WILLIAM JOHN LAU v. WAN YUK LIN ALISON AND OTHERS

HCCW 576/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 576 OF 2007

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D E C I S I O N

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1.  I have before me two summonses issued on 17 November 2008 by the 1^st and 3^rd respondents that the interrogatories served by the petitioner on each of them dated 7 November 2008 be withdrawn.  The respondents also seek an order that the petitioner shall not serve further interrogatories without leave of the court.  The interrogatories sought to be administered are in a petition presented under sections 168A and 177(1)(f) of the Companies Ordinance, Cap. 32.  The subject company, Skydon Development Limited (“the Company”), has been engaged in the business activity of a record search provider.  The petition, which was presented on 28 December 2007, was amended in July 2008.

2.  The summonses first came before the court on 28 November 2008.  I ordered the petitioner to inform the respondents within 7 days which of the affirmations filed would be relied on in opposition to the respondents’ summonses, identifying the relevant parts of the affirmations and the relevant exhibits.

3.  In purported compliance with that order, the petitioner’s solicitors sent a letter to the respondents’ solicitors dated 5 December 2008 enclosing two annexes marked A and B running into seventeen pages.  These annexes do not merely identify relevant parts of affirmations and the exhibits relied on by the petitioner to oppose the respondents’ application.  They contain detailed interrogatories, which purported to correspond to the interrogatories served earlier on 7 November 2008, but most of the interrogatories are quite different from the earlier ones.  This is highly unsatisfactory.

4.  I understand from the petitioner’s counsel that in this hearing, he intends to ask the court for an order that the respondents should answer both sets of interrogatories served on 7 November 2008 and 5 December 2008.

5.  The interrogatories served on 5 December 2008 cannot be regarded as the same as the interrogatories served on 7 November 2008.  I have to treat them as separate interrogatories.  Under Order 26 rule 3(1) of the Rules of the High Court, interrogatories without order may be served on a party not more than twice, so the second sets of interrogatories could be served on the respondents without leave.  The respondents have not issued an additional summons for the second sets of interrogatories to be withdrawn, within 14 days of 5 December 2008 as required under Order 26 rule 3(2), or at all.

6.  As I understand from the respondents’ solicitor that the respondents are opposing the second sets of interrogatories, in the interests of saving time and costs, it is appropriate I should deal with the second sets of interrogatories in this hearing as well, so that there should be no further delay for the petition to be brought to trial.  I have on 22 September 2008 given leave to set down the petition for trial.  The first sets of interrogatories were served six weeks after that order was made.

7.  Accordingly, I have allowed the respondents to make an application in this hearing out of time that the second sets of interrogatories served on them on 5 December 2008 be withdrawn, upon the undertaking of their solicitors to file and serve a summons for this purpose within three days hereof.

8.  The legal principles upon which interrogatories are allowed are well established.  They are set out in the Hong Kong Civil Procedure 2009, vol. 1, paras.  26/4/5 to 26/4/15.  The petitioner’s counsel, Mr Yip, has also referred me to the helpful guidance given by Colman J in Det Danske Hedeselskabet v KDM International Plc [1994] 2 Lloyd’s Rep. 534 at 537.  I have a discretion to exercise.  Interrogatories will be allowed if I am satisfied they are necessary for disposing fairly of the cause or matter or for saving costs.

9.  I turn to the two sets of interrogatories against the 1^st respondent served in November and December 2008.  It would be convenient to consider together each of the six numbered interrogatories in the first set of interrogatories with the corresponding interrogatory in the second set.  For ease of reference, I will refer to the first interrogatory in the first set and the corresponding interrogatory in the second set as Interrogatory 1, and so on.

10.  Interrogatory 1 relates to the search fees paid to the Companies Registry against the general overheads of the Company.  By a validation order made on 30 May 2008, the petitioner was allowed to incur monthly expenses with a maximum of $50,000 per month for search fees.  Among other things, the petitioner wants to know the breakdown of the search fees paid from January to October 2008, the revenue generated by the search fees, and whether the revenue was sufficient to cover the general overheads.  It was said that such information is required to show that the Company is operating in “solvent status”.  In Mr Yip’s submission, he stated the information is required otherwise the petitioner would have no basis to ascertain the truth in the cross-examination of the 1^st respondent.

11.  I decline to allow Interrogatory 1.  It is not the petitioner’s contention in the amended petition the Company was insolvent.  On the contrary, a major complaint of the petitioner is that the Company has ceased to pay dividends to him since September 2003 even though it has been operating at a profit each year.  If it should be relevant to consider the financial position of the Company after the petition was presented in December 2007, for instance in determining the appropriate relief that should be granted on the petition, assuming that the petitioner should succeed in establishing a case for relief, the Company could be ordered to provide the up-to-date financial statements, instead of going through the laborious exercise of answering over ninety questions sought to be administered in Interrogatory 1.  The proposition would only have to be stated to be rejected.

12.  Interrogatory 2 seeks information on the expenses incurred by the Company in conducting searches in the Land Registry for its clients.  I fail to see the relevance of this to any of the issues raised in the amended petition.  Interrogatory 2 is disallowed.

13.  Interrogatory 3 relates to the loans made by the Company to the 1^st respondent as stated in the financial statements ended March 2007, and in the management accounts for December 2007.  In the amended petition, it is alleged in paragraph 60 that without the knowledge or approval of thepetitioner, the maximum amount due from the 1^st respondent in her capacity as a director reached $1.4 million odd for the year 2005, whereas the Company’s profit for the same year was $588,088, and that she has continued to dip into the Company’s funds incessantly right up to the presentation of the petition, and the extent of the embezzlement is unknown to date.  The 1^st respondent did not answer this allegation in her 8^th affirmation, which was meant to be a comprehensive reply to all the allegations raised in the amended petition. It was submitted by Mr Yip there is a need to identify the loans and to ascertain the identity of the persons who authorized the granting of the loans.

14.  The issue covered in Interrogatory 3 is one of the complaints made against the 1^st respondent in the petition.  It is a relevant issue.  The respondents’ solicitor, Mr Hart, submitted this interrogatory could be the subject of request for specific discovery and could be covered in the cross-examination of the 1^st respondent.  There is no offer on the 1^st respondent’s part to disclose any document relevant to the loans.  As for ascertaining the information sought by cross-examining the 1^st respondent at the trial, I consider it appropriatethe petitioner should have some of the information sought in this respect so he could prepare for his case properly.  So I will allow some of the questions in Interrogatory 3 but not all of the questions.  In my view, it should be adequate for the 1^strespondent to answer the questions in respect of Interrogatory 3 in the first set of interrogatories served in November 2008, save for the question in the last sentence of that paragraph which was based on the supposition that there were no approvals and agreements made for the loans to the 1^st respondent.  I would disallow all the questions in Interrogatory 3 in the second set of interrogatories served in December 2008.  I think it appropriate for further questions regarding the making of the loans and any repayment of the loans to be taken up in cross-examination at the trial.

15.  Interrogatory 4 is in respect of a loan of the Company to Green Tomato Limited in August 2003 of $360,000, which was repaid within three days.  This is a complaint in paragraph 60 of the amended petition.  It was alleged that funds of the Company were drained dry by the 1^st respondent in support of Green Tomato Limited without the knowledge or approval of the petitioner, and one such instance was the loan of $360,000 whilst the Company’s profit for 2003 was $389,285.  In the 1^st respondent’s 8^th affirmation, she exhibited documents to show that the transaction was a short-term loan and alleged that the loan was co-approved by the petitioner and the petitioner had co-signed the cheque.  In the petitioner’s reply in his 5^th affidavit, he explained that his signature on the cheque was due to the fact that he used to leave signed blank cheques with the 3^rd respondent at that time.

16.  I decline to allow Interrogatory 4, given the evidence adduced in the affirmations on both sides and the documents already exhibited.  Any further questions regarding the making of the loan and the repayment of the loan should be taken up in cross-examination at the trial.

17.  Interrogatory 5 has to do with fifty-four calls made to a telephone number in Thailand, being information disclosed in the monthly expenses report for October 2008 served by the 1^st respondent on the petitioner in compliance with the validation order made on 30 May 2008.  I decline to allow Interrogatory 5.  It does not relate to any issue in the amended petition.

18.  Interrogatory 6 relates to an allegation in the 1^st respondent’s 8^th affirmation, that the petitioner’s refusal to sign the audited accounts of 2004 of the Company’s subsidiary, Credit On Demand Limited (“COD”), resulted in COD being assessed by the Inland Revenue Department and caused COD to have to allocate extra resources to pay profits tax for the financial year in2005.  It is the petitioner’s case that this allegation is untrue, and he has answered this in detail in his 5^th affidavit.  Mr Yip submitted the questions in this interrogatory would assist the court to assess the credibility of the 1^st respondent.  I decline to allow Interrogatory 6.  The matters covered are of marginal relevance.  They can be tested in cross-examination of the 1^st respondent at the trial.

19.  Except for some of the questions in Interrogatory 3, all the interrogatories against the 1^st respondent are disallowed.

20.  I turn to consider the two sets of interrogatories served on the 3^rd respondent in November and December 2008.  I will refer to the first interrogatory in the first set and the corresponding interrogatory in the second set as Interrogatory 1, and so on.

21.  Interrogatory 1 relates to cheques the numbers of which were not in the sequence of the cheques drawn by the Company.  I decline to allow this interrogatory, which does not relate to any issue in the amended petition.  Besides, the respondents’ solicitor has offered in this hearing to produce the cheque stubs.

22.  Interrogatory 2 is concerned with payments made in respect of search reports in the PRC and in Macau.  This is disallowed for the same reason as Interrogatory 1.

23.  Interrogatory 3 relates to the loan to Green Tomato Limited of $360,000 in August 2003.  I disallow this interrogatory as well, for the reason given in disallowing Interrogatory 4 served against the 1^st respondent.

24.  Interrogatory 4 is in respect of the Company’s loans to the 1^st respondent, which corresponds to Interrogatory 3 served on the 1^st respondent.  Idisallow this as I regard the questions I have allowed in Interrogatory 3 served on the 1^st respondent ought to be sufficient to give the petitioner information to prepare his case properly for the trial.

25.  Interrogatory 5 relates to an allegation in the 1^st respondent’s 8^th affirmation that the petitioner has claimed each and every single dollar of his share of the entertainment fees from COD totalling $121,582 between 2000 and 2003.  I decline to allow this, which is of peripheral significance in this dispute.  Furthermore, how the petitioner was reimbursed for his share of the entertainment fees from COD is a matter within his knowledge.

26.  Finally, Mr Yip submitted that the 3^rd respondent, who was responsible for looking after the accounts of the Company, has not made any affirmation in these proceedings.  It is not known if she would testify at the trial and it is necessary to serve interrogatories onher.  In my view, that is not a legitimate purpose for serving interrogatories.

27.  I disallow all the interrogatories served on the 3^rd respondent.

28.  Regarding the summons in respect of the interrogatories served on the 1^st respondent, I make an order as follows:

(1) the petitioner’s interrogatories dated 7 November 2008 filed and served on the 1^st respondent be withdrawn, save for the interrogatory numbered 3 up to the penultimate sentence in that interrogatory and that the 1^st respondent be ordered to answer the same within 21 days hereof;

(2) the petitioner’s interrogatories dated 5 December 2008 served on the 1^st respondent be withdrawn;

(3) the petitioner shall not serve further interrogatories without leave of the court.

29.  For the summons relating to the interrogatories served on the 3^rd respondent, I order as follows:

(1) the petitioner’s interrogatories dated 7 November 2008 and dated 5 December 2008 served on the 3^rd respondent be withdrawn;

(2) the petitioner shall not serve further interrogatories without leave of the court.

30.  Mr Hart seeks an order that the costs of the applications be paid by the petitioner to the 1^st and 3^rd respondents forthwith.  He pointed out that the interrogatories were served only after leave to set down the petition for hearing had been given.  This resulted in delay of the trial of the petition and added trouble and expense to the respondents.  He submitted that the petitioner’s conduct was close to an abuse of process, and relied on another instance when the petitioner had failed to pay the costs ordered against him.  He seeks an order for costs forthwith in view of the unsatisfactory way in which the petitioner has conducted himself in litigation.

31.  Mr Yip’s position is that the court should order costs in these applications to be in the cause of the amended petition.  Alternatively, the court should order the 1^st respondent to pay 1/6 of the petitioner’s costs in this application as the 1^st respondent has not been wholly successful and some of the questions in Interrogatory 3 are allowed.

32.  In my view, Mr Yip’s proposed orders are not realistic.

33.  I have found most of the interrogatories to be unjustified.  I do not see why the respondents should be put to the trouble and expense of responding to them.

34.  The respondents are by and large successful in their application to have the interrogatories withdrawn.  They should be paid their costs by the petitioner, not the other way round.

35.  To reflect the fact that the respondents have not been entirely successful, I would deprive the respondents of part of their costs.  Using a broad brush approach, I order the petitioner to pay the 1^st and 3^rd respondents 7/8 of their costs in this application.

36.  I have considered awarding costs forthwith, but decided against this in the end.  It is hoped that the petitioner will take heed of this and desist from bringing further interlocutory applications that are pointless and concentrate his efforts in bringing the petition to trial.

37.  The costs order I make is that the petitioner is to pay 7/8 of the costs of the 1^st and 3^rd respondents in these summonses in any event.