CHAN WAI MAN v. GAN TIAN

DCCJ 2841/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2841 OF 2014

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DECISION

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Introduction

1.  This is the plaintiff’s application by summons filed on 17 June 2016 (“Summons”) for an order under section 21 of the Evidence Ordinance (Cap 8) (“EO”) enabling him to inspect and take copies of the statements of an account held by Mr Tse Yeung Ming (“Tse”), a non-party, with China Citic Bank International Limited (“Bank”) for the period 6 March 2013 to 4 August 2013 (“Bank Statements”).

2.  Before the Summons was taken out, the plaintiff’s solicitors had tried to obtain the defendant’s consent to the order sought in this application.  The reply from the defendant’s former solicitors was that the defendant would not take any stance or object to it.  At the hearing, the defendant (who subsequently became unrepresented) expressly confirmed that he remained neutral to the application.

3.  The Summons was not served on the Bank initially.  After the issue of service on the Bank was raised by this court at the call-over hearing, the relevant papers were then served.  The Bank’s reply was that it had no comment on the application, and would be prepared to comply with a valid court order.

4.  As to Tse, the plaintiff had requested him to supply the Bank Statements by writing to the address given in Tse’s own signed witness statement before taking out the Summons.  That letter was returned undelivered.  The plaintiff then asked the defendant’s former solicitors for Tse’s updated address but was told that the defendant was unable to supply it.  The plaintiff also tried asking the Bank to help pass onto Tse the relevant documents for this application, but the Bank was unable to assist.

5.  Given that notice of an application of this nature should normally be given to the relevant account holder (see Arnott v Hayes (1887) ChD 731 per Cotton LJ at 736 and Chan Wai Sun & Anr v Law Shiu Kai [2003] 3 HKLRD 954 per Chu J (as she then was) at 958J), I asked the defendant at the hearing whether he had notified Tse about the present application.  The defendant informed me that he had told Tse twice about the application since mid-2016, but Tse only indicated that he wanted to think about it.  When I asked the defendant whether Tse had raised any objection to this application, the defendant said Tse had not.

6.  In light of the above circumstances, I was satisfied that both the Bank and Tse have been given sufficient notice of the present application, and that it was appropriate for this court to proceed with the hearing notwithstanding their absence.

Factual background

7.  The plaintiff, the defendant and Tse are former colleagues in a Hong Kong company called Darton Party Favor Limited (“Darton”).  Darton’s main area of business was in the trading of party favour products.  These products are essentially small gifts given by party hosts to guests as a gesture of thanks.

8.  In early 2013, the plaintiff, the defendant and Tse discussed and agreed to set up a new business selling party favour products.  According to the defendant, they did so because Darton was about to cease its own business, and some of Darton’s staff members wanted to continue engaging in that line of business.

9.  The new business was held by a Hong Kong company called DPF Party Favor Limited (“DPF”), which was incorporated on 11 March 2013.  It appears undisputed that the defendant was, at least initially, the sole director and member of DPF and that the plaintiff and Tse were the “behind the scene” investors at that stage.

10.  As DPF was newly set up, it did not have a corporate bank account initially.  Accordingly, the plaintiff deposited 5 sums totaling HK$290,000 (“Sums”) to a bank account held in the name of the defendant with the Bank (“Defendant’s Account”) as investment sums for the purpose of DPF’s operations. The particulars of those deposits are as follows:-

	Date	Amount (HK$)
	20 March 2013	138,000
	26 March 2013	19,000
	28 March 2013	58,000
	8 April 2013	57,000
	11 April 2013	18,000
		290,000 =======

11.  The plaintiff’s pleaded case is straightforward.  He contends that the defendant has failed and/or refused to apply the Sums as his investment in the new party favour products business (ie DPF).  On that basis, the plaintiff claims payment of the sum of HK$290,000 as “money had and received by the Defendant to the use of the Plaintiff”[1] together with interest thereon.

12.  At the hearing, I asked Mr Alvin Tsang, counsel appearing for the plaintiff, whether the plaintiff’s claim was limited to a personal claim in unjust enrichment, and that the plaintiff was not seeking to trace the Sums and assert any proprietary claim.  I asked that question because there are repeated references to “trace”, “tracing” or “investigating the whereabouts of” the Sums in the plaintiff’s 2^nd and 3^rd Affirmations.  Mr Tsang confirmed that to be the case, and clarified that the plaintiff would rely on “mistake” and “total failure of consideration” as unjust factors.

13.  The defendant does not dispute that he had received the Sums.  However, the defendant’s pleaded defence[2], insofar as material, is that:-

(a) In or around late February 2013, the plaintiff, the defendant and Tse agreed to establish DPF in trading party favour products;

(b) The plaintiff and Tse agreed not to be named as a director of DPF due to their respective affiliation with another general trading company;

(c) The plaintiff, the defendant and Tse agreed that the defendant and Tse would manage DPF’s affairs during its first year of incorporation, with the plaintiff agreeing to reconsider modifying the company’s structure a year later, ie in or around March 2014;

(d) Since DPF had not opened a bank account before 28 March 2013, upon Tse’s request, the plaintiff paid the Sums into the Defendant’s Account for the time being, representing “the plaintiff’s investment capital used for the purpose of furnishing general business expenses of DPF, including but not limited to staff salaries, operating lease rentals, equipment and preliminary expenses incurred in the initial formation of DPF”[3];

(e) Most of the Sums were used towards the initial setting up cost of DPF. As such, there was no entry of the Sums in DPF’s corporate bank account;

(f) On 15 and 30 August 2013, the plaintiff deposited a further sum of HK$80,000 to DPF’s corporate bank account (“Further Sum”).  The plaintiff knew that the Sums and the Further Sum were used for the purposes of DPF’s general expenses; and

(g) Because DPF had made a loss in the fiscal year of 2013, the Sums and the Further Sum, representing the plaintiff’s investment capital, are not returnable, and hence the plaintiff’s claim has no basis.

14.  It therefore seems to me that the main issues for trial are:- (i) whether the Sums were used for DPF’s purposes, (ii) whether the defendant was unjustly enriched at the plaintiff’s expense, and (iii) whether the defendant has any valid defence, such as a bona fide change of position.

Background to the present application

15.  After the close of pleadings, the defendant disclosed bank statements for the Defendant’s Account for the months of March and April 2013.  The statements show that, in those 2 months, there were total deposits of HK$290,000 into that account and total withdrawals of HK$290,100 from it.  In particular, there were:-

(a) Six withdrawals in the total sum of HK$214,900, described on the statements as “i-banking Transfer W/D”; and

(b) One withdrawal of HK$20,000 described as “Transfer Withdrawal”.

16.  Pursuant to an order of this court, the plaintiff further obtained from the Bank records showing the destinations of the 6 transfers totaling HK$214,900.  Those records show that the 6 transfers were all paid to an account held by Tse with the Bank with account number 716-205795000 (“Tse’s Account”).  

17.  In December 2015, the plaintiff’s solicitors pressed the defendant for details and explanations in relation to (i) the transfers totaling HK$234,900 (ie HK$214,900 + HK$20,000); and (ii) the Sums.  The defendant’s former solicitors replied explaining that:-

(a) Tse did not deposit any part of the total sum of HK$234,900 into DPF’s bank account.  That sum had been used to pay for DPF’s expenses; and

(b) The defendant gave the entirety of the Sums (which included the sum of HK$234,900) to Tse who then applied the same towards DPF’s expenses.

18.  In relation to DPF’s expenses aforesaid, the defendant also disclosed various copy invoices and receipts back in December 2014 (“Invoices and Receipts”).   Those Invoices and Receipts are described in the defendant’s Affirmation in the following way:-

“… all the relevant invoices and receipts for stating the use of the sum of HK$290,000, which was shown on the Director’s report and accounts of DPF Party Favor Limited from 11 March 2013 to 31 December 2013 about the expenses incurred in the initial formation and setting up of DPF Party Favor Limited.”

19.  As will be further elaborated below, the crux of the plaintiff’s contention is that the Invoices and Receipts, and other cheques drawn on DPF’s account (“Cheques”), reveal a number of suspicious inconsistencies.  Thus, the plaintiff says, the Bank Statements would likely contain evidence that could be used against the defendant, and to strengthen the plaintiff’s case that the Sums were not used for DPF’s purposes.

20.  Before examining the plaintiff’s contentions, I shall first set out the applicable law.

Applicable legal principles

21.  Section 21 of the EO provides that:-

“(1) On the application of any party to any proceedings, the court or a judge may order that such party be at liberty to inspect and take copies of any entries in a banker’s record for any of the purposes of such proceedings.

(2) An order under this section may be made either with or without summoning the bank or any other party, and shall be served on the bank 3 clear days before the same is to be obeyed, unless the court or judge otherwise directs.

(3) The costs of any application to the court or judge under or for the purposes of this section, and the costs of anything done or to be done under an order of the court or judge made under or for the purposes of this section, shall be in the discretion of the court or judge, who may order the same or any part thereof to be paid to any party by the bank, where the same have been occasioned by default or delay on the part of the bank.

(4) Any such order against a bank may be enforced as if the bank were a party to the proceeding.”

22.  Under section 2 of the EO, “banker’s record” is defined as including:-

“(a) any document or record used in the ordinary business of a bank; and

(b) any record so used which is kept otherwise than in a legible form and is capable of being reproduced in a legible form.”

23.  The provisions under sections 20 and 21 of the EO are based on sections 3 to 8 of the Bankers’ Books Evidence Act 1879 (“BBEA”) of the United Kingdom, with section 21(1) and (2) of the EO corresponding to section 7 of the BBEA.  The principal object of the BBEA was to alleviate the inconvenience and hardship to banks in having to attend and bring to the court the originals of bank ledgers and books under a subpoena duces tecum at trial, which has been described as “an intolerable inconvenience to bankers when the books were in daily use” (see Pollock v Garle [1898] 1 Ch 1 per Lindley MR at 4).   This was partly achieved by sections 3 to 6 of the BBEA and section 20 of the EO, which render copy entries of a banker’s book to be admissible provided certain conditions are met.

24.  Insofar as the section 7 of the BBEA and section 21(1) and (2) of the EO are concerned, they are not to do with admissibility of evidence as such, but lay down a procedure to enable litigants to inspect and copy bank records, before trial, for the purposes of proceedings.  It is pertinent to note that those provisions do not create any new power of discovery, and the normal rules governing discovery of documents still apply.  As explained in Halsbury’s Laws of England (5^th ed) Vol. 48 (at §230):-

“They enable a party, who formerly had the right to issue a subpoena duces tecum to compel bankers to produce their books and to attend and be examined on them, to obtain an order for leave to inspect and take copies of the books. They do not give any new power of disclosure, or alter the principles of law or the practice with regard to disclosure, or take away any previously existing ground of privilege. Nor do they enable a party to obtain disclosure, before the trial, of entries which would be privileged or protected from production, or which are, or are sworn to be irrelevant, or which are sworn to tend to incriminate, or which are not subject of disclosure apart from the Bankers’ Books Evidence Act 1879 ...”

25.  On the modern role of section 21 of the EO in Hong Kong, Charles Hollander QC made the following comment in the learned text Documentary Evidence in Hong Kong (at §5-043):-

“The provisions relating to Bankers Records in the EO s20 and s21 avoid putting the bank to the trouble of bringing its manual records to court when they could be proved more easily. However, the rules as to proof and secondary evidence have become less strict in more recent times, so these provisions are less important nowadays. There are now other procedures which have proved more expeditious: Bankers Trust orders in cases of urgency against banks, and now third party disclosure orders.”

26.  The court’s power of ordering inspection of bank records under section 21(1) of the EO is discretionary.  The authorities show that such power should be exercised in accordance with the following principles:-

(a) It gives no new power of discovery.  It is simply a section applicable to banks and should be applied in accordance with the normal rules for discovery;

(b) There has to be strong groundsfor suspicion, almost amounting to certainty,that there are items in the account which would be material evidence upon the matters in issue.  In short, the test is one of relevance;

(c) The power does not permit a litigant to embark upon a wholesale search in the hope of turning up something to his advantage.  It should not be used as a fishing expedition beyond the usual rules of discovery;

(d) The power has to be exercised with great caution, particularly where the account to be inspected is that of a non-party.  Where the account is held by a non-party, the court has to be satisfied that in truth the account is really that of the party to the proceedings, or that the party is so closely connected with the account that items in it would be evidence against him; and

(e) Sufficiently strong grounds can provide the need for tracing monies simply arising from fault or misappropriation from breach of trust.  But even in such cases, it is not open to the Court to make any order necessary to ensure justice.

See: ITP Systems NV v Reichenbach & Anr [1985] 2 HKC 148 per DHCJ Eddis QC at 156B-G; South Staffordshire Tramways Company v Ebbsmith [1895] 2 QB 669 per Lord Esher MR at 674-675; Chan Wai Sun (supra) per Chu J (as she then was) at 957J-958B; and Assets Investments PT Ltd v The United Islamic Investments Foundation & Ors (unreported) HCA 4392/1993; 21 January 1994per Barnett J at pp.5-6.

27.  The power under section 21(1) may also be exercised in the very early interlocutory stages of an action, eg where a plaintiff seeks an urgent Mareva injunction or a preservation order.  It has been held that, in that specific context, such order should only be made where there is a real prospect that the information contained in the bank account may lead to the location or preservation of assets to which the plaintiff is making a proprietary claim (see CTO (HK) Ltd v Li Man Chiu & Ors [2002] 2 HKLRD 875 per DHCJ Poon (as he then was) at 878F-879E; Wharf Ltd v Lau Yuen How & Ors (No 2) [2009] 1 HKC 479 per Poon J (as he then was) at 482G-483G and Pacific King Shipping Holdings Pte Ltd (in liq) v Huang Ziqiang [2015] 2 HKC 68 per Poon J at 77H-79I).

28.  That said, such limit does not apply in the ordinary discovery context against banks for records in relation to its account holders (which is, in substance, a form of discovery against non-parties), where the main determining factor is one of relevance.  Indeed, the courts have had no difficulty in making orders under section 21 of the EO even where the plaintiff did not assert a proprietary claim (see, eg Chan Wai Sun (supra) and Chung Oi Sim v Apleichau Maxicab Service Co, Ltd & Ors (unreported) HCMP 3017/2003; 11 November 2015; Kwan J (as she then was)).  This is consistent with the fact that section 21 gives no new power of discovery, and that the section was enacted for the purpose of enabling and facilitating the pre-trial disclosure of bankers’ records.

29.  With these principles in mind, I now turn to the parties’ submissions.

Analysis

30.  In seeking to demonstrate why the Bank Statements are relevant, Mr Tsang relied on an inconsistency between the defendant’s case on how the Sums were handled upon receipt, and what was shown on the Invoices and Receipts and the Cheques.  His argument ran as follows[4]:-

(a) The defendant’s case is that the Sums were not paid into DPF’s corporate bank account, and that they were used by Tse in DPF’s setting up expenses;

(b) On the other hand, the Invoices and Receipts show that a total of HK$176,317.53 was paid from DPF’s bank account in the period 15 April 2013 to 31 May 2013 for the purpose of DPF’s setting up expenses; 

(c) This means (i) a substantial portion of DPF’s setting up expenses were paid by way of cheques drawn on DPF’s corporate bank account but not by way of payments from Tse as the defendant alleges, and (ii) a substantial portion of the Sums were not used towards DPF’s setting up expenses as the defendant alleges; and

(d) This inconsistency shows that the defence that the Sums were used for DPF’s purposes is “incredible and unbelievable”.  Disclosure of the Bank Statements is very likely to produce evidence that can be used against the defendant, and to strengthen the plaintiff’s case.

31.  On the other hand, in his two sets of written submissions, the defendant raised a number of points arguing the lack of merits of the plaintiff’s substantive claim.  Given that those points do not concern the present application, it is neither necessary nor appropriate for me to go into them. They are matters for trial. 

32.  The defendant’s only point touching upon this application is his submission that an inspection of Tse’s Account amounts to breach of Tse’s privacy, and would cause serious detriment to Tse’s reputation.  With the defendant’s express indication of neutrality in respect of this application, and that breach of privacy is not normally a bar to court-ordered discovery (which is subject to usual procedural safeguards such as an implied undertaking as to use), I shall say no more on that submission.

33.  On the materials before me, I agree with Mr Tsang to the extent that, prima facie, there does seem to be an inconsistency between the defendant’s case that there was “no entry of the sum of HK$290,000 into DPF’s corporate [bank] account”[5], and bank records showing that initial expenses of HK$176,317.53 (which, as noted in paragraph 18 above, came from the Sums) was paid by the Cheques during the company’s initial setting up period of 15 April 2013 to 31 May 2013. 

34.  There is also, in my view, another prima facie inconsistency. According to the defendant’s former solicitors in their letter dated 6 January 2016, the defendant “had paid the whole of the said sum of HK$290,000 in cash” to Tse.  However, the statements of the Defendant’s Account show that up to HK$234,900 out the Sums paid by the plaintiff were in fact transferred to Tse by way of bank transfers.  Furthermore, it is noteworthy that four of these transfers to Tse totaling HK$164,900 were made in the period 2 April 2013 to 15 April 2013 when, on the defendant’s own case, DPF’s had already opened its own bank account.

35.  In light of these inconsistencies, it seems to me that it is probable that the bank statements of Tse’s Account would shed light on what happened to the substantial portion of the Sums (up to HK$234,000) that were transferred to it and how such monies were applied. 

36.  Given that the threshold test of relevance under Peruvian Guano[6] is not a high one, I am therefore satisfied that statements of Tse’s Account are relevant to the defendant’s core defence that the Sums were used to pay for DPF’s setting up cost and expenses.  On the present facts, I am also satisfied that there is a sufficiently close connection between the defendant and Tse (who was involved both at the material time and in the present action as a defence witness) so as to justify an inspection order in relation to Tse’s Account even though he is a non-party.

37.  In so concluding, I should not be taken to have accepted that the prima facie inconsistencies identified above necessarily cast doubt on the defendant’s substantive defence.  There may well be explanations for these, and the defendant will be at liberty to address them in support of his defence in due course.  This is not something I need to resolve today.  To avoid doubt, I am unable to accept Mr Tsang’s suggestion that the inconsistency he identified, by itself, necessarily shows that the defence regarding the actual use of the Sums is “incredible and unbelievable”.

38.  The statements of Tse’s Account sought by the plaintiff cover the period from 6 March 2013 to 4 August 2013, the two dates being respectively the earliest and latest dates as stated on the Invoices and Receipts.  In view of the defendant’s own evidence that the expenditure shown on the Invoices and Receipts did come from the Sums, I am accordingly satisfied that the plaintiff should be permitted to inspect and take copies of Tse’s bank statements for that entire period.

Disposition

39.  For all the above reasons, I consider it appropriate to make an order enabling the plaintiff to inspect the Bank Statements under section 21 of the EO.

40.  As a condition of making the order, I would require the plaintiff to undertake only to use the documents obtained for the purposes of this action but not for other purposes, which I hope would alleviate the defendant’s concerns to an extent.  Strictly speaking, this is not necessary as such an undertaking has been held to be implied in relation to such orders (see Bhimji v Chatwani (No 2) [1992] 1 WLR 1158 per Knox J at 1163D-1164H).  That said, Mr Tsang confirmed at the hearing that the plaintiff was prepared to give such an express undertaking.

41.  I therefore make the following order:-

(1) The plaintiff be at liberty to inspect and take copies of bank statement(s) of an account held in the name of Tse Yeung Ming with China CITIC Bank International Limited (account no: 716-205795000) covering the period from 6 March 2013 to 4 August 2013 (both days inclusive);

(2) The plaintiff do bear and pay the reasonable photocopying cost incurred by CITIC Bank International Limited in supplying copies of the bank statements under paragraph (1) above, if any;

(3) There be liberty to apply; and

(4) The costs of this application, including such cost paid by the plaintiff to CITIC Bank International Limited under paragraph (2) above and all costs reserved, if any, be in the cause of this action.

42.  I have written this decision in English since all the court documents filed in this application are in English.  It also appeared from the hearing that the defendant could understand English.  Having said that, if the defendant considers it necessary, he may contact my court clerk to arrange oral interpretation of this decision to him.

43.  I thank both Mr Tsang and the defendant for their assistance.