked OIL to record the discharge as being effective October 15, 2004.”[4]

30.  What Mr Seeger seemed to be saying was that his firm suddenly in October 2011 discovered the omission and proceeded unilaterally to record with OIL (BVI) discharge of 4 of the Security Agreements as being effective 15 October 2004.  He had not produced any supporting evidence as to the discharge effective date, nor any confirmation from the chargees/lenders/secured parties in relation to the discharge.

31.  Anyway, the 5 Security Agreements were documents signed on behalf of AC Oversea (BVI) by some one.  As R2’s case was that she had all along been the sole ultimate beneficial owner of AC Oversea (BVI), these documents should be within her power to obtain, whether from the chargees/lenders/secured parties or other sources which would have title documents and the liens registered, such as warehouses where the cars were stored.  There was no evidence that R2, or Mr Seeger, had attempted to obtain copies of the Security Agreements from any other sources, other than the archive companies of Mr Seeger’s firm or OIL (BVI).

32.  I find R2’s affirmation and Mr Seeger’s 3^rd and 4^th Affidavits illusory and/or that they displayed no evidence of a conscientious effort on the part of R2 to comply with her discovery obligations.  In my view R2 had still not complied with Item 6.

Items 8 - Cars

33.  Under Item 8 of Schedule 1, 31 cars were listed.

34.  Under the Discovery Order, R2 was to “state and/or provide” in respect of those 31 cars :

(i) The present value ;

(ii) The present whereabouts;

(iii) If the asset is sold, the sale price and the documents evidencing sale;

(iv) And if still in her possession, then provide title deeds.

35.  “Present” in the Discovery Order would mean at about the time of the Discovery Order, namely around August 2012.

36.  According to Seeger’s 3^rd Affidavit, the cars under the Security Agreements were sold one or two years after the discharge in 2004 or 2005 and the records fell outside the scope of his firm’s Record Retention Policy of 5 years and were disposed of, and that he did make a search after trial for those records and confirmed that they were destroyed.

37.  Mr Seeger’s evidence during the trial was that “virtually all the cars were titled under AC Oversea (BVI)”[5]. If the discharge was on 15 October 2004, according to Mr Seeger, the sale would then be in about 2005 and 2006.  Mr Seeger said that as his firm’s records were destroyed, he had no reasonable means for determining which sales might have involved a dealer/agent and it would be “well-nigh impossible” for him to ascertain who may have been involved in these transactions that occurred almost 10 years ago now.

38.  The Discovery Order was in 2012, and the sales were the most only 6-7 years prior to the Discovery Order.  As the cars were titled under AC Oversea (BVI), there must have been change of title upon sale, or some evidence of such change of title upon sale, such as change of insurance policies, or documents relating to hand over of the cars which must have been stored somewhere, to indicate a change of ownership.

39.  According to Mr Seeger’s evidence during the trial, the sale proceeds were about US$25-26m, and that the proceeds were used to pay for outstanding instalments, insurance and storage for the cars, and there was net of about 40 % paid to R2 or as she directed, which could be to her trust accounts or other accounts.  In fact, the trust accounts, or some of them, were said to be managed by H. 

40.  All such documents evidencing sale must be within R2’s power to obtain, R2 said to be the sole beneficial owner of the company.

41.  There was no evidence that R2 had attempted to obtain such documents from any other source, other than from Mr Seeger or his firm. Again, in my view, R2’s Affirmation and Seeger’s 4^th Affirmation and 5^th Affirmation were illusory and/or displaying no evidence of a conscientious effort to meet R2’s discovery obligations.  Again, I am of the view that so far as Item 8 is concerned, R2 still had not complied with the Discovery Order.

Item 9- 165 Timepieces

42.  Under Item 9 of Schedule 1, 165 items of Valuable Timepieces were listed, and under the Discovery Order, similar to the cars, R2 was to state and/or provide:

(i) The present value ;

(ii) The present whereabouts;

(iii) If the asset is sold, the sale price and the documents evidencing sale;

(iv) And if still in her possession, then provide title deeds.

43.  The 165 Valuable Timepieces were subject to the Security Agreement which was discharged on 12 April 2004, and according to Mr Seeger, those items were then consigned to Christie’s under the Consignment Agreements and all sold.

44.  Firstly, I would point out that, under the relevant Security Agreement with YWM Company LLC, AC Oversea (BVI) was named as the sole borrower and the owner of those Timepieces.

45.  In paragraph 474 of the Main Judgment, I have stated that the  3 parties stated as “clients” on the Consignment Agreements with Christie’s were H personally, AC International and AC Oversea (Nominee).  There seemed to be a typing error, as AC Oversea (Nominee) was meant to be AC Oversea (BVI).

46.  In any event, the owners/clients of the Valuable Timepieces stated on the Consignment Agreements was not only AC Oversea (BVI).  There was also no evidence from R2 as to which items covered by the Consignment Agreements were the 165 Timepieces.

47.  In any event it was quite clear that even at the time of the trial, namely on 26 October 2012, there were still 9 items unsold[6]. It was not clear whether those 9 items were among the 165 items or not, and if they were, then not all 165 items had been sold at the time of the trial.  The whereabouts of the 9 items were unknown, and if sold, the sale price and the documents evidencing sale had not been produced.

48.  Even assuming all 165 items had indeed been sold through Christie’s under the Consignment Agreements, Christie’s must then have documents evidencing sale and sale prices. All such documents were within R2’s power to obtain from Christie’s, or if such information could be identified from documents already produced by Christie’s under the subpoena, then R2 should at least identify the 165 items thereon.

49.  In my view, R2’s Affirmation and Seeger’s 4^th and 5^th Affirmations were deficient and illusory and/or displaying no evidence of a conscientious effort to meet R2’s discovery obligations.  R2 had not yet complied with her obligations in full under the Item 9.

Item 12- companies’audited and/or management accounts etc

50.  Under Item 12, R2 was to “produce and provide”, in respect of 17 companies the following:

(i) Last 3 sets of audited and/or management accounts

(ii) Unless already provided for above, any power of attorney

(iii) Unless already provided above, all board minutes/resolutions

51.  In Lo’s Affirmation, she confirmed that she was told by R2 that there was no power of attorney, or board minutes/resolutions which had not been produced. 

52.  I am of the view that “last 3 sets” would mean the last 3 sets of audited and/or management accounts of those 17 companies which were available to R2 at the time of the Discovery Order.

53.  The new documents produced by Ms Lo were:

For ACE

(i) copies of the audited financial statements from 31/3/07 to 31/12/13;

(ii) copies of “trial balances and the detailed income statements” of ACE from 1/1/07 until 31/12/13.

For WS (HK)

(i) copies of the audited financial statements for WS (HK) from 31/12/06 to 31/12/13;

(ii) copies of “trial balances and the detailed income statements” of WS (HK) from 1/1/2007 until 31/12/2013.

54.  It seems in Lo’s 2^nd Affirmation, she also produced some “amended annual returns”, which were not ordered under the Discovery Order, and were in my view, new evidence.  Anyway, this would be a matter for the Court of Appeal to consider.

55.  Ms Eu’s submission was that R2 still had not complied with her obligations under Item 12 for ACE, in that R2 she should also produce copies of the audited accounts and/or management accounts for 2005, 2006 in respect of ACE, being 2 of the “last 3 sets” available at the time of the Discovery Order.  The reason for Ms Eu’s submission was Ms Lo’s own evidence at the trial that at that time ACE had filed audited accounts up to 2007.  Those financial statements now produced by Ms Lo, namely from 31 March 2008 onwards were all prepared after the trial and the Main Judgment. In fact, they seemed to be all signed on 1 August 2013.  

56.  In Lo’s 2^nd Affirmation filed last Friday, she said all pre 2010 audited reports of the companies had been produced.  It was clear from her own oral evidence during the trial and it was also clearly reflected from the audited accounts for the year ended 31 March 2007 for ACE that there had been audited accounts, at least, for the year ended 31 March 2006. What Ms Lo said now was contradictory to her previous evidence and the 2005 and 2006 accounts were clearly in the possession and custody of ACE and/or R2, or within R2’s power to obtain.

57.  As for WS (HK), again, it would seem all the audited accounts produced were signed on 1 August 2013, and there were clearly audited accounts for 31 December 2005, as reflected in those for the year ended 31 December 2006.  Again those available at the time of the Discovery Order still had not been produced and the 2005 accounts were in R2’s possession, custody or power to obtain.

58.  As for the other 15 companies, 4 were Off Shore companies, and Ms Lo said that there were no management or audited accounts as there was no government requirement to prepare the same.  As for the other 11 Hong Kong companies, Ms Lo had produced letters from Inland Revenue Department in relation to some of the companies that they were not required to submit annual profits tax returns (“Exemption Letters”). There were no Exemption Letters produced in respect of 4 of the 11 Hong Kong companies.  Even for those which had, it was stated in the Exemption Letters that even though the company was not required to submit annual profits tax return, the company was still required to keep sufficient records of its income and expenditure to enable the assessable profits of its trade of business to be readily ascertained, and that such records must be kept for at least 7 years after the completion of the transaction, and further the exemption did not absolve the company from complying with any obligation imposed by the Companies Ordinance or other statutory requirement to prepare audited accounts annually.

59.  Apart from ACE and WS (HK), no other documents had been produced in respect of the other 11 Hong Kong companies, whether audited financial statements or trial balances or detailed income statements, or management accounts.  Some of these companies, had held assets, like ACE and WS (HK), as reflected in the Main Judgement, eg AC Ltd was  the registered owner of a 1981 Rolls Royce as at 20 April 2010, and AC International was one of the clients named on the Consignment Agreements of Christie’s.  Nothing had been produced.

60.  In the above circumstances, R2’s Affirmation, Lo’s 1^st and 2^nd Affirmations again were illusory and/or displayed no evidence of a conscientious effort to meet R2’s obligations under the Discovery Order.  R2 still had not complied with Item 12 in full.

Conclusion

61.  The above were my reasons for coming to the conclusion that R2 had still not complied with the Discovery Order in full in respect of items 6, 8, 9 and 12.

62.  Costs will be costs in the cause of W’s Summons, with certificate for two Counsels.

63.  Lastly, I thank all Counsel for their assistance to the court.